<PAGE>
THIRD QUARTER REPORT
SEPTEMBER 30, 1999
------------
STRATTON
MUTUAL FUNDS
------------
Stability.Strategy.Success
<PAGE>
[LOGO OF FIRST DATA]
DEAR FELLOW SHAREHOLDER:
The economy remains very strong, probably too strong for the comfort of the
Federal Reserve. We think the greatest risk factors to the economy are the
short supply of labor and the rapidly rising cost of energy. Inflation, which
has been very benign for the last several years will become a major issue in
the next twelve months. We think it will force the Fed to a more aggressive
policy, which would clearly have an impact on the level of stock prices and the
stock market leadership. Corporations have been producing record free cash
flows and high returns on equity. This is the primary "bull" case for today's
record levels of stock valuations for the S&P 500. A large part of this free
cash flow in finding its way into corporate buybacks and cash tender offers for
other companies.
In 1998, the Fed reduced interest rates by 25 basis points three times in an
attempt to pump liquidity into the global financial system and stave off a
worldwide financial crisis produced by the Pacific recession. They took back
two of those rate changes with increases of 25 basis points in June of 1999 and
again in August. At the October 5 meeting, the Fed held interest rates constant
postponing the third increase until at least the mid-November meeting. We
believe that the Fed will not make any rate changes around year end allowing
the economy and the financial markets freedom to deal with Y2K without any
short-term distractions from the Federal Reserve.
The valuation dichotomy in the stock market continues. Technology is driving
this market and then there is everything else. In the S&P 500, technology was
up 30% in the first nine months; consumer staples, transportation, healthcare,
financials and utilities were all down from 5% to 10%. Individual stock
volatility has grown excessive as many large capitalization stocks swing
dramatically within a matter of a few days. Excessive day-trading is unhealthy
when coupled with overvaluations in popular sectors. Despite all this, the
broad market remains fairly valued. Fairly valued stocks are still the best
long-term game in town.
Our portfolios of all three Funds continue to sell at substantial discounts to
the price earnings ratios of the S&P 500. They would benefit from a redirection
of investor attention away from the "nifty-fifty" of the S&P 500. We believe
that a broadening of the market is a necessary and healthy step to refocus
investors to other equity sectors and away from a limited number of overpriced,
very large capitalization issues.
Sincerely yours,
/s/ James W. Stratton
James W. Stratton
Chairman
November 4, 1999
<PAGE>
STRATTON GROWTH FUND
- --------------------------------------------------------------------------------
The third quarter of 1999, was a difficult one for the entire stock market with
the S&P 500 declining by 6.6%. Many of the basic value groups declined by more
than that; our worst performing group were the financials, which were off
15.6%, during that quarter. This took place in the anxiety producing
environment of two interest rate increases by the Federal Reserve and the
strong probability of a third increase coming in November.
After the end of the quarter, Congress completed its work on HR10, a bill that
would permit mergers and acquisitions between the banking, securities
brokerage, and insurance industries. This bill is currently in conference
committee with the strong expectation that the President will sign it shortly.
As a result, all financial stocks rebounded sharply in October, most notably
the life insurance companies which are viewed as logical targets for
acquisition by the big banks.
During the quarter, we made relatively few changes in the portfolio and only
one new addition. We purchased shares of Xerox, a leading manufacturer and
distributor of office copying equipment. The stock had sold off sharply as a
result of disappointing earnings in the current period. Over the long-term, we
believe the fundamentals of this industry leader remain intact and this was an
opportunity to buy a dominant global corporation with a strong technology
competence at a severely depressed price.
Our basic weightings in industries remain unchanged. Banks and financials
remain the largest industry group with 20.2%, followed by insurance with 16.4%,
and consumer durables such as autos and home building with 10.9%. Our turnover
ratio was 28.2%, which would give us a 38% annualized rate. Expenses remain at
a relatively low level of 1.10%.
On September 30, 1999, the total net assets were $49,311,050 and the net asset
value per share was $29.05.
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]
9/30/99 $206,694
Total Value of Investment
Average Annual Total Return
for the period ended 9/30/99
1 year................... + 1.88%
5 year................... +15.33
10 year................... +11.40
15 year................... +12.64
20 year................... +12.94
25 year................... +14.40
Value of Shares
Acquired Through Value of Shares
Reinvestment Acquired Through
of Capital Gains Reinvestment of Total Value of
Distributions Income Dividends Original Shares
9/30/72 10,000 45 -
73-74 7,630 43 -
75-76 11,280 458 -
77-78 14,155 1,217 -
79-80 14,597 2,147 -
81-82 17,299 3,703 -
83-84 24,755 6,347 -
85-86 38,310 10,805 3,857
87-88 30,774 11,062 10,945
89-90 31,059 14,859 22,901
91-92 32,464 21,871 27,527
93-94 32,622 26,652 35,156
95-96 42,938 41,919 60,327
5/31/96-12/31/96* 42,654 44,981 66,844
12/31/97 98,447 58,992 52,749
12/31/98 116,451 63,997 53,823
9/30/99 105,066 55,735 45,893
*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>
September 30, 1999 June 30, 1999
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $49,311,050 $60,238,864
- -----------------------------------------------------------
Net Asset Value Per Share $29.05 $33.01
- -----------------------------------------------------------
Shares Outstanding 1,697,416 1,824,891
- -----------------------------------------------------------
Number of Shareholders 1,251 1,310
- -----------------------------------------------------------
Average Size Account $39,417 $45,984
- -----------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- -----------------------------------------------
<S> <C>
Xerox Corp. (3.0%*) Bank One Corp.
Carpenter Technology Corp.
Dun & Bradstreet Corp.
Harris Corp.
</TABLE>
* Percentage of Total Net Assets.
