<PAGE>
SEMI-ANNUAL REPORT
JUNE 30, 1999
[LOGO APPEARS HERE]
MUTUAL FUNDS
Stability.Strategy.Success
<PAGE>
[FIRST DATA LOGO APPEARS HERE]
DEAR FELLOW SHAREHOLDER:
The market leadership changed in April from growth stocks to value stocks. We
believe that this style change is a major turn. When styles shift, that change
normally lasts from three to five years. We believe that this style change was
caused by the substantial overpricing of many major growth stocks, as well as,
a resurgence in the worldwide economy, especially in the Pacific Rim and a
reappearance of commodity price inflation, especially in energy. It was a
recognition of the end of several years of commodity price deflation.
We believe the S&P 500 is seriously overpriced on a price-to-sales, price-to-
earnings, price-to-bookvalue, and on inverted stock yields. All four measures
indicate record levels of valuation that are significantly greater than any
past historical valuation. This sets the stage for a major correction in the
S&P 500, which should be concentrated in the top fifty stocks that have driven
the average up.
The causes of inflation are an effective campaign by OPEC to raise crude oil
prices to the $20 per barrel range plus a very tight labor market in the United
States (in certain states there are critical shortages of both skilled and
unskilled labor). Excessive demand within a number of areas of our economy,
especially spending on luxury goods and services such as travel and
entertainment is also driving prices higher. Finally, the end of a two year
Pacific Rim economic depression has removed a worldwide glut of raw materials
and the resulting significant price deflation for international commodities.
The Federal Reserve has been blunt in discussing their concerns about the
inflationary threat to the U.S. economy. We expect that the Fed will raise
interest rates three times, thereby withdrawing the three rate reductions that
were given to stimulate the worldwide economy in the Fall of 1998. Fed Policy
is also concerned about what they view as excessive valuations in the stock
market producing a "wealth effect boom" in consumer luxury spending and in
housing. By taking some of the steam out of the stock market, they would have a
direct impact upon those areas of the economy showing the most demand pull
inflation.
Our portfolios of all three Funds sell at substantial discounts to the price
earnings ratios of the S&P 500. In each case, they would benefit from a
redirection of investor attention away from the "nifty-fifty" of the S&P 500
and toward medium and small cap stocks. We believe that a broadening of the
market, which began in April, is a healthy step and will refocus investors to
other alternatives and away from overpriced, very large capitalization issues.
Sincerely yours,
/s/ James W. Stratton
James W. Stratton
Chairman
August 3, 1999
<PAGE>
STRATTON GROWTH FUND
- --------------------------------------------------------------------------------
During the second quarter of 1999, the Fund participated in the broadening of
the market to middle capitalization stocks with a value orientation. We added
two new names to our portfolio. The first was AmSouth Bancorp (2.8%), a large
regional bank headquartered in Birmingham, Alabama that has announced its
planned acquisition of First American Corp. located in Tennessee. The
announcement of this acquisition caused selling in AmSouth and drove the price
down by 25% to a level that seemed attractive. The company is well-run and the
franchise is only enhanced by the addition of the contiguous states of
Tennessee and Mississippi.
The second stock was Armstrong World Industries (3.1%), a maker of ceiling
tiles and flooring products for both commercial and residential buildings.
Armstrong has been a laggard in price performance in what has been a very
strong building industry. The stock sells at a very low price/earnings multiple
of ten. We believe they have the potential for strong earnings gains in the
coming twelve months. The company is out of favor with Wall Street and
therefore offers us the opportunity to buy the stock at a very cheap valuation.
The U.S. Congress is considering a law that will repeal the Glass-Steagall Act.
This legislation has been on the books since the depression years and prevented
banks from holding insurance companies and other types of financial
institutions. We see this as an opportunity for our portfolio which contains
16.5% of its assets in insurance companies. We believe that the types of
insurance companies that will be most attractive to banks will be those that
sell life insurance and savings products such as annuities. We have built our
portfolio around just these types of companies. We expect that a number of the
holdings in our portfolio are potential takeover targets by large national bank
concerns as soon as the Glass-Steagall Act is repealed.
Despite these changes, our basic weightings in industries remain very similar.
Banks and financials remain the largest industry group with 21.8%, followed by
insurance with 16.5%, and consumer durables such as autos and home building
with 12.8%. Our turnover ratio for the quarter was 21.6%, which would give us a
43% annualized rate. Expenses remain at a relatively low level of 1.09%.
On June 30, 1999, the total net assets were $60,238,864 and the net asset value
per share rose to $33.01.
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 APPEARS HERE]
Average Annual Total Return
for the period ended 6/30/99
1 year.................. + 0.78%
5 year.................. + 20.08
10 year................. + 13.81
15 year................. + 14.17
20 year................. + 14.05
25 year................. + 14.64
6/30/99 $234,869
Total Value of Investment
Value of Shares
Acquired Through Value of Shares
Reinvestment Acquired Through
of Capital Gains Reinvestment of Total Value of
Distributions Income Dividends Original Shares
10,000 45 -
73-74 7,830 43 -
75-76 11,280 458 -
77-78 14,155 1,217 -
79-80 14,597 2,147 -
81-82 17,299 3,703 -
83-84 24,755 6,347 -
85-86 38,310 10,805 3,857
87-88 30,774 11,062 10,945
89-90 31,059 14,858 22,901
91-92 32,464 21,871 27,527
93-94 32,622 26,652 35,156
95-96 42,938 41,919 60,327
42,654 44,981 66,844
12/31/97 98,447 58,992 52,749
12/31/98 116,451 63,997 53,823
6/30/99 119,389 63,332 52,148
*Prior to 12/31/96, SGF had a fiscal year-end of 5/31.
2
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
- -------------------------------------------------------
<S> <C> <C>
Total Net Assets $60,238,864 $59,254,095
- -------------------------------------------------------
Net Asset Value Per Share $33.01 $32.63
- -------------------------------------------------------
Shares Outstanding 1,824,891 1,816,016
- -------------------------------------------------------
Number of Shareholders 1,310 1,357
- -------------------------------------------------------
Average Size Account $45,984 $43,666
- -------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- -------------------------------------------------------------
<S> <C>
AmSouth Bancorp ConAgra, Inc.
Armstrong World Industries, Inc. DaimlerChrysler AG
Fleet Financial Group, Inc.
Fleetwood Enterprises, Inc.
Pall Corp.
Universal Foods Corp.
</TABLE>
Ten Largest Holdings June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- -----------------------------------------------------------
<S> <C> <C>
American General Corp. $ 3,768,750 6.3%
- -----------------------------------------------------------
First Union Corp. 3,093,164 5.1
- -----------------------------------------------------------
Commerce Bancorp, Inc. (NJ) 3,004,598 5.0
- -----------------------------------------------------------
American Express Co. 2,862,750 4.8
- -----------------------------------------------------------
Anheuser-Busch Companies, Inc. 2,837,500 4.7
- -----------------------------------------------------------
Pitney Bowes, Inc. 2,570,000 4.3
- -----------------------------------------------------------
General Motors Corp. 2,442,000 4.0
- -----------------------------------------------------------
PNC Bank Corp. 2,305,000 3.8
- -----------------------------------------------------------
Unitrin, Inc. 2,050,000 3.4
- -----------------------------------------------------------
Ford Motor Co. 1,975,313 3.3
- -----------------------------------------------------------
$26,909,075 44.7%
- -----------------------------------------------------------
</TABLE>
3
<PAGE>
STRATTON MONTHLY DIVIDEND REIT SHARES
- --------------------------------------------------------------------------------
The Fund performed well in the second quarter with a total return of 12.8%,
beating the Morgan Stanley REIT Index (RMS), which returned 9.9%. Year to date
through June 30, 1999, the Fund has returned 4.7%, compared to the Index which
was up 4.6%. Though the second quarter earnings' growth of the average REIT
appears quite solid, REIT prices have not risen to reflect these strong
fundamentals. Throughout this difficult period in the REIT sector, SMDS
shareholders can take comfort in the fact that our dividend payments have
continued unaltered. The REIT sector is suffering from a lack of interest due
to the conservative nature of the stocks, the small size and low trading volume
of the sector, and the dramatic action in many other areas of the market. Going
forward, investors must be patient as this sector of the market recovers from a
long, painful bear market.
