<PAGE>
FIRST QUARTER REPORT
MARCH 31, 1999
- --------------------------------------------------------------------------------
STRATTON
MUTUAL FUNDS
- --------------------------------------------------------------------------------
Stability*Strategy*Success
<PAGE>
[FIRST DATA LOGO APPEARS HERE]
DEAR FELLOW SHAREHOLDER:
The first quarter of 1999 was a continuation of the market performance that we
saw in the last nine months of 1998. The growth style of investing performed
best and value investing continued to suffer on a relative basis. Large
capitalization stocks performed the best which is also a continuation of a
trend. In our annual report, we suggested that the overvaluation of growth and
undervaluation of value was stretched about as far as it ever gets, but in the
first quarter of 1999, we witnessed three more months of the same.
Beginning in April, a major change has taken place in the valuation cycles of
this market. Growth stock have under performed and value stocks, especially
cyclical value stocks, have come back strong. There are several underlying
reasons for this change in market psychology, but the most important is the
extremes in valuation that the market had reached as of the end of the first
quarter.
The economic scene seems to be changing as there are continuing reports of an
improvement in the economies of the Pacific regions. Many manufacturing
companies have reported a pick-up in new orders coming from Asia after a two
year drought. As Asia recovers, this will have a dramatic effect upon pricing
of commodity related industries such as paper, chemicals, metals, and energy.
The second major influence on the World economy has been the fact that OPEC
seems to be getting its act together. They have reduced oil production; as a
consequence, the price of oil has risen from a low of $11.00 to a high of
$18.00 per barrel, recently. Oil is one of the most basic costs in our economic
system. It finds its way into the cost of transportation, power and
petrochemical raw materials. There is no question that if oil prices remain at
$18.00 both the producer price index and the consumer price index will reflect
this very soon.
We believe that the Federal Reserve has been overly accommodative with a loose
money supply and low interest rates in light of the global financial crisis
plus a lack of any tangible signs of inflation. When Asia turns and when the
oil price increases move into the price indexes, we expect the Federal Reserve
to begin a policy of tightening the money supply. This will not be positive to
those over extended sectors of the stock market.
This has been the most difficult twelve month period that we can recall for
value managers. The differential in performance between growth and value has
been more extreme than any we have seen since 1972. Many sectors of the stock
market remain extremely overvalued. We believe that the correction set in place
by the recovery of the Pacific Rim, the rise in the price of energy and a
potential change in the Federal Reserve policy will not benefit stocks which
have very high price to earnings ratios. Our entire management effort is
focused at trying to pursue areas of undervaluation as measured by the
traditional standards--price to cash flow, price to earnings, price to book,
and dividend yields. We believe that this two tier market that we have
witnessed still offers substantial investment opportunities within it featuring
industries and companies that are selling at very significant discounts to the
S&P 500.
Sincerely yours,
/s/ James W. Stratton
James W. Stratton
Chairman
May 10, 1999
<PAGE>
STRATTON GROWTH FUND
- --------------------------------------------------------------------------------
During the first quarter of 1999, we made a series of changes in the Growth
Fund adding companies whose earnings expectations for the next two years seem
particularly good. We added General Motors to the portfolio, even though we
already own Ford and Chrysler. The outlook for U.S. auto sales is
extraordinarily good, especially in SUVs and light duty trucks. General Motors
has been a laggard compared to the industry in terms of profit margin
improvement, but current management is focusing on this issue and will drive
the company to catch up to Ford and Chrysler over the next several years.
We added Heinz (2.4%) in the consumer product section, a diversified food
manufacturer whose brands are recognized internationally. ReliaStar Financial
(1.4%) replaced two of our other insurance companies. This is a diversified
life and annuity insurer. Finally, we added to the portfolio Dun & Bradstreet
(1.2%). This company has completed the process of transitioning from a highly
diversified conglomerate to a very focused information services company; we
expect the Fund to benefit with the company's projected double-digit earnings
growth over the next several years.
Despite these changes, our basic weightings in industries remain very similar.
Banks and financials are the largest industry group with 23.7%, followed by
insurance with 15.5%, and consumer non-durables such as food and beverage with
11.4%.
Our turnover ratio for the quarter was 10%, which when annualized would give us
a 40% rate which is very much in line with our historical average. Expenses
remain at a relatively low level of 1.09%.
On March 31, 1999, the total net assets were $59,254,095 and the net asset
value per share was $32.63.
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 FOR STRATTON GROWTH FUND]
Average Annual Total Return for the period ended 3/31/99
1 year..................................... - 3.82%
5 year..................................... + 19.85
10 year..................................... + 13.99
15 year..................................... + 13.67
20 year..................................... + 14.03
25 year..................................... + 13.96
Value of Shares
Acquired Through Value of Shares
Reinvestment Acquired Through Total Value
of Capital Gains Reinvestment of of Original
Year Distributions Income Dividends Shares
- ---------------------- ---------------- ---------------- -----------
- -
9/30/1972 $ 10,000 $ 45 $ -
1973-1974 7,630 43 -
1975-1976 11,280 458 -
1977-1978 14,155 1,217 -
1979-1980 14,597 2,147 -
1981-1982 17,299 3,703 -
1983-1884 24,755 6,347 -
1985-1986 38,310 10,805 3,857
1987-1988 30,774 11,062 10,945
1989-1990 31,059 14,859 22,901
1991-1992 32,464 21,871 27,527
1993-1994 32,622 26,652 35,156
1995-1996 42,938 41,919 60,327
05/31/1996-12/31/1996* 42,654 44,981 66,844
12/31/1997 98,447 58,992 52,749
12/31/1998 116,451 63,997 53,823
03/31/1999 111,529 61,292 51,548
Past performance is not predictive of future performance.
* Prior to 12/31/96, SGF had a fiscal year-end of 5/31.
2
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $59,254,095 $63,323,173
- -----------------------------------------------------------
Net Asset Value Per Share $32.63 $34.07
- -----------------------------------------------------------
Shares Outstanding 1,816,016 1,858,587
- -----------------------------------------------------------
Number of Shareholders 1,357 1,388
- -----------------------------------------------------------
Average Size Account $43,666 $45,622
- -----------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- ----------------------------------------------------
<S> <C>
Dun & Bradstreet Corp. Eastman Kodak Co.
General Motors Corp. El Paso Energy Corp.
Heinz (H.J.) Co. HSB Group, Inc.
