<PAGE>
ANNUAL REPORT. DECEMBER 31, 1998
[ARTWORK APPEARS HERE]
------------------------------
STRATTON
MUTUAL FUNDS
------------------------------
Stability . Strategy . Success
<PAGE>
DEAR FELLOW SHAREHOLDER:
In 1998, we witnessed a serious distortion in the S&P 500 performance produced
by a relative handful of stocks which camouflaged the performance of the median
stock. The largest 100 stocks in the S&P 500 Index contributed 85% of the total
1998 performance. Five stocks produced 25% of the S&P performance and the top
fifteen stocks accounted for over half of the Index performance. We have never
witnessed a rising market with such narrow leadership. Conversely, an equal
weighted version of the S&P 500 Index showed a return of only 13.5% in 1998.
The median return of all stocks in the Index was only 6.6%. That means that
half of the stocks of the S&P 500 returned less than 6.6%.
The narrowness of the leadership in 1998 is unlikely to continue. A bullish
interpretation would be that the broad stock market is still fairly valued and
funds are likely to flow into a much broader list of equities, especially
medium and small-cap securities. For that to happen, the Federal Reserve must
continue a low interest rate policy and continue to supply the economy with a
high growth rate in money supply. A bearish interpretation would be that the
narrow leadership and lack of broad market support has produced an over priced
market that is "an accident waiting to happen." Certain highly visible and
respected investment managers are in this camp.
Among institutional investors there are two well defined styles of management--
growth and value. The Stratton Funds are managed in a VALUE STYLE. Value stocks
have the following general characteristics: higher dividend yields, lower betas
(volatility), lower price-earnings and price-cash flow ratios. Of the Barra/S&P
500 Value Index, 62% of the investments are in five dominant categories: Basic
Materials, Energy, Consumer Services, Utilities, and Financial Services.
Cycle analysis suggests that the overvaluation of growth and the undervaluation
of value is stretched about as far as it ever gets. Over the past twenty-five
years, there have been five clearly defined cyclical changes in style
leadership. Investors should consider rebalancing their portfolios by realizing
some of their growth stock fund profits and adding to their value fund
holdings. Investors in funds with a value orientation such as the Stratton
Funds should recognize that value is, at the present time, extremely
underappreciated. There is no such thing as a new era (paradigm). In the stock
market, history always has repeated itself.
Sincerely yours,
/s/ James W. Stratton
James W. Stratton
Chairman
January 25, 1999
<PAGE>
STRATTON GROWTH FUND
- --------------------------------------------------------------------------------
Despite the fact that 1998 was a difficult year for relative performance from
our value management style, Stratton Growth Fund produced a total return of
11.5%. We made significant changes in some of the major investment categories
throughout the year. At year end, our number one industry continued to be
Banking with 25% of our assets. Insurance was 17%, a substantial increase from
the year ago level. The remaining major groups were Consumer Durables at 10.3%,
Consumer Non-Durables at 8.4%, and Business Services at 8.4%. Our portfolio has
a price/earnings multiple based on estimated 1999 earnings of 17.3x. This is
only 62% of the S&P 500 price/earnings ratio and illustrates the defensive
value characteristics of our portfolio. Our relative yield is 169% of the S&P
500 yield. Despite maintaining strong value characteristics, our portfolio has
a historic dividend growth rate of 9.2% annually and anticipates earnings
growth in 1999 of 13.7%.
During the year, we eliminated our positions in heavy industry categories such
as Metals, Paper, Chemicals, and Oils. We replaced those holdings with
additional weighting in the Consumer category, both Durables and Non-Durables.
Our portfolio turnover level for the entire year was 38.02%.
In the most recent quarter, we added the following stocks to the portfolio: C&D
Technologies, Fleet Financial, H&R Block, SuperValu Stores, Mallinckrodt Group,
ConAgra, Universal Foods, and Briggs & Stratton. The common theme of these
stocks is a consumer orientation and a positive outlook for earnings in 1999,
despite worldwide commodity price deflation.
Continued growth in assets to a new all time high has helped reduce our expense
ratio for the full year to 1.07%. This is an improvement over last years
expense ratio. During that twelve month period, the Fund paid capital gains
distributions of $2.43 and income dividends of $0.59 for a total payout of
$3.02 per share.
On December 31, 1998, total net assets were $63,323,173 and the net asset value
per share was $34.07.
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 12/31/98
1 year..................................... + 11.46%
5 year..................................... + 20.64
10 year..................................... + 15.14
15 year..................................... + 13.27
20 year..................................... + 14.81
25 year..................................... + 14.08
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
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>
DECEMBER 31, 1998 September 30, 1998
- ---------------------------------------------------------------
<S> <C> <C>
Total Net Assets $63,323,173 $56,854,444
- ---------------------------------------------------------------
Net Asset Value Per Share $34.07 $31.46
- ---------------------------------------------------------------
Shares Outstanding 1,858,587 1,807,134
- ---------------------------------------------------------------
Number of Shareholders 1,388 1,402
- ---------------------------------------------------------------
Average Size Account $45,622 $40,552
- ---------------------------------------------------------------
</TABLE>
PORTFOLIO CHANGES FOR THE QUARTER ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
- -------------------------------------------------------------
<S> <C>
C&D Technologies, Inc. (1) Carpenter Technology Corp.
Chrysler Corp. Compass Bancshares, Inc. (2)
ConAgra, Inc. (1) DaimlerChrysler AG
Eastman Kodak Co. Mobil Corp. (2)
Fleet Financial Group, Inc. (1) Ohio Casualty Corp. (2)
Ford Motor Co. Olin Corp. (2)
H&R Block, Inc. (1) Rubbermaid, Inc. (2)
HSB Group, Inc.
Mallinckrodt, Inc. (1)
SUPERVALU, Inc. (1)
(1) New Holdings (2) Eliminations
</TABLE>
TEN LARGEST HOLDINGS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- -----------------------------------------------------------
<S> <C> <C>
First Union Corp. $ 4,002,192 6.3%
- -----------------------------------------------------------
American General Corp. 3,900,000 6.2
- -----------------------------------------------------------
Commerce Bancorp, Inc. (NJ) 3,514,193 5.5
- -----------------------------------------------------------
Pitney Bowes, Inc. 3,303,125 5.2
- -----------------------------------------------------------
DaimlerChrysler AG 2,994,748 4.7
- -----------------------------------------------------------
PNC Bank Corp. 2,706,250 4.3
- -----------------------------------------------------------
Anheuser-Busch Companies, Inc. 2,625,000 4.2
- -----------------------------------------------------------
American Express Co. 2,249,500 3.6
- -----------------------------------------------------------
Ford Motor Co. 2,054,062 3.2
- -----------------------------------------------------------
Baxter International, Inc. 1,929,375 3.0
- -----------------------------------------------------------
$29,278,445 46.2%
- -----------------------------------------------------------
</TABLE>
3
<PAGE>
STRATTON MONTHLY DIVIDEND REIT SHARES
- --------------------------------------------------------------------------------
REIT share prices in 1998 had their worst performance since 1974. The Morgan
Stanley REIT Index fell 16.9%, in contrast to the Standard & Poor's 500 Index
rising 28.6%. If ever there was a barbell approach to the market, it is the
outrageously high valuations of Internet stocks which have no earnings and the
depressing low valuations of REIT shares with a single digit price/earnings
multiple.
One would think looking at the performance of the stocks that the industry had
severe problems. However, growth in Funds From Operations (FFO) continues to be
in the 10% range. Companies in general have reported good quarterly results and
have been in line with analysts expectations. The only answer is that the
industry has fallen totally out of favor with the institutional investing
public who are performance driven and now has to rely on individuals to buy
their shares based on the high dividend yields.
We restructured our priorities in sector investing during 1998. The number one
sector at the end of the year was Lodging with 17.8% of assets. This was
followed by Apartments (16%), Shopping Centers (14.8%), and Health Care (13%).
During the year, Hotel REITs were particularly hard hit due to fears of
overbuilding. We used that opportunity to enlarge our position in that
industry. The best performing sector during the year was Shopping Centers and
we used the strength in those REITs to sell some of our holdings to provide us
with the funds for new purchases.
We continue to be a value buyer within the REIT category. Our average dividend
paid on the portfolio securities at year end was 9.73%. The Fund's portfolio
sells at 7.6x price to FFO for 1999. We expect the FFO to grow at 10% during
1999; with dividend payout ratios declining to the 76% rate, the dividend
growth rate should be about 5%. The median market capitalization of the REITs
is $440 million which would classify our Fund as a Small-Cap Fund. Our expense
ratio remained at a low 1.02% for the full year.
On December 31, 1998, total net assets were $79,936,302 and the net asset value
per share was $24.78.