Ten Largest Holdings September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- -----------------------------------------------------------
<S> <C> <C>
American General Corp. $ 3,159,375 6.4%
- -----------------------------------------------------------
American Express Co. 2,961,750 6.0
- -----------------------------------------------------------
Commerce Bancorp, Inc. (NJ) 2,916,745 5.9
- -----------------------------------------------------------
Pitney Bowes, Inc. 2,437,500 4.9
- -----------------------------------------------------------
First Union Corp. 2,340,439 4.7
- -----------------------------------------------------------
C&D Technologies, Inc. 2,138,806 4.3
- -----------------------------------------------------------
PNC Bank Corp. 2,107,500 4.3
- -----------------------------------------------------------
Anheuser-Busch Companies, Inc. 2,101,875 4.3
- -----------------------------------------------------------
Baxter International, Inc. 1,807,500 3.7
- -----------------------------------------------------------
Ford Motor Co. 1,756,563 3.6
- -----------------------------------------------------------
$23,728,053 48.1%
- -----------------------------------------------------------
</TABLE>
3
<PAGE>
STRATTON MONTHLY DIVIDEND REIT SHARES
- --------------------------------------------------------------------------------
The third quarter of 1999 provided no relief from the REIT sector's bear
market, as the Morgan Stanley REIT Index fell -8.1% and Stratton Monthly
Dividend REIT Shares fell -7.0%. Year-to-date the Index stands at -3.8%, while
the Fund is off -2.6%. Our relative outperformance points to the stability of
the portfolio, but, on an absolute basis, it does not provide any consolation
to us as the Fund's advisor nor to you the shareholder.
As we have mentioned previously, the mania that has driven the S&P 500 stock
valuations is unprecedented. The dividend yield/total return story that REITs
offer has not excited the average equity investor. Several issues continue to
put downward pressure on REIT stock prices: 1) Outflows from REIT dedicated
funds and Unit Investment Trusts, as REIT shares are sold to raise cash to
satisfy redemption requests, 2) Year-end tax-loss selling from investors re-
balancing their portfolios, 3) A reversion of earnings growth rates from the
unprecedented levels of 1996 and 1997 to rates more in line with historical
REIT averages, and 4) General negative sentiment toward REITs relative to
trendier sectors of the market.
However, from an historical standpoint the current fundamentals of the industry
appear to be better positioned than they were in past down cycles. Earnings per
share growth, while slowing from the unusually high rates of the mid-90's,
still remains strong. For stocks in the SMDS portfolio, the average earnings
growth rate for 1999 is expected to be between 8% and 10%. The earnings growth
rate for the stocks in the S&P 500 is slightly higher at 12%. Yet the
price/earnings ratio for the average REIT is 8.5 times this year's earnings vs.
a ratio of 30 times for the S&P 500. Dividend payout ratios are more
conservative than in the past, allowing for uninterrupted dividend payments
during down periods. In fact, there should be, on average, more dividend
increases than decreases in the future. Analyst coverage and scrutiny of REIT
operations and financial statements is higher than ever before. Senior
management of these companies is of a much higher caliber than in previous
years, and interests of senior management and shareholders are much more
closely aligned.
We are confident that our portfolio will continue to deliver consistent, high-
yielding, dividend income. We are also confident that this sector of the market
will recover. What is important for investors to keep in mind is that REITs
should have a place in a well-diversified investment program, and that long-
term exposure to real estate investing can provide both stability and high
income to an investor's portfolio.
On September 30, 1999, the total net assets were $68,035,261 and the net asset
value per share was $22.74.
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]
Average Annual Total Return
for the period ended 9/30/99
1 year................. - 5.71%
5 year................. + 6.42
10 year................. + 6.24
15 year................. + 8.94
9/30/99 $60,269
Total Value of Investment
Value of Shares
Acquired Through Value of Shares
Reinvestment Acquired Through
of Capital Gains Reinvestment of Total Value of
Distributions Income Dividends Original Shares
9,113 583
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
9/30/99 11,937 47,388 944
*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>
September 30, 1999 June 30, 1999
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $68,035,261 $76,394,119
- -----------------------------------------------------------
Net Asset Value Per Share $22.74 $24.94
- -----------------------------------------------------------
Shares Outstanding 2,992,020 3,062,694
- -----------------------------------------------------------
Number of Shareholders 3,609 3,747
- -----------------------------------------------------------
Average Size Account $18,852 $20,388
- -----------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- -----------------------------------------------------------------------
<S> <C>
ProLogis Trust (2.1%*) Mid-America Apartment Communities, Inc.
Smith (Charles E.) Residential Town & Country Trust
Realty, Inc. (1.5%*)
</TABLE>
* Percentage of Total Net Assets.
Ten Largest Holdings September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- -------------------------------------------------------------------------
<S> <C> <C>
Colonial Properties Trust $ 3,343,750 4.9%
- -------------------------------------------------------------------------
Liberty Property Trust 3,176,250 4.7
- -------------------------------------------------------------------------
Bradley Real Estate, Inc. Conv. Pfd. Class A 3,019,919 4.4
- -------------------------------------------------------------------------
Health Care REIT, Inc. 2,600,000 3.8
- -------------------------------------------------------------------------
American Health Properties, Inc. 2,515,625 3.7
- -------------------------------------------------------------------------
Glimcher Realty Trust 2,423,438 3.6
- -------------------------------------------------------------------------
Mid-Atlantic Realty Trust 2,400,625 3.5
- -------------------------------------------------------------------------
Gables Residential Trust 2,400,000 3.5
- -------------------------------------------------------------------------
EastGroup Properties, SBI 2,265,625 3.3
- -------------------------------------------------------------------------
FelCor Lodging Trust, Inc. 2,012,500 3.0
- -------------------------------------------------------------------------
$26,157,732 38.4%
- -------------------------------------------------------------------------
</TABLE>
Special Note--REITs typically have some component of return of capital in their
dividend distributions. The exact amount of taxability of dividends is often
difficult for these companies to determine until late January. Our auditors
then must determine the Fund's own taxability of its distributions before we
can send the Fund's 1099DIV Forms to shareholders. This year, like most REIT
Funds, SMDS will file an extension with the Internal Revenue Service that will
allow for a mailing date after the traditional January 31st deadline. 1099DIV
Forms will not be available until early February. We hope that shareholders can
plan their tax return filing with this is mind.
5
<PAGE>
STRATTON SMALL-CAP YIELD FUND
- --------------------------------------------------------------------------------
Small cap stocks declined in the third quarter with value stocks being
especially hard hit. Your Fund slightly underperformed for the quarter
declining -6.96% versus -6.32% for the Russell 2000 Index. Year-to-date through
September 30, 1999, your Fund is down -2.24% versus up 2.38% for the
technology-laden index. The Russell 2000 Value Index fell -7.82% in the quarter
and is down -2.98% year-to-date. While our long-term performance is very
strong, the recent spread between value and growth style investment returns has
grown to an all time high.
Third quarter performance was helped by continued takeover activity in smaller
capitalization names. American Heritage Life was acquired by Allstate and
Reliance Bancorp agreed to be acquired by North Fork Bancorporation. We took
profits in both of these as well as JeffBanks and Republic Banking, which
announced mergers earlier this year. New names to the portfolio include another
energy company, Penn Virginia, as well as Deb Shops, National Data, and Oshkosh
Truck. We also sold one of our two last remaining REIT holdings, Innkeepers USA
Trust, given the poor outlook for the hotel industry.