During the quarter, we added SL Green Realty Corp. (1.3%) to the portfolio,
increasing the portfolio's office/industrial weighting to 10.8%. SL Green
acquires and renovates office properties in New York City. The Company
specializes in downtown property locations which currently are better protected
from oversupply conditions than suburban office properties.
We trimmed our lodging sector weighting by selling Sunstone Hotel Investors
after a management-led buyout was announced. This buyout follows a recent trend
in the industry. Insiders felt that REIT stock prices did not reflect the true
underlying value of the properties and the businesses that own those
properties, so they elected to take the company private. Berkshire Realty Co.,
an apartment REIT, was also sold after a buyout was announced. We like the
stability of the apartment REIT sector and intend to increase its weighting
back to historical levels.
On June 30, 1999, the total net assets were $76,394,119 and the net asset value
per share was $24.94.
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 APPEARS HERE]
Average Annual Total Return
for the period ended 6/30/99
1 year.................. - 5.51%
5 year.................. + 8.29
10 year................. + 7.51
15 year................. + 10.40
6/30/99 $64,787
Total Value of Investment
Value of Shares
Acquired Through Value of Shares
Reinvestment Acquired Through
of Capital Gains Reinvestment of Total Value of
Distributions Income Dividends Original Shares
81 - 583 9,113
82 - 1,641 9,354
83 - 3,107 10,808
84 - 4,379 10,667
85 - 6,627 11,795
86 - 10,328 14,604
87 500 13,744 16,320
88 1,043 13,041 13,181
89 1,015 15,044 12,824
90 1,018 17,513 12,861
91 956 19,388 12,084
92 1,156 26,570 14,609
93 1,242 31,818 15,701
94 1,192 33,590 15,060
05 1,032 34,499 13,039
96 1,138 39,690 14,383
1,139 42,821 14,399
12/31/97 1,257 52,959 15,879
12/31/98 1,029 47,819 13,006
6/30/99 1,036 50,659 13,092
*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>
June 30, 1999 March 31, 1999
- -------------------------------------------------------
<S> <C> <C>
Total Net Assets $76,394,119 $70,292,968
- -------------------------------------------------------
Net Asset Value Per Share $24.94 $22.55
- -------------------------------------------------------
Shares Outstanding 3,062,694 3,116,836
- -------------------------------------------------------
Number of Shareholders 3,747 3,930
- -------------------------------------------------------
Average Size Account $20,388 $17,886
- -------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- --------------------------------------------------------------------
<S> <C>
SL Green Realty Corp. Berkshire Realty Co., Inc.
Psychiatric Group Preferred Depositary Shares
Sunstone Hotel Investors, Inc.
</TABLE>
Ten Largest Holdings June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- -------------------------------------------------------------------------
<S> <C> <C>
Liberty Property Trust $ 3,915,325 5.1%
- -------------------------------------------------------------------------
Colonial Properties Trust 3,531,250 4.6
- -------------------------------------------------------------------------
Bradley Real Estate, Inc. Conv. Pfd. Class A 3,061,287 4.0
- -------------------------------------------------------------------------
Health Care REIT, Inc. 3,022,500 4.0
- -------------------------------------------------------------------------
American Health Properties, Inc. 2,716,875 3.5
- -------------------------------------------------------------------------
Glimcher Realty Trust 2,681,250 3.5
- -------------------------------------------------------------------------
Mid-Atlantic Realty Trust 2,558,750 3.3
- -------------------------------------------------------------------------
EastGroup Properties, SBI 2,507,813 3.3
- -------------------------------------------------------------------------
Gables Residential Trust 2,412,500 3.2
- -------------------------------------------------------------------------
Meditrust Corp. 2,351,250 3.1
- -------------------------------------------------------------------------
$28,758,800 37.6%
- -------------------------------------------------------------------------
</TABLE>
5
<PAGE>
STRATTON SMALL-CAP YIELD FUND
- --------------------------------------------------------------------------------
Small cap stocks rebounded in the second quarter outperforming the S&P 500 for
the first time since the third quarter of 1997. The Fund was up 17.1% for the
quarter outpacing the Russell 2000 Index which was up 15.6% for the same
period. Year-to-date through June 30, 1999, the Fund was up 5.1% versus the
Russell 2000 at 9.3% as technology shares continue to boost the performance of
the index. The Russell 2000 Value sub-index was up only 5.3% which is in line
with our return.
We had another takeover in the quarter. Philadelphia based JeffBanks (1.7%)
agreed to be acquired by Hudson United Bancorp of Mahwah, New Jersey which was
looking to expand its commercial banking franchise. While banks still make up
18.7% of the portfolio, 3.0% is near cash from banks that have been taken over.
Industrial stocks remain our largest sector at 20.2% of the portfolio with
15.7% currently in business services. Dividend paying technology stocks make up
9.4% of the portfolio. We are down to only two REIT holdings with a 1.5% sector
weighting.
During the quarter, we took the opportunity to establish holdings of LA-Z-BOY,
Inc. (1.0%), Superior Telecom (1.1%), Glatfelter (0.7%), Polaris Industries
(1.5%), Hughes Supply (1.4%) and Bel Fuse (1.2%). We initiated our first energy
positions with purchases of Tidewater (1.0%) and Mitchell Energy & Development
(0.3%).
Significant sales included Boston Acoustics, Huffy Corporation and Resource
Bancshares Mortgage Group. We also sold Wackenhut after the company announced
it would cease paying dividends in order to invest in future growth
opportunities.
We are encouraged by the change in market leadership from growth to value
stocks which began in April. While the economy remains strong and Asia is
reawakening, higher interest rates are upon us and that could hurt the growth
sectors of the market. We may be in for a volatile period in the near term but
it appears that value should continue to outperform.
On June 30, 1999, the total net assets were $43,903,260 and the net asset value
per share was $21.13.
The graph below illustrates the increase in value of a $10,000 investment in
Stratton Small-Cap Yield Fund with all dividend income and capital gains
distributions reinvested.
[GRAPH APPEARS HERE]
Average Annual Total Return
for the period ended 6/30/99
1 year.................. - 7.10%
3 year.................. + 14.30
5 year.................. + 14.49
Since Inception
(4/12/93)............... + 12.40
6/30/99 $20,709
Total Value of Investment
Value of Shares
Acquired Through Value of Shares
Reinvestment Acquired Through
of Capital Gains Reinvestment of Total Value of
Distributions Income Dividends Original Shares
- - 10,000
4-93 - - 10,000
3/31/94 - 158 10,376
3/31/95 - 402 10,352
3/31/96 - 789 12,780
813 1,067 13,432
12/31/97 2,190 1,633 17,976
12/31/98 1,995 1,626 16,088
6/30/99 2,096 1,709 16,904
*Prior to 12/31/96, SSCY had a fiscal-end of 3/31.