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 12/31/98
1 year..................................... - 11.75%
5 year..................................... + 4.18
10 year..................................... + 8.35
15 year..................................... + 9.88
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
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>
DECEMBER 31, 1998 September 30, 1998
- ---------------------------------------------------------------
<S> <C> <C>
Total Net Assets $79,936,302 $87,532,436
- ---------------------------------------------------------------
Net Asset Value Per Share $24.78 $26.23
- ---------------------------------------------------------------
Shares Outstanding 3,225,427 3,336,760
- ---------------------------------------------------------------
Number of Shareholders 4,252 4,420
- ---------------------------------------------------------------
Average Size Account $18,800 $19,804
- ---------------------------------------------------------------
</TABLE>
PORTFOLIO CHANGES FOR THE QUARTER ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
- -------------------------------------------------------------------------
<S> <C>
FelCor Lodging Trust, Inc. Associated Estates Realty Corp. (1)
Innkeepers USA Trust Colonial Properties Trust
Meditrust Corp. Kimco Realty Corp.--Depositary Shares Class D
LTC Properties, Inc. (1)
</TABLE>
(1) Eliminations
TEN LARGEST HOLDINGS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- ------------------------------------------------------------------------------
<S> <C> <C>
Liberty Property Trust $ 3,875,975 4.8%
- ------------------------------------------------------------------------------
Health Care REIT, Inc. 3,622,500 4.5
- ------------------------------------------------------------------------------
Bradley Real Estate, Inc. Conv. Preferred Class A 3,363,728 4.2
- ------------------------------------------------------------------------------
Colonial Properties Trust 3,328,125 4.2
- ------------------------------------------------------------------------------
Mid-Atlantic Realty Trust 2,831,875 3.6
- ------------------------------------------------------------------------------
American Health Properties, Inc. 2,784,375 3.5
- ------------------------------------------------------------------------------
Meditrust Corp. 2,722,500 3.4
- ------------------------------------------------------------------------------
Glimcher Realty Trust 2,588,437 3.2
- ------------------------------------------------------------------------------
Town & Country Trust 2,462,381 3.1
- ------------------------------------------------------------------------------
New Plan Excel Realty Trust, Inc. 2,396,250 3.0
- ------------------------------------------------------------------------------
$29,976,146 37.5%
- ------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
STRATTON SMALL-CAP YIELD FUND
- --------------------------------------------------------------------------------
Small-cap stocks recorded a disappointing year in 1998. Despite a 28.6% return
for the S&P 500, the average stock was down for the year and all small-cap
indices posted annual negative returns. Your Fund was no exception, losing 9.6%
of its value versus - 2.5% for the Russell 2000. We outperformed the Russell
through September but could not keep up with the continued rebound in
technology stocks. However, for the three year period ended December 31, 1998
your Fund has still outperformed the Russell by 2% per year.
Banking/Financial related issues, our largest sector representation, did not
participate in the fourth quarter rally and ended the year with double-digit
negative returns. Banking/Financial is our largest sector at 18% of the
portfolio and represents the most undervalued industry in the portfolio,
despite stable earnings growth. The Banking Industry consolidation continues
with 461 acquisitions announced in 1998, including the fourth quarter purchase
of Vermont Financial by Chittenden Financial which we held in the Fund.
Industrial stocks are our next largest sector at 17%, followed by Business
Services and Consumer Non-Durables both at 13%. Dividend-paying technology
stocks make up 11% of the portfolio.
During the quarter we continued to reduce the technology exposure of the
portfolio selling such names as steel producer Carpenter Technology and
specialty chemical-maker Quaker Chemical. We also took profits in selected
names which had held up well, such as American Heritage Life and Eaton Vance.
New names in the portfolio included Diagnostic Products, which performs
clinical testing for new drugs and specialty retailer Fingerhut, Inc. When the
market begins to finally reward small-cap stocks, we are confident that our
dividend-based approach will provide strong relative performance with
reasonable levels of risk.
The Fund's Directors declared the regular fourth quarter dividend at the rate
of $0.04 per share, payable on December 22 to shareholders of record December
14, 1998. On December 31, 1998, total net assets were $42,789,305 and the net
asset value per share was $20.11.
The graph below illustrates the increase in value of a $10,000 investment in
the Stratton Small-Cap Yield Fund beginning April 12, 1993, with all dividend
income and capital gains distributions reinvested.
[GRAPH FOR STRATTON]
Average Annual Total Return for the period ended 12/31/98
1 year..................................... - 9.58%
3 year..................................... + 13.96
5 year..................................... + 12.88
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
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>
DECEMBER 31, 1998 September 30, 1998
- ---------------------------------------------------------------
<S> <C> <C>
Total Net Assets $42,789,305 $42,918,438
- ---------------------------------------------------------------
Net Asset Value Per Share $20.11 $18.48
- ---------------------------------------------------------------
Shares Outstanding 2,128,199 2,322,749
- ---------------------------------------------------------------
Number of Shareholders 1,785 1,941
- ---------------------------------------------------------------
Average Size Account $23,972 $22,112
- ---------------------------------------------------------------
</TABLE>
PORTFOLIO CHANGES FOR THE QUARTER ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
- ----------------------------------------------------------------
<S> <C>
Analysts International
Corp. (1) American Heritage Life Investment Corp.
Coca-Cola Bottling Co.
Consolidated (1) Brandywine Realty Trust (2)
Diagnostic Products
Corp. (1) Carpenter Technology Corp. (2)
Fingerhut Companies,
Inc. (1) Guilford Mills, Inc. (2)
Harland (John H.) Co.
(1) LeaRonal, Inc. (2)
Morrison Health Care,
Inc. Quaker Chemical Corp. (2)
MTS Systems Corp. (1) Quanex Corp. (2)
Quixote Corp. Roanoke Electric Steel Corp. (2)
Schawk, Inc. Selective Insurance Group, Inc. (2)
Smart & Final, Inc. (1) Vermont Financial Services Corp. (2)
(1) New Holdings (2) Eliminations
</TABLE>
TEN LARGEST HOLDINGS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET VALUE PERCENT OF TNA
- --------------------------------------------------------------------
<S> <C> <C>
Boston Acoustics, Inc. $ 1,431,000 3.3%
- --------------------------------------------------------------------
Riviana Foods, Inc. (DE) 1,357,813 3.2
- --------------------------------------------------------------------
Primex Technologies, Inc. 1,334,500 3.1
- --------------------------------------------------------------------
Wackenhut Corp. Class B 1,316,250 3.1
- --------------------------------------------------------------------
Florida Rock Industries, Inc. 1,240,000 2.9
- --------------------------------------------------------------------
LSI Industries, Inc. 1,234,063 2.9
- --------------------------------------------------------------------
American Heritage Life Investment Corp. 1,221,875 2.9
- --------------------------------------------------------------------
Eaton Vance Corp. 1,169,000 2.7
- --------------------------------------------------------------------
Commerce Bancorp, Inc. (NJ) 1,033,568 2.4
- --------------------------------------------------------------------
International Multifoods Corp. 1,032,500 2.4
- --------------------------------------------------------------------
$12,370,569 28.9%
- --------------------------------------------------------------------
</TABLE>
7
<PAGE>
STRATTON SPECIAL VALUE FUND
- --------------------------------------------------------------------------------
The Stratton Special Value Fund rebounded by 9.0% in the fourth quarter,
producing a full year return of -2.7% versus -2.5% for the Russell 2000 index.
Small capitalization stocks were shunned last year in a very narrowly focused
equity market. For example, the one hundred largest companies in the S&P 500
Index contributed 85% of the performance last year and the top fifteen issues
accounted for over half of the return. Reflecting a premium for liquidity and
dependability, the valuation disparities between large and small companies and
growth and value stocks, have never been greater. The narrow investor focus on
a select group of very high multiple, nifty twenty growth stocks, has created
tremendous investment opportunities in small, less well-known issues.
The Fund focuses on under researched, less-known companies, which the
Investment Advisor considers to be selling at below average valuations of
estimated future earnings and cash flow. The median market capitalization of
the holdings is $207 million and most of the companies are micro-cap issues,
which receive very sparse coverage by Wall Street analysts. The portfolio
appears very undervalued with a price/earnings ratio of 10.2 times 1999
earnings prospects, versus a ratio of 30 times for the S&P 500 Index. Moreover,
the return on equity of the companies in the portfolio is 17.0% versus 20.0%
for the S&P 500 Index stocks.
At the end of December, the portfolio was 94.9% invested in fifty-two companies
with the largest concentration in the Insurance (15.0%), Capital Goods
Technology (14.5%), Construction (13.4%) and Consumer Durables (10.7%) areas.
The Fund did not engage in any short sales or options transactions last year.
On December 31, 1998, total net assets were $6,382,702 and the net asset value
per share was $14.60.
The graph below illustrates the increase in value of a $10,000 investment in
Stratton Special Value Fund beginning December 31, 1997.
[GRAPH FOR STRATTON]
Average Annual Total Return for the period ended 12/31/98
1 year..................................... - 2.67%
Total Value of
Year Original Shares
- ------------------- --------------------------
12/31/97 $ 10,000
3/31/98 11,247
6/30/98 11,480
9/30/98 9,013
12/31/98 9,733
Past performance is predicitve of future performance.
8
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Special Value Fund
<TABLE>
<CAPTION>
DECEMBER 31, 1998 September 30, 1998
- ---------------------------------------------------------------
<S> <C> <C>
Total Net Assets $6,382,702 $5,838,537
- ---------------------------------------------------------------
Net Asset Value Per Share $14.60 $13.52
- ---------------------------------------------------------------
Shares Outstanding 437,207 431,930
- ---------------------------------------------------------------
Number of Shareholders 55 56
- ---------------------------------------------------------------
Average Size Account $116,049 $104,260
- ---------------------------------------------------------------
</TABLE>
PORTFOLIO CHANGES FOR THE QUARTER ENDED DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
- -------------------------------------------------------------------------
<S> <C>
Anchor Gaming American Woodmark Corp. (2)
Chicago Title Corp. (1) Applied Signal Technology, Inc. (2)
Donegal Group, Inc. Churchill Downs, Inc. (2)
Fox Entertainment Group, Inc. (1) Fox Entertainment Group, Inc. (2)
Lindberg Corp. Hummingbird Communications, Ltd. (2)
Motorcar Parts & Accessories, Inc. Jackpot Enterprises, Inc. (2)
Scientific Games Holdings Corp. (1) Lufkin Industries, Inc. (2)
Software Spectrum, Inc. (1) Special Metals Corp. (2)
Tollgrade Communications (1) Tollgrade Communications (2)
Woodward Governor Co. (1) Valassis Communications, Inc.
