<PAGE>
[ARTWORK]
------------------------------
FIRST
------------------------------
Quarter
Report
March 31, 2000
------------------------------
STRATTON
MUTUAL FUNDS
------------------------------
Stability . Strategy . Success
<PAGE>
DEAR FELLOW SHAREHOLDER:
For nearly two years from March 31, 1998 to March 10, 2000, the stock market
was dominated by Technology stocks. Less than 25% of the S&P 500 companies
outperformed the Index over this time and the majority of the outperformers
were Technology stocks. 334 of the S&P 500 companies posted negative price
returns over this time period despite the fact that the S&P 500 Index advanced
over 26%. The bulk of corporate America slid backward, while greater intensity
was focused on Technology stocks especially in the Internet and Biotechnology
sectors.
The world changed on March 10th. Since then, the performance of the stock
market has been a mirror image of the past two years. During the last six weeks
the broad leadership of 375 S&P 500 companies has outperformed the Index. At
the same time, 90% of the technology companies in the S&P 500 underperformed
the Index by a wide margin. We believe that March 10th was the inflection point
of the focus on technology. It was the time when NASDAQ stocks reached a peak
in valuation and bank stocks sold at 9 times earnings.
For a value manager it has been an extraordinarily long time waiting for the
change in emphasis within the stock market. We have seen corporate America
identified as "the old economy" and relegated to the sidelines. The media has
focused on the "new economy and the new metrics" which is an attempt to justify
outrageous price/earning ratio or outrageous valuations for companies that have
no earnings. We think that this bubble burst on March 10th. To those of you who
have lived through WWII, the analogy can be that March 10th was "the battle of
Midway" for the value investor. For those of us who survived, we think that the
next 5 years will favor rational valuations of earnings and will disappoint
many stock buyers who have acted not as investors, but as day traders. Margin
debt was at an extremely high level on March 31st; we expect a large amount of
that to be liquidated over the next 12 months. Margin debt was not incurred to
buy value stocks; this should have a significant impact upon the relative
price/earnings ratios of growth versus value.
It has been a long time coming, and it has taken endurance to stay the course
as a true deep value investor. All three of our Funds qualify along those lines
based on any quantitative measure that you use--price/earnings, price/cash
flow, price/book value, or dividend yield. Value has been out of favor for the
past five years and especially out of favor for the past two years. Whenever
investment fashions change, they tend to remain in that new trend for a long
period of time. We believe that value will re-emerge as an important investment
concept and dominate the markets for the next five years.
Sincerely yours,
/s/ James W. Stratton
James W. Stratton
Chairman
May 1, 2000
<PAGE>
STRATTON GROWTH FUND
- --------------------------------------------------------------------------------
The first quarter for the Stratton Growth Fund was comprised of two terrible
months, January and February, followed by one wonderful month, March. As we
said in the Chairman's letter, value investing turned positive on March 10th.
The Fund was down by 16% at the worst in February and yet the market reversed
this to where the Fund recently was even for the year. Relative performance in
March and April has been dramatically good after a two year period of poor
relative performance.
During this quarter, all we have done in the portfolio is to reinforce our
conviction to value investments. We added two names to the Banking and
Financial area, SouthTrust Corp. and Washington Mutual, bringing the Banking
industry to 21.7% of our portfolio, representing the largest single group. This
is followed closely by Insurance, with 13.7%, and Health Care, with 9.8%. We
swapped our El Paso Energy out of the portfolio and acquired The Coastal Corp.,
which is a company that ultimately will be acquired by El Paso. This was an
arbitrage that permitted us to maintain a significant position in natural gas
yet enhance the fundamentals of our portfolio. We added two new names; The
Hertz Corp., a leading auto and truck rental and leasing company, and IKON
Office Solutions, a smaller, very depressed stock in the office equipment and
copying distribution business.
Our turnover rate was 47.40% on an annualized basis. Expenses remained at a
relatively low level of 1.30%. The graph below illustrates the increase in
value of a $10,000 investment in Stratton Growth Fund with all dividend income
and capital gains distributions reinvested.
[GRAPH]
3/31/00 $204,506
Total Value of Investment
Average Annual Total Return
for the perod ended 3/31/00
1 year................ (8.85%)
5 year................ + 14.03
10 year................ + 11.80
15 year................ + 12.01
20 year................ + 13.86
25 year.................+ 13.34
Value of Shares
Acquired Through Value of Shares
Reinvestment of Acquired Through
Capital Gains Reinvestment of Total Value of
Distributions Income Dividends Original Shares
73-74 - 43 7,630
75-76 - 458 11,280
77-78 - 1,217 14,155
79-80 - 2,147 14,597
81-82 - 3,703 17,299
83-84 - 6,347 24,755
85-86 3,857 10,805 38,310
87-88 10,945 11,062 30,774
89-90 22,901 14,859 31,059
91-92 27,527 21,871 32,464
93-96 35,156 26,652 32,622
95-96 60,327 41,919 42,938
5/31/96 66,844 44,981 42,654
12/31/97 52,749 58,992 98,447
12/31/98 53,823 63,997 116,451
12/31/99 46,177 57,713 108,613
3/31/00 44,439 55,541 104,526
*Prior to 12/31/96, SGF had a fiscal year-end of 5/31.
Past performance is not predictive of future performance.
2
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $38,224,463 $43,865,061
- -----------------------------------------------------------
Net Asset Value Per Share $28.13 $29.23
- -----------------------------------------------------------
Shares Outstanding 1,358,664 1,500,592
- -----------------------------------------------------------
Number of Shareholders 1,060 1,190
- -----------------------------------------------------------
Average Size Account $36,061 $36,861
- -----------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- ---------------------------------------------------------------------
<S> <C>
The Coastal Corp. (3.0%*) Alcan Aluminium Ltd.
The Hertz Corp., Class A (2.7%*) Armstrong World Industries, Inc.
IKON Office Solutions, Inc. (1.6%*) El Paso Energy Corp.
SouthTrust Corp. (2.0%*) Entergy Corp.
Washington Mutual, Inc. (0.8%*) Mallinckrodt, Inc.
Micron Technology, Inc.
Shared Medical Systems Corp.
Unitrin, Inc.
</TABLE>
* Percentage of Total Net Assets.
Ten Largest Holdings March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- -----------------------------------------------------------
<S> <C> <C>
C&D Technologies, Inc. $ 3,475,100 9.1%
- -----------------------------------------------------------
American General Corp. 2,643,487 6.9
- -----------------------------------------------------------
Commerce Bancorp, Inc. (NJ) 2,195,099 5.7
- -----------------------------------------------------------
Baxter International, Inc. 1,880,625 4.9
- -----------------------------------------------------------
American Home Products Corp. 1,876,875 4.9
- -----------------------------------------------------------
Anheuser-Busch Companies, Inc. 1,867,500 4.9
- -----------------------------------------------------------
PNC Financial Services Group 1,802,500 4.7
- -----------------------------------------------------------
Pitney Bowes, Inc. 1,787,500 4.7
- -----------------------------------------------------------
Kimberly-Clark Corp. 1,568,000 4.1
- -----------------------------------------------------------
The Limited, Inc. 1,263,750 3.3
- -----------------------------------------------------------
$20,360,436 53.2%
- -----------------------------------------------------------
</TABLE>
3
<PAGE>
STRATTON MONTHLY DIVIDEND REIT SHARES
- --------------------------------------------------------------------------------
For the quarter ended March 31, 2000, SMDS performed well with a total return
of +0.65%. This performance lagged the Morgan Stanley REIT Index ("RMS")
performance of +2.66%, but we were cheered to see the REIT sector as a whole
slightly outperform the volatile S&P 500 Index return of +2.25%. Our portfolio
is skewed purposefully to some of the highest yielding REIT sectors; typically
the performance will lag the RMS when there is a dramatic rise in prices as we
experienced in March.