As a result of this trading activity, our industry allocation will reflect a
reduced exposure to community banks. Industrial companies remain our largest
weighting at 21.9%, followed by technology at 12.3%, and consumer non-durables
at 11.4%. Given the current economic and interest rate environment, we feel we
are positioned to perform well relative to our value fund peers.
As we mentioned in last quarter's letter, during this time of growth stock
dominance, the Fund's management fee will be reduced until we begin
outperforming the Russell 2000 again. As a result of this fee reduction, the
annualized expense ratio has dropped to 1.27%. Shareholders should also be
aware that the Fund does not anticipate paying any capital gains distributions
this December.
On September 30, 1999, the total net assets were $38,913,516 and the net asset
value per share was $19.66.
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.
[GRAPH]
Average Annual Total Return
for the period ended 9/30/99
1 year.................. + 6.61%
3 year.................. + 11.10
5 year.................. + 12.38
Since Inception
(4/12/93)............... + 10.65
9/30/99 $20,709
Total Value of Investment
Value of Shares
Acquired Through Value of Shares
Reinvestment Acquired Through
of Capital Gains Reinvestment of Total Value of
Distributions Income Dividends Original Shares
4/12/93 10,000 - -
4-93 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
9/30/99 15,728 1,590 1,950
*Prior to 12/31/96, SSCY had a fiscal year-end of 3/31.
Past performance is not predictive of future performance.
6
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $38,913,516 $43,903,260
- -----------------------------------------------------------
Net Asset Value Per Share $19.66 $21.13
- -----------------------------------------------------------
Shares Outstanding 1,979,384 2,077,673
- -----------------------------------------------------------
Number of Shareholders 1,426 1,502
- -----------------------------------------------------------
Average Size Account $27,289 $29,230
- -----------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- ----------------------------------------------------------------------------
<S> <C>
Conning Corp. (0.1%*) American Heritage Life Investment Corp.
Deb Shops, Inc. (1.5%*) Innkeepers USA Trust
National Data Corp. (2.0%*) JeffBanks, Inc.
Oshkosh Truck Corp. Class B (2.1%*) Kansas City Life Insurance Co.
Penn Virginia Corp. (2.1%*) LabOne, Inc.
MTS Systems Corp.
New England Business Service, Inc.
Ocean Financial Corp.
Reliance Bancorp, Inc.
Republic Banking Corp. of Florida
Rollins Truck Leasing Corp.
* Percentage of Total Net Assets. Simpson Industries, Inc.
</TABLE>
Ten Largest Holdings September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- ------------------------------------------------------------------
<S> <C> <C>
Florida Rock Industries, Inc. $ 1,390,000 3.6%
- ------------------------------------------------------------------
Primex Technologies, Inc. 1,382,500 3.5
- ------------------------------------------------------------------
LSI Industries, Inc. 1,372,500 3.5
- ------------------------------------------------------------------
Eaton Vance Corp. 1,280,000 3.3
- ------------------------------------------------------------------
Quixote Corp. 1,275,000 3.3
- ------------------------------------------------------------------
A.O. Smith Corp. 1,270,500 3.3
- ------------------------------------------------------------------
Morrison Management Specialists, Inc. 1,179,000 3.0
- ------------------------------------------------------------------
Shared Medical Systems Corp. 1,168,750 3.0
- ------------------------------------------------------------------
True North Communications, Inc. 1,091,250 2.8
- ------------------------------------------------------------------
Riviana Foods, Inc. (DE) 1,058,750 2.7
- ------------------------------------------------------------------
$ 12,468,250 32.0%
- ------------------------------------------------------------------
</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?
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 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 common stock and other equity
securities of real estate investment trusts.
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 YIELD FUND
- --------------------------------------------------------------------------------
What is the Fund's investment objective?
The primary objective of SSCY is to achieve both dividend income and capital
appreciation. In order to achieve these goals, the Fund invests in equity
securities, primarily common stock, and securities convertible into common
stock, of companies with total market capitalizations at the time of investment
of less than $1 billion and which are outside the S&P 500 Index. 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 60 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 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 September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 95.1%
Banking/Financial - 20.2%
AmSouth Bancorp.......................................... 20,000 $ 468,750
Comerica, Inc. .......................................... 22,500 1,139,062
Commerce Bancorp, Inc. (NJ).............................. 70,283 2,916,745
First Union Corp. ....................................... 65,812 2,340,439
PNC Bank Corp. .......................................... 40,000 2,107,500
Summit Bancorp, Inc. .................................... 30,000 973,125
-----------
9,945,621
-----------
Business Services - 8.6%
Diebold, Inc. ........................................... 30,000 693,750
Gallagher (Arthur J.) & Co. ............................. 20,900 1,112,925
Pitney Bowes, Inc. ...................................... 40,000 2,437,500
-----------
4,244,175
-----------
Capital Goods - 5.3%
Briggs & Stratton Corp. ................................. 20,000 1,167,500
Xerox Corp. ............................................. 35,000 1,467,813
-----------
2,635,313
-----------
Consumer Durables - 10.9%
Armstrong World Industries, Inc. ........................ 32,000 1,438,000
Delphi Automotive Systems Corp. ......................... 75,860 1,218,501
Ford Motor Co. .......................................... 35,000 1,756,563
General Motors Corp. .................................... 15,000 944,062
-----------
5,357,126
-----------
Consumer Non-Durables - 8.1%
Anheuser-Busch Companies, Inc. .......................... 30,000 2,101,875
Heinz (H.J.) Co. ........................................ 10,000 430,000
Kimberly-Clark Corp. .................................... 28,000 1,470,000
-----------
4,001,875
-----------
Consumer Services - 7.5%
American Express Co. .................................... 22,000 2,961,750
H&R Block, Inc. ......................................... 17,000 738,437
-----------
3,700,187
-----------
Health Care - 10.7%
American Home Products Corp. ............................ 35,000 1,452,500
Baxter International, Inc. .............................. 30,000 1,807,500
Mallinckrodt, Inc. ...................................... 20,000 603,750
Shared Medical Systems Corp. ............................ 30,000 1,402,500
-----------
5,266,250
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
Industrial - 4.3%
C&D Technologies, Inc. ................................. 58,900 $ 2,138,806
-----------
Insurance/Services - 16.4%
American General Corp. ................................. 50,000 3,159,375
Aon Corp. .............................................. 33,750 997,734
Jefferson-Pilot Corp. .................................. 12,500 789,844
Lincoln National Corp. ................................. 20,000 751,250
ReliaStar Financial Corp. .............................. 20,000 665,000
Unitrin, Inc. .......................................... 50,000 1,737,500
-----------
8,100,703
-----------
Retailing - 3.1%
The Limited, Inc. ...................................... 40,000 1,530,000
-----------
Total Common Stocks
(cost $31,453,273)..................................... 46,920,056
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM NOTES - 4.5%
Chevron USA, Inc.