(1) New Holdings (2) Eliminations
</TABLE>
TEN LARGEST HOLDINGS DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- -------------------------------------------------------------------
<S> <C> <C>
Bel Fuse, Inc. Class A $ 250,000 3.9%
- -------------------------------------------------------------------
Velcro Industries, N.V. 238,400 3.7
- -------------------------------------------------------------------
Donegal Group, Inc. 213,016 3.4
- -------------------------------------------------------------------
WD-40 Co. 200,375 3.1
- -------------------------------------------------------------------
NCI Building Systems, Inc. 196,875 3.1
- -------------------------------------------------------------------
Stanley Furniture Co., Inc. 173,375 2.7
- -------------------------------------------------------------------
Cracker Barrel Old Country Store, Inc. 170,181 2.7
- -------------------------------------------------------------------
Koss Corp. 169,219 2.7
- -------------------------------------------------------------------
Unico American Corp. 166,750 2.6
- -------------------------------------------------------------------
Crossman Communities, Inc. 160,225 2.5
- -------------------------------------------------------------------
$1,938,416 30.4%
- -------------------------------------------------------------------
</TABLE>
9
<PAGE>
STRATTON GROWTH FUND
- --------------------------------------------------------------------------------
Discussion of Investment Process and Performance
The Stratton Growth Fund seeks, as its primary objective, possible growth of
capital with current income from interest and dividends as a secondary
objective. Studies of historical data show that investing in high yielding
common stocks can produce above-average returns while lowering risk and
preserving capital.
The chart below depicts a hypothetical $10,000 investment in SGF and several
security indexes. The U.S. Securities and Exchange Commission requires that
this chart include a "broad-based" index like the S&P 500 Index. However, the
characteristics of the securities held in the SGF portfolio do not directly
compare to the characteristics of the securities that make up the S&P 500. In
order to provide a more direct comparison we have also included the S&P/BARRA
Value Index. The member firms of this index are more comparable to current and
historical holdings of the SGF portfolio. Our goal is to provide a clear
picture of the Fund's performance relative to other relevant benchmarks so that
investors can make accurate comparisons to other investment opportunities.
From an overall equity universe of more than 2500 companies, we screen down to
about 350 companies by selecting stocks with a market capitalization over $200
million which also possess a dividend yield at least one-third greater than the
yield on the S&P 500. Our second screen then reduces the universe to
approximately 60 stocks by measuring additional yield characteristics such as
dividend growth rates and dividend coverage. These tend to be done more on a
specific industry basis. Our third step in the review involves fundamental
analysis of important characteristics such as earnings, cash flow, management
strengths and relative industry competitive position. In this manner we reduce
the Stratton Growth Fund's buy candidate list to less than 40 stocks. These
stocks are then available for addition to the Fund. The final selection of
stocks for the portfolio of Stratton Growth Fund is made by James W. Stratton,
who has served as portfolio manager for more than 25 years. In his absence, a
back-up manager, Gerard E. Heffernan, serves.
The primary investment characteristics of the portfolio are as follows:
approximately 30 to 40 companies will be held; volatility, as measured by the
Beta, of the stocks should be below average; the average portfolio yield should
exceed the S&P 500 yield by 50%. By combining high dividend yields and lower
than average price volatility, the Fund should produce good relative
performance in up markets and above average relative performance in down
markets. This is our long-term objective.
[GRAPH FOR STRATTON]
Average Annual Total Return for the Ten Year Period Ended 12/31/98
1 year............................................ + 11.46%
5 year............................................ + 20.64
10 year............................................ + 15.14
Year SGF S&P 500 S&P/BARRA Value
- ---------- ------------- ----------- ---------------------
1988 $ 10,000 $ 10,000 $ 10,000
1989 12,379 13,164 12,613
1990 11,547 12,780 11,749
1991 14,109 16,680 14,400
1992 15,056 17,947 15,915
1993 16,020 19,758 18,877
1994 17,172 20,010 18,756
1995 23,641 27,520 25,695
1996 26,992 33,847 31,348
1997 36,726 45,133 40,747
1998 40,934 58,029 46,726
Past performance is not predictive of future performance.
Returns shown include the reinvestment of all dividends and other distributions.
Investment return and principal value will fluctuate, so that your share, when
redeemed, may be worth more or less than their original cost.
* The S&P 500 Index is an unmanaged index.
** The S&P/BARRA Value Index is an unmanaged index.
10
<PAGE>
STRATTON MONTHLY DIVIDEND REIT SHARES
- --------------------------------------------------------------------------------
Discussion of Investment Process and Performance
Under normal conditions, the Fund will invest at least 65% of its assets in the
equity securities of Real Estate Investment Trusts ( "REITs"). The remaining
35% of its assets may be invested, though it is not required, in real estate
related companies or in any other U.S. companies. REITs own income producing
commercial real estate properties such as apartment complexes, health care
facilities, shopping centers, regional malls, office buildings, hotels,
industrial buildings, and storage facilities.
The chart below depicts a hypothetical $10,000 investment in SMDS and several
security indexes. The U.S. Securities and Exchange Commission requires that
this chart include a "broad-based" index like the S&P 500 Index. However, the
characteristics of the securities held in the SMDS portfolio do not directly
compare to the characteristics of the securities that make up the S&P 500. SMDS
must invest at least 65% of the Fund's assets in REITs. Under normal
conditions, 80% of the Fund's assets are invested in REITs. There are no REITs
in the S&P 500. In order to provide a more direct comparison we have also
included the NAREIT Equity Index. Our goal is to provide a clear picture of the
Fund's performance relative to other relevant benchmarks so that investors can
make accurate comparisons to other investment opportunities. Investors should
remember that a high rate of return from dividend and interest income is at the
forefront of SMDS' investment objective, with growth of capital as a secondary
goal.
From an overall equity universe of more than 2,500 companies, Stratton
Management Co., through computer techniques, screens down to about 100
companies by selecting stocks which possess a dividend yield of at least 6%.
Our second screen then reduces that universe to approximately 60 stocks by
measuring additional yield characteristics such as dividend growth rates and
dividend coverage of companies that also operate within the real estate
industry. The portfolio contains approximately 30 to 50 companies that meet
these tests. Fundamental security analysis is applied to those companies on a
continuing basis. The final selection of stocks for the portfolio of SMDS is
made by James W. Stratton, who has served as portfolio manager for eighteen
years. In his absence, John A. Affleck serves as a back-up portfolio manager.
Research and analysis of the Fund's REIT holdings is performed by James A.
Beers, Vice President of Mutual Funds.
The volatility of the portfolio as measured by the Beta of the stocks is
considerably below average when compared to other stock mutual funds. By
combining high dividend yields and lower than average price volatility, the
Fund tries to produce good relative performance in up markets and above average
relative performance in down markets.
[GRAPH OF STRATTON MONTHLY DIVIDEND REIT SHARES]
Average Annual Total Return For the period ended 12/31/98
1 year..................................... - 11.75%
5 year..................................... + 4.18
10 year..................................... + 8.35
NAREIT
Year SMDS EQUITY S&P 500
- ----------- ------------ ------------- ----------------
1988 $ 10,000 $ 10,000 $ 10,000
1989 11,877 10,858 13,164
1990 11,423 9,173 12,780
1991 15,432 12,551 16,680
1992 17,038 14,537 17,947
1993 18,162 17,457 19,758
1994 15,960 18,103 20,010
1995 19,701 20,858 27,520
1996 21,392 28,638 33,847
1997 25,261 34,696 45,133
1998 22,292 28,929 58,029
Past performance is not predictive of future performance.
* The NAREIT Equity Index is an unmanaged index comprised of 176 real estate
investment trusts.
** The S&P 500 Index is an unmanaged index.
11
<PAGE>
STRATTON SMALL-CAP YIELD FUND
- --------------------------------------------------------------------------------
Discussion of Investment Process and Performance
Stratton Small-Cap Yield Fund's investment philosophy is to achieve both
dividend income and capital appreciation. The Fund seeks to achieve its
objective by investing in dividend-paying small-cap common stocks. Under normal
market conditions, the Fund will invest at least 80% of its assets in equity
securities. The Fund will invest at least 65% of its assets in small-cap
companies. The Fund may not invest more than 25% in any one industry.
From an overall equity universe of 6,000 companies, Stratton Management screens
down to about 800 companies by identifying stocks which possess a greater than
average dividend yield and a market capitalization of less than $1 billion. Our
stock selection process ranks that universe according to additional security
characteristics such as relative valuation and earnings momentum. The portfolio
contains approximately 60 companies that meet these criteria. Fundamental
security analysis is applied to those companies on a continuing basis. The
final decision to buy or sell stocks for the portfolio of Stratton Small-Cap
Yield is made by Frank H. Reichel, III and James W. Stratton.
The volatility of the portfolio, as measured by the Standard Deviation and/or
Beta of the stocks, is considerably below that of the average small-cap fund.
By combining above average dividend yields and lower than average
price/earnings ratios, the Fund tries to produce good performance in up markets
and strong relative performance in down markets.
[GRAPH FOR STRATTON]
Average Annual Total Return for the period ended 12/31/98
1 year...................................... - 9.58%
5 year...................................... + 12.88
Since Inception................................. + 12.54
Year SSCY RUSS 2000
- -------------- ----------------- ---------------
4/12/93 $ 10,000 $ 10,000
12/31/93 10,754 11,722
12/31/94 10,464 11,509
12/31/95 13,318 14,783
12/31/96 15,311 17,221
12/31/97 21,799 21,073
12/31/98 19,709 20,535
Past performance is not predicitive of future performance.
* The Russell 2000 Index is composed of the smallest 2000 stocks in the Frank
Russell annual ranking of 3000 common stocks by market capitalization. The
Russell 2000 stocks is a widely recognized common stock index of small to
medium size companies. The Russell 2000 is considered an unmanaged index.
12
<PAGE>
STRATTON SPECIAL VALUE FUND
- --------------------------------------------------------------------------------
Discussion of Investment Process and Performance
Stratton Special Value Fund's investment philosophy is to achieve capital
appreciation. The Fund seeks to achieve its objective by investing in equity
securities, primarily common stock and securities convertible into or
exchangeable for common stock which represent a value or potential worth which
is not fully recognized by prevailing market prices. These stocks are
considered by the Investment Advisor to be under-researched as measured by the
professional, financial research analysts covering them. The Fund may not
invest more than 25% in any one industry.