During the quarter, we added to our Apartment sector weighting, bringing the
total to 15.4%. We eliminated Walden Residential Properties as it was being
taken private in a merger, but added three new securities, Post Properties,
Summit Properties, and United Dominion Realty Trust. Post is an Atlanta based
company we have long admired as a strong, quality organization, with
disciplined management. The company has recently made great strides in
developing intown, mixed-use neighborhoods, that the company terms "live-work-
walk communities." These properties feature multi-family, retail, and office
space in an urban setting. Summit Properties has recently stepped up its
efforts in the very strong Washington, DC apartment market, developing
properties in well-settled, high-traffic areas. United Dominion Realty is a
large, national apartment REIT that has been upgrading its portfolio by selling
old, poorly performing properties and strengthening its balance sheet,
repositioning its portfolio for the future.
We eliminated Senior Housing Properties Trust, as it was a small position
previously spun-off from HRPT Properties Trust. The REIT specializes in health
care facilities and we felt our other holdings in that sector were superior.
The Health Care REIT sector continues to feel pressure from struggling facility
operators and a tight lending market, but we are confident with the dividend-
paying ability of our holdings.
Overall, we are comfortable with the positioning of the SMDS portfolio. The
holdings are currently priced at an average of 6.8 times next year's Funds From
Operations, which is toward the low end of the spectrum, on a historical basis.
The average payout ratio for the Fund's holdings stands at 70%, which is a good
indication of the security of the REITs' dividend paying ability.
The graph below illustrates the increase in value of a $10,000 investment in
Stratton Monthly Dividend REIT Shares with all dividend income and capital
gains distributions reinvested.
[GRAPH]
3/31/00 $58,364
Total Value of Investment
Average Annual Total Return
for the period ended 3/31/00
1 year.................... + 1.64%
5 year.................... + 4.72
10 year.................... + 6.38
15 year.................... + 7.54
Average Annual Total Return
for the period ended 3/31/00
Value of Shares
Value of Shares Acquired Through
Acquired Through Reinvestment of
Total Value of Reinvestment of Capital Gains
Original Shares Income Dividends Distributions
81 9,113 583 -
82 9,354 1,641 -
83 10,808 3,107 -
84 10,667 4,379 -
85 11,795 6,627 -
86 14,604 10,328 -
87 16,320 13,744 503
88 13,181 13,041 1,043
89 12,824 15,044 1,015
90 12,861 17,513 1,018
91 12,084 19,388 956
92 14,609 26,570 1,156
93 15,701 31,818 1,242
94 15,060 33,590 1,192
95 13,039 32,499 1,032
96 14,383 39,890 1,138
1/31/96-12/31/96* 14,399 43,821 1,139
12/31/97 15,879 52,959 1,257
12/31/98 13,008 47,819 1,029
12/31/99 11,170 45,934 884
3/31/00 10,987 46,508 869
*Prior to 12/31/96, SMDS had a fiscal year-end of 1/31.
Past performance is not predictive of future performance.
4
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $57,308,814 $59,413,078
- -----------------------------------------------------------
Net Asset Value Per Share $20.93 $21.28
- -----------------------------------------------------------
Shares Outstanding 2,738,642 2,792,429
- -----------------------------------------------------------
Number of Shareholders 3,219 3,372
- -----------------------------------------------------------
Average Size Account $17,803 $17,620
- -----------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- ------------------------------------------------------------
<S> <C>
Post Properties, Inc.
(2.1%*) Equity Inns, Inc
Summit Properties, Inc.
( 0.8%*) Senior Housing Properties Trust
United Dominion Realty
Trust, Inc. ( 0.9%*) Walden Residential Properties, Inc.
</TABLE>
* Percentage of Total Net Assets.
Ten Largest Holdings March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- -------------------------------------------------------------------------
<S> <C> <C>
Liberty Property Trust $ 2,872,500 5.0%
- -------------------------------------------------------------------------
Bradley Real Estate, Inc. Conv. Pfd. Class A 2,597,957 4.5
- -------------------------------------------------------------------------
Colonial Properties Trust 2,553,125 4.5
- -------------------------------------------------------------------------
Health Care Property Investors, Inc. 2,480,156 4.3
- -------------------------------------------------------------------------
Gables Residential Trust 2,250,000 3.9
- -------------------------------------------------------------------------
Glimcher Realty Trust 2,227,500 3.9
- -------------------------------------------------------------------------
EastGroup Properties, SBI 2,150,000 3.8
- -------------------------------------------------------------------------
Mid-Atlantic Realty Trust 2,127,500 3.7
- -------------------------------------------------------------------------
FelCor Lodging Trust, Inc. 2,034,063 3.6
- -------------------------------------------------------------------------
First Industrial Realty Trust, Inc. 1,907,500 3.3
- -------------------------------------------------------------------------
$23,200,301 40.5%
- -------------------------------------------------------------------------
</TABLE>
5
<PAGE>
STRATTON SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
The first quarter of the new millennium saw a continuation of the same
technology driven market that has existed for the past 18 months. Returns for
both the Russell 2000 and even the Russell 2000 Value indices were buoyed by
strong technology performance through mid-March. Stratton Small-Cap Value Fund
lagged those indices in the first two months of the year, but outperformed
handily in the last month of the quarter as technology stocks declined. For the
three months year-to-date, your Fund registered a loss of -3.09% compared with
a gain of +7.08% for the Russell 2000 Index and +3.82% for the Russell 2000
Value Index.
We did have a takeover during the quarter. A long time holding, Commercial
Intertech, agreed to be acquired by Parker-Hannifin at a 55% premium. Other
sales included a reduction in Consumer stocks through the sale of International
Multifoods, Riviana Foods and Tasty Baking. We also sold Shared Medical
Systems, Greenbrier, and TB Woods due to changes in their relative earnings
outlook. We deployed the proceeds into undervalued names in the Medical,
Technology and Telecommunications sectors. New names include Activision
(software games), Anixter International (cable), The BISYS Group (processing),
CONMED (medical devices), Henry Schein (dental supplies), IKON Office Solutions
(copiers), Pioneer-Standard (electronics), Price Communications (wireless) and
Respironics (medical products). Avis Group Holdings was also added due to its
valuation and bright outlook for the Car Rental industry.
The first quarter report now lists stock holdings within their Russell sectors
rather than individual industry groups as was used previously. This allows
easier comparison of the Fund's sector weightings relative to the Russell
indices. Financial companies are now our largest group representing 23% of the
portfolio, while Materials & Processing and Consumer Discretionary & Services
make up 18% and 17%, respectively. Established Technology companies amount to
9% of the portfolio. Given the increased market volatility and the outlook for
higher additional interest rate hikes we feel we are poised to perform well if
the rotation to value stock picking continues.
The graph below illustrates the increase in value of a $10,000 investment in
Stratton Small-Cap Value Fund with all dividend income and capital gains
distributions reinvested.
[GRAPH]
3/31/00 $18,724
Total Value of Investment
Average Annual Total Return
for the period ended 3/31/00
1 year................... + 5.84%
3 year................... + 5.55
5 year................... + 11.73
Since Inception
(4/12/93)................ + 9.40
Value of Shares
Value of Shares Acquired Through
Acquired Through Reinvestment of
Total Value of Reinvestment of Capital Gains
Original Shares Income Dividends Distributions
Apr-93 10,000 - -
3/31/94 10,376 158 -
3/31/95 10,352 402 -
3/31/96 12,780 789 -
3/31/96-12/31/96* 13,432 1,067 813
12/31/97 17,976 1,633 2,190
12/31/98 16,088 1,626 1,995
12/31/99 15,552 1,840 1,928
3/31/00 15,072 1,783 1,869
*Prior to 12/31/96, SSCV had a fiscal year-end of 3/31.