6
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
- -------------------------------------------------------
<S> <C> <C>
Total Net Assets $43,903,260 $35,722,891
- -------------------------------------------------------
Net Asset Value Per Share $21.13 $18.05
- -------------------------------------------------------
Shares Outstanding 2,077,673 1,978,638
- -------------------------------------------------------
Number of Shareholders 1,502 1,622
- -------------------------------------------------------
Average Size Account $29,230 $22,024
- -------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
- -----------------------------------------------------------------------------
<S> <C>
Bel Fuse, Inc. Class B Boston Acoustics, Inc.
Callaway Golf Co. EastGroup Properties, SBI
GenCorp, Inc. Huffy Corp.
Glatfelter, (P.H.) Co. Premier National Bancorp, Inc.
Hughes Supply, Inc. Resource Bancshares Mortgage Group, Inc.
Kansas City Life Insurance Co. Wackenhut Corp. Class B
Kimball International Class B
LA-Z-BOY, Inc.
Mitchell Energy & Development Corp.
Class B
Polaris Industries, Inc.
Simpson Industries, Inc.
Superior TeleCom, Inc.
Tidewater, Inc.
</TABLE>
Ten Largest Holdings June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- --------------------------------------------------------------------
<S> <C> <C>
Eaton Vance Corp. $ 1,928,500 4.4%
- --------------------------------------------------------------------
Florida Rock Industries, Inc. 1,820,000 4.1
- --------------------------------------------------------------------
Primex Technologies, Inc. 1,509,375 3.4
- --------------------------------------------------------------------
LSI Industries, Inc. 1,447,500 3.3
- --------------------------------------------------------------------
Morrison Management Specialists, Inc. 1,310,000 3.0
- --------------------------------------------------------------------
American Heritage Life Investment Corp. 1,225,000 2.8
- --------------------------------------------------------------------
A.O. Smith Corp. 1,176,000 2.7
- --------------------------------------------------------------------
Commercial Intertech Corp. 1,115,625 2.5
- --------------------------------------------------------------------
Quixote Corp. 1,035,937 2.4
- --------------------------------------------------------------------
Riviana Foods, Inc. (DE) 1,031,250 2.4
- --------------------------------------------------------------------
$13,599,187 31.0%
- --------------------------------------------------------------------
</TABLE>
7
<PAGE>
STRATTON GROWTH FUND
- --------------------------------------------------------------------------------
What is the Fund's investment objective?
The primary objective of SGF is to seek possible growth of capital for its
shareholders' investments with current income from interest and dividends as a
secondary objective. The Fund's investments will normally consist of common
stock and securities convertible into common stock.
What is the investment philosophy used in managing the Fund?
Our in-house research of historical data shows that investing in high yielding
common stocks has produced above-average returns while lowering risk and
preserving capital. For Stratton Management Co., the common stock yield is the
primary screen in sorting out the equity stocks that are available. We then
look at additional yield characteristics such as dividend growth rates and
dividend coverage. Finally, we conduct fundamental analysis of important
characteristics such as the earnings and cash flow outlook, management
strengths, and industry competitive position.
Why are dividend paying companies so important to the Fund's portfolio?
Stocks of companies that pay above average dividends tend to be less volatile
than companies that do not distribute dividends to shareholders. Though stock
prices do vary over time, dividend payouts tend to be very consistent. We find
that companies which consistently strive to increase their dividends tend to
offer the potential of above average returns. Steady, stable growth of
principal and dividend income is what SGF hopes to achieve.
What are the primary investment characteristics of the portfolio?
. Average gross portfolio yield target should exceed the S&P 500 by more than
50%.
. Approximately 35 companies are held.
. By combining high dividend yield and underlying low price volatility (Beta),
SGF should have the potential to produce good relative performance in up
markets and above average relative performance in down markets.
8
<PAGE>
STRATTON MONTHLY DIVIDEND REIT SHARES
- --------------------------------------------------------------------------------
What is the Fund's investment objective?
The primary objective of SMDS is to seek a high rate of return from dividend
and interest income on its investments in common stock and securities
convertible into common stock. In order to achieve these goals, the Fund
invests substantially all of its assets in common stock and other equity
securities of real estate investment trusts.
What is the investment philosophy used in managing the Fund?
The Fund is managed to provide a high level of monthly income to its
shareholders and, therefore, looks for companies that have strong dividend
payouts. Currently, 80% or more of the Fund is invested in high dividend paying
REITs. There are several types of real estate properties that are owned by
REITs, including multifamily apartment complexes, health care facilities,
shopping centers, regional malls, office centers, hotels, and industrial
buildings. The portfolio is diversified across several sectors within the REIT
industry.
Why are dividend paying companies so important to the Fund's portfolio?
Current income is paramount for the SMDS portfolio. The Fund needs higher
yielding securities to maintain its own attractive dividend payout. REITs
satisfy this income requirement, while also offering the potential for dividend
growth and capital appreciation. REITs must distribute 95% of their net
investment income, so, as the earnings of these companies grow, increases in
dividends should follow.
What are the primary investment characteristics of the portfolio?
. The portfolio is comprised of high dividend paying securities.
. Approximately 40 companies are held.
. SMDS is managed to provide a high level of current monthly income, and to
offer the potential for long-term capital appreciation.
There are risks involved with any investment. This Fund is concentrated in REIT
securities, which means it may be subject to a greater risk of loss than a non-
concentrated mutual fund.
9
<PAGE>
STRATTON SMALL-CAP YIELD FUND
- --------------------------------------------------------------------------------
What is the Fund's investment objective?
The primary objective of SSCY is to achieve both dividend income and capital
appreciation. In order to achieve these goals, the Fund invests in equity
securities, primarily common stock, and securities convertible into common
stock, of companies with total market capitalizations at the time of investment
of less than $1 billion and which are outside the S&P 500 Index. We attempt to
purchase companies whose recent and future earnings power give them the
potential for higher valuations and continued dividend growth.
What is the investment philosophy used in managing the Fund?
This all equity mutual fund invests in the common stocks of small but
established dividend paying companies. The initial screen for stock selection
requires that a stock yields greater than the small-cap average as measured by
the Russell 2000 Index. We then employ a three step process which focuses on a
stock's fundamental valuation, earnings prospects, and, as a confirming factor,
relative price strength. We feel that companies that exhibit consistent
earnings and that regularly increase their dividends have superior appreciation
potential with reasonable levels of risk.
Why are dividend paying companies so important to the Fund's portfolio?
Our research has shown that dividends tend to dampen stock price volatility.
Small-cap companies that pay dividends tend to have strong financial
characteristics since the quarterly dividend payout requires managements to
exhibit a high degree of financial discipline. The combination of strong
earnings growth and superior earnings stability are crucial elements in meeting
SSCY's investment objectives.
What are the primary investment characteristics of the portfolio?
. Average gross portfolio yield target should exceed the S&P 500 and be
approximately twice the yield of the average small-cap company.
. Approximately 65 companies are held.
. By combining high dividend yields and underlying low price volatility (Beta),
SSCY seeks to produce good relative performance in up markets and above
average relative performance in down markets.
There are risks involved with any investment. This Fund is invested in small-
cap stocks which tend to have a higher degree of market risk than large-cap
stocks, due to lack of liquidity and other reasons.