The Investment Advisor employs a "value" approach to the Fund's investments,
seeking to identify companies that have experienced fundamental change, are
intrinsically undervalued or are misunderstood by the investment community. The
Advisor examines various factors in determining the value characteristics of
securities including, but not limited to, ratios of price to cash flow, price
to sales, price to book, price to revenue, and price to earnings. The Fund will
pursue a wide array of opportunities among very small growth companies and more
mature companies. Fundamental security analysis is applied to those companies
on a continuing basis. The final decision to buy or sell stocks for the
portfolio of Stratton Special Value Fund is made by James Van Dyke Quereau and
James W. Stratton.
The Managers of this Fund attempt to be opportunistic in their trading
activities, and, as a result, the Fund may have a higher turnover ratio and
high realized short-term gains. The Fund seeks to achieve above average total
returns by employing multiple strategies which may include: investing in micro-
cap companies, which tend to be undiscovered and under-researched; investing in
under-valued large-cap companies; participating in initial public offerings;
and utilizing options, futures contracts, and short sales. This Fund has an
aggressive investment policy and is designed as one part of a complete
investment program.
[GRAPH FOR STRATTON]
Average Annual Total Return for the period ended 12/31/98
1 year..................................... - 2.67%
Year SSVF RUSS 2000
- --------------- ------------- -----------------
12/31/97 $ 10,000 $ 10,000
3/31/98 11,247 11,006
6/30/98 11,480 10,493
9/30/98 9,013 8,379
12/31/98 9,733 9,745
Past performance is not predictive of future performance.
* The Russell 2000 Index is composed of the smallest 2000 stocks in the Frank
Russell annual ranking of 3000 common stocks by the market capitalization. The
Russell 2000 is a widely recognized common stock index of small to medium size
companies. The Russell 2000 is considered an unmanged index.
13
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1998
- --------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 94.4%
BANKING/FINANCIAL - 25.4%
Bank One Corp. ........................................... 28,160 $ 1,437,920
Comerica, Inc. ........................................... 22,500 1,534,219
Commerce Bancorp, Inc. (NJ)............................... 66,937 3,514,193
First Union Corp. ........................................ 65,812 4,002,192
Fleet Financial Group, Inc. .............................. 20,000 893,750
PNC Bank Corp. ........................................... 50,000 2,706,250
Summit Bancorp, Inc. ..................................... 30,000 1,310,625
Union Planters Corp. ..................................... 15,000 679,687
-----------
16,078,836
-----------
BUSINESS SERVICES - 8.4%
Diebold, Inc. ............................................ 20,000 713,750
Gallagher (Arthur J.) & Co. .............................. 30,000 1,323,750
Pitney Bowes, Inc. ....................................... 50,000 3,303,125
-----------
5,340,625
-----------
CAPITAL GOODS/TECHNOLOGY - 2.7%
Briggs & Stratton Corp. .................................. 5,000 249,375
Harris Corp. ............................................. 40,000 1,465,000
-----------
1,714,375
-----------
CONSUMER DURABLES - 10.3%
DaimlerChrysler AG........................................ 31,175 2,994,748
Eastman Kodak Co. ........................................ 20,000 1,440,000
Ford Motor Co. ........................................... 35,000 2,054,062
-----------
6,488,810
-----------
CONSUMER NON-DURABLES - 8.4%
Anheuser-Busch Companies, Inc. ........................... 40,000 2,625,000
ConAgra, Inc. ............................................ 10,000 315,000
Kimberly-Clark Corp. ..................................... 28,000 1,526,000
Pennzoil-Quaker State Co. ................................ 41,020 607,609
Universal Foods Corp. .................................... 10,000 274,375
-----------
5,347,984
-----------
CONSUMER SERVICES - 4.6%
American Express Co. ..................................... 22,000 2,249,500
H&R Block, Inc. .......................................... 15,000 675,000
-----------
2,924,500
-----------
HEALTH CARE - 7.4%
American Home Products Corp. ............................. 26,000 1,464,125
Baxter International, Inc. ............................... 30,000 1,929,375
Mallinckrodt, Inc. ....................................... 10,000 308,125
Shared Medical Systems Corp. ............................. 20,000 997,500
-----------
4,699,125
-----------
INDUSTRIAL - 3.7%
Carpenter Technology Corp. ............................... 28,000 950,250
Fleetwood Enterprises, Inc. .............................. 40,000 1,390,000
-----------
2,340,250
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
---------- -----------
<S> <C> <C>
INSURANCE/SERVICES - 17.1%
American General Corp. ................................. 50,000 $ 3,900,000
Aon Corp. .............................................. 22,500 1,245,937
HSB Group, Inc. ........................................ 32,500 1,334,531
Jefferson-Pilot Corp. .................................. 12,500 937,500
Lincoln National Corp. ................................. 10,000 818,125
SAFECO Corp. ........................................... 35,000 1,502,813
Unitrin, Inc. .......................................... 15,000 1,076,250
-----------
10,815,156
-----------
RETAILING - 2.7%
The Limited, Inc. ...................................... 40,000 1,165,000
SUPERVALU, Inc. ........................................ 20,000 560,000
-----------
1,725,000
-----------
TECHNOLOGY - 2.3%
C&D Technologies, Inc. ................................. 25,000 687,500
Pall Corp. ............................................. 30,000 759,375
-----------
1,446,875
-----------
UTILITIES/GAS - 1.4%
El Paso Energy Corp. ................................... 25,000 870,313
-----------
Total Common Stocks
(cost $34,643,062)..................................... 59,791,849
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM NOTES - 5.2%
General Motors Acceptance Corp.
4.75% due 01/04/99 .................................... $1,650,000 1,650,000
Prudential Funding Corp.
5.05% due 01/07/99..................................... 1,650,000 1,650,000
-----------
Total Short-Term Notes
(cost $3,300,000)...................................... 3,300,000
-----------
TOTAL INVESTMENTS - 99.6%
(cost $37,943,062*).................................... 63,091,849
CASH AND OTHER ASSETS
LESS LIABILITIES - 0.4%................................ 231,324
-----------
NET ASSETS - 100.00%.................................... $63,323,173
===========
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $37,943,062; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $25,531,936
Gross unrealized depreciation...................................... (383,149)
-----------
Net unrealized appreciation....................................... $25,148,787
===========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1998
- --------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 89.2%
APARTMENTS - 16.0%
Berkshire Realty Co., Inc. ............................... 150,000 $ 1,425,000
Cornerstone Realty Income
Trust, Inc. ............................................. 130,000 1,365,000
Gables Residential Trust.................................. 100,000 2,318,750
Home Properties of New York, Inc. ........................ 85,000 2,188,750
Mid-America Apartment Communities, Inc. .................. 60,000 1,361,250
Town & Country Trust...................................... 153,300 2,462,381
Walden Residential Properties, Inc. ...................... 80,000 1,635,000
-----------
12,756,131
-----------
DIVERSIFIED - 12.6%
Colonial Properties Trust................................. 125,000 3,328,125
EastGroup Properties, SBI................................. 125,000 2,304,688
Meditrust Corp. .......................................... 180,000 2,722,500
Pacific Gulf Properties, Inc. ............................ 85,000 1,705,312
-----------
10,060,625
-----------
HEALTH CARE - 13.0%
American Health Properties, Inc. ......................... 135,000 2,784,375
Health Care REIT, Inc. ................................... 140,000 3,622,500
HRPT Properties Trust..................................... 90,000 1,265,625
LTC Properties, Inc. ..................................... 85,000 1,413,125
Universal Health Realty Income Trust...................... 65,000 1,275,625
-----------
10,361,250
-----------
LODGING - 17.8%
Boykin Lodging Co. ....................................... 110,000 1,361,250
Equity Inns, Inc. ........................................ 190,000 1,828,750
FelCor Lodging Trust, Inc. ............................... 80,000 1,845,000
Hospitality Properties Trust.............................. 60,000 1,447,500
Innkeepers USA Trust...................................... 180,000 2,126,250
Jameson Inns, Inc. ....................................... 160,000 1,430,000
RFS Hotel Investors, Inc. ................................ 125,000 1,531,250
Sunstone Hotel Investors, Inc. ........................... 130,000 1,226,875
Winston Hotels, Inc. ..................................... 175,000 1,432,813
-----------
14,229,688
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
OFFICE/INDUSTRIAL - 9.7%
Commercial Net Lease Realty, Inc. ........................ 90,000 $ 1,192,500
First Industrial Realty Trust, Inc. ...................... 60,000 1,608,750
Liberty Property Trust.................................... 157,400 3,875,975
TriNet Corporate Realty Trust, Inc. ...................... 40,000 1,070,000
-----------
7,747,225
-----------
OUTLET CENTERS - 3.6%
Mills Corp. .............................................. 48,700 967,913
Tanger Factory Outlet Centers, Inc. ...................... 90,000 1,906,875
-----------
2,874,788
-----------
REGIONAL MALLS - 3.2%
Glimcher Realty Trust..................................... 165,000 2,588,437
-----------
SHOPPING CENTERS - 11.6%
Developers Diversified Realty Corp. ...................... 60,000 1,065,000
IRT Property Co. ......................................... 166,000 1,660,000
Mid-Atlantic Realty Trust................................. 230,000 2,831,875
New Plan Excel Realty Trust, Inc. ........................ 108,000 2,396,250
Western Investment Real Estate Trust...................... 110,000 1,299,375
-----------
9,252,500
-----------
STORAGE CENTERS - 1.7%
Storage Trust Realty...................................... 60,000 1,402,500
-----------
Total Common Stocks
(cost $74,709,804)....................................... 71,273,144
-----------
PREFERRED STOCKS - 6.0%
Bradley Real Estate, Inc. Conv.
Preferred Class A........................................ 142,380 3,363,728
Kimco Realty Corp.--Depositary
Shares Class D........................................... 50,000 1,293,750
Psychiatric Group Preferred
Depositary Shares........................................ 100,000 178,120
-----------
Total Preferred Stocks
(cost $6,646,894)........................................ 4,835,598
-----------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1998 (continued)
- --------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- -----------
<S> <C> <C>
SHORT-TERM NOTES - 4.0%
American Express Credit Corp.