Past performance is not predictive of future performance.
6
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Small-Cap Value Fund
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $33,028,461 $36,054,018
- -----------------------------------------------------------
Net Asset Value Per Share $18.84 $19.44
- -----------------------------------------------------------
Shares Outstanding 1,753,129 1,855,051
- -----------------------------------------------------------
Number of Shareholders 1,148 1,296
- -----------------------------------------------------------
Average Size Account $28,770 $27,819
- -----------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- --------------------------------------------------------------------------
<S> <C>
Activision, Inc. (1.3%*) Commercial Intertech Corp.
Anixter International, Inc. (1.7%*) Conning Corp.
Avis Group Holdings, Inc. (1.1%*) GenCorp, Inc.
The BISYS Group, Inc. (2.0%*) Greenbrier Companies, Inc.
Brightpoint, Inc. (1.3%*) International Multifoods Corp.
CONMED Corp. (0.8%*) Medford Bancorp, Inc.
Henry Schein, Inc. (1.1%*) Omnova Solutions, Inc.
IKON Office Solutions, Inc. (1.3%*) Riviana Foods, Inc. (DE)
Pioneer-Standard Electronics, Inc. (0.8%*) Shared Medical Systems Corp.
Price Communications Corp. (1.7%*) Tasty Baking Co.
Respironics, Inc. (0.5%*) TB Wood's Corp.
</TABLE>
* Percentage of Total Net Assets.
Ten Largest Holdings March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- ------------------------------------------------------------------
<S> <C> <C>
Technitrol, Inc. $1,165,000 3.5%
- ------------------------------------------------------------------
Bel Fuse, Inc. Class B 1,155,000 3.5
- ------------------------------------------------------------------
Morrison Management Specialists, Inc. 1,110,000 3.4
- ------------------------------------------------------------------
Primex Technologies, Inc. 1,065,625 3.2
- ------------------------------------------------------------------
True North Communications, Inc. 982,812 3.0
- ------------------------------------------------------------------
Quixote Corp. 980,000 3.0
- ------------------------------------------------------------------
Oshkosh Truck Corp. Class B 931,875 2.8
- ------------------------------------------------------------------
LSI Industries, Inc. 874,688 2.6
- ------------------------------------------------------------------
Eaton Vance Corp. 858,750 2.6
- ------------------------------------------------------------------
Velcro Industries, N.V. 845,500 2.6
- ------------------------------------------------------------------
$9,969,250 30.2%
- ------------------------------------------------------------------
</TABLE>
7
<PAGE>
STRATTON GROWTH FUND
- --------------------------------------------------------------------------------
What is the Fund's investment objective?
The primary objective of SGF is to seek possible growth of capital 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?
The advisor focuses on common stocks of companies with strong cash flow.
Companies often share excess cash flow by paying above-average dividends to
shareholders. The advisor looks at characteristics such as strong dividend
growth rates and healthy dividend coverage when selecting potential buy
candidates. The investment advisor believes that companies which consistently
strive to increase their dividends tend to offer the potential of above average
returns. Fundamental analysis is conducted on other important characteristics
such as earnings outlook, management strengths, and industry competitive
position.
Why are value stocks so important to the Fund's portfolio?
Value stocks are stocks that appear to be under-priced based on traditional
measures such as lower price-to-earnings ratios and price-to-book ratios. The
investment advisor believes that undervalued companies with good earnings
prospects have superior appreciation potential with reasonable levels of risk.
What are the primary investment characteristics of the portfolio?
. Average gross portfolio yield will normally exceed the S&P 500 by more than
30%.
. Approximately 35 companies are held.
. By combining below average valuation with low price volatility (beta), SGF
should have the potential to produce good relative performance in up markets
and above average relative performance in down markets.
8
<PAGE>
STRATTON MONTHLY DIVIDEND REIT SHARES
- --------------------------------------------------------------------------------
What is the Fund's investment objective?
The primary objective of SMDS is to seek a high rate of return from dividend
and interest income on 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
REITs. There are several types of real estate properties that are owned by
REITs, including multifamily apartment complexes, health care facilities,
shopping centers, regional malls, office centers, hotels, and industrial
buildings. The portfolio is diversified across several sectors within the REIT
industry.
Why are dividend paying companies so important to the Fund's portfolio?
Current income is paramount for the SMDS portfolio. The Fund needs higher
yielding securities to maintain its own attractive dividend payout. REITs
satisfy this income requirement, while also offering the potential for dividend
growth and capital appreciation. REITs must distribute 95% of their net
investment income, so, as the earnings of these companies grow, increases in
dividends should follow.
What are the primary investment characteristics of the portfolio?
. The portfolio is comprised of high dividend paying securities.
. Approximately 40 companies are held.
. SMDS is managed to provide a high level of current monthly income, and to
offer the potential for long-term capital appreciation.
There are risks involved with any investment. This Fund is concentrated in REIT
securities, which means it may be subject to a greater risk of loss than a non-
concentrated mutual fund.
9
<PAGE>
STRATTON SMALL-CAP VALUE FUND
- --------------------------------------------------------------------------------
What is the Fund's investment objective?
The primary objective of SSCV is to achieve both dividend income and capital
appreciation. The Fund seeks to achieve this objective by investing its assets
in common stock and securities convertible into common stock of small
capitalization companies. In selecting stocks for the fund to buy, small
capitalization companies are defined as companies with market capitalizations,
at the time of purchase, that are below the largest capitalization of the
largest company in the Russell 2000 Index. These common stocks, including
dividend-paying common stocks, are of well-established U.S. companies that the
investment advisor believes are undervalued.
What is the investment philosophy used in managing the Fund?
The advisor attempts to purchase companies whose recent and future earnings
power give them the potential for higher valuations and continued dividend
growth. A three-step process is employed that focuses on a stock's fundamental
valuation, earnings projections and, as a confirming factor, relative price
strength. Fundamental valuation is the largest component of the process and
takes in to consideration both a company's valuation relative to its peers and
its valuation relative to its private market value.
Why are value stocks so important to the Fund's portfolio?
Value stocks are stocks that appear to be under-priced based on traditional
measures such as lower price-to-earnings ratios and price-to-book ratios. The
investment advisor believes that undervalued companies with good earnings
prospects have superior appreciation potential with reasonable levels of risk.
What are the primary investment characteristics of the portfolio?
. Fundamental valuation parameters such as price-to-earnings and price-to-cash
flow should be at a significant discount to the average small-cap company.
The Fund currently trades at approximate one half of the P/E of the Russell
2000 Index.
. Approximately 65 companies are held.
. By combining discounted valuations with lower than average betas (low price
volatility), SSCV seeks to produce strong relative performance in up markets
and above average relative performance in down markets.
There are risks involved with any investment. This Fund is invested in small-
cap stocks which tend to have a higher degree of market risk than large-cap
stocks due to lack of liquidity and other reasons.