ReliaStar Financial Corp. Pennzoil-Quaker State Co.
SAFECO Corp.
SUPERVALU, Inc.
Union Planters Corp.
</TABLE>
Ten Largest Holdings March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- -----------------------------------------------------------
<S> <C> <C>
American General Corp. $ 3,525,000 5.9%
- -----------------------------------------------------------
First Union Corp. 3,516,829 5.9
- -----------------------------------------------------------
Pitney Bowes, Inc. 3,187,500 5.4
- -----------------------------------------------------------
Anheuser-Busch Companies, Inc. 3,048,500 5.1
- -----------------------------------------------------------
Commerce Bancorp, Inc. (NJ) 2,899,174 4.9
- -----------------------------------------------------------
PNC Bank Corp. 2,778,125 4.7
- -----------------------------------------------------------
DaimlerChrysler AG 2,675,205 4.6
- -----------------------------------------------------------
American Express Co. 2,585,000 4.4
- -----------------------------------------------------------
Ford Motor Co. 1,986,250 3.4
- -----------------------------------------------------------
Baxter International, Inc. 1,980,000 3.3
- -----------------------------------------------------------
$28,181,583 47.6%
- -----------------------------------------------------------
</TABLE>
3
<PAGE>
STRATTON MONTHLY DIVIDEND REIT SHARES
- --------------------------------------------------------------------------------
During the first quarter of 1999, the market valuation of REITs continued to
decline as value stocks remained out of favor. This brought the valuation level
of the REIT industry to extraordinary low levels which provided, in many cases,
dividend yields in excess of 10% and an average price earnings ratio of 7
times.
This market performance changed suddenly positive in the month of April. There
were two reasons for it; first, Warren Buffet indicated in certain S.E.C.
filings that he personally owned more than 5% of the shares of two REITs. And
second, two of the smaller REITs chose to go private in leveraged buyout
transactions led by their management. Both of these actions suggest that the
bottom of the REIT prices has been reached and that new attention is being
focused on this industry both from insiders and traditional value investors.
During the quarter, we added two new names to the portfolio, Franchise Finance
Corp. (1.8%), which is a leading lessor of fast food restaurant properties on a
national basis and Mack-Cali (2.1%), which is an operator of suburban office
buildings primarily in the northeast. These changes have resulted in only a
slight modification in our industry weightings within the portfolio. Apartments
have become our largest industry with 17.2%, followed by lodging with 17.1%,
and diversified REITs with 12.8%.
We have as a strategic decision been reducing our exposure to healthcare REITs
as we are concerned with the long-term ramifications of the Balanced Budget Act
on the viability of a number of healthcare entities. Healthcare now represents
10.7% of our portfolio as we have eliminated Universal Health REIT. Our
portfolio turnover rate was a very low 4% for the first quarter which when
annualized would suggest a rate between 15% and 20% for the year. Our expense
ratio remained at a low 1.07%.
On March 31, 1999, the total net assets were $70,292,968 and the net asset
value per share was $22.55.
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 FOR STRATTON]
Average Annual Total Return for the period ended 3/31/99
1 year..................................... - 19.43%
5 year..................................... + 4.13
10 year..................................... + 7.03
15 year..................................... + 9.51
Value of Shares
Acquired Through Value of Shares
Reinvestment Acquired Through Total Value
of Capital Gains Reinvestment of of Original
Year Distributions Income Dividends Shares
- ---------------------- ---------------- ---------------- -----------
- -
05/31/1980 $ - $ 583 $ 9,113
1981 - 583 9,113
1982 - 1,641 9,354
1983 - 3,107 10,808
1984 - 4,379 10,667
1985 - 6,627 11,795
1986 - 10,328 14,604
1987 503 13,744 16,320
1988 1,043 13,041 13,181
1989 1,015 15,044 12,824
1990 1,018 17,513 12,861
1991 956 19,388 12,084
1992 1,156 26,570 14,609
1993 1,242 31,818 15,701
1994 1,192 33,590 15,060
1995 1,032 32,499 13,039
1996 1,138 39,890 14,383
01/31/96-12/31/96* 1,139 43,821 14,399
12/31/1997 1,257 52,959 15,879
12/31/1998 1,029 47,819 13,008
03/31/1999 937 44,647 11,837
Past performance is not predictive of future performance.
*Prior to 12/31/96, SMDS had a fiscal year-end of 1/31.
4
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $70,292,968 $79,936,302
- -----------------------------------------------------------
Net Asset Value Per Share $22.55 $24.78
- -----------------------------------------------------------
Shares Outstanding 3,116,836 3,225,427
- -----------------------------------------------------------
Number of Shareholders 3,930 4,252
- -----------------------------------------------------------
Average Size Account $17,886 $18,800
- -----------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- ------------------------------------------------------------------------
<S> <C>
Franchise Finance Corp. of America Boykin Lodging Co.
Mack-Cali Realty Corp. Commercial Net Lease Realty, Inc.
Public Storage, Inc.
Universal Health Realty Income Trust
</TABLE>
Ten Largest Holdings March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- -------------------------------------------------------------------------
<S> <C> <C>
Liberty Property Trust $ 3,266,050 4.6%
- -------------------------------------------------------------------------
Colonial Properties Trust 3,187,500 4.5
- -------------------------------------------------------------------------
Bradley Real Estate, Inc. Conv. Pfd. Class A 2,978,550 4.2
- -------------------------------------------------------------------------
Health Care REIT, Inc. 2,795,000 4.0
- -------------------------------------------------------------------------
American Health Properties, Inc. 2,455,313 3.5
- -------------------------------------------------------------------------
Glimcher Realty Trust 2,371,875 3.4
- -------------------------------------------------------------------------
Mid-Atlantic Realty Trust 2,357,500 3.4
- -------------------------------------------------------------------------
Town & Country Trust 2,309,081 3.3
- -------------------------------------------------------------------------
Meditrust Corp. 2,238,750 3.2
- -------------------------------------------------------------------------
Gables Residential Trust 2,206,250 3.1
- -------------------------------------------------------------------------
$26,165,869 37.2%
- -------------------------------------------------------------------------
</TABLE>
5
<PAGE>
STRATTON SMALL-CAP YIELD FUND
- --------------------------------------------------------------------------------
The first quarter of 1999 continued to be a poor performance period for small
cap value stocks. Returns for all small cap indices were negative for the
quarter despite positive returns from most large cap indices. Within the small
cap arena growth outperformed value as technology remained strong. Your Fund
fell -10.2% in the quarter versus -5.4% for the Russell 2000. For the three
years ending March 31, 1999, we are still significantly ahead of the Fund's
benchmark index. More recently, the month of April has provided some relief for
value investors, as the markets seemed to shift away from the growth style of
investing. The Fund was up 6.7% for the month.