6.01% due 01/04/99..................................... $1,153,000 $ 1,153,000
General Electric Capital Corp.
6.11% due 01/05/99..................................... 500,000 500,000
American Express Credit Corp.
5.26% due 01/06/99..................................... 770,000 770,000
Ford Motor Credit Co.
4.91% due 01/07/99..................................... 740,000 740,000
-----------
Total Short-Term Notes
(cost $3,163,000)...................................... 3,163,000
-----------
TOTAL INVESTMENTS - 99.2%
(cost $84,519,698*).................................... 79,271,742
CASH AND OTHER ASSETS
LESS LIABILITIES - 0.8%................................ 664,560
-----------
NET ASSETS - 100.00%.................................... $79,936,302
===========
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $84,519,698; and net
unrealized depreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation..................................... $ 3,396,128
Gross unrealized depreciation..................................... (8,644,084)
-----------
Net unrealized depreciation...................................... $(5,247,956)
===========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1998
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 96.9%
BANKING/FINANCIAL - 18.4%
American Bank of Connecticut.............................. 22,000 $ 500,500
Centura Banks, Inc. (NC).................................. 8,000 595,000
Colonial BancGroup, Inc. ................................. 30,000 360,000
Commerce Bancorp, Inc. (NJ)............................... 19,687 1,033,568
Community Bank Systems, Inc. ............................. 17,000 498,312
First Essex Bancorp, Inc. ................................ 25,000 450,000
First Financial Holdings, Inc. ........................... 18,000 342,000
JeffBanks, Inc. .......................................... 26,666 526,654
Medford Bancorp, Inc. .................................... 26,000 435,500
Ocean Financial Corp. .................................... 34,000 565,250
Peoples Heritage Financial Group, Inc. ................... 25,346 506,920
Reliance Bancorp, Inc. ................................... 18,000 500,625
Republic Banking Corp. of Florida ........................ 30,000 318,750
Resource Bancshares Mortgage Group, Inc. ................. 30,000 496,875
Southwest Securities Group, Inc. ......................... 14,200 285,775
Webster Financial Corp. .................................. 16,632 456,340
-----------
7,872,069
-----------
BUSINESS SERVICES - 13.4%
Dain Rauscher Corp. ...................................... 19,000 560,500
Eaton Vance Corp. ........................................ 56,000 1,169,000
Harland (John H.) Co. .................................... 10,000 158,125
Primesource Corp. ........................................ 90,000 596,250
Rollins Truck Leasing Corp. .............................. 20,000 295,000
Schawk, Inc. ............................................. 60,000 832,500
True North Communications, Inc. .......................... 30,000 806,250
Wackenhut Corp. Class B................................... 60,000 1,316,250
-----------
5,733,875
-----------
CHEMICAL - 3.1%
Primex Technologies, Inc. ................................ 31,400 1,334,500
-----------
CONSUMER DURABLES - 3.2%
Huffy Corp. .............................................. 40,000 660,000
TB Wood's Corp. .......................................... 60,000 723,750
-----------
1,383,750
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
CONSUMER NON-DURABLES - 13.2%
Coca-Cola Bottling Co. Consolidated....................... 4,000 $ 230,000
Fingerhut Companies, Inc. ................................ 60,000 926,250
International Multifoods Corp. ........................... 40,000 1,032,500
Riviana Foods, Inc. (DE).................................. 55,000 1,357,813
Smart & Final, Inc. ...................................... 40,000 385,000
Tasty Baking Co. ......................................... 55,000 835,312
Velcro Industries, N.V. .................................. 6,000 894,000
-----------
5,660,875
-----------
HEALTH CARE - 4.7%
Diagnostic Products Corp. ................................ 20,000 622,500
Morrison Health Care, Inc. ............................... 50,000 953,125
Shared Medical Systems Corp. ............................. 9,000 448,875
-----------
2,024,500
-----------
INDUSTRIAL - 17.1%
A.O. Smith Corp. ......................................... 42,000 1,031,625
Commercial Intertech Corp. ............................... 70,000 905,625
Florida Rock Industries, Inc. ............................ 40,000 1,240,000
Greenbrier Companies, Inc. ............................... 73,000 1,031,125
Kuhlman Corp. ............................................ 25,000 946,875
LSI Industries, Inc. ..................................... 55,000 1,234,063
Republic Group, Inc. ..................................... 45,000 902,812
-----------
7,292,125
-----------
INSURANCE/SERVICES - 8.1%
Alfa Corp. ............................................... 25,000 606,250
American Heritage Life
Investment Corp. ........................................ 50,000 1,221,875
Blanche (E.W.) Holdings, Inc. ............................ 13,000 616,688
Donegal Group, Inc. ...................................... 46,666 729,156
Mobile America Corp. (FL)................................. 68,000 267,750
-----------
3,441,719
-----------
REAL ESTATE - 4.6%
Chateau Communities, Inc. ................................ 9,378 274,892
EastGroup Properties, SBI................................. 20,000 368,750
Innkeepers USA Trust...................................... 35,000 413,438
Pacific Gulf Properties, Inc. ............................ 14,000 280,875
Parkway Properties, Inc. ................................. 20,000 625,000
-----------
1,962,955
-----------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1998 (continued)
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
TECHNOLOGY - 11.1%
Analysts International Corp. ............................ 40,000 $ 770,000
Boston Acoustics, Inc. .................................. 54,000 1,431,000
Marc, Inc. .............................................. 37,500 398,437
MTS Systems Corp. ....................................... 30,000 405,000
Quixote Corp. ........................................... 77,500 954,219
Technitrol, Inc. ........................................ 25,000 796,875
-----------
4,755,531
-----------
Total Common Stocks
(cost $33,913,982)...................................... 41,461,899
-----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
SHORT-TERM NOTES - 1.9%
General Electric Capital Corp.
4.90% due 01/06/99
(cost $800,000)......................................... $800,000 800,000
-----------
TOTAL INVESTMENTS - 98.8%
(COST $34,713,982*)..................................... 42,261,899
CASH AND OTHER ASSETS
LESS LIABILITIES - 1.2%................................. 527,406
-----------
NET ASSETS - 100.00%..................................... $42,789,305
===========
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $34,713,982; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $ 9,910,431
Gross unrealized depreciation...................................... (2,362,514)
-----------
Net unrealized appreciation....................................... $ 7,547,917
===========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1998
- --------------------------------------------------------------------------------
Stratton Special Value Fund
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ----------
<S> <C> <C>
COMMON STOCKS - 94.9%
AUTOMOTIVE - 5.5%
Featherlite, Inc.*......................................... 12,000 $ 69,000
Motorcar Parts & Accessories, Inc.*........................ 12,000 137,250
Safety Components International, Inc.*..................... 9,000 142,875
----------
349,125
----------
BANKING/FINANCIAL - 0.7%
Hanmi Bank................................................. 3,225 42,731
----------
BUSINESS SERVICES - 2.4%
Gallagher (Arthur J.) & Co. ............................... 1,200 52,950
Valassis Communications, Inc.*............................. 2,000 103,250
----------
156,200
----------
CAPITAL GOODS/TECHNOLOGY - 14.5%
Bel Fuse, Inc. Class A*.................................... 6,250 250,000
Bel Fuse, Inc. Class B*.................................... 3,250 111,719
Percon, Inc.*.............................................. 10,000 61,875
SIFCO Industries, Inc. .................................... 12,000 149,250
Specialty Equipment Companies, Inc.*....................... 5,200 140,725
Woodhead Industries, Inc. ................................. 6,000 78,000
Woodward Governor Co. ..................................... 6,000 132,750
----------
924,319
----------
CONSTRUCTION - 13.4%
Crossman Communities, Inc.*................................ 5,800 160,225
Dominion Homes, Inc.*...................................... 4,500 49,500
Drew Industries, Inc.*..................................... 10,000 116,250
Engle Homes, Inc. ......................................... 7,000 107,187
M/I Schottenstein Homes, Inc. ............................. 6,400 140,800
NCI Building Systems, Inc. ................................ 7,000 196,875
Texas Industries, Inc. .................................... 3,200 86,200
----------
857,037
----------
CONSUMER DURABLES - 10.7%
Ballantyne of Omaha, Inc.*................................. 9,000 79,313
Callaway Golf Co. ......................................... 5,500 56,375
Cannondale Corp.*.......................................... 4,000 36,000
Coast Distributions System*................................ 25,000 68,750
Decorator Industries, Inc. ................................ 3,750 29,648
Stanley Furniture Co., Inc. ............................... 9,500 173,375
Velcro Industries, N.V. ................................... 1,600 238,400
----------
681,861
----------
CONSUMER NON-DURABLES - 5.8%
Koss Corp.*................................................ 15,000 169,219
WD-40 Co. ................................................. 7,000 200,375
----------
369,594
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ----------
<S> <C> <C>
ENTERTAINMENT - 4.4%
Anchor Gaming*............................................. 2,500 $ 140,938
Scietific Games Holdings Corp.*............................ 7,500 141,562
----------
282,500
----------
INDUSTRIAL - 4.5%
Carpenter Technology Corp. ................................ 1,600 54,300
Cascade Corp. ............................................. 7,700 121,756
Raven Industries, Inc. .................................... 7,000 112,875
----------
288,931
----------
INSURANCE/SERVICES - 15.0%
Acceptance Insurance Companies, Inc.*...................... 3,500 70,875
Chicago Title Corp. ....................................... 2,500 117,344
Donegal Group, Inc. ....................................... 13,633 213,016
LandAmerica Financial Group, Inc. ......................... 2,000 111,625
Mobile America Corp. (FL).................................. 13,000 51,188
Motor Club of America*..................................... 7,000 100,187
Trenwick Group, Inc. ...................................... 3,800 123,975
Unico American Corp. ...................................... 14,500 166,750
----------
954,960
----------
METALS - 6.1%
Lindberg Corp. ............................................ 14,000 127,312
Northwest Pipe Co.*........................................ 5,000 80,625
Penn Engineering & Manufacturing Corp. .................... 4,200 93,975
RMI Titanium Co.*.......................................... 6,300 88,200
----------
390,112
----------
REAL ESTATE - 1.3%
Sunstone Hotel Investors, Inc. ............................ 9,000 84,937
----------
RETAILING - 5.0%
Cracker Barrel Old Country Store, Inc. .................... 7,300 170,181
Duckwall-ALCO Stores, Inc.*................................ 11,000 145,750
----------
315,931
----------
TECHNOLOGY - 4.6%
Esterline Technologies Corp.*.............................. 7,000 152,250
Software Spectrum, Inc.*................................... 9,000 142,875
----------
295,125
----------
TELECOMMUNICATIONS - 1.0%
Hickory Tech Corp. ........................................ 5,100 66,300
----------
Total Common Stocks
(cost $6,416,608)......................................... 6,059,663
----------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1998 (continued)
- --------------------------------------------------------------------------------
Stratton Special Value Fund
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 1)
--------- ----------
<S> <C> <C>
SHORT-TERM NOTES - 4.7%
General Electric Capital Corp.