10
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 95.8%
Banking/Financial - 21.7%
AmSouth Bancorp.......................................... 20,000 $ 298,750
Comerica, Inc. .......................................... 22,500 942,188
Commerce Bancorp, Inc. (NJ).............................. 59,327 2,195,099
First Union Corp. ....................................... 31,512 1,173,822
PNC Financial Services Group............................. 40,000 1,802,500
SouthTrust Corp. ........................................ 30,000 763,125
Summit Bancorp, Inc. .................................... 30,000 787,500
Washington Mutual, Inc. ................................. 12,000 318,000
-----------
8,280,984
-----------
Basic Materials - 1.5%
Weyerhaeuser Co. ........................................ 10,000 570,000
-----------
Business Services - 8.4%
Diebold, Inc. ........................................... 30,000 825,000
IKON Office Solutions, Inc. ............................. 100,000 618,750
Pitney Bowes, Inc. ...................................... 40,000 1,787,500
-----------
3,231,250
-----------
Capital Goods - 2.1%
Briggs & Stratton Corp. ................................. 20,000 822,500
-----------
Consumer Durables - 3.3%
Ford Motor Co. .......................................... 15,000 689,063
Whirlpool Corp. ......................................... 10,000 586,250
-----------
1,275,313
-----------
Consumer Non-Durables - 9.0%
Anheuser-Busch Companies, Inc. .......................... 30,000 1,867,500
Kimberly-Clark Corp. .................................... 28,000 1,568,000
-----------
3,435,500
-----------
Consumer Services - 7.4%
American Express Co. .................................... 7,000 1,042,563
H&R Block, Inc. ......................................... 17,000 760,750
The Hertz Corp. Class A.................................. 30,000 1,021,875
-----------
2,825,188
-----------
Energy - 5.1%
The Coastal Corp. ....................................... 25,000 1,150,000
USX-Marathon Group....................................... 30,000 781,875
-----------
1,931,875
-----------
Health Care - 9.8%
American Home Products Corp. ............................ 35,000 1,876,875
Baxter International, Inc. .............................. 30,000 1,880,625
-----------
3,757,500
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
Industrial - 9.1%
C&D Technologies, Inc. ................................. 58,900 $ 3,475,100
-----------
Insurance/Services - 13.7%
American General Corp. ................................. 47,100 2,643,487
Aon Corp. .............................................. 33,750 1,088,437
Jefferson-Pilot Corp. .................................. 12,500 832,031
Lincoln National Corp. ................................. 20,000 670,000
-----------
5,233,955
-----------
Retailing - 4.7%
Federated Department Stores, Inc.+...................... 13,000 542,750
The Limited, Inc. ...................................... 30,000 1,263,750
-----------
1,806,500
-----------
Total Common Stocks
(cost $23,379,674)..................................... 36,645,665
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM NOTES - 3.7%
General Electric Capital Corp.
5.80%, due 04/04/00
(cost $1,399,323)...................................... $1,400,000 1,399,323
-----------
Total Investments - 99.5%
(cost $24,778,997*).................................... 38,044,988
Cash and Other Assets
Less Liabilities - 0.5%................................ 179,475
-----------
NET ASSETS - 100.0%..................................... $38,224,463
===========
</TABLE>
- --------
+ Non-income producing security
* Aggregate cost for federal income tax purposes is $24,778,997; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $13,722,092
Gross unrealized depreciation...................................... (456,101)
-----------
Net unrealized appreciation....................................... $13,265,991
===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- ------------
<S> <C> <C>
COMMON STOCKS - 89.4%
Apartments - 15.4%
Cornerstone Realty Income Trust, Inc. .................. 130,000 $ 1,405,625
Gables Residential Trust................................ 100,000 2,250,000
Home Properties of New York, Inc. ...................... 64,700 1,730,725
Post Properties, Inc. .................................. 30,000 1,209,375
Smith (Charles E.) Residential Realty, Inc. ............ 35,000 1,264,375
Summit Properties, Inc. ................................ 25,000 478,125
United Dominion Realty Trust, Inc. ..................... 50,000 503,125
------------
8,841,350
------------
Diversified - 12.0%
Colonial Properties Trust............................... 107,500 2,553,125
EastGroup Properties, SBI............................... 100,000 2,150,000
Meditrust Corp. ........................................ 300,000 543,750
Pacific Gulf Properties, Inc. .......................... 85,000 1,668,125
------------
6,915,000
------------
Health Care - 7.5%
Health Care Property Investors, Inc. ................... 97,500 2,480,156
Health Care REIT, Inc. ................................. 130,000 1,820,000
------------
4,300,156
------------
Lodging - 15.0%
FelCor Lodging Trust, Inc. ............................. 115,000 2,034,063
Hospitality Properties Trust............................ 60,000 1,215,000
Innkeepers USA Trust.................................... 200,000 1,625,000
Jameson Inns, Inc. ..................................... 160,000 1,050,000
RFS Hotel Investors, Inc. .............................. 125,000 1,343,750
Winston Hotels, Inc. ................................... 175,000 1,356,250
------------
8,624,063
------------
Net Lease - 4.0%
Franchise Finance Corp. of America...................... 65,000 1,511,250
Starwood Financial, Inc. ............................... 46,000 810,750
------------
2,322,000
------------
Office/Industrial - 18.3%
First Industrial Realty Trust, Inc. .................... 70,000 1,907,500
HRPT Properties Trust................................... 90,000 781,875
Liberty Property Trust.................................. 120,000 2,872,500
Mack-Cali Realty Corp. ................................. 65,000 1,657,500
ProLogis Trust.......................................... 75,000 1,443,750
SL Green Realty Corp. .................................. 75,000 1,781,250
------------
10,444,375
------------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- ------------
<S> <C> <C>
Regional Malls - 6.1%
Glimcher Realty Trust................................... 165,000 $ 2,227,500
Mills Corp. ............................................ 68,700 1,236,600
------------
3,464,100
------------
Shopping Centers - 11.1%
Developers Diversified Realty Corp. .................... 95,000 1,318,125
IRT Property Co. ....................................... 166,000 1,328,000
Mid-Atlantic Reatly Trust............................... 230,000 2,127,500
New Plan Excel Realty Trust, Inc. ...................... 108,000 1,485,000
Western Properties Trust................................ 7,500 76,875
------------
6,335,500
------------
Total Common Stocks
(cost $62,121,673)..................................... 51,246,544
------------
PREFERRED STOCKS - 6.6%
Bradley Real Estate, Inc. Conv. Preferred Class A....... 132,380 2,597,957
Kimco Realty Corp. - Depositary Shares Class D.......... 50,000 1,175,000
------------
Total Preferred Stocks
(cost $4,368,815)...................................... 3,772,957
------------
<CAPTION>
Principal
Amount
---------
<S> <C> <C>
SHORT-TERM NOTES - 3.3%
American Express Credit Corp.
6.00%, due 04/05/00.................................... $248,000 247,835
Ford Motor Credit Corp.
5.91%, due 04/03/00.................................... 822,000 821,730
General Electric Capital Corp.