10
<PAGE>
SCHEDULE OF INVESTMENTS June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
COMMON STOCKS - 96.6%
Banking/Financial - 21.8%
AmSouth Bancorp.......................................... 20,000 $ 463,750
Bank One Corp............................................ 28,160 1,677,280
Comerica, Inc. .......................................... 22,500 1,337,344
Commerce Bancorp, Inc. (NJ).............................. 70,283 3,004,598
First Union Corp......................................... 65,812 3,093,164
PNC Bank Corp............................................ 40,000 2,305,000
Summit Bancorp, Inc...................................... 30,000 1,254,375
-----------
13,135,511
-----------
Basic Materials - 1.3%
Carpenter Technology Corp. .............................. 28,000 799,750
-----------
Business Services - 9.9%
Diebold, Inc. ........................................... 30,000 862,500
Dun & Bradstreet Corp. .................................. 30,000 1,063,125
Gallagher (Arthur J.) & Co............................... 30,000 1,485,000
Pitney Bowes, Inc........................................ 40,000 2,570,000
-----------
5,980,625
-----------
Capital Goods - 4.5%
Briggs & Stratton Corp. ................................. 20,000 1,155,000
Harris Corp. ............................................ 40,000 1,567,500
-----------
2,722,500
-----------
Consumer Durables - 12.8%
Armstrong World Industries, Inc.......................... 32,000 1,850,000
Delphi Automotive Systems Corp. ......................... 75,860 1,408,151
Ford Motor Co. .......................................... 35,000 1,975,313
General Motors Corp...................................... 37,000 2,442,000
-----------
7,675,464
-----------
Consumer Non-Durables - 9.9%
Anheuser-Busch Companies, Inc. .......................... 40,000 2,837,500
Heinz (H.J.) Co.......................................... 30,000 1,503,750
Kimberly-Clark Corp. .................................... 28,000 1,596,000
-----------
5,937,250
-----------
Consumer Services - 6.0%
American Express Co. .................................... 22,000 2,862,750
H&R Block, Inc. ......................................... 15,000 750,000
-----------
3,612,750
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
Health Care - 8.9%
American Home Products Corp............................. 26,000 $ 1,495,000
Baxter International, Inc. ............................. 30,000 1,818,750
Mallinckrodt, Inc. ..................................... 20,000 727,500
Shared Medical Systems Corp. ........................... 20,000 1,305,000
-----------
5,346,250
-----------
Industrial - 2.0%
C&D Technologies, Inc. ................................. 40,000 1,225,000
-----------
Insurance/Services - 16.5%
American General Corp................................... 50,000 3,768,750
Aon Corp. .............................................. 33,750 1,392,187
Jefferson-Pilot Corp. .................................. 12,500 827,344
Lincoln National Corp. ................................. 20,000 1,046,250
ReliaStar Financial Corp. .............................. 20,000 875,000
Unitrin, Inc............................................ 50,000 2,050,000
-----------
9,959,531
-----------
Retailing - 3.0%
The Limited, Inc. ...................................... 40,000 1,815,000
-----------
Total Common Stocks
(cost $34,817,798)..................................... 58,209,631
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM NOTES - 2.8%
General Electric Capital Corp.
4.90% due 07/01/99
(cost $1,700,000)...................................... $1,700,000 1,700,000
-----------
Total Investments - 99.4%
(cost $36,517,798*).................................... 59,909,631
Cash and Other Assets
Less Liabilities - 0.6%................................ 329,233
-----------
NET ASSETS - 100.0%..................................... $60,238,864
===========
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $36,517,798; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $23,693,420
Gross unrealized depreciation...................................... (301,587)
-----------
Net unrealized appreciation....................................... $23,391,833
===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
SCHEDULE OF INVESTMENTS June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- ------------
<S> <C> <C>
COMMON STOCKS - 86.6%
Apartments - 12.6%
Cornerstone Realty Income Trust, Inc..................... 130,000 $ 1,397,500
Gables Residential Trust................................. 100,000 2,412,500
Home Properties of New York, Inc......................... 85,000 2,348,125
Mid-America Apartment Communities, Inc................... 60,000 1,387,500
Town & Country Trust..................................... 19,200 343,200
Walden Residential Properties, Inc....................... 80,000 1,720,000
------------
9,608,825
------------
Diversified - 13.5%
Colonial Properties Trust................................ 125,000 3,531,250
EastGroup Properties, SBI................................ 125,000 2,507,813
Meditrust Corp........................................... 180,000 2,351,250
Pacific Gulf Properties, Inc............................. 85,000 1,923,125
------------
10,313,438
------------
Health Care - 10.8%
American Health Properties, Inc.......................... 135,000 2,716,875
Health Care REIT, Inc. .................................. 130,000 3,022,500
HRPT Properties Trust.................................... 90,000 1,378,125
LTC Properties, Inc...................................... 85,000 1,105,000
------------
8,222,500
------------
Lodging - 15.6%
Equity Inns, Inc. ....................................... 190,000 1,757,500
FelCor Lodging Trust, Inc................................ 80,000 1,660,000
Hospitality Properties Trust............................. 60,000 1,627,500
Innkeepers USA Trust..................................... 200,000 2,000,000
Jameson Inns, Inc........................................ 160,000 1,500,000
RFS Hotel Investors, Inc................................. 125,000 1,570,312
Winston Hotels, Inc. .................................... 175,000 1,837,500
------------
11,952,812
------------
Net Lease - 3.3%
Franchise Finance Corp. of America....................... 65,000 1,430,000
TriNet Corporate Realty Trust, Inc....................... 40,000 1,107,500
------------
2,537,500
------------
Office/Industrial - 10.8%
First Industrial Realty Trust, Inc....................... 60,000 1,646,250
Liberty Property Trust................................... 157,400 3,915,325
Mack-Cali Realty Corp. .................................. 55,000 1,701,563
SL Green Realty Corp..................................... 50,000 1,021,875
------------
8,285,013
------------
Outlet Centers - 5.0%
Mills Corp............................................... 68,700 1,489,931
Tanger Factory Outlet Centers, Inc....................... 88,700 2,306,200
------------
3,796,131
------------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
Regional Malls - 3.5%
Glimcher Realty Trust................................... 165,000 $ 2,681,250
-----------
Shopping Centers - 11.5%
Developers Diversified Realty Corp. .................... 80,000 1,330,000
IRT Property Co. ....................................... 166,000 1,639,250
Mid-Atlantic Reatly Trust............................... 230,000 2,558,750
New Plan Excel Realty Trust, Inc........................ 108,000 1,944,000
Western Investment Real Estate Trust.................... 110,000 1,278,750
-----------
8,750,750
-----------
Total Common Stocks
(cost $68,788,917)..................................... 66,148,219
-----------
PREFERRED STOCKS - 5.6%
Bradley Real Estate, Inc. Conv. Preferred Class A....... 132,380 3,061,287
Kimco Realty Corp. - Depositary Shares Class D.......... 50,000 1,225,000
-----------
Total Preferred Stocks
(cost $4,368,815)...................................... 4,286,287
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS - 1.7%
U.S. Treasury Bill 2.75% due 07/01/99
(cost $1,300,000)...................................... $1,300,000 1,300,000
-----------
SHORT-TERM NOTES - 4.8%
American Express Credit Corp. 4.90% due 07/01/99........ 567,000 567,000
General Electric Capital Corp. 4.90% due 07/01/99....... 1,550,000 1,550,000
American Express Credit Corp. 5.25% due 07/02/99........ 1,569,000 1,568,771
-----------
Total Short-Term Notes
(cost $3,685,771)...................................... 3,685,771
-----------
Total Investments - 98.7%
(cost $78,143,503*).................................... 75,420,277
Cash and Other Assets Less Liabilities - 1.3%........... 973,842
-----------
NET ASSETS - 100.0%..................................... $76,394,119
===========
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $78,143,503; and net