6.11% due 01/04/99
(cost $300,000).......................................... $300,000 $ 300,000
----------
TOTAL INVESTMENTS - 99.6%
(cost $6,716,608**)...................................... 6,359,663
CASH AND OTHER ASSETS
LESS LIABILITIES - 0.4%.................................. 23,039
----------
NET ASSETS - 100.00%...................................... $6,382,702
==========
</TABLE>
- --------
* non-income producing
** Aggregate cost for federal income tax purposes is $6,716,608; and net
unrealized depreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $ 535,637
Gross unrealized depreciation...................................... (892,582)
----------
Net unrealized depreciation....................................... $ (356,945)
==========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
December 31, 1998
<TABLE>
<CAPTION>
SGF SMDS SSCY SSVF
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities
at value (cost
$37,943,062, $84,519,698,
$34,713,982 and
$6,716,608, respectively)
(Note 1).................. $63,091,849 $79,271,742 $42,261,899 $6,359,663
Cash....................... 172,217 2,098 294,854 52,616
Subscriptions receivable... 20,287 1,623 198,200 --
Dividends and interest
receivable................ 80,468 743,288 104,855 4,849
Prepaid expenses........... 1,584 -- -- --
Receivable for securities
sold...................... -- -- -- 44,999
----------- ----------- ----------- ----------
Total Assets............. 63,366,405 80,018,751 42,859,808 6,462,127
----------- ----------- ----------- ----------
LIABILITIES:
Redemptions payable........ 10,207 32,530 11,523 --
Accrued expenses and other
liabilities............... 33,025 49,919 58,980 1,575
Payable for investment
securities purchased...... -- -- -- 77,850
----------- ----------- ----------- ----------
Total Liabilities........ 43,232 82,449 70,503 79,425
----------- ----------- ----------- ----------
NET ASSETS:
Applicable to 1,858,587,
3,225,427, 2,128,199 and
437,207 shares
outstanding,
respectively/1/........... $63,323,173 $79,936,302 $42,789,305 $6,382,702
=========== =========== =========== ==========
Net asset value, offering
and redemption price
per share................. $ 34.07 $ 24.78 $ 20.11 $ 14.60
=========== =========== =========== ==========
SOURCE OF NET ASSETS:
Paid-in capital............ $36,538,467 $98,363,424 $36,399,145 $6,817,138
Undistributed net
investment income......... -- -- 1,396 --
Accumulated net realized
gain (loss) on
investments............... 1,635,919 (13,179,166) (1,159,153) (77,491)
Net unrealized appreciation
(depreciation) of
investments............... 25,148,787 (5,247,956) 7,547,917 (356,945)
----------- ----------- ----------- ----------
Net Assets............... $63,323,173 $79,936,302 $42,789,305 $6,382,702
=========== =========== =========== ==========
</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; SSVF: $.001 par value, 200,000,000 shares authorized.
See accompanying notes to financial statements.
21
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Year Ended December 31, 1998
<TABLE>
<CAPTION>
SGF SMDS SSCY SSVF
---------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
INCOME:
Dividends................... $1,379,954 $ 6,058,211 $ 1,014,020 $ 57,138
Interest.................... 288,246 224,835 131,280 10,699
---------- ------------ ----------- ---------
Total Income.............. 1,668,200 6,283,046 1,145,300 67,837
---------- ------------ ----------- ---------
EXPENSES:
Accounting/Pricing services
fees (Note 2).............. 20,000 26,500 27,364 25,000
Administration services fees
(Note 2)................... 30,000 30,500 30,000 10,000
Advisory fees (Note 2)...... 453,119 548,380 526,297 43,822
Audit fees.................. 18,212 25,953 14,000 500
Custodian fees (Note 2)..... 26,052 34,574 28,520 12,979
Directors' fees............. 15,258 21,319 11,714 1,460
Insurance fees.............. 1,276 1,777 1,071 140
Legal fees.................. 6,924 9,681 5,414 805
Miscellaneous fees.......... 6,642 10,254 5,170 395
Printing and postage fees... 26,113 43,676 22,867 3,215
Registration fees (Note 2).. 27,894 30,765 35,165 20,623
Shareholder services fees
(Note 2)................... 33,356 132,053 45,780 1,826
Taxes other than income
taxes...................... 4,750 6,850 3,725 500
---------- ------------ ----------- ---------
Total Expenses............ 669,596 922,282 757,087 121,265
---------- ------------ ----------- ---------
Net Investment Income
(Loss)................. 998,604 5,360,764 388,213 (53,428)
---------- ------------ ----------- ---------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on
investments................ 4,896,340 3,596,392 (1,159,153) (77,491)
Net increase (decrease) in
unrealized appreciation on
investments................ 687,299 (19,590,880) (4,996,458) (356,945)
---------- ------------ ----------- ---------
Net gain (loss) on
investments................ 5,583,639 (15,994,488) (6,155,611) (434,436)
---------- ------------ ----------- ---------
Net increase (decrease) in
net assets resulting from
operations............... $6,582,243 $(10,633,724) $(5,767,398) $(487,864)
========== ============ =========== =========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SGF SMDS
------------------------ --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/98 12/31/97 12/31/98 12/31/97
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income... $ 998,604 $ 951,531 $ 5,360,764 $ 5,390,680
Net realized gain (loss)
on investments......... 4,896,340 4,397,086 3,596,392 (775,344)
Net increase (decrease)
in unrealized
appreciation of
investments............ 687,299 10,314,063 (19,590,880) 11,680,867
----------- ----------- ------------ ------------
Net increase (decrease)
in net assets resulting
from operations........ 6,582,243 15,662,680 (10,633,724) 16,296,203
----------- ----------- ------------ ------------
DISTRIBUTIONS TO SHARE-
HOLDERS:
From net investment
income ($0.59 and $0.54
per share,
respectively, for SGF,
$1.65 and $1.54,
respectively, for
SMDS).................. (1,034,331) (924,887) (5,360,764) (5,390,680)
From realized gains on
investments ($2.43 and
$2.52 per share,
respectively, for
SGF)................... (4,304,696) (4,096,574) -- --
In excess of net
investment income
($0.40 per share for
SMDS).................. -- -- (1,299,867) --
Return of capital ($0.38
per share for SMDS).... -- -- -- (1,315,783)
CAPITAL SHARE TRANSAC-
TIONS:/2/ 1,902,474 4,735,008 (4,725,567) (11,413,251)
----------- ----------- ------------ ------------
Total increase
(decrease) in net
assets................. 3,145,690 15,376,227 (22,019,922) (1,823,511)
NET ASSETS:
Beginning of period..... 60,177,483 44,801,256 101,956,224 103,779,735
----------- ----------- ------------ ------------
End of period (including
undistributed net
investment income of $0
and $35,727,
respectively, for SGF,
undistributed net
investment income of $0
and $0, respectively,
for SMDS).............. $63,323,173 $60,177,483 $ 79,936,302 $101,956,224
=========== =========== ============ ============
<CAPTION>
SSCY SSVF
------------------------ --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
12/31/98 12/31/97 12/31/98 12/31/97*
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income
(loss)................. $ 388,213 $ 311,167 $ (53,428) $ --
Net realized gain (loss)
on investments......... (1,159,153) 1,579,761 (77,491) --
Net increase (decrease)
in unrealized
appreciation of
investments............ (4,996,458) 8,011,586 (356,945) --
----------- ----------- ------------ ------------
Net increase (decrease)
in net assets resulting
from operations........ (5,767,398) 9,902,514 (487,864) --
----------- ----------- ------------ ------------
DISTRIBUTIONS TO SHARE-
HOLDERS:
From net investment
income ($0.18 and
$0.20/3/ per share,
respectively,
for SSCY).............. (410,582) (287,402) -- --
From realized gains on
investments ($0.04 and
$1.13/3/ per share,
respectively, for
SSCY).................. (96,899) (1,798,916) -- --
CAPITAL SHARE TRANSAC-
TIONS:/2/ 9,687,236 9,869,676 6,765,566 105,000
----------- ----------- ------------ ------------
Total increase in net
assets................. 3,412,357 17,685,872 6,277,702 105,000
NET ASSETS:
Beginning of period..... 39,376,948 21,691,076 105,000 --
----------- ----------- ------------ ------------
End of period (including
undistributed net
investment income of
$1,396 and $23,765,
respectively, for SSCY,
net investment income
of $0 and $0,
respectively, for
SSVF).................. $42,789,305 $39,376,948 $ 6,382,702 $ 105,000
=========== =========== ============ ============
</TABLE>
- --------
*Fund commenced operations on December 31, 1997.
/3/Adjusted for a 2-for-1 stock split declared by the Fund to shareholders of
record on December 17, 1997.
See accompanying notes to financial statements.