5.80%, due 04/04/00.................................... 836,000 835,596
------------
Total Short-Term Notes
(cost $1,905,161)...................................... 1,905,161
------------
Total Investments - 99.3%
(cost $68,395,649*).................................... 56,924,662
Cash and Other Assets
Less Liabilities - 0.7%................................ 384,152
------------
NET ASSETS - 100.0%..................................... $ 57,308,814
============
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $68,395,649; and net
unrealized depreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation.................................... $ 1,411,428
Gross unrealized depreciation.................................... (12,882,415)
------------
Net unrealized depreciation..................................... $(11,470,987)
============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
Stratton Small-Cap Value Fund
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 93.8%
Autos & Transportation - 10.9%
AAR Corp................................................. 35,000 $ 584,063
A.O. Smith Corp.......................................... 30,000 540,000
Oshkosh Truck Corp. Class B.............................. 30,000 931,875
Polaris Industries, Inc.................................. 25,000 753,125
Tidewater, Inc........................................... 25,000 795,312
-----------
3,604,375
-----------
Consumer Discretionary & Services - 13.8%
Activision, Inc.+........................................ 35,000 422,188
Brightpoint, Inc.+....................................... 35,000 428,750
Deb Shops, Inc. ......................................... 40,000 550,000
IKON Office Solutions, Inc. ............................. 70,000 433,125
LSI Industries, Inc. .................................... 45,000 874,688
La-Z-Boy, Inc. .......................................... 25,000 384,375
Primesource Corp. ....................................... 90,000 480,937
True North Communications, Inc. ......................... 25,000 982,812
-----------
4,556,875
-----------
Financial Services - 22.8%
American Bank of Connecticut............................. 22,000 453,750
Avis Group Holdings, Inc.+............................... 21,500 378,938
Blanch (E.W.) Holdings, Inc. ............................ 13,000 260,000
Colonial BancGroup, Inc. ................................ 40,000 430,000
Commerce Bancorp, Inc. (NJ).............................. 21,704 803,048
Community Bank Systems, Inc. ............................ 17,000 387,812
Dain Rauscher Corp. ..................................... 10,000 659,375
Donegal Group, Inc. ..................................... 61,299 390,781
Eaton Vance Corp. ....................................... 20,000 858,750
First Essex Bancorp, Inc. ............................... 25,000 385,937
First Financial Holdings, Inc. .......................... 18,000 254,250
National Data Corp....................................... 20,000 520,000
Pacific Gulf Properties, Inc............................. 13,000 255,125
Southwest Securities Group, Inc. ........................ 15,620 678,494
United Bankshares, Inc. ................................. 20,000 440,000
Webster Financial Corp. ................................. 16,632 382,536
-----------
7,538,796
-----------
Health Care - 5.8%
CONMED Corp.+............................................ 10,000 250,625
Morrison Management Specialists, Inc. ................... 40,000 1,110,000
Respironics, Inc.+....................................... 12,500 179,688
Henry Schein, Inc.+...................................... 22,000 356,125
-----------
1,896,438
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
Materials & Processing - 17.6%
Florida Rock Industries, Inc. ........................... 30,000 $ 840,000
Glatfelter (P.H.) Co..................................... 20,000 212,500
Hughes Supply, Inc. ..................................... 30,000 465,000
Owens Corning............................................ 30,000 581,250
Primex Technologies, Inc. ............................... 50,000 1,065,625
Quixote Corp. ........................................... 80,000 980,000
Republic Group, Inc. .................................... 45,000 483,750
Schawk, Inc. ............................................ 44,300 348,862
Velcro Industries, N.V. ................................. 76,000 845,500
-----------
5,822,487
-----------
Other - 0.8%
Foster Wheeler Corp. .................................... 40,000 270,000
-----------
Other Energy - 4.1%
Mitchell Energy & Development Corp. Class B.............. 30,000 660,000
Penn Virginia Corp. ..................................... 40,000 685,000
-----------
1,345,000
-----------
Producer Durables - 5.2%
Belden, Inc. ............................................ 20,000 550,000
Technitrol, Inc. ........................................ 20,000 1,165,000
-----------
1,715,000
-----------
Technology - 9.1%
Anixter International Inc.+.............................. 20,000 557,500
Bel Fuse, Inc. Class B................................... 55,000 1,155,000
The BISYS Group, Inc.+................................... 10,000 665,000
Park Electrochemical Corp. .............................. 15,000 367,500
Pioneer-Standard Electronics, Inc. ...................... 17,000 267,750
-----------
3,012,750
-----------
Utilities - 3.7%
Energen Corp. ........................................... 20,000 318,750
Minnesota Power, Inc. ................................... 20,000 332,500
Price Communications Corp.+.............................. 25,000 575,000
-----------
1,226,250
-----------
Total Common Stocks
(cost $27,246,384)...................................... 30,987,971
-----------
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 2000 (unaudited) (continued)
- --------------------------------------------------------------------------------
Stratton Small-Cap Value Fund
<TABLE>
<CAPTION>
Market
Principal Value
Amount (Note 1)
--------- -----------
<S> <C> <C>
SHORT-TERM NOTES - 5.2%
American Express Credit Corp.
6.00%, due 04/05/00..................................... $850,000 $ 849,434
Ford Motor Credit Corp.
6.00%, due 04/05/00..................................... 850,000 849,433
-----------
Total Short-Term Notes
(cost $1,698,867)....................................... 1,698,867
-----------
Total Investments - 99.0%
(cost $28,945,251*)..................................... 32,686,838
Cash and Other Assets
Less Liabilities - 1.0%................................. 341,623
-----------
NET ASSETS - 100.0%...................................... $33,028,461
===========
</TABLE>
- --------
+ Non-income producing security
* Aggregate cost for federal income tax purposes is $28,945,251; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $ 6,805,656
Gross unrealized depreciation...................................... (3,064,069)
-----------
Net unrealized appreciation....................................... $ 3,741,587
===========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------
March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCV
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities at value
(cost $24,778,997, $68,395,649, and
$28,945,251, respectively) (Note 1)... $38,044,988 $ 56,924,662 $32,686,838
Cash................................... -- 583 7,374
Dividends and interest receivable...... 35,297 515,782 33,895
Receivable for securities sold......... 1,207,898 227,237 683,115
----------- ------------ -----------
Total Assets......................... 39,288,183 57,668,264 33,411,222
----------- ------------ -----------
LIABILITIES:
Cash overdraft......................... 515,097 -- --
Accrued expenses and other
liabilities........................... 52,497 73,767 26,949
Payable for shares redeemed............ 500 -- --
Payable for investment securities
purchased............................. 495,626 285,683 355,812
----------- ------------ -----------
Total Liabilities.................... 1,063,720 359,450 382,761
----------- ------------ -----------
NET ASSETS:
Applicable to 1,358,664, 2,738,642, and
1,753,129 shares outstanding,
respectively/1/ ...................... $38,224,463 $ 57,308,814 $33,028,461
=========== ============ ===========
Net asset value, offering and
redemption price per share............ $ 28.13 $ 20.93 $ 18.84
=========== ============ ===========
SOURCE OF NET ASSETS:
Paid-in capital........................ $21,616,737 $ 85,858,356 $28,891,123
Undistributed net investment income
(loss)................................ 115,102 (139,872) 115,447
Accumulated net realized gain (loss) on
investments........................... 3,226,633 (16,938,683) 280,304
Net unrealized appreciation
(depreciation) of investments......... 13,265,991 (11,470,987) 3,741,587
----------- ------------ -----------
Net Assets........................... $38,224,463 $ 57,308,814 $33,028,461
=========== ============ ===========
</TABLE>
- --------
/1/SGF: $.10 par value, 10,000,000 shares authorized; SMDS: $1.00 par value,
10,000,000 shares authorized; SSCV: $.001 par value, 200,000,000 shares
authorized.
See accompanying notes to financial statements.