We had two takeovers in the quarter. Federated Department Stores found
Fingerhut's internet marketing prowess too attractive to resist and Union
Planters expanded their Florida-franchise by acquiring Republic Banking Corp.
of Florida. We also sold Kuhlman Corp. which agreed to be acquired by Borg-
Warner Automotive in December. Banking/Financial remains our largest sector at
20.8% of the portfolio and should benefit from strong earnings and industry
consolidation. Business Services and Industrial stocks are our next largest
industry groups at 17.4% and 14.7%, respectively. Dividend-paying technology
stocks make up 8.7% of the portfolio.
During the quarter we reduced our exposure to the financial sector by trimming
positions in the banking, insurance and REIT industries. We also sold Coca-Cola
Bottling, John Harland (a check printer), Marc, Inc. (a marketing firm) and
Smart & Final (a grocery chain). New names in the portfolio include AAR Corp.
(2.0%) which provides aviation services, New England Business Services (1.6%)
which makes business forms and software, and West-Virginia based United
Bankshares (1.3%).
With the strong performance shown by the larger growth stocks in the Russell
2000, the performance-based management fee will be reduced until we begin to
outperform the index again. For patient investors, this should lead to a lower
overall expense ratio for the Fund. As an added measure to reduce expenses, the
Board of Directors has decided to pay an annual dividend at year-end rather
than incur the expenses associated with a quarterly mailing of a small
dividend. Total net assets at quarter end were $35,722,891. Net asset value per
share was $18.05.
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 FOR STRATTON]
Average Annual Total Return for the period ended 3/31/99
1 year..................................... - 24.99%
3 year..................................... + 9.24
5 year..................................... + 10.93
Since Inception (4/12/93).................. + 10.02
Value of Shares
Acquired Through Value of Shares
Reinvestment Acquired Through Total Value
of Capital Gains Reinvestment of of Original
Year Distributions Income Dividends Shares
- ---------------------- ---------------- ---------------- -----------
- -
04/12/93 $ - $ - $ 10,000
04/1993 - - 10,000
03/31/1994 - 158 10,376
03/31/1995 - 402 10,352
03/31/1996 - 789 12,780
03/31/96-12/31/96* 813 1,067 13,432
12/31/1997 2,190 1,633 17,976
12/31/1998 1,995 1,626 16,088
03/31/1999 1,790 1,460 14,440
Past performance is not predictive of future performance.
* Prior to 12/31/96, SSCY had a fiscal year-end of 3/31.
6
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $35,722,891 $42,789,305
- -----------------------------------------------------------
Net Asset Value Per Share $18.05 $20.11
- -----------------------------------------------------------
Shares Outstanding 1,978,638 2,128,199
- -----------------------------------------------------------
Number of Shareholders 1,622 1,785
- -----------------------------------------------------------
Average Size Account $22,024 $23,972
- -----------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- ---------------------------------------------------------------------------
<S> <C>
AAR Corp. Alfa Corp.
LabOne, Inc. Centura Banks, Inc. (NC)
New England Business Service, Inc. Chateau Communities, Inc.
Premier National Bancorp, Inc. Coca-Cola Bottling Co. Consolidated
United Bankshares, Inc. Fingerhut Companies, Inc.
Harland (John H.) Co.
Kuhlman Corp.
Marc, Inc.
Mobile America Corp. (FL)
Parkway Properties, Inc.
People's Heritage Financial Group, Inc.
Smart & Final, Inc.
</TABLE>
Ten Largest Holdings March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- ---------------------------------------------------------------------
<S> <C> <C>
Florida Rock Industries, Inc. $ 1,365,000 3.8%
- ---------------------------------------------------------------------
Primex Technologies, Inc. 1,303,100 3.6
- ---------------------------------------------------------------------
Riviana Foods, Inc. (DE) 1,285,625 3.6
- ---------------------------------------------------------------------
American Heritage Life Investment Corp. 1,165,625 3.3
- ---------------------------------------------------------------------
Eaton Vance Corp. 1,127,000 3.1
- ---------------------------------------------------------------------
Wackenhut Corp. Class B 1,020,000 2.9
- ---------------------------------------------------------------------
International Multifoods Corp. 932,500 2.6
- ---------------------------------------------------------------------
LSI Industries, Inc. 928,125 2.6
- ---------------------------------------------------------------------
Morrison Health Care, Inc. 893,750 2.5
- ---------------------------------------------------------------------
Velcro Industries, N.V. 892,500 2.5
- ---------------------------------------------------------------------
$10,913,225 30.5%
- ---------------------------------------------------------------------
</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 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 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 65 companies are held.
