N-30B-2 1 dn30b2.htm STRATTON MULTI CAP FUND, FORMERLY STRATTON GROWTH FUNDS N-30B-2 STRATTON MULTI CAP FUND, FORMERLY STRATTON GROWTH FUNDS N-30B-2

LOGO


LOGO

 

DEAR FELLOW SHAREHOLDER:

 

FEDERAL RESERVE POLICY

 

The Federal Reserve Board raised interest rates by 25 basis points for the fifteenth time bringing the Federal Funds rate to 4.75%. Most observers expect at least two more increases in May and June with a rate of 5.25%, by the end of the second quarter. It is also thought that 5.25% might be the point at which the Fed pauses to assess the economic impact of higher interest rates.

 

ENERGY

 

The energy world is totally oriented to supply side issues that have driven crude oil prices up to the mid $60s range; at the time of writing this letter, crude is $69 per barrel. The causes for this have little to do with short-term demand or inventories. Inventories are quite large but they are being held as hedges against supply disruptions. If the world’s oil supply were “safe,” oil would probably be trading at $50 per barrel and user inventories would be reduced. There is probably a $15 risk premium in the oil markets; much of which may be justified in light of volatile sources of supply.

 

CORPORATE EARNINGS

 

The first quarter earnings in 2006 should produce double digit gains. It appears as though the first quarter of 2006 will certainly match the average earnings gains of all of 2005. We expect a slow attrition of that growth rate in the remaining 2006 quarters simply because the base is higher and it is harder to grow earnings at that same rate on a much higher base. Corporate managements and boards are continuing to maintain discipline to sustain profit margins at very high levels. One example of this discipline – acting slowly to hire new workers, especially if it involves expansion. What expansion is taking place is often in the developing markets and focused on gaining footholds in Pacific Rim markets. Managements are determined to hold margins up and will consider price increases for their products when possible. This has been the longest sustained period of high margins; and we believe it is due to concerns about the long-term outlook and the short-term pressure on managements to perform.

 

STRATTON GROWTH FUND

 

We are pleased to announce that the Stratton Growth Fund was selected by Business Week for their Excellence in Fund Management Awards for 2006. This follows Stratton Growth Fund receiving the Lipper Award for the best multi-cap value fund in 2005. We are pleased with the recognition of the Fund performance by these two prestigious organizations.

 

The Board of Directors of the Funds has voted to change the name of Stratton Growth Fund to Stratton Multi-Cap Fund effective May 1, 2006 to more appropriately reflect the type of fund it is. When we selected Growth Fund in 1972 there was not a distinct division in the stock market between value and growth stocks. We have always been a value manager and this corrects any misimpression that others might have about the nature of the Fund.

 

Sincerely yours,

 

LOGO

 

James W. Stratton

Chairman

April 18, 2006

 

Distributed by PFPC Distributors, Inc., 760 Moore Road, King of Prussia, PA 19406-1212.

Date of first use, May 2006. This report is to be preceded or accompanied by a Prospectus.

All indices are unmanaged groupings of stocks that are not available for investment.


PORTFOLIO MANAGERS’ COMMENTARY


Stratton Growth Fund—Jim Stratton

 

Q. Why are there so many sales in the portfolio this quarter and only two purchases?

 

A. During the month of March, we were faced with significant redemptions in the Fund, triggered by a financial advisory service. This decision appears to have been made on a short-term basis and triggered at the bottom of the market. We would note that the Fund was up +6.34% during the quarter, which compares favorably to the S&P 500 Index return of +4.21%. Recall also the Fund’s 2005 return of +14.49% vs. the S&P 500 Index return of +4.91%.

 

It was necessary for us to raise the funds to meet those redemptions. We selected first those stocks that had been disappointing in earnings per share. They included Briggs & Stratton Corp., Tyco International Ltd., and YRC Worldwide, Inc. Second, we eliminated those stocks in our portfolio that seemed to have the slowest earnings growth. Most of these companies had an outlook for less than ten percent earnings growth in 2006, thus they became candidates for sale. We retained the stocks that we believed had the strongest earnings potential and in effect concentrated the portfolio to forty issues.