15
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Three Months Ended March 31, 2000 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCV
----------- ----------- -----------
<S> <C> <C> <C>
INCOME:
Dividends............................. $ 210,523 $ 1,326,104 $ 159,756
Interest.............................. 19,280 30,239 17,656
----------- ----------- -----------
Total Income........................ 229,803 1,356,343 177,412
----------- ----------- -----------
EXPENSES:
Accounting/Pricing services fees...... 7,927 8,816 7,739
Administration services fees.......... 5,826 8,915 5,173
Advisory fees (Note 2)................ 67,163 86,508 27,427
Audit fees............................ 4,737 5,700 0
Custodian fees........................ 2,792 4,788 3,395
Directors' fees....................... 3,146 5,099 3,006
Legal fees............................ 1,658 2,465 1,431
Miscellaneous fees.................... 2,113 4,568 1,903
Printing and postage fees............. 4,341 6,055 4,270
Registration fees..................... 12,840 10,224 10,742
Shareholder services fees............. 9,810 28,215 12,257
Taxes other than income taxes......... 775 1,150 725
----------- ----------- -----------
Total Expenses...................... 123,128 172,503 78,068
----------- ----------- -----------
Net Investment Income............. 106,675 1,183,840 99,344
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on
investments.......................... 590,089 (1,254,007) 404,694
Net increase (decrease) in unrealized
appreciation on investments.......... (2,497,486) 487,699 (1,613,616)
----------- ----------- -----------
Net (loss) on investments............. (1,907,397) (766,308) (1,208,922)
----------- ----------- -----------
Net increase (decrease) in net
assets resulting from operations... $(1,800,722) $ 417,532 $(1,109,578)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SGF SMDS
--------------------------- ---------------------------
3 Months Ended Year Ended 3 Months Ended Year Ended
03/31/00* 12/31/99 03/31/00* 12/31/99
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.. $ 106,675 $ 674,239 $ 1,183,840 $ 4,717,684
Net realized gain
(loss) on
investments........... 590,089 3,251,257 (1,254,007) (2,505,510)
Net increase (decrease)
in unrealized
appreciation of
investments........... (2,497,486) (9,385,310) 487,699 (6,710,730)
----------- ------------ ----------- ------------
Net increase (decrease)
in net assets
resulting from
operations............ (1,800,722) (5,459,814) 417,532 (4,498,556)
----------- ------------ ----------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income ($0.00 and
$0.41 per share,
respectively, for SGF,
$0.48 and $1.55,
respectively,
for SMDS)............. -- (665,812) (1,323,712) (4,717,684)
From realized gains on
investments ($0.00 and
$1.33 per share,
respectively, for
SGF).................. -- (2,250,632) -- --
Return of capital
($0.00 and $0.49 per
share for SMDS)....... -- -- -- (1,514,708)
CAPITAL SHARE
TRANSACTIONS:/2/ (3,839,876) (11,081,854) (1,198,084) (9,792,276)
----------- ------------ ----------- ------------
Total (decrease) in net
assets ............... (5,640,598) (19,458,112) (2,104,264) (20,523,224)
NET ASSETS:
Beginning of period.... 43,865,061 63,323,173 59,413,078 79,936,302
----------- ------------ ----------- ------------
End of period
(including
undistributed net
investment income
(loss) of $115,102 and
$8,427, respectively,
for SGF, and
($139,872) and $0,
respectively, for
SMDS)................. $38,224,463 $ 43,865,061 $57,308,814 $ 59,413,078
=========== ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
SSCV
--------------------------
3 Months Ended Year Ended
03/31/00* 12/31/99
-------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income............................. $ 99,344 $ 516,517
Net realized gain on investments.................. 404,694 1,034,763
Net (decrease) in unrealized appreciation of
investments...................................... (1,613,616) (2,192,714)
----------- -----------
Net (decrease) in net assets resulting from
operations....................................... (1,109,578) (641,434)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.00 and $0.27 per
share, respectively, for SSCV)................... -- (501,810)
CAPITAL SHARE TRANSACTIONS:/2/ (1,915,979) (5,592,043)
----------- -----------
Total (decrease) in net assets.................... (3,025,557) (6,735,287)
NET ASSETS:
Beginning of period............................... 36,054,018 42,789,305
----------- -----------
End of period (including undistributed net
investment income of $115,447 and $16,103,
respectively, for SSCV).......................... $33,028,461 $36,054,018
=========== ===========
</TABLE>
- --------
* Unaudited
See accompanying notes to financial statements.
17
<PAGE>
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
/2/A summary of capital share transactions follows:
<TABLE>
<CAPTION>
SGF
<S> <C> <C> <C> <C>
---------------------------------------------
<CAPTION>
3 Months Ended
03/31/00* Year Ended 12/31/99
--------------------- ----------------------
Shares Value Shares Value
-------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Shares issued................... 15,842 $ 423,811 119,531 $ 3,966,635
Shares reinvested from net
investment income and capital
gains distributions............ 1 35 82,967 2,568,964
-------- ----------- -------- ------------
15,843 423,846 202,498 6,535,599
Shares redeemed................. (157,771) (4,263,722) (560,493) (17,617,453)
-------- ----------- -------- ------------
Net (decrease).............. (141,928) $(3,839,876) (357,995) $(11,081,854)
======== =========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
SMDS
<S> <C> <C> <C> <C>
---------------------------------------------
<CAPTION>
3 Months Ended
03/31/00* Year Ended 12/31/99
--------------------- ----------------------
Shares Value Shares Value
-------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Shares issued.................. 102,489 $ 2,023,642 201,707 $ 4,798,470
Shares reinvested from net
investment income............. 39,523 822,466 164,663 3,826,361
-------- ----------- -------- ------------
142,012 2,846,108 366,370 8,624,831
Shares redeemed................ (195,799) (4,044,192) (799,368) (18,417,107)
-------- ----------- -------- ------------
Net (decrease)............. (53,787) $(1,198,084) (432,998) $ (9,792,276)
======== =========== ======== ============
</TABLE>
<TABLE>
<CAPTION>
SSCV
<S> <C> <C> <C> <C>
---------------------------------------------
<CAPTION>
3 Months Ended
03/31/00* Year Ended 12/31/99
--------------------- ----------------------
Shares Value Shares Value
-------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Shares issued................... 14,649 $ 275,932 279,605 $ 5,275,738
Shares reinvested from net
investment income and capital
gains distributions............ 1 19 19,978 383,537
-------- ----------- -------- ------------
14,650 275,951 299,583 5,659,275
Shares redeemed................. (116,571) (2,191,930) (572,731) (11,251,318)
-------- ----------- -------- ------------
Net (decrease).............. (101,921) $(1,915,979) (273,148) $ (5,592,043)
======== =========== ======== ============
</TABLE>
- --------
* Unaudited
See accompanying notes to financial statements.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
March 31, 2000 (unaudited)
Note 1. - Significant Accounting Policies
Stratton Mutual Funds (the "Funds") consist of Stratton Growth Fund, Inc.
("SGF"), Stratton Monthly Dividend REIT Shares, Inc. ("SMDS") and The Stratton
Funds, Inc. (the "Company") which operates as a series, consisting of Stratton
Small-Cap Value Fund ("SSCV"). The Funds 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 SSCV is to achieve both dividend income and capital
appreciation through investment in the securities of small-cap companies which
have certain risks associated with them. First and foremost is their greater
earnings and price volatility in comparison to large companies. Earnings risk
is partially due to the undiversified nature of small company business lines.
Due to the inherent risk of investments there can be no assurance that the
objectives of the Funds will be met.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Security Valuation - Securities listed or admitted to trading on
any national securities exchange are valued at their last sale price
on the exchange where the securities are principally traded or, if
there has been no sale on that date, at the mean between the last
reported bid and asked prices. Securities traded in the over-the-
counter market are valued at the last sale price, if carried in the
National Market Issues section by NASDAQ; other over-the-counter
securities are valued at the mean between the closing bid and asked
prices obtained from a principal market maker. All other securities
and assets are valued at their fair value as determined in good
faith by the Boards of Directors of the Funds, which may include the
amortized cost method for securities maturing in sixty days or less
and other cash equivalent investments.
B. Determination of Gains or Losses on Sales of Securities - Gains
or losses on the sale of securities are calculated for accounting
and tax purposes on the identified cost basis.