unrealized depreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $ 3,111,409
Gross unrealized depreciation...................................... (5,834,635)
-----------
Net unrealized depreciation....................................... $(2,723,226)
===========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
SCHEDULE OF INVESTMENTS June 30, 1999 (unaudited)
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
COMMON STOCKS - 97.1%
Banking/Financial - 18.7%
American Bank of Connecticut............................. 22,000 $ 537,625
Colonial BancGroup, Inc.................................. 40,000 557,500
Commerce Bancorp, Inc. (NJ).............................. 20,671 883,685
Community Bank Systems, Inc. ............................ 17,000 431,375
First Essex Bancorp, Inc. ............................... 30,000 487,500
First Financial Holdings, Inc. .......................... 18,000 337,500
JeffBanks, Inc........................................... 26,666 758,314
Medford Bancorp, Inc..................................... 26,000 477,750
Ocean Financial Corp..................................... 34,000 616,250
Reliance Bancorp, Inc.................................... 20,000 552,500
Republic Banking Corp. of Florida........................ 30,000 577,500
Southwest Securities Group, Inc.......................... 14,200 1,018,850
United Bankshares, Inc. ................................. 20,000 530,000
Webster Financial Corp................................... 16,632 451,143
-----------
8,217,492
-----------
Business Services - 15.7%
AAR Corp. ............................................... 45,000 1,020,937
Dain Rauscher Corp....................................... 19,000 1,028,375
Eaton Vance Corp. ....................................... 56,000 1,928,500
New England Business Service, Inc. ...................... 20,000 617,500
Primesource Corp......................................... 90,000 551,250
Rollins Truck Leasing Corp............................... 30,000 333,750
Schawk, Inc. ............................................ 56,000 500,500
True North Communications, Inc. ......................... 30,000 900,000
-----------
6,880,812
-----------
Chemicals - 3.8%
Kimball International Class B............................ 10,000 168,750
Primex Technologies, Inc. ............................... 70,000 1,509,375
-----------
1,678,125
-----------
Consumer Durables - 3.5%
Callaway Golf Co......................................... 30,500 446,063
LA-Z-BOY, Inc. .......................................... 20,000 460,000
Polaris Industries, Inc. ................................ 15,000 652,500
-----------
1,558,563
-----------
Consumer Non-Durables - 9.0%
Glatfelter, (P.H.) Co.................................... 20,000 292,500
International Multifoods Corp............................ 45,000 1,015,313
Riviana Foods, Inc. (DE)................................. 55,000 1,031,250
Tasty Baking Co. ........................................ 55,000 677,187
Velcro Industries, N.V. ................................. 76,000 921,500
-----------
3,937,750
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
Energy - 1.4%
Mitchell Energy & Development Corp. Class B............... 7,700 $ 141,488
Tidewater, Inc. .......................................... 15,000 457,500
-----------
598,988
-----------
Health Care - 7.2%
Diagnostic Products Corp. ................................ 20,000 552,500
LabOne, Inc. ............................................. 30,000 307,500
Morrison Management Specialists, Inc. .................... 52,400 1,310,000
Shared Medical Systems Corp. ............................. 15,000 978,750
-----------
3,148,750
-----------
Industrial - 20.2%
A.O. Smith Corp. ......................................... 42,000 1,176,000
Commercial Intertech Corp................................. 70,000 1,115,625
Florida Rock Industries, Inc.............................. 40,000 1,820,000
GenCorp, Inc. ............................................ 15,000 378,750
Greenbrier Companies, Inc. ............................... 73,000 766,500
Hughes Supply, Inc. ...................................... 20,000 593,750
LSI Industries, Inc. ..................................... 60,000 1,447,500
Republic Group, Inc. ..................................... 45,000 810,000
Simpson Industries, Inc. ................................. 10,000 102,500
TB Wood's Corp. .......................................... 60,000 656,250
-----------
8,866,875
-----------
Insurance/Services - 6.7%
American Heritage Life Investment Corp. .................. 50,000 1,225,000
Blanch (E.W.) Holdings, Inc............................... 13,000 886,438
Donegal Group, Inc. ...................................... 61,299 697,276
Kansas City Life Insurance Co............................. 3,600 154,800
-----------
2,963,514
-----------
Real Estate - 1.5%
Innkeepers USA Trust...................................... 35,000 350,000
Pacific Gulf Properties, Inc. ............................ 14,000 316,750
-----------
666,750
-----------
Technology - 9.4%
Analysts International Corp............................... 50,000 718,750
Bel Fuse, Inc. Class B.................................... 20,000 520,000
MTS Systems Corp. ........................................ 30,000 365,625
Quixote Corp. ............................................ 85,000 1,035,937
Superior TeleCom, Inc. ................................... 20,000 500,000
Technitrol, Inc. ......................................... 30,000 967,500
-----------
4,107,812
-----------
Total Common Stocks
(cost $33,818,923)....................................... 42,625,431
-----------
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
SCHEDULE OF INVESTMENTS June 30, 1999 (unaudited) (continued)
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
Market
Principal Value
Amount (Note 1)
---------- -----------
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS - 2.7%
U.S. Treasury Bill
2.75% due 07/01/99 (cost $1,200,000)................. $1,200,000 $ 1,200,000
-----------
SHORT-TERM NOTES - 1.3%
American Express Credit Corp.
5.15% due 07/02/99 (cost $564,919)................... 565,000 564,919
-----------
Total Investments - 101.1%
(cost $35,583,842*).................................. 44,390,350
Liabilities in Excess of Cash and Other Assets -
(1.1%).............................................. (487,090)
-----------
NET ASSETS - 100.0%................................... $43,903,260
===========
</TABLE>
- --------
* Aggregate cost for federal income tax purposes is $35,583,842; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $10,650,176
Gross unrealized depreciation...................................... (1,843,668)
-----------
Net unrealized appreciation....................................... $ 8,806,508
===========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCY
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities at value
(cost $36,517,798, $78,143,503, and
$35,583,842, respectively) (Note 1).. $59,909,631 $ 75,420,277 $44,390,350
Cash.................................. 256,082 189,287 2,699
Dividends and interest receivable..... 82,842 560,390 84,009
Receivable for shares sold............ 14,410 1,566 11,368
Receivable for securities sold........ -- 269,120 35,879
----------- ------------ -----------
Total Assets........................ 60,262,965 76,440,640 44,524,305
----------- ------------ -----------
LIABILITIES:
Accrued expenses and other
liabilities.......................... 24,101 46,521 48,322
Payable for investment securities
purchased............................ -- -- 572,723
----------- ------------ -----------
Total Liabilities................... 24,101 46,521 621,045
----------- ------------ -----------
NET ASSETS:
Applicable to 1,824,891, 3,062,694,
and 2,077,673 shares outstanding,
respectively/1..................../.. $60,238,864 $ 76,394,119 $43,903,260
=========== ============ ===========
Net asset value, offering and
redemption price per share........... $ 33.01 $ 24.94 $ 21.13
=========== ============ ===========
SOURCE OF NET ASSETS:
Paid-in capital....................... $35,350,862 $ 94,521,958 $35,301,905
Undistributed net investment income... 53,485 42,496 205,390
Accumulated net realized gain (loss)
on investments....................... 1,442,684 (15,447,109) (410,543)
Net unrealized appreciation
(depreciation) of investments........ 23,391,833 (2,723,226) 8,806,508
----------- ------------ -----------
Net Assets.......................... $60,238,864 $ 76,394,119 $43,903,260
=========== ============ ===========
</TABLE>
- --------
/1/SGF: $.10 par value, 10,000,000 shares authorized; SMDS: $1.00 par value,
10,000,000 shares authorized; SSCY: $.001 par value, 200,000,000 shares
authorized.
See accompanying notes to financial statements.