 

Q. What stocks were added to the portfolio during the quarter?

 

A. We added Todco Class A stock to the Energy sector which is an offshore oil drilling company. We believe the outlook for oil field services and exploration services is exceptional for the next three to five years. Todco has several rigs mothballed that when brought to the market can add substantially to their earning power. We also added Seagate Technology, the leader in hard disk drives for computers. It is currently in the process of acquiring Maxtor, the number two competitor in the U.S. market. When this is complete, we expect the market share to expand sharply, cost to be reduced by consolidation of unnecessary facilities and pricing to stabilize, if not improve, in the disk drive markets. Seagate Technology sells at a low price-to-earnings multiple and is a value stock.

 

Portfolio holdings are as of 3/31/06, they are subject to change at any time.

The performance data quoted represents past performance and does not guarantee future results.

Current performance may be lower or higher. Performance data current to the most recent month-end may be obtained at www.strattonfunds.com. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.

 

LOGO

 

2


FUND HIGHLIGHTS


Stratton Growth Fund

 

 

       March 31, 2006      December 31, 2005
Total Net Assets      $145,406,556      $173,405,273
Net Asset Value Per Share      $47.16      $44.35
Shares Outstanding      3,083,084      3,909,963

 

Portfolio Changes For the Quarter Ended March 31, 2006 (unaudited)

New Holdings (Percentage of Total Net Assets)   Eliminated Holdings
Seagate Technology (0.9%)   Bank of America Corp.
Todco Class A (2.7%)   Briggs & Stratton Corp.
    Health Management Associates, Inc.
    KB Home
    Pulte Homes, Inc.
    R.R. Donnelley & Sons Co.
    The St. Paul Travelers Companies, Inc.
    Tyco International Ltd.
    VF Corp.
    YRC Worldwide, Inc.

 

Industry Categories March 31, 2006 (unaudited)


Energy    27.4%      Banking/Financial      6.2%      Consumer Durables      3.0%
Capital Goods    11.1%      Insurance/Services      4.5%      Consumer Services      2.8%
Technology    8.8%      Business Services      3.4%      Industrial      2.8%
Transportation    8.5%      Basic Materials      3.3%      Utilities      2.5%
Construction    8.3%      Chemicals      3.0%              

 

Ten Largest Holdings March 31, 2006 (unaudited)


       Market Value      Percent of TNA  
Valero Energy Corp.      $ 6,647,536      4.6 %
Penn Virginia Corp.        5,680,000      3.9  
Norfolk Southern Corp.        5,407,000      3.7  
Lehman Brothers Holdings, Inc.        5,058,550      3.5  
NCR Corp.        5,014,800      3.5  
Burlington Northern Santa Fe Corp.        4,999,800      3.4  
Vulcan Materials Co.        4,765,750      3.3  
Jabil Circuit, Inc.        4,714,600      3.2  
Rockwell Automation, Inc.        4,674,150      3.2  
Ingersoll-Rand Co., Ltd. Class A        4,596,900      3.2  
       $ 51,559,086      35.5 %

 

Portfolio holdings are subject to change and may not represent current compositions of the portfolio.

 

3


PORTFOLIO MANAGERS’ COMMENTARY


Stratton Monthly Dividend REIT Shares—Jim Beers

 

Q. How have REITs fared so far in 2006?

 

A. The REIT sector once again defied most market predictions during the first quarter. Following six years of outperforming the broad market, continued Federal Reserve Board rate increases, and the widely held belief that residential and commercial real estate markets are fully valued, the Morgan Stanley REIT Index returned +15.15% in the quarter ended March 31, 2006. SMDS returned +13.88% over that same time period. One factor contributing to the strong performance of the group is the ongoing merger and acquisition activity that is occurring in the industry, as a number of public REITs have been taken private in recently announced deals. Buyers of these companies obviously believe that market pricing does not fully reflect the value of the underlying real estate. Speculation that the current merger and acquisition environment will persist continues to drive up REIT stock prices.