5.20%, due 10/05/99
(cost $2,198,729)...................................... $2,200,000 2,198,729
-----------
Total Investments - 99.6%
(cost $33,652,002*).................................... 49,118,785
Cash and Other Assets
Less Liabilities - 0.4%................................ 192,265
-----------
NET ASSETS - 100.0%..................................... $49,311,050
===========
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $33,652,002; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $16,824,963
Gross unrealized depreciation...................................... (1,358,180)
-----------
Net unrealized appreciation....................................... $15,466,783
===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
SCHEDULE OF INVESTMENTS September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 87.8%
Apartments - 12.1%
Cornerstone Realty Income
Trust, Inc. ............................................. 130,000 $ 1,170,000
Gables Residential Trust.................................. 100,000 2,400,000
Home Properties of New York, Inc. ........................ 70,000 1,868,125
Smith (Charles E.) Residential
Realty, Inc. ............................................ 30,000 1,025,625
Walden Residential Properties, Inc. ...................... 80,000 1,745,000
-----------
8,208,750
-----------
Diversified - 13.0%
Colonial Properties Trust................................. 125,000 3,343,750
EastGroup Properties, SBI................................. 125,000 2,265,625
Meditrust Corp. .......................................... 180,000 1,530,000
Pacific Gulf Properties, Inc. ............................ 85,000 1,694,687
-----------
8,834,062
-----------
Health Care - 10.4%
American Health Properties, Inc. ......................... 125,000 2,515,625
Health Care REIT, Inc. ................................... 130,000 2,600,000
HRPT Properties Trust .................................... 90,000 1,046,250
LTC Properties, Inc. ..................................... 85,000 903,125
-----------
7,065,000
-----------
Lodging - 16.1%
Equity Inns, Inc. ........................................ 190,000 1,615,000
FelCor Lodging Trust, Inc. ............................... 115,000 2,012,500
Hospitality Properties Trust.............................. 60,000 1,323,750
Innkeepers USA Trust...................................... 200,000 1,662,500
Jameson Inns, Inc. ....................................... 160,000 1,380,000
RFS Hotel Investors, Inc. ................................ 125,000 1,437,500
Winston Hotels, Inc. ..................................... 175,000 1,553,125
-----------
10,984,375
-----------
Net Lease - 3.6%
Franchise Finance Corp. of America........................ 65,000 1,519,375
TriNet Corporate Realty Trust, Inc. ...................... 40,000 952,500
-----------
2,471,875
-----------
Office/Industrial - 13.3%
First Industrial Realty Trust, Inc. ...................... 60,000 1,485,000
Liberty Property Trust.................................... 140,000 3,176,250
Mack-Cali Realty Corp. ................................... 55,000 1,474,687
ProLogis Trust............................................ 75,000 1,415,625
SL Green Realty Corp. .................................... 75,000 1,537,500
-----------
9,089,062
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
Outlet Centers - 3.8%
Mills Corp. ............................................ 68,700 $ 1,223,719
Tanger Factory Outlet Centers, Inc. .................... 58,700 1,339,094
-----------
2,562,813
-----------
Regional Malls - 3.6%
Glimcher Realty Trust................................... 165,000 2,423,438
-----------
Shopping Centers - 11.9%
Developers Diversified Realty Corp...................... 80,000 1,120,000
IRT Property Co......................................... 166,000 1,494,000
Mid-Atlantic Reatly Trust............................... 230,000 2,400,625
New Plan Excel Realty Trust, Inc........................ 108,000 1,923,750
Western Properties Trust................................ 110,000 1,196,250
-----------
8,134,625
-----------
Total Common Stocks
(cost $68,997,626)..................................... 59,774,000
-----------
PREFERRED STOCKS - 6.1%
Bradley Real Estate, Inc.
Conv. Preferred Class A................................ 132,380 3,019,919
Kimco Realty Corp. - Depositary Shares Class D.......... 50,000 1,115,625
-----------
Total Preferred Stocks
(cost $4,368,815)...................................... 4,135,544
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM NOTES - 4.6%
American Express Credit Corp.
5.13%, due 10/01/99.................................... $ 642,000 642,000
American Express Credit Corp.
5.34%, due 10/04/99.................................... 1,498,000 1,497,333
American Express Credit Corp.