15
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Six Months Ended June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCY
----------- ----------- ----------
<S> <C> <C> <C>
INCOME:
Dividends............................... $ 656,148 $ 3,375,800 $ 440,864
Interest................................ 63,108 96,842 33,376
----------- ----------- ----------
Total Income.......................... 719,256 3,472,642 474,240
----------- ----------- ----------
EXPENSES:
Accounting/Pricing services fees........ 14,837 16,551 15,890
Administration services fees............ 16,844 19,516 12,629
Advisory fees (Note 2).................. 218,653 227,830 152,596
Audit fees.............................. 1,488 -- 15,400
Custodian fees.......................... 9,125 12,841 8,552
Directors' fees......................... 7,564 9,556 5,004
Legal fees.............................. 4,559 5,500 2,922
Miscellaneous fees...................... 5,182 6,303 3,538
Printing and postage fees............... 12,875 15,643 8,659
Registration fees....................... 17,153 16,706 18,694
Shareholder services fees............... 18,207 62,813 24,762
Taxes other than income taxes........... 2,350 3,000 1,600
----------- ----------- ----------
Total Expenses........................ 328,837 396,259 270,246
----------- ----------- ----------
Net Investment Income............... 390,419 3,076,383 203,994
----------- ----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on
investments............................ 1,473,773 (2,267,943) 748,610
Net increase (decrease) in unrealized
appreciation on investments............ (1,756,954) 2,524,730 1,258,591
----------- ----------- ----------
Net gain (loss) on investments.......... (283,181) 256,787 2,007,201
----------- ----------- ----------
Net increase in net assets resulting
from operations...................... $ 107,238 $ 3,333,170 $2,211,195
=========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SGF SMDS
-------------------------- ---------------------------
6 Months Ended Year Ended 6 Months Ended Year Ended
06/30/99* 12/31/98 06/30/99* 12/31/98
-------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.. $ 390,419 $ 998,604 $ 3,076,383 $ 5,360,764
Net realized gain
(loss) on
investments........... 1,473,773 4,896,340 (2,267,943) 3,596,392
Net increase (decrease)
in unrealized
appreciation of
investments........... (1,756,954) 687,299 2,524,730 (19,590,880)
----------- ----------- ----------- ------------
Net increase (decrease)
in net assets
resulting from
operations............ 107,238 6,582,243 3,333,170 (10,633,724)
----------- ----------- ----------- ------------
DISTRIBUTIONS TO SHARE-
HOLDERS:
From net investment
income ($0.19 and
$0.59 per share,
respectively, for SGF,
$0.96 and $1.65,
respectively,
for SMDS)............. (336,934) (1,034,331) (3,033,887) (5,360,764)
From realized gains on
investments ($0.94 and
$2.43 per share,
respectively, for
SGF).................. (1,667,008) (4,304,696) -- --
In excess of net
investment income
($0.00 and $0.40 per
share for SMDS)....... -- -- -- (1,299,867)
CAPITAL SHARE TRANSAC-
TIONS:/2/ (1,187,605) 1,902,474 (3,841,466) (4,725,567)
----------- ----------- ----------- ------------
Total increase
(decrease) in net
assets................ (3,084,309) 3,145,690 (3,542,183) (22,019,922)
NET ASSETS:
Beginning of period.... 63,323,173 60,177,483 79,936,302 101,956,224
----------- ----------- ----------- ------------
End of period
(including
undistributed net
investment income of
$53,485 and $0,
respectively, for SGF,
and $42,496 and $0,
respectively, for
SMDS)................. $60,238,864 $63,323,173 $76,394,119 $ 79,936,302
=========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
SSCY
--------------------------
6 Months Ended Year Ended
06/30/99* 12/31/98
-------------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income............................. $ 203,994 $ 388,213
Net realized gain (loss) on investments........... 748,610 (1,159,153)
Net increase (decrease) in unrealized appreciation
of investments................................... 1,258,591 (4,996,458)
----------- -----------
Net increase (decrease) in net assets resulting
from operations.................................. 2,211,195 (5,767,398)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ($0.00 and $0.18 per
share, respectively, for SSCY)................... -- (410,582)
From realized gains on investments ($0.00 and
$0.04 per share, respectively, for SSCY)......... -- (96,899)
CAPITAL SHARE TRANSACTIONS:/2/ (1,097,240) 9,687,236
----------- -----------
Total increase in net assets...................... 1,113,955 3,412,357
NET ASSETS:
Beginning of period............................... 42,789,305 39,376,948
----------- -----------
End of period (including undistributed net
investment income of $205,390 and $1,396,
respectively, for SSCY).......................... $43,903,260 $42,789,305
=========== ===========
</TABLE>
- --------
*Unaudited
See accompanying notes to financial statements.
17
<PAGE>
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
/2/ A summary of capital share transactions follows:
<TABLE>
<CAPTION>
SGF
--------------------------------------------------
6 Months Ended 06/30/99* Year Ended 12/31/98
------------------------- -----------------------
Shares Value Shares Value
------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued.............. 103,380 $ 3,476,095 318,761 $ 11,325,835
Shares reinvested from net
investment income and
capital gains
distributions............. 54,350 1,767,449 140,694 4,684,002
---------- ------------- --------- ------------
157,730 5,243,544 459,455 16,009,837
Shares redeemed............ (191,426) (6,431,149) (403,301) (14,107,363)
---------- ------------- --------- ------------
Net increase (decrease).. (33,696) $ (1,187,605) 56,154 $ 1,902,474
========== ============= ========= ============
<CAPTION>
SMDS
--------------------------------------------------
6 Months Ended 06/30/99* Year Ended 12/31/98
------------------------- -----------------------
Shares Value Shares Value
------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued.............. 137,149 $ 3,329,862 373,202 $ 9,611,674
Shares reinvested from net
investment income......... 77,698 1,866,022 141,500 3,873,947
---------- ------------- --------- ------------
214,847 5,195,884 514,702 13,485,621
Shares redeemed............ (377,580) (9,037,350) (660,216) (18,211,188)
---------- ------------- --------- ------------
Net decrease............. (162,733) $ (3,841,466) (145,514) $ (4,725,567)
========== ============= ========= ============
<CAPTION>
SSCY
--------------------------------------------------
6 Months Ended 06/30/99* Year Ended 12/31/98
------------------------- -----------------------
Shares Value Shares Value
------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued.............. 254,977 $ 4,765,902 1,071,101 $ 24,120,897
Shares reinvested from net
investment income and
capital gains
distributions............. -- -- 18,664 402,242
---------- ------------- --------- ------------
254,977 4,765,902 1,089,765 24,523,139
Shares redeemed............ (305,503) (5,863,142) (713,619) (14,835,903)
---------- ------------- --------- ------------
Net increase (decrease).. (50,526) $ (1,097,240) 376,146 $ 9,687,236
========== ============= ========= ============
</TABLE>
- --------
*Unaudited
See accompanying notes to financial statements.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
June 30, 1999 (unaudited)
Note 1. - Significant Accounting Policies
Stratton Mutual Funds (the "Funds") consist of Stratton Growth Fund, Inc.
("SGF"), Stratton Monthly Dividend REIT Shares, Inc. ("SMDS") and The Stratton
Funds, Inc. The Stratton Funds, Inc. (the "Company") operates as a series,
consisting of Stratton Small-Cap Yield Fund ("SSCY"). The Funds and Company
are registered under the Investment Company Act of 1940, as amended, as open-
end management investment companies. The Funds offer diversified portfolios.
Investments in the Funds normally consist of common stock and securities
convertible into or exchangeable into common stock. Each Fund has specific
investment objectives:
The objective of SGF is to seek possible growth of capital with current income
from interest and dividends as a secondary objective.
The objective of SMDS is to seek a high rate of return from dividend and
interest income. Under normal conditions, at least 65% of the Fund's total
assets will be in securities of real estate investment trusts.