. By combining high dividend yields and underlying low price volatility (Beta),
SSCY seeks to produce good relative performance in up markets and 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, 1999 (unaudited)
- --------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
COMMON STOCKS - 94.7%
Banking/Financial - 23.7%
Bank One Corp............................................ 28,160 $ 1,550,560
Comerica, Inc............................................ 22,500 1,404,844
Commerce Bancorp, Inc. (NJ).............................. 70,283 2,899,174
First Union Corp......................................... 65,812 3,516,829
Fleet Financial Group, Inc............................... 20,000 752,500
PNC Bank Corp............................................ 50,000 2,778,125
Summit Bancorp, Inc...................................... 30,000 1,170,000
-----------
14,072,032
-----------
Business Services - 9.7%
Diebold, Inc............................................. 20,000 480,000
Dun & Bradstreet Corp.................................... 20,000 712,500
Gallagher (Arthur J.) & Co............................... 30,000 1,380,000
Pitney Bowes, Inc........................................ 50,000 3,187,500
-----------
5,760,000
-----------
Capital Goods/Technology - 3.6%
Briggs & Stratton Corp................................... 20,000 986,250
Harris Corp.............................................. 40,000 1,145,000
-----------
2,131,250
-----------
Consumer Durables - 9.3%
DaimlerChrysler AG....................................... 31,175 2,675,205
Ford Motor Co............................................ 35,000 1,986,250
General Motors Corp...................................... 10,000 868,750
-----------
5,530,205
-----------
Consumer Non-Durables - 11.4%
Anheuser-Busch Companies, Inc............................ 40,000 3,047,500
ConAgra, Inc............................................. 20,000 511,250
Heinz (H.J.) Co.......................................... 30,000 1,421,250
Kimberly-Clark Corp...................................... 28,000 1,342,250
Universal Foods Corp..................................... 20,000 412,500
-----------
6,734,750
-----------
Consumer Services - 5.6%
American Express Co...................................... 22,000 2,585,000
H&R Block, Inc........................................... 15,000 710,625
-----------
3,295,625
-----------
Health Care - 8.5%
American Home Products Corp.............................. 26,000 1,696,500
Baxter International, Inc................................ 30,000 1,980,000
Mallinckrodt, Inc........................................ 10,000 266,250
Shared Medical Systems Corp.............................. 20,000 1,113,750
-----------
5,056,500
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
Industrial - 3.2%
Carpenter Technology Corp............................... 28,000 $ 726,250
Fleetwood Enterprises, Inc.............................. 40,000 1,145,000
-----------
1,871,250
-----------
Insurance/Services - 15.5%
American General Corp................................... 50,000 3,525,000
Aon Corp................................................ 22,500 1,423,125
Jefferson-Pilot Corp.................................... 12,500 846,875
Lincoln National Corp................................... 10,000 988,750
ReliaStar Financial Corp................................ 20,000 852,500
Unitrin, Inc............................................ 50,000 1,562,500
-----------
9,198,750
-----------
Retailing - 2.7%
The Limited, Inc........................................ 40,000 1,585,000
-----------
Technology - 1.5%
C&D Technologies, Inc................................... 25,000 621,875
Pall Corp............................................... 17,000 281,562
-----------
903,437
-----------
Total Common Stocks (cost $33,439,753).................. 56,138,799
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM NOTES - 5.1%
General Electric Capital Corp. 4.70% due 04/05/99....... $1,700,000 1,700,000
General Motors Acceptance Corp. 4.91% due 04/08/99...... 1,300,000 1,300,000
-----------
Total Short-Term Notes (cost $3,000,000)................ 3,000,000
-----------
Total Investments - 99.8% (cost $36,439,753*)........... 59,138,799
Cash and Other Assets Less Liabilities - 0.2%........... 115,296
-----------
NET ASSETS - 100.0%..................................... $59,254,095
===========
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $36,439,753; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $23,289,118
Gross unrealized depreciation...................................... (590,072)
-----------
Net unrealized appreciation....................................... $22,699,046
===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 88.1%
Apartments - 17.2%
Berkshire Realty Co., Inc. .............................. 140,000 $ 1,566,250
Cornerstone Realty Income Trust, Inc. ................... 130,000 1,381,250
Gables Residential Trust................................. 100,000 2,206,250
Home Properties of New York, Inc. ....................... 85,000 1,965,625
Mid-America Apartment Communities, Inc. ................. 60,000 1,282,500
Town & Country Trust..................................... 153,300 2,309,081
Walden Residential Properties, Inc. ..................... 80,000 1,410,000
-----------
12,120,956
-----------
Diversified - 12.8%
Colonial Properties Trust................................ 125,000 3,187,500
EastGroup Properties, SBI................................ 125,000 2,015,625
Meditrust Corp. ......................................... 180,000 2,238,750
Pacific Gulf Properties, Inc. ........................... 85,000 1,530,000
-----------
8,971,875
-----------
Health Care - 10.7%
American Health Properties, Inc. ........................ 135,000 2,455,313
Health Care REIT, Inc. .................................. 130,000 2,795,000
HRPT Properties Trust.................................... 90,000 1,215,000
LTC Properties, Inc. .................................... 85,000 1,041,250
-----------
7,506,563
-----------
Lodging - 17.1%
Equity Inns, Inc. ....................................... 190,000 1,615,000
FelCor Lodging Trust, Inc. .............................. 80,000 1,855,000
Hospitality Properties Trust............................. 60,000 1,623,750
Innkeepers USA Trust..................................... 180,000 1,676,250
Jameson Inns, Inc. ...................................... 160,000 1,450,000
RFS Hotel Investors, Inc. ............................... 125,000 1,445,313
Sunstone Hotel Investors, Inc. .......................... 130,000 934,375
Winston Hotels, Inc. .................................... 175,000 1,410,937
-----------
12,010,625
-----------
Net Lease - 3.2%
Franchise Finance Corp of America........................ 60,000 1,263,750
TriNet Corporate Realty Trust, Inc. ..................... 40,000 1,015,000
-----------
2,278,750
-----------
Office/Industrial - 8.8%
First Industrial Realty Trust, Inc. ..................... 60,000 1,436,250
Liberty Property Trust................................... 157,400 3,266,050
Mack-Cali Realty Corp. .................................. 50,000 1,468,750
-----------
6,171,050
-----------
Outlet Centers - 3.7%
Mills Corp............................................... 48,700 873,556
Tanger Factory Outlet Centers, Inc....................... 90,000 1,721,250
-----------
2,594,806
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
Regional Malls - 3.4%
Glimcher Realty Trust................................... 165,000 $ 2,371,875
-----------
Shopping Centers - 11.2%
Developers Diversified Realty Corp...................... 60,000 858,750
IRT Property Co......................................... 166,000 1,462,875
Mid-Atlantic Realty Trust............................... 230,000 2,357,500
New Plan Excel Realty Trust, Inc........................ 108,000 2,072,250
Western Investment Real Estate Trust.................... 110,000 1,141,250
-----------
7,892,625
-----------
Total Common Stocks (cost $71,317,318).................. 61,919,125
-----------
PREFERRED STOCKS - 6.1%
Bradley Real Estate, Inc. Conv. Preferred Class A....... 132,380 2,978,550
Kimco Realty Corp. - Depositary Shares Class D.......... 50,000 1,190,625
Psychiatric Group Preferred Depositary Shares........... 100,000 118,750
-----------
Total Preferred Stocks (cost $5,419,771)................ 4,287,925