5.30%, due 10/05/99.................................... 970,000 969,429
-----------
Total Short-Term Notes
(cost $3,108,762)...................................... 3,108,762
-----------
Total Investments - 98.5%
(cost $76,475,203*).................................... 67,018,306
Cash and Other Assets
Less Liabilities - 1.5%................................ 1,016,955
-----------
NET ASSETS - 100.0%..................................... $68,035,261
===========
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $76,475,203; and net
unrealized depreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation.................................... $ 1,416,888
Gross unrealized depreciation.................................... (10,873,785)
------------
Net unrealized depreciation..................................... $ (9,456,897)
============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
SCHEDULE OF INVESTMENTS September 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 96.7%
Banking/Financial - 18.1%
American Bank of Connecticut.............................. 22,000 $ 479,875
Colonial BancGroup, Inc. ................................. 40,000 447,500
Commerce Bancorp, Inc. (NJ)............................... 20,671 857,846
Community Bank Systems, Inc. ............................. 17,000 465,375
Conning Corp. ............................................ 4,800 55,200
Dain Rauscher Corp. ...................................... 19,000 931,000
Eaton Vance Corp. ........................................ 40,000 1,280,000
First Essex Bancorp, Inc. ................................ 30,000 474,375
First Financial Holdings, Inc. ........................... 18,000 311,625
Medford Bancorp, Inc. .................................... 26,000 399,750
Southwest Securities Group, Inc. ......................... 15,620 421,740
United Bankshares, Inc. .................................. 20,000 486,250
Webster Financial Corp. .................................. 16,632 424,116
-----------
7,034,652
-----------
Business Services - 7.6%
AAR Corp. ................................................ 50,000 900,000
Primesource Corp. ........................................ 90,000 523,125
Schawk, Inc. ............................................. 44,300 431,925
True North Communications, Inc. .......................... 30,000 1,091,250
-----------
2,946,300
-----------
Chemicals - 4.0%
Kimball International Class B............................. 10,000 192,500
Primex Technologies, Inc. ................................ 70,000 1,382,500
-----------
1,575,000
-----------
Consumer Durables - 4.4%
Callaway Golf Co. ........................................ 30,500 371,719
La-Z-Boy, Inc. ........................................... 25,000 476,563
Polaris Industries, Inc. ................................. 25,000 865,625
-----------
1,713,907
-----------
Consumer Non-Durables - 11.4%
Deb Shops, Inc. .......................................... 30,000 585,000
Glatfelter (P.H.) Co. .................................... 20,000 328,750
International Multifoods Corp. ........................... 45,000 1,035,000
Riviana Foods, Inc. (DE).................................. 55,000 1,058,750
Tasty Baking Co. ......................................... 34,375 399,609
Velcro Industries, N.V. .................................. 76,000 1,035,500
-----------
4,442,609
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
Energy - 5.6%
Mitchell Energy & Development Corp. Class B............... 30,000 $ 705,000
Penn Virginia Corp. ...................................... 40,000 830,000
Tidewater, Inc. .......................................... 25,000 637,500
-----------
2,172,500
-----------
Health Care - 7.4%
Diagnostic Products Corp. ................................ 20,000 536,250
Morrison Management
Specialists, Inc. ....................................... 52,400 1,179,000
Shared Medical Systems Corp. ............................. 25,000 1,168,750
-----------
2,884,000
-----------
Industrial - 21.9%
A.O. Smith Corp. ......................................... 42,000 1,270,500
Commercial Intertech Corp. ............................... 70,000 844,375
Florida Rock Industries, Inc. ............................ 40,000 1,390,000
GenCorp, Inc. ............................................ 15,000 274,687
Greenbrier Companies, Inc. ............................... 73,000 807,563
Hughes Supply, Inc. ...................................... 30,000 652,500
LSI Industries, Inc. ..................................... 60,000 1,372,500
Oshkosh Truck Corp. Class B............................... 30,000 798,750
Republic Group, Inc. ..................................... 45,000 627,188
TB Wood's Corp. .......................................... 51,600 503,100
-----------
8,541,163
-----------
Insurance/Services - 3.3%
Blanch (E.W.) Holdings, Inc. ............................. 13,000 846,625
Donegal Group, Inc. ...................................... 61,299 425,262
-----------
1,271,887
-----------
Real Estate - 0.7%
Pacific Gulf Properties, Inc. ............................ 13,000 259,187
-----------
Technology - 12.3%
Analysts International Corp. ............................. 49,000 508,375
Bel Fuse, Inc. Class B.................................... 30,000 896,250
National Data Corp. ...................................... 30,000 780,000
Quixote Corp. ............................................ 85,000 1,275,000
Superior TeleCom, Inc. ................................... 20,000 278,750
Technitrol, Inc. ......................................... 30,000 1,057,500
-----------
4,795,875
-----------
Total Common Stocks
(cost $32,803,576)....................................... 37,637,080
-----------
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
SCHEDULE OF INVESTMENTS September 30, 1999 (unaudited) (continued)
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
Market
Principal Value
Amount (Note 1)
---------- ------------
<S> <C> <C>
SHORT-TERM NOTES - 3.0%
American Express Credit Corp.
5.34%, due 10/04/99
(cost $1,149,488)..................................... $1,150,000 $ 1,149,488
------------
Total Investments - 99.7%
(cost $33,953,064*)................................... 38,786,568
Cash and Other Assets Less
Liabilities - 0.3%.................................... 126,948
------------
NET ASSETS - 100.0%.................................... $ 38,913,516
============
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $33,953,064; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $ 7,854,737
Gross unrealized depreciation...................................... (3,021,233)
-----------
Net unrealized appreciation....................................... $ 4,833,504
===========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCY
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities at value (cost
$33,652,002, $76,475,203, and
$33,953,064, respectively) (Note 1).... $49,118,785 $67,018,306 $38,786,568
Cash.................................... 161,007 1,297 127,877
Dividends and interest receivable....... 64,830 604,530 57,487
Receivable for shares sold.............. -- 106 --
Receivable for securities sold.......... -- 458,985 --
----------- ----------- -----------
Total Assets.......................... 49,344,622 68,083,224 38,971,932
----------- ----------- -----------
LIABILITIES:
Accrued expenses and other liabilities.. 27,572 47,963 58,416
Payable for shares redeemed............. 6,000 -- --
----------- ----------- -----------
Total Liabilities..................... 33,572 47,963 58,416
----------- ----------- -----------
NET ASSETS:
Applicable to 1,697,416, 2,992,020, and
1,979,384 shares outstanding,
respectively/1/ ....................... $49,311,050 $68,035,261 $38,913,516
=========== =========== ===========
Net asset value, offering and redemption
price per share........................ $ 29.05 $ 22.74 $ 19.66
=========== =========== ===========
SOURCE OF NET ASSETS:
Paid-in capital......................... $31,270,298 $92,884,277 $33,247,806
Undistributed net investment income..... 197,398 127,772 336,902
Accumulated net realized gain (loss) on
investments............................ 2,376,571 (15,519,891) 495,304
Net unrealized appreciation
(depreciation) of investments.......... 15,466,783 (9,456,897) 4,833,504
----------- ----------- -----------
Net Assets............................ $49,311,050 $68,035,261 $38,913,516
=========== =========== ===========
</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, 200,000,000 shares
authorized.
See accompanying notes to financial statements.