 

Q. How has recent performance affected your outlook for the sector?

 

A. Although we are cautious given the recent price movements in the sector, we still believe in the positive long-term fundamentals for the group. This view is supported by the activity in the private equity market that has been affecting our holdings. During the quarter, three out of the four eliminated holdings in the portfolio were sold after a private merger or buyout. The other holding, Prentiss Properties Trust, merged with another existing holding, Brandywine Realty Trust. All of these companies saw their stock price rise strongly after the deals were announced. This has a positive effect on the Fund’s performance. The downside for the Fund is that we are no longer able to hold the stock of many well-run and admired companies. We will continue to look at new opportunities as they arise.

 

Real Estate Funds may be subject to a higher degree of market risk because of concentration in a specific industry or geographic sector. Risks include declines in the value of real estate, general and economic conditions, changes in the value of the underlying property and defaults by borrowers.

The performance data quoted represents past performance and does not guarantee future results.

Current performance may be lower or higher. Performance data current to the most recent month-end may be obtained at www.strattonfunds.com. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.

 

LOGO

 

4


FUND HIGHLIGHTS


Stratton Monthly Dividend REIT Shares

 

 

       March 31, 2006      December 31, 2005
Total Net Assets      $163,018,255      $153,343,883
Net Asset Value Per Share      $38.65      $34.35
Shares Outstanding      4,218,166      4,464,807

 

Portfolio Changes For the Quarter Ended March 31, 2006 (unaudited)

New Holdings (Percentage of Total Net Assets)   Eliminated Holdings
Equity Inns, Inc. (0.5%)   Amli Residential Properties Trust
First Potomac Realty Trust (0.6%)   Arden Realty, Inc.
Mack-Cali Realty Corp. (1.2%)   CarrAmerica Realty Corp.
    Prentiss Properties Trust

 

Industry Categories March 31, 2006 (unaudited)


Office      19.5%      Industrial      6.9%
Health Care      18.9%      Regional Malls      6.6%
Apartments      17.6%      Diversified      6.2%
Shopping Centers      7.9%      Net Lease      5.6%
Lodging      6.9%              

 

Ten Largest Holdings March 31, 2006 (unaudited)


       Market Value      Percent of TNA  
Reckson Associates Realty Corp.      $ 6,643,900      4.1 %
Liberty Property Trust        5,994,036      3.7  
Heritage Property Investment Trust        5,938,500      3.6  
EastGroup Properties, Inc.        5,692,800      3.5  
Pennsylvania Real Estate Investment Trust        5,500,000      3.4  
Commercial Net Lease Realty        5,475,500      3.4  
Mid-America Apartment Communities, Inc.        5,475,000      3.4  
New Plan Excel Realty Trust        5,447,400      3.3  
United Dominion Realty Trust, Inc.        5,422,600      3.3  
Glimcher Realty Trust        5,254,000      3.2  
       $ 56,843,736      34.9 %

 

Portfolio holdings are subject to change and may not represent current compositions of the portfolio.

 

5


PORTFOLIO MANAGERS’ COMMENTARY


Stratton Small-Cap Value Fund—Jerry Van Horn

 

Q. How did the Fund perform during the first quarter of 2006?

 

A. For the first quarter of 2006, Stratton Small-Cap Value Fund posted a total return of +14.19% compared to the Russell 2000 Index return of +13.95% and the Russell 2000 Value Index return of +13.51%. Drivers of the Fund’s strong performance during the first quarter were spread throughout the portfolio as holdings in the Technology, Financial, Producer Durable, Energy and Consumer Discretionary sectors posted excellent returns.

 

Q. What changes took place in the portfolio during the quarter?

 

A. The Fund had a fairly active quarter in terms of new purchases. During the quarter, 12 new names were added to the portfolio as strong investment flows into the Fund enabled us to capitalize on attractive opportunities. The most notable areas of concentration of new names are in the Technology and Basic Materials sectors. Five new names were added from the Technology sector; CommScope, Inc., OmniVision Technologies, Inc., ON Semiconductor Corp., Palm, Inc. and Parametric Technology Corp. We expect the Technology sector to continue to benefit from increased spending as businesses seek to sustain positive productivity growth. Also, certain areas of the sector are continuing to benefit from the increasing use of tech components in consumer goods such as autos and toys. Two new names were added to the Basic Materials sector during the quarter; Century Aluminum Co. and Schnitzer Steel Industries, Inc. Class A. Both Century and Schnitzer are continuing to benefit from strength in the commodity markets as the fear that global demand for commodities such as aluminum and steel will outpace available supplies places upward pressure on pricing.