C. Federal Income Taxes - It is the Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all taxable income to their
shareholders. Therefore, no federal income tax provision is
required. SMDS has a capital loss carryover available to offset
future capital gains, if any, of approximately $15,684,000 of which
$7,681,000 expires in 2000, $4,331,000 expires in 2003, $1,167,000
expires in 2005 and
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
March 31, 2000 (unaudited)
$2,505,000 expires in 2007. SSCV has a capital loss carryover
available to offset future capital gains, if any, of approximately
$124,000, which expires in 2006.
D. Use of Estimates in Financial Statements - In preparing financial
statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reporting period. Actual results may differ from
these estimates.
E. Other - Security transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the
accrual basis and dividend income on the ex-dividend date.
Distributions to Shareholders - Distributions to shareholders are recorded on
the ex-dividend date. The character of distributions paid to shareholders is
determined by reference to income as determined for income tax purposes, after
giving effect to temporary differences between the financial reporting and tax
basis of assets and liabilities, rather than income as determined for
financial reporting purposes.
SMDS has made certain investments in real estate investment trusts ("REITs")
which pay dividends to their shareholders based upon available funds from
operations. It is quite common for these dividends to exceed the REIT's
taxable earnings and profits resulting in the excess portion of such dividends
being designated as a return of capital. The Fund intends to include the gross
dividends from such REITs in its monthly distributions to its shareholders
and, accordingly, a portion of the Fund's distributions may also be designated
as a return of capital.
Note 2. - During the three months ended March 31, 2000, the Funds paid
advisory fees to Stratton Management Company (the "Advisor") as follows: SGF -
$67,163; SMDS - $86,508; SSCV - $27,427. Management services are provided by
the Advisor under agreements whereby the Advisor furnishes all investment
advice, office space and facilities to the Funds and pays the salaries of the
Funds' officers and employees, except to the extent that those employees are
engaged in administrative and accounting services activities. In return for
these services, SGF pays to the Advisor a monthly fee of 3/48 of 1% (annually
3/4 of 1%) of the daily net asset value of the Fund for such month. SMDS pays
a monthly fee at an annual rate of 5/8 of 1% of the daily net asset value of
the Fund for such month. The Advisor has voluntarily agreed to waive $15,000
annually of the compensation due it under the agreement with SGF and SMDS to
offset a portion of the cost of certain administrative responsibilities
delegated to PFPC Inc.
SSCV pays a monthly fee at an annual rate of 0.75% of the average daily net
asset value of the Fund for such month, subject to a performance adjustment.
The performance adjustment will be calculated at the end of each month based
upon a rolling 24 month performance period. The performance adjustment is
added to or subtracted from the basic investment advisory fee. The Fund's
gross performance is compared with the performance of the Frank Russell 2000
Index, ("Russell 2000"), a widely recognized unmanaged index of common stock
prices, over a rolling 24-month performance period. The Russell 2000 is
composed of the smallest 2000 stocks in the Frank Russell annual ranking of
3000 common stocks by market capitalization. The Russell 2000 is a widely
recognized common stock index of small to medium size companies. Total return
performance on the Russell 2000 includes dividends and is reported monthly on
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
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
March 31, 2000 (unaudited)
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, 2000 caused the advisory fee to decrease by $38,325.
Certain officers and Directors of the Funds are also officers and directors of
the Advisor. None of the Funds' officers receive compensation from the Funds.
Pursuant to an agreement between The Bank of New York (the "Custodian") and
PFPC Inc., the Custodian reallows a portion of its custody fees to PFPC Inc.
for certain services delegated to PFPC Inc. The amount is not readily
determinable. Effective December 1, 1999, Provident Distributors, Inc. serves
as the Funds' principal underwriter and receives no fees for services in
assisting in sales of the Funds' shares but does receive an annual fee of
$5,000 for each Fund for its services in connection with the registration of
the Funds' shares under state securities laws.
Note 3. - Purchases and sales of investment securities, excluding short-term
notes, for the three months ended March 31, 2000 were as follows:
<TABLE>
<CAPTION>
SGF SMDS SSCV
<S> <C> <C> <C>
---------- ---------- ----------
Cost of purchases.............................. $4,398,955 $2,994,367 $4,703,418
Proceeds of sales.............................. 7,261,298 4,549,449 7,514,173
</TABLE>
Note 4. - Subsequent Event - On December 14, 1999 the Board of Directors
approved a change to the name of Stratton Small-Cap Yield Fund to Stratton
Small-Cap Value Fund.
21
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Stratton Growth Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Years Ended December Years Ended May
3 Months 31, 7 Months 31,
Ended -------------------------- Ended ----------------
03/31/00* 1999 1998 1997 12/31/96 1996 1995
--------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 29.23 $ 34.07 $ 33.39 $ 27.00 $ 27.18 $ 22.35 $ 20.65
------- ------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net investment
income............... 0.079 0.416 0.570 0.550 0.312 0.556 0.537
Net gains (losses) on
securities (both
realized and
unrealized).......... (1.179) (3.516) 3.130 8.900 1.298 5.759 2.978
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations......... (1.100) (3.100) 3.700 9.450 1.610 6.315 3.515
------- ------- ------- ------- ------- ------- -------
Less Distributions
Dividends (from net
investment income)... -- (0.410) (0.590) (0.540) (0.580) (0.540) (0.540)
Distributions (from
capital gains)....... -- (1.330) (2.430) (2.520) (1.210) (0.945) (1.275)
------- ------- ------- ------- ------- ------- -------
Total
distributions...... -- (1.740) (3.020) (3.060) (1.790) (1.485) (1.815)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 28.13 $ 29.23 $ 34.07 $ 33.39 $ 27.00 $ 27.18 $ 22.35
======= ======= ======= ======= ======= ======= =======
Total Return............ (3.76%) (9.29%) 11.46% 36.06% 6.40% 29.62% 18.61%
Ratios/Supplemental Data
Net assets, end of
period
(in 000's)........... $38,224 $43,865 $63,323 $60,177 $44,801 $42,880 $31,719
Ratio of expenses to
average net assets... 1.30%/1/ 1.13% 1.07% 1.11% 1.17%/1/ 1.16% 1.31%
Ratio of net
investment income to
average net assets... 1.13%/1/ 1.21% 1.60% 1.87% 2.08%/1/ 2.28% 2.70%
Portfolio turnover
rate................. 11.82% 39.81% 38.02% 34.40% 20.32% 15.41% 42.54%
</TABLE>
- --------
* Unaudited
/1/Annualized
See accompanying notes to financial statements.