15
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Nine Months Ended September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCY
<S> <C> <C> <C>
----------- ----------- -----------
INCOME:
Dividends............................. $ 937,594 $ 5,070,577 $ 666,424
Interest.............................. 84,555 146,785 48,176
----------- ----------- -----------
Total Income........................ 1,022,149 5,217,362 714,600
----------- ----------- -----------
EXPENSES:
Accounting/Pricing services fees...... 24,507 26,547 26,061
Administration services fees.......... 25,516 31,255 20,666
Advisory fees (Note 2)................ 320,550 337,110 204,324
Audit fees............................ 15,483 17,568 15,400
Custodian fees........................ 12,799 17,956 16,262
Directors' fees....................... 11,587 14,921 8,115
Legal fees............................ 6,431 8,880 5,692
Miscellaneous fees.................... 5,504 7,327 5,797
Printing and postage fees............. 17,127 27,200 16,750
Registration fees..................... 19,563 18,065 22,000
Shareholder services fees............. 25,720 81,763 35,427
Taxes other than income taxes......... 3,375 4,225 2,600
----------- ----------- -----------
Total Expenses...................... 488,162 592,817 379,094
----------- ----------- -----------
Net Investment Income............. 533,987 4,624,545 335,506
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on
investments.......................... 2,407,660 (2,340,725) 1,654,457
Net decrease in unrealized
appreciation on investments.......... (9,682,004) (4,208,941) (2,714,413)
----------- ----------- -----------
Net loss on investments............... (7,274,344) (6,549,666) (1,059,956)
----------- ----------- -----------
Net decrease in net assets resulting
from operations.................... $(6,740,357) $(1,925,121) $ (724,450)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SGF SMDS
-------------------------- ---------------------------
9 Months Ended Year Ended 9 Months Ended Year Ended
09/30/99* 12/31/98 09/30/99* 12/31/98
-------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.. $ 533,987 $ 998,604 $ 4,624,545 $ 5,360,764
Net realized gain
(loss) on
investments........... 2,407,660 4,896,340 (2,340,725) 3,596,392
Net increase (decrease)
in unrealized
appreciation of
investments........... (9,682,004) 687,299 (4,208,941) (19,590,880)
------------ ----------- ------------ ------------
Net increase (decrease)
in net assets
resulting from
operations............ (6,740,357) 6,582,243 (1,925,121) (10,633,724)
------------ ----------- ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income ($0.19 and
$0.59 per share,
respectively, for SGF,
$1.44 and $1.65,
respectively,
for SMDS)............. (336,589) (1,034,331) (4,496,773) (5,360,764)
From realized gains on
investments ($0.94 and
$2.43 per share,
respectively, for
SGF).................. (1,667,008) (4,304,696) -- --
In excess of net
investment income
($0.00 and $0.40 per
share
for SMDS)............. -- -- -- (1,299,867)
CAPITAL SHARE
TRANSACTIONS:/2/ (5,268,169) 1,902,474 (5,479,147) (4,725,567)
------------ ----------- ------------ ------------
Total increase
(decrease) in net
assets................ (14,012,123) 3,145,690 (11,901,041) (22,019,922)
NET ASSETS:
Beginning of period.... 63,323,173 60,177,483 79,936,302 101,956,224
------------ ----------- ------------ ------------
End of period
(including
undistributed net
investment income of
$197,398 and $0,
respectively, for SGF,
and $127,772 and $0,
respectively, for
SMDS)................. $ 49,311,050 $63,323,173 $ 68,035,261 $ 79,936,302
============ =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SSCY
--------------------------
9 Months Ended Year Ended
09/30/99* 12/31/98
-------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income............................. $ 335,506 $ 388,213
Net realized gain (loss) on investments........... 1,654,457 (1,159,153)
Net decrease in unrealized appreciation of
investments...................................... (2,714,413) (4,996,458)
----------- -----------
Net decrease in net assets resulting from
operations....................................... (724,450) (5,767,398)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.00 and $0.18 per
share, respectively, for SSCY)................... -- (410,582)
From realized gains on investments ($0.00 and
$0.04 per share, respectively, for SSCY)......... -- (96,899)
CAPITAL SHARE TRANSACTIONS:/2/ (3,151,339) 9,687,236
----------- -----------
Total increase (decrease) in net assets........... (3,875,789) 3,412,357
NET ASSETS:
Beginning of period............................... 42,789,305 39,376,948
----------- -----------
End of period (including undistributed net
investment income of $336,902 and $1,396,
respectively, for SSCY).......................... $38,913,516 $42,789,305
=========== ===========
</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>
9 Months Ended 09/30/99* Year Ended 12/31/98
-------------------------- -----------------------
Shares Value Shares Value
-------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued............. 113,199 $ 3,781,326 318,761 $ 11,325,835
Shares reinvested from net
investment income and
capital gains
distributions............ 54,339 1,767,104 140,694 4,684,002
---------- -------------- --------- ------------
167,538 5,548,430 459,455 16,009,837
Shares redeemed........... (328,709) (10,816,599) (403,301) (14,107,363)
---------- -------------- --------- ------------
Net increase
(decrease)........... (161,171) $ (5,268,169) 56,154 $ 1,902,474
========== ============== ========= ============
<CAPTION>
SMDS
<S> <C> <C> <C> <C>
---------------------------------------------------
<CAPTION>
9 Months Ended 09/30/99* Year Ended 12/31/98
-------------------------- -----------------------
Shares Value Shares Value
-------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued............. 174,744 $ 4,214,670 373,202 $ 9,611,674
Shares reinvested from net
investment income........ 115,503 2,767,501 141,500 3,873,947
---------- -------------- --------- ------------
290,247 6,982,171 514,702 13,485,621
Shares redeemed........... (523,654) (12,461,318) (660,216) (18,211,188)
---------- -------------- --------- ------------
Net decrease.......... (233,407) $ (5,479,147) (145,514) $ (4,725,567)
========== ============== ========= ============
<CAPTION>
SSCY
<S> <C> <C> <C> <C>
---------------------------------------------------
<CAPTION>
9 Months Ended 09/30/99* Year Ended 12/31/98
-------------------------- -----------------------
Shares Value Shares Value
-------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued............. 273,859 $ 5,162,160 1,071,101 $ 24,120,897
Shares reinvested from net
investment income and
capital gains
distributions............ -- -- 18,664 402,242
---------- -------------- --------- ------------
273,859 5,162,160 1,089,765 24,523,139
Shares redeemed........... (422,674) (8,313,499) (713,619) (14,835,903)
---------- -------------- --------- ------------
Net increase
(decrease)........... (148,815) $ (3,151,339) 376,146 $ 9,687,236
========== ============== ========= ============
</TABLE>
- --------
* Unaudited
See accompanying notes to financial statements.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
September 30, 1999 (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"). 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.
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 $13,179,000 of which
$7,681,000 expires in 2000, $4,331,000 expires in 2003 and
$1,167,000 expires in 2005. SSCY
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
September 30, 1999 (unaudited)
has a capital loss carryover available to offset future capital
gains, if any, of approximately $1,159,000, 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 will also be
designated as a return of capital.