 

Five names were removed from the portfolio during the quarter. Two names were removed due to acquisitions. Beverly Enterprises, Inc. was acquired by a private equity firm and Engineered Support Systems, Inc. was acquired by current portfolio holding DRS Technologies, Inc. Three portfolio holdings were removed due to continuing earnings disappointment; Hercules, Inc., Multimedia Games, Inc. and Rock-Tenn Co. Class A.

 

Portfolio holdings are as of 3/31/06, they are subject to change at any time.

Small company stocks are generally riskier than larger company stocks due to greater volatility and less liquidity.

The performance data quoted represents past performance and does not guarantee future results.

Current performance may be lower or higher. Performance data current to the most recent month-end may be obtained at www.strattonfunds.com. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.

 

LOGO

 

6


FUND HIGHLIGHTS


Stratton Small-Cap Value Fund

 

 

       March 31, 2006      December 31, 2005
Total Net Assets      $489,195,700      $355,412,991
Net Asset Value Per Share      $49.42      $43.28
Shares Outstanding      9,898,238      8,211,316

 

Portfolio Changes For the Quarter Ended March 31, 2006 (unaudited)

New Holdings (Percentage of Total Net Assets)   Eliminated Holdings
BankUnited Financial Corp. Class A (1.1%)   Beverly Enterprises, Inc.
Century Aluminum Co. (2.0%)   Engineered Support Systems, Inc.
CommScope, Inc. (1.8%)   Hercules, Inc.
Equity Inns, Inc. (0.8%)   Multimedia Games, Inc.
First Horizon Pharmaceutical Corp. (1.8%)   Rock-Tenn Co. Class A
Freightcar America, Inc. (1.6%)    
OmniVision Technologies, Inc. (1.2%)    
ON Semiconductor Corp. (1.5%)    
Pacific Sunwear of California, Inc. (1.6%)    
Palm, Inc. (1.7%)    
Parametric Technology Corp. (1.5%)    
Schnitzer Steel Industries, Inc. Class A (1.2%)    

 

Industry Categories March 31, 2006 (unaudited)


Technology    16.0%      Retailing      5.1%      Transportation      2.5%
Energy    14.2%      Utilities      4.4%      Banking/Financial      2.4%
Capital Goods    11.2%      Construction      3.6%      Aerospace      1.7%
Health Care    8.9%      Entertainment      3.5%      Chemicals      0.9%
REITs    7.1%      Basic Materials      3.2%      Consumer Durables      0.5%
Business Services    5.7%      Insurance/Services      2.5%              

 

Ten Largest Holdings March 31, 2006 (unaudited)


       Market Value      Percent of TNA  
TETRA Technologies, Inc.      $ 11,802,336      2.4 %
JLG Industries, Inc.        11,355,352      2.3  
United Rentals, Inc.        10,584,600      2.2  
Terex Corp.        10,055,556      2.0  
Affiliated Managers Group, Inc.        9,786,798      2.0  
Century Aluminum Co.        9,763,500      2.0  
West Pharmaceutical Services, Inc.        9,759,792      2.0  
Universal Compression Holdings, Inc.        9,120,600      1.9  
Landry’s Restaurants, Inc.        9,093,942      1.9  
Aaron Rents, Inc.        9,088,365      1.8  
       $ 100,410,841      20.5 %

 

Portfolio holdings are subject to change and may not represent current compositions of the portfolio.

 

7


SCHEDULE OF INVESTMENTS March 31, 2006 (unaudited)


Stratton Growth Fund

 

 

    Number of
Shares


  Market
Value


COMMON STOCKS – 95.6%

         

Banking/Financial – 6.2%

         

The Bear Stearns Companies, Inc.

  15,000   $ 2,080,500

Commerce Bancorp, Inc. (NJ)

  50,000     1,832,500

Lehman Brothers Holdings, Inc.

  35,000     5,058,550
       

          8,971,550
       

Basic Materials – 3.3%

         

Vulcan Materials Co.

  55,000     4,765,750
       

Business Services – 3.4%

         

NCR Corp.†

  120,000     5,014,800
       

Capital Goods – 11.1%

         

Caterpillar, Inc.