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM NOTES - 4.7%
American Express Credit Corp. 4.94% due 04/01/99........ $1,350,000 1,350,000
American Express Credit Corp. 4.94% due 04/05/99........ 956,000 956,000
American Express Credit Corp. 4.92% due 04/06/99........ 1,026,000 1,026,000
-----------
Total Short-Term Notes (cost $3,332,000)................ 3,332,000
-----------
Total Investments - 98.9% (cost $80,069,089*)........... 69,539,050
Cash and Other Assets Less Liabilities - 1.1%........... 753,918
-----------
NET ASSETS - 100.0%..................................... $70,292,968
===========
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $80,069,089; and net
unrealized depreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation..................................... $ 1,350,436
Gross unrealized depreciation..................................... (11,880,475)
------------
Net unrealized depreciation...................................... $(10,530,039)
============
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 1999 (unaudited)
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 95.0%
Banking/Financial - 20.8%
American Bank of Connecticut.............................. 22,000 $ 429,000
Colonial BancGroup, Inc. ................................. 40,000 480,000
Commerce Bancorp, Inc. (NJ)............................... 20,671 852,679
Community Bank Systems, Inc............................... 17,000 404,812
First Essex Bancorp, Inc.................................. 30,000 451,875
First Financial Holdings, Inc............................. 18,000 324,000
JeffBanks, Inc............................................ 26,666 556,653
Medford Bancorp, Inc...................................... 26,000 416,000
Ocean Financial Corp...................................... 34,000 488,750
Premier National Bancorp, Inc............................. 10,000 150,000
Reliance Bancorp, Inc..................................... 20,000 575,000
Republic Banking Corp. of Florida......................... 30,000 560,625
Resource Bancshares Mortgage
Group, Inc. ............................................. 30,000 386,250
Southwest Securities Group, Inc........................... 14,200 401,150
United Bankshares, Inc.................................... 20,000 457,500
Webster Financial Corp.................................... 16,632 480,249
-----------
7,414,543
-----------
Business Services - 17.4%
AAR Corp.................................................. 40,000 712,500
Dain Rauscher Corp........................................ 19,000 646,000
Eaton Vance Corp.......................................... 56,000 1,127,000
New England Business Service, Inc......................... 20,000 573,750
Primesource Corp.......................................... 90,000 506,250
Rollins Truck Leasing Corp................................ 20,000 188,750
Schawk, Inc............................................... 60,000 585,000
True North Communications, Inc............................ 30,000 843,750
Wackenhut Corp. Class B................................... 60,000 1,020,000
-----------
6,203,000
-----------
Chemical - 3.6%
Primex Technologies, Inc. ................................ 62,800 1,303,100
-----------
Consumer Durables - 3.2%
Huffy Corp................................................ 40,000 480,000
TB Wood's Corp............................................ 60,000 675,000
-----------
1,155,000
-----------
Consumer Non-Durables - 10.4%
International Multifoods Corp............................. 40,000 932,500
Riviana Foods, Inc. (DE).................................. 55,000 1,285,625
Tasty Baking Co........................................... 55,000 611,875
Velcro Industries, N.V. .................................. 60,000 892,500
-----------
3,722,500
-----------
Health Care - 7.1%
Diagnostic Products Corp.................................. 20,000 485,000
LabOne, Inc. ............................................. 30,000 315,000
Morrison Health Care, Inc. ............................... 50,000 893,750
Shared Medical Systems Corp............................... 15,000 835,313
-----------
2,529,063
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
Industrial - 14.7%
A.O. Smith Corp. ...................................... 42,000 $ 798,000
Commercial Intertech Corp.............................. 70,000 778,750
Florida Rock Industries, Inc........................... 40,000 1,365,000
Greenbrier Companies, Inc.............................. 73,000 693,500
LSI Industries, Inc.................................... 55,000 928,125
Republic Group, Inc.................................... 45,000 677,812
-----------
5,241,187
-----------
Insurance/Services - 6.8%
American Heritage Life
Investment Corp....................................... 50,000 1,165,625
Blanch (E.W.) Holdings, Inc............................ 13,000 682,500
Donegal Group, Inc. ................................... 46,666 571,658
-----------
2,419,783
-----------
Real Estate - 2.3%
EastGroup Properties, SBI.............................. 16,200 261,225
Innkeepers USA Trust................................... 35,000 325,938
Pacific Gulf Properties, Inc........................... 14,000 252,000
-----------
839,163
-----------
Technology - 8.7%
Analysts International Corp............................ 40,000 460,000
Boston Acoustics, Inc.................................. 54,000 877,500
MTS Systems Corp....................................... 30,000 303,750
Quixote Corp........................................... 77,500 881,562
Technitrol, Inc........................................ 25,000 576,563
-----------
3,099,375
-----------
Total Common Stocks
(cost $31,974,683).................................... 33,926,714
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM NOTES - 4.5%
American Express Credit Corp. 4.92% due 04/06/99
(cost $1,600,0000).................................... $1,600,000 1,600,000
-----------
Total Investments - 99.5%
(cost $33,574,683*)................................... 35,526,714
Cash and Other Assets Less Liabilities - 0.5%.......... 196,177
-----------
NET ASSETS - 100.0%.................................... $35,722,891
===========
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $33,574,683; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $ 6,044,216
Gross unrealized depreciation...................................... (4,092,185)
-----------
Net unrealized appreciation....................................... $ 1,952,031
===========
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCY
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities at value (cost
$36,439,753, $80,069,089, and
$33,574,683, respectively) (Note 1).... $59,138,799 $69,539,050 $35,526,714
Cash.................................... 54,406 1,041 190,056
Dividends and interest receivable....... 102,171 530,976 70,266
Prepaid expenses........................ 440 -- --
Receivable for securities sold.......... -- 786,927 --
----------- ----------- -----------
Total Assets.......................... 59,295,816 70,857,994 35,787,036
----------- ----------- -----------
LIABILITIES:
Accrued expenses and other liabilities.. 41,721 63,070 64,145
Payable for investment securities
purchased.............................. -- 501,956 --
----------- ----------- -----------
Total Liabilities..................... 41,721 565,026 64,145
----------- ----------- -----------
NET ASSETS:
Applicable to 1,816,016, 3,116,836, and
1,978,638 shares outstanding,
respectively/1....................../.. $59,254,095 $70,292,968 $35,722,891
=========== =========== ===========
Net asset value, offering and redemption
price per share........................ $ 32.63 $ 22.55 $ 18.05
=========== =========== ===========
SOURCE OF NET ASSETS:
Paid-in capital......................... $35,115,102 $95,847,866 $33,518,823
Undistributed net investment income
(loss)................................. 224,286 (65,410) 52,306
Accumulated net realized gain (loss) on
investments............................ 1,215,661 (14,959,449) 199,731
Net unrealized appreciation
(depreciation) of investments.......... 22,699,046 (10,530,039) 1,952,031
----------- ----------- -----------
Net Assets............................ $59,254,095 $70,292,968 $35,722,891
=========== =========== ===========
</TABLE>
- --------
/1/SGF:$.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.