23
<PAGE>
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
/2/ A summary of capital share transactions follows:
<TABLE>
<CAPTION>
SGF
---------------------------------------
YEAR ENDED 12/31/98 YEAR ENDED 12/31/97
---------------------- -----------------------
SHARES VALUE SHARES VALUE
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued................. 318,761 $11,325,835 237,474 $ 7,625,883
Shares reinvested from net
investment income and capital
gains distributions.......... 140,694 4,684,002 140,717 4,398,631
--------- ----------- --------- ------------
459,455 16,009,837 378,191 12,024,514
Shares redeemed............... (403,301) (14,107,363) (235,166) (7,289,506)
--------- ----------- --------- ------------
Net increase................ 56,154 $ 1,902,474 143,025 $ 4,735,008
========= =========== ========= ============
<CAPTION>
SMDS
---------------------------------------
YEAR ENDED 12/31/98 YEAR ENDED 12/31/97
---------------------- -----------------------
SHARES VALUE SHARES VALUE
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued................. 373,202 $ 9,611,674 346,467 $ 9,958,751
Shares reinvested from net
investment income............ 141,500 3,873,947 134,590 3,765,100
--------- ----------- --------- ------------
514,702 13,485,621 481,057 13,723,851
Shares redeemed............... (660,216) (18,211,188) (893,776) (25,137,102)
--------- ----------- --------- ------------
Net decrease................ (145,514) $(4,725,567) (412,719) $(11,413,251)
========= =========== ========= ============
<CAPTION>
SSCY
---------------------------------------
YEAR ENDED 12/31/98 YEAR ENDED 12/31/97
---------------------- -----------------------
SHARES VALUE SHARES VALUE
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued................. 1,071,101 $24,120,897 333,827 $ 12,981,282
Shares issued from stock
split........................ -- -- 864,479 --
Shares reinvested from net
investment income and capital
gains distributions.......... 18,664 402,242 39,255 1,672,816
--------- ----------- --------- ------------
1,089,765 24,523,139 1,237,561 14,654,098
Shares redeemed............... (713,619) (14,835,903) (131,386) (4,784,422)
--------- ----------- --------- ------------
Net increase................ 376,146 $ 9,687,236 1,106,175 $ 9,869,676
========= =========== ========= ============
<CAPTION>
SSVF
---------------------------------------
YEAR ENDED 12/31/98 YEAR ENDED 12/31/97*
---------------------- -----------------------
SHARES VALUE SHARES VALUE
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued................. 433,119 $ 6,811,340 7,000 $ 105,000
Shares reinvested from net
investment income and capital
gains distributions.......... -- -- -- --
--------- ----------- --------- ------------
433,119 6,811,340 7,000 105,000
Shares redeemed............... (2,912) (45,774) -- --
--------- ----------- --------- ------------
Net increase................ 430,207 $ 6,765,566 7,000 $ 105,000
========= =========== ========= ============
</TABLE>
- --------
* Fund commenced operations on December 31, 1997.
See accompanying notes to financial statements.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
December 31, 1998
NOTE 1. - Significant Accounting Policies
Stratton Mutual Funds (the "Funds") consist of Stratton Growth Fund, Inc.
("SGF"), Stratton Monthly Dividend REIT Shares, Inc. ("SMDS") and The Stratton
Funds, Inc. The Stratton Funds, Inc. (the "Company") operates as a series,
consisting of Stratton Small-Cap Yield Fund ("SSCY") and Stratton Special
Value Fund ("SSVF"), which began operations on December 31, 1997. The Funds
and Company are registered under the Investment Company Act of 1940, as
amended, as open-end management investment companies. The Funds offer
diversified portfolios.
Investments in the Funds normally consist of common stock and securities
convertible into or exchangeable into common stock. Each Fund has specific
investment objectives:
The objective of SGF is to seek possible growth of capital with current income
from interest and dividends as a secondary objective.
The objective of SMDS is to seek a high rate of return from dividend and
interest income. Under normal conditions, at least 65% of the Fund's total
assets will be in securities of real estate investment trusts.
The objective of SSCY is to achieve both dividend income and capital
appreciation through investment in the securities of small-cap companies which
have certain risks associated with them. First and foremost is their greater
earnings and price volatility in comparison to large companies. Earnings risk
is partially due to the undiversified nature of small company business lines.
The objective of SSVF is to achieve capital appreciation through investment in
securities which represent a value or potential worth which is not fully
recognized by prevailing market prices.
Due to the inherent risk of investments there can be no assurance that the
objectives of the Funds will be met.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Security Valuation - Securities listed or admitted to trading on
any national securities exchange are valued at their last sale price
on the exchange where the securities are principally traded or, if
there has been no sale on that date, at the mean between the last
reported bid and asked prices. Securities traded in the over-the-
counter market are valued at the last sale price, if carried in the
National Market Issues section by NASDAQ; other over-the-counter
securities are valued at the mean between the closing bid and asked
prices obtained from a principal market maker. All other securities
and assets are valued at their fair value as determined in good
faith by the Boards of Directors of the Funds, which may include the
amortized cost method for securities maturing in sixty days or less
and other cash equivalent investments.
B. Determination of Gains or Losses on Sales of Securities - Gains
or losses on the sale of securities are calculated for accounting
and tax purposes on the identified cost basis.
C. Federal Income Taxes - It is the Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all taxable income
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
December 31, 1998
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 and SSVF have capital loss
carryovers available to offset future capital gains, if any, of
approximately $1,159,000 and $36,000, respectively, which expire 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 year ended December 31, 1998, the Funds paid advisory
fees to Stratton Management Company, (the "Advisor") as follows: SGF--
$453,119; SMDS--$548,380; SSCY--$526,297; SSVF--$43,822. 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
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
December 31, 1998
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 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
year ended December 31, 1998 caused the advisory fee to increase by $162,192.
SSVF pays a monthly fee at an annual rate of 0.75% of the daily net asset
value of the Fund for such month, subject to a performance adjustment. The
performance adjustment for SSVF will commence at the end of the month in which
the Fund has completed 24 months of operation, if it has net assets of $20
million or more, at such date, or at the end of any succeeding month at which
it has net assets of $20 million, but in any event, irrespective of its net
assets, at the end of the month in which the Fund has completed 36 months of
operation and will be calculated at the end of the commencement month and each
succeeding month based upon a rolling 24 month performance period. The
performance adjustment is added to or subtracted from the basic investment
advisory fee. Pursuant to the performance adjustment, the Fund's gross
performance is compared with the performance of the Russell 2000. When the
Fund performs better than the Russell 2000, it pays the Investment Advisor an
incentive fee; less favorable performance than the Russell 2000 reduces the
basic fee. Each 1.00% of the difference in performance between a Fund and the
Russell 2000 during the performance period is equal to a 0.10% adjustment to
the basic fee. The maximum annualized performance adjustment rate is +/- 0.50%
of average net assets which would be added to or deducted from the advisory
fee if a Fund outperformed or underperformed the Russell 2000 by 5.00%. The
effect of this performance fee adjustment is that the advisory fee may never
be greater than 1.25% or less than 0.25% of the Fund's average daily net
assets for the preceding month. Due to the complexities of researching and
investing in special value securities, the advisory and incentive fees (if
realized) paid by the Fund are higher than those paid by most other investment
companies. Additionally, the Fund's incentive fee of plus or minus 0.50% is
greater than that of other mutual funds with similar objectives which pay
incentive fees.
Certain officers and Directors of the Funds are also officers and directors of
the Advisor. None of the Funds' officers receive compensation from the Funds.
Effective February 23, 1998, FPS Services, Inc. ("FPS"), a wholly-owned
subsidiary of FinDaTex, Inc., was acquired by Investor Services Group. Certain
Directors and officers of the Funds are shareholders of FinDaTex, Inc. Prior
to that, FPS received fees for providing shareholder services, for certain
administrative services and for accounting/pricing services as follows:
<TABLE>
<CAPTION>
SGF SMDS SSCY SSVF
------ ------- ------ ------
<S> <C> <C> <C> <C>
Shareholder Services............................... $7,135 $27,170 $7,639 $ 336
Administration..................................... 5,000 5,000 5,000 1,666
Accounting/Pricing................................. 3,333 4,333 3,333 3,333
</TABLE>
Pursuant to an agreement between The Bank of New York (the "Custodian"), and
Investor Services Group, the Custodian reallows a portion of its custody fees
to Investor Services Group for certain services delegated to
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
December 31, 1998
Investor Services Group. The amount is not readily determinable. FPS Broker
Services, Inc., a wholly-owned subsidiary of FinDaSub (formerly FPS), 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 year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
SGF SMDS SSCY SSVF
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cost of purchases............... $21,713,421 $16,208,261 $26,885,231 $10,998,091
Proceeds of sales............... 21,587,001 19,130,407 16,212,408 4,502,649
</TABLE>
NOTE 4. - Stock Split
A two-for-one stock split effected in the form of a dividend was issued to
shareholders of record of SSCY as of the close of business on December 17,
1997, payable December 18, 1997.
28
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Stratton Growth Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
YEAR YEAR 7 MONTHS YEARS ENDED MAY 31,
ENDED ENDED ENDED -------------------------
12/31/98 12/31/97 12/31/96 1996 1995 1994
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 33.39 $ 27.00 $ 27.18 $ 22.35 $ 20.65 $ 20.89
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income............... 0.570 0.550 0.312 0.556 0.537 0.510
Net gains on
securities (both
realized and
unrealized).......... 3.130 8.900 1.298 5.759 2.978 0.665
------- ------- ------- ------- ------- -------
Total from
investment
operations......... 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................. $ 34.07 $ 33.39 $ 27.00 $ 27.18 $ 22.35 $ 20.65
======= ======= ======= ======= ======= =======
TOTAL RETURN............ 11.46% 36.06% 6.40% 29.62% 18.61% 5.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's).... $63,323 $60,177 $44,801 $42,880 $31,719 $25,475
Ratio of expenses to
average net assets... 1.07% 1.11% 1.17%/1/ 1.16% 1.31% 1.34%
Ratio of net
investment income to
average net assets... 1.60% 1.87% 2.08%/1/ 2.28% 2.70% 2.51%
Portfolio turnover
rate................. 38.02% 34.40% 20.32% 15.41% 42.54% 49.81%
Average commission
rate paid............ N/R $0.0509 $0.0537 N/A N/A N/A
</TABLE>
- --------
/1/Annualized
See accompanying notes to financial statements.