22
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
11 Years Ended
3 Months Years Ended December 31, Months January 31,
Ended ---------------------------- Ended ------------------
03/31/00* 1999 1998 1997 12/31/96 1996 1995
--------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 21.28 $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69
------- ------- ------- -------- -------- -------- --------
Income From Investment
Operations
Net investment income..... 0.429 1.550 1.650 1.540 1.630 1.880 1.940
Net gains (losses) on
securities (both realized
and unrealized).......... (0.299) (3.010) (5.070) 3.200 0.160 2.600 (3.870)
------- ------- ------- -------- -------- -------- --------
Total from investment
operations............. 0.130 (1.460) (3.420) 4.740 1.790 4.480 (1.930)
------- ------- ------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)....... (0.480) (1.550) (1.650) (1.540) (1.630) (1.890) (1.920)
Distributions (in excess
of net investment
income).................. -- -- (0.400) -- (0.130) (0.030) --
Return of capital......... -- (0.490) -- (0.380) -- -- --
------- ------- ------- -------- -------- -------- --------
Total distributions..... (0.480) (2.040) (2.050) (1.920) (1.760) (1.920) (1.920)
------- ------- ------- -------- -------- -------- --------
Net Asset Value, End of
Period..................... $ 20.93 $ 21.28 $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84
======= ======= ======= ======== ======== ======== ========
Total Return................ 0.65% (6.25%) (11.75%) 18.09% 7.12% 18.98% (6.57%)
Ratios/Supplemental Data
Net assets, end of period
(in 000's)............... $57,309 $59,413 $79,936 $101,956 $103,780 $129,267 $134,066
Ratio of expenses to
average net assets....... 1.19%/1/ 1.09% 1.02% 1.02% 1.02%/1/ 0.99% 1.08%
Ratio of net investment
income to average net
assets................... 8.20%/1/ 6.61% 5.95% 5.48% 6.94%/1/ 7.42% 7.71%
Portfolio turnover rate... 5.39% 13.94% 18.89% 42.47% 69.19% 53.30% 39.50%
</TABLE>
- --------
* Unaudited
/1/Annualized
See accompanying notes to financial statements.
23
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Stratton Small-Cap Value Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Years Ended December Years Ended
3 Months 31, 9 Months March 31,
Ended --------------------------- Ended ----------------
03/31/00* 1999 1998 1997/2/ 12/31/96/2/ 1996/2/ 1995/2/
--------- ------- ------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 19.44 $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94 $ 12.97
------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations
Net investment
income............... 0.057 0.278 0.170 0.210 0.260 0.330 0.290
Net gains (losses) on
securities (both
realized and
unrealized).......... (0.657) (0.678) (2.310) 6.800 1.740 3.040 (0.020)
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations......... (0.600) (0.400) (2.140) 7.010 2.000 3.370 0.270
------- ------- ------- ------- ------- ------- -------
Less Distributions
Dividends (from net
investment income)... -- (0.270) (0.180) (0.200) (0.270) (0.330) (0.300)
Distributions (from
capital gains)....... -- -- (0.040) (1.130) (0.920) -- --
------- ------- ------- ------- ------- ------- -------
Total
distributions...... -- (0.270) (0.220) (1.330) (1.190) (0.330) (0.300)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 18.84 $ 19.44 $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94
======= ======= ======= ======= ======= ======= =======
Total Return............ (3.09%) (1.98%) (9.58%) 42.37% 12.84% 26.18% 2.09%
Ratios/Supplemental Data
Net assets, end of
period
(in 000's)........... $33,028 $36,054 $42,789 $39,377 $21,691 $19,592 $14,058
Ratio of expenses to
average net assets... 0.93%/1/ 1.08% 1.56% 1.62% 1.29%/1/ 1.46% 2.12%
Ratio of net
investment income to
average net assets... 1.18%/1/ 1.29% 0.80% 1.09% 2.03%/1/ 2.28% 2.36%
Portfolio turnover
rate................. 14.64% 43.44% 35.74% 26.27% 35.86% 33.50% 30.20%
</TABLE>
- --------
* Unaudited
/1/Annualized
/2/Adjusted for a 2-for-1 stock split declared by the Fund to shareholders of
record on December 17, 1997
See accompanying notes to financial statements.
24
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
Minimum Investment
The minimum amount for the initial purchase of shares of the Funds is $2,000
each. Subsequent purchases may be made in amounts of $100 or more.
Telephone Exchange
Shares of each Fund may be exchanged for shares of the other Funds, provided
such other shares may legally be sold in the state of the investor's
residence. Each Fund has a distinct investment objective which should be
reviewed before executing any exchange of shares.
Dividends and Distributions
SGF pays semi-annual dividends from net investment income. SMDS pays monthly
dividends from net investment income. SMDS has made certain investments in
REITs which pay dividends to their shareholders based on available funds from
operations. It is quite common for these dividends to exceed a REIT's taxable
earnings and profits resulting in the excess portion of such dividends being
designated as a return of capital. SMDS intends to include the gross dividends
from such REITs in its monthly distributions to its shareholders and,
accordingly, a portion of the Fund's distributions may be reclassified as a
return of capital at the end of the fiscal year. Such information will be
mailed to shareholders on I.R.S. Form 1099DIV. SSCV pays annual dividends from
net investment income. Each Fund makes distributions of capital gains, if any,
at least annually. Dividends and distributions may be reinvested in additional
shares of the Funds.
Automatic Investment Plan
Shares of a Fund may be purchased through our "Automatic Investment Plan" (the
"Plan"), (See item 6 of the New Account Application attached to the back of
the Prospectus). The Plan provides a convenient method by which investors may
have monies debited directly from their checking, savings or bank money market
accounts for investment in a Fund. The minimum investment pursuant to this
Plan is $100 per month. The account designated will be debited in the
specified amount, on the date indicated, and Fund shares will be purchased.
Only an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated. A Fund may alter, modify
or terminate this Plan at any time.
Share Price Information
The daily share price of the Funds can be found in the mutual fund section of
most major daily newspapers as well as The Wall Street Journal and Investor's
Daily, where the Funds are listed under Stratton Funds. The Funds' stock
ticker symbols for SGF, SMDS and SSCV are STRGX, STMDX and STSCX,
respectively.
Retirement Plans
Stratton Mutual Funds has Defined Contribution Plans, Individual Retirement
Accounts and 403(b)(7) Retirement Plans available at no minimum investment.
25
<PAGE>
SHAREHOLDER INFORMATION (continued)
- -------------------------------------------------------------------------------
General Information on the Funds
Requests for a Prospectus, financial information, past performance figures and
an application, should be directed to the Funds' 800 number (800) 634-5726.
Existing Shareholder Account Services
Shareholders seeking information regarding their accounts and other fund
services, and shareholders executing redemption requests, should call or write
the transfer agent and dividend paying agent:
PFPC Inc.
211 South Gulph Road, P. O. Box 61503, King of Prussia, PA 19406-0903
Telephone: (610) 239-4600 . (800) 472-4266
Investment Portfolio Activities
Questions regarding any of the Funds' investment portfolios should be directed
to the Funds' Investment Advisor:
STRATTON MANAGEMENT COMPANY
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300, Plymouth Meeting, PA 19462-1050
Telephone: (610) 941-0255
Additional Purchases ONLY to existing accounts should be mailed to a separate
lock box unit:
c/o PFPC Inc.
P. O. Box 61767, King of Prussia, PA 19406-8767
Distributed by Provident Distributors, Inc., 3200 Horizon Drive, King
of Prussia, PA 19406-0903--Date of first use May 2000. This
report is to be preceded or accompanied by a Prospectus.
All indices are unmanaged groupings of stock that
are not available for investment.
26
<PAGE>
DIRECTORS
Lynne M. Cannon Merritt N. Rhoad, Jr.
John J. Lombard, Jr. Richard W. Stevens
Douglas J. MacMaster, Jr. James W. Stratton
Henry A. Rentschler
OFFICERS
James W. Stratton Joanne E. Kuzma
Chairman Vice President
John A. Affleck Patricia L. Sloan
President Secretary & Treasurer
Stratton Growth Fund
Brigid E. Hummel
James A. Beers Assistant Secretary &
President, Stratton Monthly Treasurer
Dividend REIT Shares
Frank H. Reichel, III
President,
Stratton Small-Cap Value Fund
INVESTMENT ADVISOR
Stratton Management Company
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300
Plymouth Meeting, PA 19462-1050, Telephone: 610-941-0255
TRANSFER AGENT & DIVIDEND PAYING AGENT
PFPC Inc.
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
[LOGO OF STRATTON MUTUAL FUNDS]