14
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Three Months Ended March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCY
----------- ----------- -----------
<S> <C> <C> <C>
INCOME:
Dividends............................. $ 351,961 $ 1,638,802 $ 217,785
Interest.............................. 36,730 35,331 14,718
----------- ----------- -----------
Total Income........................ 388,691 1,674,133 232,503
----------- ----------- -----------
EXPENSES:
Accounting/Pricing services fees...... 6,214 7,357 8,083
Administration services fees.......... 7,971 8,505 6,803
Advisory fees (Note 2)................ 109,261 112,676 123,093
Custodian fees........................ 5,371 7,158 4,986
Directors' fees....................... 3,869 4,633 2,372
Legal fees............................ 2,000 2,400 1,200
Miscellaneous fees.................... 3,410 4,065 2,238
Printing and postage fees............. 3,143 6,251 2,418
Registration fees..................... 12,344 14,110 16,409
Shareholder services fees............. 9,578 30,761 13,216
Taxes other than income taxes......... 1,244 1,475 775
----------- ----------- -----------
Total Expenses...................... 164,405 199,391 181,593
----------- ----------- -----------
Net Investment Income............. 224,286 1,474,742 50,910
----------- ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on
investments.......................... (420,258) (1,780,283) 1,358,884
Net decrease in unrealized
appreciation on investments.......... (2,449,741) (5,282,083) (5,595,886)
----------- ----------- -----------
Net loss on investments............... (2,869,999) (7,062,366) (4,237,002)
----------- ----------- -----------
Net decrease in net assets resulting
from operations.................... $(2,645,713) $(5,587,624) $(4,186,092)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SGF SMDS
-------------------------- --------------------------
3 Months Ended Year Ended 3 Months Ended Year Ended
03/31/99* 12/31/98 03/31/99* 12/31/98
-------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.. $ 224,286 $ 998,604 $ 1,474,742 $ 5,360,764
Net realized gain
(loss) on
investments........... (420,258) 4,896,340 (1,780,283) 3,596,392
Net increase (decrease)
in unrealized
appreciation of
investments........... (2,449,741) 687,299 (5,282,083) (19,590,880)
----------- ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ (2,645,713) 6,582,243 (5,587,624) (10,633,724)
----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHARE-
HOLDERS:
From net investment
income ($0.00 and
$0.59 per share,
respectively, for SGF,
$0.46 and $1.65,
respectively, for
SMDS)................. -- (1,034,331) (1,474,742) (5,360,764)
From realized gains on
investments ($0.00 and
$2.43 per share,
respectively, for
SGF).................. -- (4,304,696) -- --
In excess of net
investment income
($0.02 and $0.40 per
share for SMDS)....... -- -- (65,410) (1,299,867)
CAPITAL SHARE TRANSAC-
TIONS:/2/ (1,423,365) 1,902,474 (2,515,558) (4,725,567)
----------- ----------- ----------- -----------
Total increase
(decrease) in net
assets................ (4,069,078) 3,145,690 (9,643,334) (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
$224,286 and $0,
respectively, for SGF,
distributions in
excess of net
investment income of
$65,410 and $0,
respectively, for
SMDS)................. $59,254,095 $63,323,173 $70,292,968 $79,936,302
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SSCY
--------------------------
3 Months Ended Year Ended
03/31/99* 12/31/98
-------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income............................. $ 50,910 $ 388,213
Net realized gain (loss) on investments........... 1,358,884 (1,159,153)
Net decrease in unrealized appreciation of
investments...................................... (5,595,886) (4,996,458)
----------- -----------
Net decrease in net assets resulting from
operations....................................... (4,186,092) (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/ (2,880,322) 9,687,236
----------- -----------
Total increase (decrease) in net assets........... (7,066,414) 3,412,357
NET ASSETS:
Beginning of period............................... 42,789,305 39,376,948
----------- -----------
End of period (including undistributed net
investment income of $52,306 and $1,396,
respectively, for SSCY).......................... $35,722,891 $42,789,305
=========== ===========
</TABLE>
- --------
*Unaudited
See accompanying notes to financial statements.
16
<PAGE>
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
/2/ A summary of capital share transactions follows:
<TABLE>
<CAPTION>
SGF
--------------------------------------------------
3 Months Ended 03/31/99* Year Ended 12/31/98
------------------------- -----------------------
Shares Value Shares Value
------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued.............. 43,700 $ 1,455,974 318,761 $ 11,325,835
Shares reinvested from net
investment income and
capital gains
distributions............. -- -- 140,694 4,684,002
---------- ------------- --------- ------------
43,700 1,455,974 459,455 16,009,837
Shares redeemed............ (86,271) (2,879,339) (403,301) (14,107,363)
---------- ------------- --------- ------------
Net increase (decrease).. (42,571) $ (1,423,365) 56,154 $ 1,902,474
========== ============= ========= ============
<CAPTION>
SMDS
--------------------------------------------------
3 Months Ended 03/31/99* Year Ended 12/31/98
------------------------- -----------------------
Shares Value Shares Value
------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued.............. 54,400 $ 1,303,047 373,202 $ 9,611,674
Shares reinvested from net
investment income......... 39,365 946,636 141,500 3,873,947
---------- ------------- --------- ------------
93,765 2,249,683 514,702 13,485,621
Shares redeemed............ (202,356) (4,765,241) (660,216) (18,211,188)
---------- ------------- --------- ------------
Net decrease............. (108,591) $ (2,515,558) (145,514) $ (4,725,567)
========== ============= ========= ============
<CAPTION>
SSCY
--------------------------------------------------
3 Months Ended 03/31/99* Year Ended 12/31/98
------------------------- -----------------------
Shares Value Shares Value
------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued.............. 32,931 $ 624,033 1,071,101 $ 24,120,897
Shares reinvested from net
investment income and
capital gains
distributions............. -- -- 18,664 402,242
---------- ------------- --------- ------------
32,931 624,033 1,089,765 24,523,139
Shares redeemed............ (182,492) (3,504,355) (713,619) (14,835,903)
---------- ------------- --------- ------------
Net increase (decrease).. (149,561) $ (2,880,322) 376,146 $ 9,687,236
========== ============= ========= ============
</TABLE>
- --------
*Unaudited
See accompanying notes to financial statements.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
March 31, 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
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
March 31, 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 three months ended March 31, 1999, the Funds paid
advisory fees to Stratton Management Company, (the "Advisor") as follows:
SGF--$109,261; SMDS--$112,676; SSCY--$123,093. 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 than the Russell
2000, it pays the Advisor an incentive fee; less favorable performance than
the Russell 2000
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
March 31, 1999 (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, 1999 caused the advisory fee to increase by $22,962.