The objective of SSCY is to achieve both dividend income and capital
appreciation through investment in the securities of small-cap companies which
have certain risks associated with them. First and foremost is their greater
earnings and price volatility in comparison to large companies. Earnings risk
is partially due to the undiversified nature of small company business lines.
Due to the inherent risk of investments there can be no assurance that the
objectives of the Funds will be met.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Security Valuation - Securities listed or admitted to trading on
any national securities exchange are valued at their last sale price
on the exchange where the securities are principally traded or, if
there has been no sale on that date, at the mean between the last
reported bid and asked prices. Securities traded in the over-the-
counter market are valued at the last sale price, if carried in the
National Market Issues section by NASDAQ; other over-the-counter
securities are valued at the mean between the closing bid and asked
prices obtained from a principal market maker. All other securities
and assets are valued at their fair value as determined in good
faith by the Boards of Directors of the Funds, which may include the
amortized cost method for securities maturing in sixty days or less
and other cash equivalent investments.
B. Determination of Gains or Losses on Sales of Securities - Gains
or losses on the sale of securities are calculated for accounting
and tax purposes on the identified cost basis.
C. Federal Income Taxes - It is the Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all taxable income to their
shareholders. Therefore, no federal income tax provision is
required. SMDS has a capital loss carryover available to offset
future capital gains, if any, of approximately $13,179,000 of which
$7,681,000 expires in 2000, $4,331,000 expires in 2003 and
$1,167,000 expires in 2005. SSCY
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
June 30, 1999 (unaudited)
has a capital loss carryover available to offset future capital
gains, if any, of approximately $1,159,000, which expires in 2006.
D. Use of Estimates in Financial Statements - In preparing financial
statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reporting period. Actual results may differ from
these estimates.
E. Other - Security transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the
accrual basis and dividend income on the ex-dividend date.
Distributions to Shareholders--Distributions to shareholders are recorded on
the ex-dividend date. The character of distributions paid to shareholders is
determined by reference to income as determined for income tax purposes, after
giving effect to temporary differences between the financial reporting and tax
basis of assets and liabilities, rather than income as determined for
financial reporting purposes.
SMDS has made certain investments in real estate investment trusts ("REITs")
which pay dividends to their shareholders based upon available funds from
operations. It is quite common for these dividends to exceed the REIT's
taxable earnings and profits resulting in the excess portion of such dividends
being designated as a return of capital. The Fund intends to include the gross
dividends from such REITs in its monthly distributions to its shareholders
and, accordingly, a portion of the Fund's distributions will also be
designated as a return of capital.
Note 2. - During the six months ended June 30, 1999, the Funds paid advisory
fees to Stratton Management Company, (the "Advisor") as follows: SGF--
$218,653; SMDS--$227,830; SSCY--$152,596. Management services are provided by
the Advisor under agreements whereby the Advisor furnishes all investment
advice, office space and facilities to the Funds and pays the salaries of the
Funds' officers and employees, except to the extent that those employees are
engaged in administrative and accounting services activities. In return for
these services, SGF pays to the Advisor a monthly fee of 3/48 of 1% (annually
3/4 of 1%) of the daily net asset value of the Fund for such month. SMDS pays
a monthly fee at an annual rate of 5/8 of 1% of the daily net asset value of
the Fund for such month. The Advisor has voluntarily agreed to waive $15,000
annually of the compensation due it under the agreement with each of these
Funds to offset a portion of the cost of certain administrative
responsibilities delegated to First Data Investor Services Group, Inc.
("Investor Services Group"), a wholly-owned subsidiary of First Data
Corporation.
SSCY pays a monthly fee at an annual rate of 0.75% of the daily net asset
value of the Fund for such month, subject to a performance adjustment. The
performance adjustment will be calculated at the end of each month based upon
a rolling 24 month performance period. The performance adjustment is added to
or subtracted from the basic investment advisory fee. The Fund's gross
performance is compared with the performance of the Frank Russell 2000 Index,
("Russell 2000"), a widely recognized unmanaged index of common stock prices,
over a rolling 24-month performance period. The Russell 2000 is composed of
the smallest 2000 stocks in the Frank Russell annual ranking of 3000 common
stocks by market capitalization. The Russell 2000 is a widely recognized
common stock index of small to medium size companies. Total return performance
on the Russell 2000 includes dividends and is reported monthly on a market
capitalization-weighted basis. When the Fund performs better than the Russell
2000, it pays the Advisor an incentive fee; less favorable performance than
the Russell 2000
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
June 30, 1999 (unaudited)
reduces the basic fee. Each 1.00% of the difference in performance between the
Fund and the Russell 2000 during the performance period is equal to a 0.10%
adjustment to the basic fee. The maximum annualized performance adjustment
rate is +/- 0.50% of average net assets which would be added to or deducted
from the advisory fee if the Fund outperformed or under performed the Russell
2000 by 5.00%. The performance fee adjustment for the six months ended June
30, 1999 caused the advisory fee to decrease by $2,378.
Certain officers and Directors of the Funds are also officers and directors of
the Advisor. None of the Funds' officers receive compensation from the Funds.
Effective February 23, 1998, FPS Services, Inc. ("FPS"), a wholly-owned
subsidiary of FinDaTex, Inc., was acquired by Investor Services Group. Certain
Directors and officers of the Funds are shareholders of FinDaTex, Inc.
Pursuant to an agreement between The Bank of New York (the "Custodian"), and
Investor Services Group, the Custodian reallows a portion of its custody fees
to Investor Services Group for certain services delegated to Investor Services
Group. The amount is not readily determinable. First Data Distributors, Inc.,
a wholly-owned subsidiary of Investor Services Group, serves as the Funds'
principal underwriter and receives no fees for services in assisting in sales
of the Funds' shares but does receive an annual fee of $3,000 for each Fund
for its services in connection with the registration of the Funds' shares
under state securities laws.
Note 3. - Purchases and sales of investment securities, excluding short-term
notes, for the six months ended June 30, 1999 were as follows:
<TABLE>
<CAPTION>
SGF SMDS SSCY
----------- ---------- ----------
<S> <C> <C> <C>
Cost of purchases............................. $12,532,260 $5,061,254 $8,441,148
Proceeds of sales............................. 13,831,297 10,978,537 10,231,717
</TABLE>
21
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Stratton Growth Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
6 Months Year Year 7 Months Years ended May 31,
Ended Ended Ended Ended -------------------------
06/30/99* 12/31/98 12/31/97 12/31/96 1996 1995 1994
--------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 34.07 $ 33.39 $ 27.00 $ 27.18 $ 22.35 $ 20.65 $ 20.89
------- ------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net investment
income............... 0.219 0.570 0.550 0.312 0.556 0.537 0.510
Net gains (losses) on
securities (both
realized and
unrealized).......... (0.149) 3.130 8.900 1.298 5.759 2.978 0.665
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations......... 0.070 3.700 9.450 1.610 6.315 3.515 1.175
------- ------- ------- ------- ------- ------- -------
Less Distributions
Dividends (from net
investment income)... (0.190) (0.590) (0.540) (0.580) (0.540) (0.540) (0.510)
Distributions (from
capital gains)....... (0.940) (2.430) (2.520) (1.210) (0.945) (1.275) (0.905)
------- ------- ------- ------- ------- ------- -------
Total
distributions...... (1.130) (3.020) (3.060) (1.790) (1.485) (1.815) (1.415)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 33.01 $ 34.07 $ 33.39 $ 27.00 $ 27.18 $ 22.35 $ 20.65
======= ======= ======= ======= ======= ======= =======
Total Return............ 0.26% 11.46% 36.06% 6.40% 29.62% 18.61% 5.92%
Ratios/Supplemental Data
Net assets, end of
period (in 000's).... $60,239 $63,323 $60,177 $44,801 $42,880 $31,719 $25,475
Ratio of expenses to
average net assets... 1.09%/1/ 1.07% 1.11% 1.17%/1/ 1.16% 1.31% 1.34%
Ratio of net
investment income to
average net assets... 1.29%/1/ 1.60% 1.87% 2.08%/1/ 2.28% 2.70% 2.51%
Portfolio turnover
rate................. 21.56% 38.02% 34.40% 20.32% 15.41% 42.54% 49.81%
</TABLE>
- --------
* Unaudited
/1/Annualized
See accompanying notes to financial statements.