Note 2. - During the nine months ended September 30, 1999, the Funds paid
advisory fees to Stratton Management Company, (the "Advisor") as follows:
SGF - $320,550; SMDS - $337,110; SSCY - $204,324. 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 dividends and is reported monthly on a market
capitalization-weighted basis. When the Fund performs better
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
September 30, 1999 (unaudited)
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 nine months ended September 30, 1999 caused the advisory
fee to decrease by $23,279.
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. Certain
Directors and officers of the Funds are shareholders of FinDaTex, Inc.
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. First Data Distributors, Inc.,
a wholly-owned subsidiary of Investor Services Group, 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 nine months ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
SGF SMDS SSCY
<S> <C> <C> <C>
----------- ----------- -----------
Cost of purchases........................... $15,820,515 $ 8,734,622 $14,023,883
Proceeds of sales........................... 21,417,963 14,370,412 17,735,646
</TABLE>
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>
9 Months Year Year 7 Months Years Ended May 31,
Ended Ended Ended Ended -------------------------
09/30/99* 12/31/98 12/31/97 12/31/96 1996 1995 1994
--------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 34.07 $ 33.39 $ 27.00 $ 27.18 $ 22.35 $ 20.65 $ 20.89
------- ------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net investment
income............... 0.306 0.570 0.550 0.312 0.556 0.537 0.510
Net gains (losses) on
securities (both
realized and
unrealized).......... (4.196) 3.130 8.900 1.298 5.759 2.978 0.665
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations......... (3.890) 3.700 9.450 1.610 6.315 3.515 1.175
------- ------- ------- ------- ------- ------- -------
Less Distributions
Dividends (from net
investment income)... (0.190) (0.590) (0.540) (0.580) (0.540) (0.540) (0.510)
Distributions (from
capital gains)....... (0.940) (2.430) (2.520) (1.210) (0.945) (1.275) (0.905)
------- ------- ------- ------- ------- ------- -------
Total
distributions...... (1.130) (3.020) (3.060) (1.790) (1.485) (1.815) (1.415)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 29.05 $ 34.07 $ 33.39 $ 27.00 $ 27.18 $ 22.35 $ 20.65
======= ======= ======= ======= ======= ======= =======
Total Return............ (11.77%) 11.46% 36.06% 6.40% 29.62% 18.61% 5.92%
Ratios/Supplemental Data
Net assets, end of
period
(in 000's)........... $49,311 $63,323 $60,177 $44,801 $42,880 $31,719 $25,475
Ratio of expenses to
average net assets... 1.10%/1/ 1.07% 1.11% 1.17%/1/ 1.16% 1.31% 1.34%
Ratio of net
investment income to
average net assets... 1.21%/1/ 1.60% 1.87% 2.08%/1/ 2.28% 2.70% 2.51%
Portfolio turnover
rate................. 28.22% 38.02% 34.40% 20.32% 15.41% 42.54% 49.81%
</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>
9 Months Year Year 11 Months Years ended January 31,
Ended Ended Ended Ended -----------------------------
09/30/99* 12/31/98 12/31/97 12/31/96 1996 1995 1994
--------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69 $ 29.91
------- ------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net investment income..... 1.483 1.650 1.540 1.630 1.880 1.940 1.870
Net gains (losses) on
securities (both realized
and unrealized).......... (2.083) (5.070) 3.200 0.160 2.600 (3.870) (1.140)
------- ------- -------- -------- -------- -------- --------
Total from investment
operations............. (0.600) (3.420) 4.740 1.790 4.480 (1.930) 0.730
------- ------- -------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)....... (1.440) (1.650) (1.540) (1.630) (1.890) (1.920) (1.940)
Distributions (in excess
of net investment
income).................. -- (0.400) -- (0.130) (0.030) -- (0.010)
Return of capital......... -- -- (0.380) -- -- -- --
------- ------- -------- -------- -------- -------- --------
Total distributions..... (1.440) (2.050) (1.920) (1.760) (1.920) (1.920) (1.950)
------- ------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period..................... $ 22.74 $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69
======= ======= ======== ======== ======== ======== ========
Total Return................ (2.57%) (11.75%) 18.09% 7.12% 18.98% (6.57%) 2.22%
Ratios/Supplemental Data
Net assets, end of period
(in 000's)............... $68,035 $79,936 $101,956 $103,780 $129,267 $134,066 $165,798
Ratio of expenses to
average net assets....... 1.06%/1/ 1.02% 1.02% 1.02%/1/ 0.99% 1.08% 0.99%
Ratio of net investment
income to average net
assets................... 8.30%/1/ 5.95% 5.48% 6.94%/1/ 7.42% 7.71% 6.12%
Portfolio turnover rate... 12.45% 18.89% 42.47% 69.19% 53.30% 39.50% 19.15%
</TABLE>
- --------
* Unaudited
/1/Annualized
See accompanying notes to financial statements.
23
<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>
9 Months Year Year 9 Months Year Year For the Period
Ended Ended Ended Ended Ended Ended 04/12/93/1/
09/30/99* 12/31/98 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> <C>
Net Asset Value,
Beginning of Period.... $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94 $ 12.97 $ 12.50
------- ------- ------- ------- ------- ------- -------
Income from Investment
Operations
Net investment
income............... 0.170 0.170 0.210 0.260 0.330 0.290 0.220
Net gains (losses) on
securities (both
realized and
unrealized).......... (0.620) (2.310) 6.800 1.740 3.040 (0.020) 0.450
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations......... (0.450) (2.140) 7.010 2.000 3.370 0.270 0.670
------- ------- ------- ------- ------- ------- -------
Less Distributions
Dividends (from net
investment income)... -- (0.180) (0.200) (0.270) (0.330) (0.300) (0.200)
Distributions (from
capital gains)....... -- (0.040) (1.130) (0.920) -- -- --
------- ------- ------- ------- ------- ------- -------
Total
distributions...... -- (0.220) (1.330) (1.190) (0.330) (0.300) (0.200)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 19.66 $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94 $ 12.97
======= ======= ======= ======= ======= ======= =======
Total Return............ (2.24%) (9.58%) 42.37% 12.84% 26.18% 2.09% 5.51%/2/
Ratios/Supplemental Data
Net assets, end of
period (in 000's).... $38,914 $42,789 $39,377 $21,691 $19,592 $14,058 $ 8,257
Ratio of expenses to
average net assets... 1.27%/2/ 1.56% 1.62% 1.29%/2/ 1.46% 2.12% 2.28%/2/
Ratio of net
investment income to
average net assets... 1.12%/2/ 0.80% 1.09% 2.03%/2/ 2.28% 2.36% 1.85%/2/
Portfolio turnover
rate................. 35.79% 35.74% 26.27% 35.86% 33.50% 30.20% 28.60%/2/
</TABLE>
- --------
* Unaudited
/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.