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 three months ended March 31, 1999 were as follows:
<TABLE>
<CAPTION>
SGF SMDS SSCY
---------- ---------- ----------
<S> <C> <C> <C>
Cost of purchases.............................. $5,820,121 $2,736,231 $2,895,937
Proceeds of sales.............................. 6,606,814 5,575,557 6,192,791
</TABLE>
Note 4. - Stock Split
A two-for-one stock split effected in the form of a dividend was issued to
shareholders of record of SSCY as of the close of business on December 17,
1997, payable December 18, 1997.
20
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Stratton Growth Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
3 Months Year Year 7 Months Years Ended May 31,
Ended Ended Ended Ended -------------------------
03/31/99* 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............... 0.124 0.570 0.550 0.312 0.556 0.537 0.510
Net gains (losses) on
securities (both
realized and
unrealized).......... (1.564) 3.130 8.900 1.298 5.759 2.978 0.665
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations......... (1.440) 3.700 9.450 1.610 6.315 3.515 1.175
------- ------- ------- ------- ------- ------- -------
Less Distributions
Dividends (from net
investment income)... -- (0.590) (0.540) (0.580) (0.540) (0.540) (0.510)
Distributions (from
capital gains)....... -- (2.430) (2.520) (1.210) (0.945) (1.275) (0.905)
------- ------- ------- ------- ------- ------- -------
Total
distributions...... -- (3.020) (3.060) (1.790) (1.485) (1.815) (1.415)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 32.63 $ 34.07 $ 33.39 $ 27.00 $ 27.18 $ 22.35 $ 20.65
======= ======= ======= ======= ======= ======= =======
Total Return............ (4.23%) 11.46% 36.06% 6.40% 29.62% 18.61% 5.92%
Ratios/Supplemental Data
Net assets, end of
period
(in 000's)........... $59,254 $63,323 $60,177 $44,801 $42,880 $31,719 $25,475
Ratio of expenses to
average net assets... 1.09%/1/ 1.07% 1.11% 1.17%/1/ 1.16% 1.31% 1.34%
Ratio of net
investment income to
average net assets... 1.49%/1/ 1.60% 1.87% 2.08%/1/ 2.28% 2.70% 2.51%
Portfolio turnover
rate................. 10.04% 38.02% 34.40% 20.32% 15.41% 42.54% 49.81%
Average commission
rate paid............ N/R N/R $0.0509 $0.0537 N/A N/A N/A
</TABLE>
- --------
* Unaudited
/1/Annualized
See accompanying notes to financial statements.
21
<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
3 Months Year Year Months Years ended January 31,
Ended Ended Ended Ended ----------------------------
03/31/99* 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............... 0.460 1.650 1.540 1.630 1.880 1.940 1.870
Net gains (losses) on
securities (both
realized and
unrealized).......... (2.210) (5.070) 3.200 0.160 2.600 (3.870) (1.140)
------- ------- -------- -------- -------- -------- --------
Total from
investment
operations......... (1.750) (3.420) 4.740 1.790 4.480 (1.930) 0.730
------- ------- -------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)... (0.460) (1.650) (1.540) (1.630) (1.890) (1.920) (1.940)
Distributions (in
excess of net
investment income)... (0.020) (0.400) -- (0.130) (0.030) -- (0.010)
Return of capital..... -- -- (0.380) -- -- -- --
------- ------- -------- -------- -------- -------- --------
Total
distributions...... (0.480) (2.050) (1.920) (1.760) (1.920) (1.920) (1.950)
------- ------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 22.55 $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69
======= ======= ======== ======== ======== ======== ========
Total Return............ (7.17%) (11.75%) 18.09% 7.12% 18.98% (6.57%) 2.22%
Ratios/Supplemental Data
Net assets, end of
period (in 000's).... $70,293 $79,936 $101,956 $103,780 $129,267 $134,066 $165,798
Ratio of expenses to
average net assets... 1.07%/1/ 1.02% 1.02% 1.02%/1/ 0.99% 1.08% 0.99%
Ratio of net
investment income to
average net assets... 7.92%/1/ 5.95% 5.48% 6.94%/1/ 7.42% 7.71% 6.12%
Portfolio turnover
rate................. 3.80% 18.89% 42.47% 69.19% 53.30% 39.50% 19.15%
Average commission
rate paid............ N/R N/R $ 0.0505 $ 0.0498 N/A N/A N/A
</TABLE>
- --------
* Unaudited
/1/Annualized
See accompanying notes to financial statements.
22
<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>
For the Period
3 Months Year Year 9 Months Year Year 04/12/93/1
Ended Ended Ended Ended Ended Ended /
03/31/99* 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... 0.026 0.170 0.210 0.260 0.330 0.290 0.220
Net gains (losses) on
securities (both
realized and
unrealized)............ (2.086) (2.310) 6.800 1.740 3.040 (0.020) 0.450
------- ------- ------- ------- ------- ------- ------
Total from investment
operations............. (2.060) (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................. $ 18.05 $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94 $12.97
======= ======= ======= ======= ======= ======= ======
Total Return............ (10.24%) (9.58%) 42.37% 12.84% 26.18% 2.09% 5.51%/2/
Ratios/Supplemental Data
Net assets, end of
period (in 000's)...... $35,723 $42,789 $39,377 $21,691 $19,592 $14,058 $8,257
Ratio of expenses to
average net assets..... 1.88%/2/ 1.56% 1.62% 1.29%/2/ 1.46% 2.12% 2.28%/2/
Ratio of net investment
income to average net
assets................. 0.53%/2/ 0.80% 1.09% 2.03%/2/ 2.28% 2.36% 1.85%/2/
Portfolio turnover
rate................... 7.72% 35.74% 26.27% 35.86% 33.50% 30.20% 28.60%/2/
Average commission rate
paid................... N/R N/R $0.0548 $0.0579 N/A N/A N/A
</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.