22
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
11
6 Months Year Year Months Years ended January 31,
Ended Ended Ended Ended -----------------------------
6/30/99* 12/31/98 12/31/97 12/31/96 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69 $ 29.91
------- ------- -------- -------- -------- -------- --------
Income From Investment
Operations
Net investment
income............... 0.974 1.650 1.540 1.630 1.880 1.940 1.870
Net gains (losses) on
securities (both
realized and
unrealized).......... 0.146 (5.070) 3.200 0.160 2.600 (3.870) (1.140)
------- ------- -------- -------- -------- -------- --------
Total from
investment
operations......... 1.120 (3.420) 4.740 1.790 4.480 (1.930) 0.730
------- ------- -------- -------- -------- -------- --------
Less Distributions
Dividends (from net
investment income)... (0.960) (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...... (0.960) (2.050) (1.920) (1.760) (1.920) (1.920) (1.950)
------- ------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period................. $ 24.94 $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69
======= ======= ======== ======== ======== ======== ========
Total Return............ 4.74% (11.75%) 18.09% 7.12% 18.98% (6.57%) 2.22%
Ratios/Supplemental Data
Net assets, end of
period
(in 000's)........... $76,394 $79,936 $101,956 $103,780 $129,267 $134,066 $165,798
Ratio of expenses to
average net assets... 1.05%/1/ 1.02% 1.02% 1.02%/1/ 0.99% 1.08% 0.99%
Ratio of net
investment income to
average net assets... 8.17%/1/ 5.95% 5.48% 6.94%/1/ 7.42% 7.71% 6.12%
Portfolio turnover
rate................. 7.06% 18.89% 42.47% 69.19% 53.30% 39.50% 19.15%
</TABLE>
- --------
* Unaudited
/1/Annualized
See accompanying notes to financial statements.
23
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
For the Period
6 Months Year Year 9 Months Year Year 04/12/93/1
Ended Ended Ended Ended Ended Ended /
06/30/99* 12/31/98 12/31/97/3/ 12/31/96/3/ 03/31/96/3/ 03/31/95/3/ to 03/31/94/3/
--------- -------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94 $ 12.97 $12.50
------- ------- ------- ------- ------- ------- ------
Income from Investment Operations
Net investment income... 0.098 0.170 0.210 0.260 0.330 0.290 0.220
Net gains (losses) on
securities (both
realized and
unrealized)............ 0.922 (2.310) 6.800 1.740 3.040 (0.020) 0.450
------- ------- ------- ------- ------- ------- ------
Total from investment
operations............. 1.020 (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................. $ 21.13 $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94 $12.97
======= ======= ======= ======= ======= ======= ======
Total Return............ 5.07% (9.58%) 42.37% 12.84% 26.18% 2.09% 5.51%/2/
Ratios/Supplemental Data
Net assets, end of
period
(in 000's)............. $43,903 $42,789 $39,377 $21,691 $19,592 $14,058 $8,257
Ratio of expenses to
average net assets..... 1.36%/2/ 1.56% 1.62% 1.29%/2/ 1.46% 2.12% 2.28%/2/
Ratio of net investment
income to average net
assets................. 1.03%/2/ 0.80% 1.09% 2.03%/2/ 2.28% 2.36% 1.85%/2/
Portfolio turnover
rate................... 21.65% 35.74% 26.27% 35.86% 33.50% 30.20% 28.60%/2/
</TABLE>
- --------
* Unaudited
/1/Commencement of operations
/2/Annualized
/3/Adjusted for a 2-for-1 stock split declared by the Fund to shareholders of
record on December 17, 1997
See accompanying notes to financial statements.
24
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
Minimum Investment
The minimum amount for the initial purchase of shares of the Funds is $2,000
each. Subsequent purchases may be made in amounts of $100 or more.
Telephone Exchange
Shares of each Fund may be exchanged for shares of the other Funds, provided
such other shares may legally be sold in the state of the investor's
residence. Each Fund has a distinct investment objective which should be
reviewed before executing any exchange of shares.
Dividends and Distributions
SGF pays semi-annual dividends from net investment income. SMDS pays monthly
dividends from net investment income. SSCY pays annual dividends from net
investment income. Distributions may be reinvested in additional shares of
such Fund.
Automatic Investment Plan
Shares of a Fund may be purchased through our "Automatic Investment Plan" (the
"Plan"), (See item 6 of the New Account Application attached to the back of
the Prospectus). The Plan provides a convenient method by which investors may
have monies debited directly from their checking, savings or bank money market
accounts for investment in a Fund. The minimum investment pursuant to this
Plan is $100 per month. The account designated will be debited in the
specified amount, on the date indicated, and Fund shares will be purchased.
Only an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated. A Fund may alter, modify
or terminate this Plan at any time.
Share Price Information
The daily share price of the Funds can be found in the mutual fund section of
most major daily newspapers as well as The Wall Street Journal and Investor's
Daily, where the Funds are listed under Stratton Funds. The Funds' stock
ticker symbols for SGF, SMDS and SSCY are STRGX, STMDX and STSCX,
respectively.
Retirement Plans
Stratton Mutual Funds has Defined Contribution Plans, Individual Retirement
Accounts and 403(b)(7) Retirement Plans available at no minimum investment.
25
<PAGE>
SHAREHOLDER INFORMATION (continued)
- -------------------------------------------------------------------------------
General Information on the Funds
Requests for a Prospectus, financial information, past performance figures and
an application, should be directed to the Funds' Distributor:
c/o FIRST DATA DISTRIBUTORS, INC.
4400 Computer Drive,
Westborough, MA 01581
Telephone: 800-634-5726
Existing Shareholder Account Services
Shareholders seeking information regarding their accounts and other fund
services, and shareholders executing redemption requests, should call or write
the transfer agent and dividend paying agent:
FIRST DATA INVESTOR SERVICES GROUP, INC.
P. O. Box 61503, King of Prussia, PA 19406-0903
Telephone: 610-239-4600 . 800-472-4266
Investment Portfolio Activities
Questions regarding any of the Funds' investment portfolios should be directed
to the Funds' Investment Advisor:
STRATTON MANAGEMENT COMPANY
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300, Plymouth Meeting, PA 19462-1050
Telephone: 610-941-0255
Additional Purchases ONLY to existing accounts should be mailed to a separate
lock box unit:
c/o FIRST DATA INVESTOR SERVICES GROUP, INC.
P. O. Box 61767, King of Prussia, PA 19406-8767
Distributed by First Data Distributors, Inc., 4400 Computer Drive,
Westborough, MA 01581--Date of first use August 1999. This
report is to be preceeded or accompanied by a prospectus.
All indices are unmanaged groupings of stock that
are not available for investment.
26
<PAGE>
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,
Stratton Small-Cap Yield Fund
James A. Beers
Vice President
Joanne E. Kuzma
Vice President
Patricia L. Sloan
Secretary & Treasurer
Brigid E. Hummel
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.
P.O. Box 61503, King of Prussia, PA 19406-0903
Telephone: 610-239-1600, 800-472-1266
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
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