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. SSCY pays annual dividends from net
investment income. Distributions may be reinvested in additional shares of
such Fund.
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 SSCY 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' Distributor:
c/o FIRST DATA DISTRIBUTORS, INC.
4400 Computer Drive,
Westborough, MA 01581
Telephone: 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:
FIRST DATA INVESTOR SERVICES GROUP, INC.
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 FIRST DATA INVESTOR SERVICES GROUP, INC.
P. O. Box 61767, King of Prussia, PA 19406-8767
Distributed by First Data Distributors, Inc., 4400 Computer Drive,
Westborough, MA 01581--Date of first use November 1999. 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>
<TABLE>
<CAPTION>
DIRECTORS OFFICERS
<S> <C> <C>
Lynne M. Cannon James W. Stratton James A. Beers
Chairman Vice President
John J. Lombard, Jr.
John A. Affleck Joanne E. Kuzma
Douglas J. MacMaster, Jr. President, Stratton Monthly Vice President
Dividend REIT Shares
Henry A. Rentschler Patricia L. Sloan
Gerard E. Heffernan Secretary & Treasurer
Merritt N. Rhoad, Jr. President
Stratton Growth Fund Brigid E. Hummel
Richard W. Stevens Assistant Secretary &
Frank H. Reichel, III Treasurer
James W. Stratton President,
Stratton Small-Cap Yield Fund
</TABLE>
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
First Data Investor Services Group, 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 Fund web site at
http://www.strattonmgt.com
STRATTON
Mutual Funds
Stability.Strategy.Success 100% No Load
Mutual Fund
Council
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STRATTON GROWTH FUND
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 33652002
<INVESTMENTS-AT-VALUE> 49118785
<RECEIVABLES> 64830
<ASSETS-OTHER> 161007
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 49344622
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33572
<TOTAL-LIABILITIES> 33572
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31270298
<SHARES-COMMON-STOCK> 1697416
<SHARES-COMMON-PRIOR> 1858587
<ACCUMULATED-NII-CURRENT> 197398
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2376571
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15466783
<NET-ASSETS> 49311050
<DIVIDEND-INCOME> 937594
<INTEREST-INCOME> 84555
<OTHER-INCOME> 0
<EXPENSES-NET> 488162
<NET-INVESTMENT-INCOME> 533987
<REALIZED-GAINS-CURRENT> 2407660
<APPREC-INCREASE-CURRENT> (9682004)
<NET-CHANGE-FROM-OPS> (6740357)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 336589
<DISTRIBUTIONS-OF-GAINS> 1667008
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 113199
<NUMBER-OF-SHARES-REDEEMED> 328709
<SHARES-REINVESTED> 54339
<NET-CHANGE-IN-ASSETS> (14012123)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1635919
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 320550
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 488162
<AVERAGE-NET-ASSETS> 59119777
<PER-SHARE-NAV-BEGIN> 34.07
<PER-SHARE-NII> 0.306
<PER-SHARE-GAIN-APPREC> (4.196)
<PER-SHARE-DIVIDEND> 0.190
<PER-SHARE-DISTRIBUTIONS> 0.940
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 29.05
<EXPENSE-RATIO> 1.10
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> STRATTON MONTHLY DIVIDEND REIT SHARES
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 76475203
<INVESTMENTS-AT-VALUE> 67018306
<RECEIVABLES> 1063621
<ASSETS-OTHER> 1297
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68083224
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 47963
<TOTAL-LIABILITIES> 47963
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 92884277
<SHARES-COMMON-STOCK> 2992020
<SHARES-COMMON-PRIOR> 3225427
<ACCUMULATED-NII-CURRENT> 127772
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (15519891)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (9456897)
<NET-ASSETS> 68035261
<DIVIDEND-INCOME> 5070577
<INTEREST-INCOME> 146785
<OTHER-INCOME> 0
<EXPENSES-NET> 592817
<NET-INVESTMENT-INCOME> 4624545
<REALIZED-GAINS-CURRENT> (2340725)
<APPREC-INCREASE-CURRENT> (4208941)
<NET-CHANGE-FROM-OPS> (1925121)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4496773)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 174744
<NUMBER-OF-SHARES-REDEEMED> 523654
<SHARES-REINVESTED> 115503
<NET-CHANGE-IN-ASSETS> (11901041)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (13179166)
<OVERDISTRIB-NII-PRIOR> 1299867
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 337110
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 592817
<AVERAGE-NET-ASSETS> 74496999
<PER-SHARE-NAV-BEGIN> 24.78
<PER-SHARE-NII> 1.483
<PER-SHARE-GAIN-APPREC> (2.083)
<PER-SHARE-DIVIDEND> 1.440
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 22.74
<EXPENSE-RATIO> 1.06
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> SMALL-CAP YIELD FUND
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 33953064
<INVESTMENTS-AT-VALUE> 38786568
<RECEIVABLES> 57487
<ASSETS-OTHER> 127877
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 38971932
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58416
<TOTAL-LIABILITIES> 58416
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33247806
<SHARES-COMMON-STOCK> 1979384
<SHARES-COMMON-PRIOR> 2128199
<ACCUMULATED-NII-CURRENT> 336902
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 495304
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4833504
<NET-ASSETS> 38913516
<DIVIDEND-INCOME> 666424
<INTEREST-INCOME> 48176
<OTHER-INCOME> 0
<EXPENSES-NET> 379094
<NET-INVESTMENT-INCOME> 335506
<REALIZED-GAINS-CURRENT> 1654457
<APPREC-INCREASE-CURRENT> (2714413)
<NET-CHANGE-FROM-OPS> (724450)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 273859
<NUMBER-OF-SHARES-REDEEMED> 422674
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3875789)
<ACCUMULATED-NII-PRIOR> 1396
<ACCUMULATED-GAINS-PRIOR> (1159153)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 204324
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 379094
<AVERAGE-NET-ASSETS> 40056192
<PER-SHARE-NAV-BEGIN> 20.11
<PER-SHARE-NII> 0.170
<PER-SHARE-GAIN-APPREC> (0.620)
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 19.66
<EXPENSE-RATIO> 1.27
</TABLE>