23
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
Minimum Investment
The minimum amount for the initial purchase of shares of the Funds is $2,000
each. Subsequent purchases may be made in amounts of $100 or more.
Telephone Exchange
Shares of each Fund may be exchanged for shares of the other Funds, provided
such other shares may legally be sold in the state of the investor's
residence. Each Fund has a distinct investment objective which should be
reviewed before executing any exchange of shares. Shares may be exchanged by:
(1) written request; or (2) telephone, if a special authorization form has
been completed and is on file with the transfer agent in advance.
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.
24
<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 May 1999. This report
is to be preceeded or accompanied by a prospectus. All
indices are unmanaged groupings of stock that are
not available for investment.
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
DIRECTORS OFFICERS
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
Gerard E. Heffernan Patricia Sloan
Merritt N. Rhoads, Jr. President Secretary & Treasurer
Stratton Growth Fund
Richard W. Stevens
Frank H. Reichel, III Carol L. Royce
James W. Stratton President, Assistant Secretary &
Stratton Small-Cap Yield Fund Treasurer
</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 & DIVIDED PAYING AGENT
First Data Investor Services Group, Inc.
3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903
Telephone:610-239-4600, 800-472-4266
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
- --------------------------------------------------------------------------------
STRATTON
MUTUAL FUNDS
- --------------------------------------------------------------------------------
Stability*Strategy*Success
Member of
=============
100% NO LOAD
MUTUAL FUND
COUNCIL
=============
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STRATTON GROWTH FUND, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 36,439,753
<INVESTMENTS-AT-VALUE> 59,138,799
<RECEIVABLES> 102,171
<ASSETS-OTHER> 54,846
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 59,295,816
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 41,721
<TOTAL-LIABILITIES> 41,721
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,115,102
<SHARES-COMMON-STOCK> 1,816,016
<SHARES-COMMON-PRIOR> 1,858,587
<ACCUMULATED-NII-CURRENT> 224,286
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,215,661
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,699,046
<NET-ASSETS> 59,254,095
<DIVIDEND-INCOME> 351,961
<INTEREST-INCOME> 36,730
<OTHER-INCOME> 0
<EXPENSES-NET> 164,405
<NET-INVESTMENT-INCOME> 224,286
<REALIZED-GAINS-CURRENT> (420,258)
<APPREC-INCREASE-CURRENT> (2,449,741)
<NET-CHANGE-FROM-OPS> (2,645,713)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 43,700
<NUMBER-OF-SHARES-REDEEMED> 86,271
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (4,069,078)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,635,919
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 109,261
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 164,405
<AVERAGE-NET-ASSETS> 61,132,596
<PER-SHARE-NAV-BEGIN> 34.07
<PER-SHARE-NII> 0.124
<PER-SHARE-GAIN-APPREC> (1.564)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 32.63
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> STRATTON MONTHLY DIVIDEND REIT SHARES
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 80,069,089
<INVESTMENTS-AT-VALUE> 69,539,050
<RECEIVABLES> 1,317,903
<ASSETS-OTHER> 1,041
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 70,857,994
<PAYABLE-FOR-SECURITIES> 501,956
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63,070
<TOTAL-LIABILITIES> 565,026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 95,847,866
<SHARES-COMMON-STOCK> 3,116,836
<SHARES-COMMON-PRIOR> 3,225,427
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 65,410
<ACCUMULATED-NET-GAINS> (14,959,449)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (10,530,039)
<NET-ASSETS> 70,292,968
<DIVIDEND-INCOME> 1,638,802
<INTEREST-INCOME> 35,331
<OTHER-INCOME> 0
<EXPENSES-NET> 199,391
<NET-INVESTMENT-INCOME> 1,474,742
<REALIZED-GAINS-CURRENT> (1,780,283)
<APPREC-INCREASE-CURRENT> (5,282,083)
<NET-CHANGE-FROM-OPS> (5,587,624)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,540,152
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 54,400
<NUMBER-OF-SHARES-REDEEMED> 202,356
<SHARES-REINVESTED> 39,356
<NET-CHANGE-IN-ASSETS> (9,643,334)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (13,179,166)
<OVERDISTRIB-NII-PRIOR> 1,299,867
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 112,676
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 199,391
<AVERAGE-NET-ASSETS> 75,531,303
<PER-SHARE-NAV-BEGIN> 24.78
<PER-SHARE-NII> 0.460
<PER-SHARE-GAIN-APPREC> (2.210)
<PER-SHARE-DIVIDEND> 0.460
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.020
<PER-SHARE-NAV-END> 22.55
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> STRATTON SMALL-CAP YIELD FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<INVESTMENTS-AT-COST> 33,574,683
<INVESTMENTS-AT-VALUE> 35,526,714
<RECEIVABLES> 70,266
<ASSETS-OTHER> 190,056
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35,787,036
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64,145
<TOTAL-LIABILITIES> 64,145
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33,518,823
<SHARES-COMMON-STOCK> 1,978,638
<SHARES-COMMON-PRIOR> 2,128,199
<ACCUMULATED-NII-CURRENT> 52,306
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 199,731
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,952,031
<NET-ASSETS> 35,722,891
<DIVIDEND-INCOME> 217,785
<INTEREST-INCOME> 14,718
<OTHER-INCOME> 0
<EXPENSES-NET> 181,593
<NET-INVESTMENT-INCOME> 50,910
<REALIZED-GAINS-CURRENT> 1,358,884
<APPREC-INCREASE-CURRENT> (5,595,886)
<NET-CHANGE-FROM-OPS> (4,186,092)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,931
<NUMBER-OF-SHARES-REDEEMED> 182,492
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (7,066,414)
<ACCUMULATED-NII-PRIOR> 1,396
<ACCUMULATED-GAINS-PRIOR> (1,159,153)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 123,093
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 181,593
<AVERAGE-NET-ASSETS> 39,213,504
<PER-SHARE-NAV-BEGIN> 20.11
<PER-SHARE-NII> 0.026
<PER-SHARE-GAIN-APPREC> (2.086)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.05
<EXPENSE-RATIO> 1.88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>