29
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
11
YEAR YEAR MONTHS YEARS ENDED JANUARY 31,
ENDED ENDED ENDED -----------------------------
12/31/98 12/31/97 12/31/96 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69 $ 29.91
------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income............... 1.650 1.540 1.630 1.880 1.940 1.870
Net gains (losses) on
securities (both
realized and
unrealized).......... (5.070) 3.200 0.160 2.600 (3.870) (1.140)
------- -------- -------- -------- -------- --------
Total from
investment
operations......... (3.420) 4.740 1.790 4.480 (1.930) 0.730
------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends (from net
investment income)... (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...... (2.050) (1.920) (1.760) (1.920) (1.920) (1.950)
------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD................. $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69
======= ======== ======== ======== ======== ========
TOTAL RETURN............ (11.75)% 18.09% 7.12% 18.98% (6.57)% 2.22%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period
(in 000's)........... $79,936 $101,956 $103,780 $129,267 $134,066 $165,798
Ratio of expenses to
average net assets... 1.02% 1.02% 1.02%/1/ 0.99% 1.08% 0.99%
Ratio of net
investment income to
average net assets... 5.95% 5.48% 6.94%/1/ 7.42% 7.71% 6.12%
Portfolio turnover
rate................. 18.89% 42.47% 69.19% 53.30% 39.50% 19.15%
Average commission
rate paid............ N/R $ 0.0505 $ 0.0498 N/A N/A N/A
</TABLE>
- --------
/1/Annualized
See accompanying notes to financial statements.
30
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
YEAR 9 MONTHS FOR THE PERIOD
ENDED YEAR ENDED ENDED YEAR ENDED YEAR ENDED 04/12/93/1/
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>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 22.47 $ 16.79 $ 15.98 $ 12.94 $ 12.97 $12.50
------- ------- ------- ------- ------- ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income............... 0.170 0.210 0.260 0.330 0.290 0.220
Net gains (loss) on
securities (both
realized and
unrealized).......... (2.310) 6.800 1.740 3.040 (0.020) 0.450
------- ------- ------- ------- ------- ------
Total from
investment
operations......... (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................. $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94 $12.97
======= ======= ======= ======= ======= ======
TOTAL RETURN............ (9.58)% 42.37% 12.84% 26.18% 2.09% 5.51%/2/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's).... $42,789 $39,377 $21,691 $19,592 $14,058 $8,257
Ratio of expenses to
average net assets... 1.56% 1.62% 1.29%/2/ 1.46% 2.12% 2.28%/2/
Ratio of net
investment income to
average net assets... 0.80% 1.09% 2.03%/2/ 2.28% 2.36% 1.85%/2/
Portfolio turnover
rate................. 35.74% 26.27% 35.86% 33.50% 30.20% 28.60%/2/
Average commission
rate paid............ N/R $0.0548 $0.0579 N/A N/A N/A
</TABLE>
- --------
/1/Commencement of operations
/2/Annualized
/3/Adjusted for a 2-for-1 stock split declared by the Fund to shareholders of
record on December 17, 1997
See accompanying notes to financial statements.
31
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Special Value Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout the period presented.
<TABLE>
<CAPTION>
YEAR
ENDED
12/31/98
--------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............................. $ 15.00/1/
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment loss............................................. (0.120)
Net losses on securities (both realized and unrealized)......... (0.280)
-------
Total from investment operations.............................. (0.400)
-------
NET ASSET VALUE, END OF PERIOD.................................... $ 14.60
=======
TOTAL RETURN...................................................... (2.67)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)............................ $ 6,383
Ratio of expenses to average net assets......................... 2.07%/2/
Ratio of net investment loss to average net assets.............. (0.91)%/2/
Portfolio turnover rate......................................... 78.06%
</TABLE>
- --------
/1/Commencement of operations 12/31/97
/2/Annualized
See accompanying notes to financial statements.
32
<PAGE>
Report of Independent Certified Public Accountants
- -------------------------------------------------------------------------------
To the Shareholders and Board of Directors of the Stratton Mutual Funds:
We have audited the accompanying statements of assets and liabilities of
Stratton Growth Fund, Inc., Stratton Monthly Dividend REIT Shares, Inc. and
Stratton Small-Cap Yield Fund and Stratton Special Value Fund, each a series
of shares of The Stratton Funds, Inc., including the schedules of investments,
as of December 31, 1998, the related statements of operations for the year
then ended, and the statements of changes in net assets and the financial
highlights for each of the periods indicated thereon. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1998, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Stratton Growth Fund, Inc., Stratton Monthly Dividend REIT Shares, Inc.,
Stratton Small-Cap Yield Fund, and Stratton Special Value Fund, as of December
31, 1998, the results of their operations for the year then ended, and the
changes in their net assets and the financial highlights for each of the
periods indicated thereon, in conformity with generally accepted accounting
principles.
TAIT, WELLER & BAKER
Philadelphia, PA
January 15, 1999
33
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
MINIMUM INVESTMENT
The minimum amount for the initial purchase of shares of the Funds is $2,000
each. Subsequent purchases may be made in amounts of $100 or more.
TELEPHONE EXCHANGE
Shares of each Fund may be exchanged for shares of the other Funds, provided
such other shares may legally be sold in the state of the investor's
residence. Each Fund has a distinct investment objective which should be
reviewed before executing any exchange of shares. Shares may be exchanged by:
(1) written request; or (2) telephone, if a special authorization form has
been completed and is on file with the transfer agent in advance. See "How to
Redeem Fund Shares--Additional Information" in the Prospectus for a
description of the Funds' policy regarding telephone instructions.
DIVIDENDS AND DISTRIBUTIONS
SGF pays semi-annual dividends from net investment income. SMDS pays monthly
dividends from net investment income. SSCY and SSVF pay annual dividends from
net investment income. Each Fund will make distributions of net realized
gains, if any, once a year. Distributions may be reinvested in additional
shares of such Fund, see "How to Buy Fund Shares--Reinvestment of Income
Dividends and Capital Gains Distributions" in the Prospectus.
AUTOMATIC INVESTMENT PLAN
Shares of a Fund may be purchased through our "Automatic Investment Plan" (the
"Plan"), (See item 6 of the New Account Application attached to the back of
the Prospectus). The Plan provides a convenient method by which investors may
have monies debited directly from their checking, savings or bank money market
accounts for investment in a Fund. The minimum investment pursuant to this
Plan is $100 per month. The account designated will be debited in the
specified amount, on the date indicated, and Fund shares will be purchased.
Only an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated. A Fund may alter, modify
or terminate this Plan at any time.
SHARE PRICE INFORMATION
The daily share price of 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. A symbol has not yet been assigned to SSVF.
RETIREMENT PLANS
Stratton Mutual Funds has Defined Contribution Plans, Individual Retirement
Accounts and 403(b)(7) Retirement Plans available at no minimum investment.
34
<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:
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.
3200 Horizon Drive, P. O. Box 61503, King of Prussia, PA 19406-0903
Telephone: 610-239-4600 . 800-472-4266
INVESTMENT PORTFOLIO ACTIVITIES
Questions regarding any of 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 412797, Kansas City, MO 64141-2797
DISTRIBUTED BY FIRST DATA DISTRIBUTORS, INC., 4400 COMPUTER DRIVE,
WESTBOROUGH, MA 01581--DATE OF FIRST USE FEBRUARY 1999. THIS
REPORT IS AUTHORIZED FOR DISTRIBUTION TO SHAREHOLDERS AND
TO OTHERS WHO HAVE RECEIVED A COPY OF THE COMBINED
PROSPECTUS OF STRATTON MUTUAL FUNDS.
35
<PAGE>
DIVIDEND NOTICES
- --------------------------------------------------------------------------------
December 31, 1998
Note the following information is required by section 854(b)(2) of the Internal
Revenue Code.
<TABLE>
<CAPTION>
PERCENTAGE OF ORDINARY DIVIDEND
INCOME QUALIFYING FOR THE
70% CORPORATE DIVIDEND RECEIVED
DEDUCTION
-------------------------------
<S> <C>
Stratton Growth Fund, Inc. .................... 100%
Stratton Monthly Dividend REIT Shares, Inc. ... 22.25%
Stratton Small-Cap Yield Fund.................. 100%
</TABLE>
36
<PAGE>
- ------------------------------
STRATTON
MUTUAL FUNDS
- ------------------------------
Stability . Strategy . Success
DIRECTORS
Lynne M. Cannon
John J. Lombard, Jr.
Douglas J. MacMaster, Jr.
Henry A. Rentschler
Merritt N. Rhoad, Jr.
Richard W. Stevens
James W. Stratton
OFFICERS
James W. Stratton
Chairman
John A. Affleck
President, Stratton Monthly Dividend REIT Shares
Gerard E. Heffernan
President, Stratton Growth Fund
Frank H. Reichel, III
President, The Stratton Funds, Inc.
Portfolio Manager, Stratton Small-Cap Yield Fund
James Van Dyke Quereau
Vice President
Portfolio Manager, Stratton Special Value Fund
James A. Beers
Vice President
Joanne E. Kuzma
Vice President
Patricia L. Sloan
Secretary & Treasurer
Carol L. Royce
Assistant Secretary & Treasurer
INVESTMENT ADVISOR
Stratton Management Company
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300
Plymouth Meeting, PA 19462-1050
Telephone: 610-941-0255
TRANSFER AGENT
& DIVIDEND
PAYING AGENT
First Data Investor Services Group, Inc.
3200 Horizon Drive, P.O. box 61503
King of Prussia, PA 19406-0903
Telephone: 610-239-4600
800-472-4266
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
MEMBER OF
- ----------------
100% NO-LOAD(TM)
MUTUAL FUND
COUNCIL
- ----------------