  50,000     3,590,500

Ingersoll-Rand Co., Ltd. Class A

  110,000     4,596,900

Rockwell Automation, Inc.

  65,000     4,674,150

Textron, Inc.

  35,000     3,268,650
       

          16,130,200
       

Chemicals – 3.0%

         

PolyOne Corp.†

  80,000     745,600

Rohm and Haas Co.

  75,000     3,665,250
       

          4,410,850
       

Construction – 8.3%

         

Beazer Homes USA, Inc.

  50,000     3,285,000

Centex Corp.

  50,000     3,099,500

D. R. Horton, Inc.

  90,000     2,989,800

Lennar Corp. Class A

  45,000     2,717,100
       

          12,091,400
       

Consumer Durables – 3.0%

         

The Black & Decker Corp.

  50,000     4,344,500
       

Consumer Services – 2.8%

         

The Charles Schwab Corp.

  240,000     4,130,400
       

Energy – 27.4%

         

Anadarko Petroleum Corp.

  35,000     3,535,350

Chesapeake Energy Corp.

  110,000     3,455,100

CONSOL Energy, Inc.

  25,000     1,854,000

EOG Resources, Inc.

  50,000     3,600,000

Foundation Coal Holdings, Inc.

  70,000     2,879,800

Occidental Petroleum Corp.

  45,000     4,169,250

Penn Virginia Corp.

  80,000     5,680,000

Todco Class A†

  100,000     3,941,000

Valero Energy Corp.

  111,200     6,647,536

XTO Energy, Inc.

  93,333     4,066,519
       

          39,828,555
       

    Number of
Shares


 

Market

Value


 

Industrial – 2.8%

             

Parker Hannifin Corp.

    50,000   $ 4,030,500  
         


Insurance/Services – 4.5%

             

The Allstate Corp.

    30,000     1,563,300  

Lincoln National Corp.

    20,000     1,091,800  

UnitedHealth Group, Inc.

    27,500     1,536,150  

WellPoint, Inc.†

    30,000     2,322,900  
         


            6,514,150  
         


Technology – 8.8%

             

AMETEK, Inc.

    100,000     4,496,000  

C&D Technologies, Inc.

    250,000     2,310,000  

Jabil Circuit, Inc.†

    110,000     4,714,600  

Seagate Technology†

    50,000     1,316,500  
         


            12,837,100  
         


Transportation – 8.5%

             

Burlington Northern Santa Fe Corp.

    60,000     4,999,800  

Maritrans, Inc.

    77,900     1,903,097  

Norfolk Southern Corp.

    100,000     5,407,000  
         


            12,309,897  
         


Utilities – 2.5%

             

TXU Corp.

    80,000     3,580,800  
         


Total Common Stocks
(Cost $86,383,467)

          138,960,452  
         


    Principal
Amount


     

SHORT-TERM INVESTMENTS – 5.2%

       

PNC Bank Money Market Account 4.26%, due 04/03/06

  $ 7,613,126     7,613,126  
         


Total Short-Term Investments
(Cost $7,613,126)

    7,613,126  
         


Total Investments – 100.8%
(Cost $93,996,593*)

    146,573,578  

Liabilities in Excess of Other Assets – (0.8)%

    (1,167,022 )
         


NET ASSETS – 100.0%

  $ 145,406,556  
         



Non-income producing security
* Aggregate cost is $93,996,593 and net unrealized appreciation is as follows:

 

Gross unrealized appreciation

   $ 54,129,616  

Gross unrealized depreciation

     (1,552,631 )
    


Net unrealized appreciation

   $ 52,576,985  
    


 

See accompanying notes to Schedules of Investments.

 

8


SCHEDULE OF INVESTMENTS March 31, 2006 (unaudited)


Stratton Monthly Dividend REIT Shares

 

    Number of
Shares


 

Market

Value


COMMON STOCKS – 96.1%

         

Apartments – 17.6%

         

Apartment Investment &
Management Co. Class A

  95,000   $ 4,455,500

Archstone-Smith Trust

  75,000     3,657,750

Camden Property Trust

  70,000     5,043,500

Home Properties, Inc.

  90,000     4,599,000

Mid-America Apartment
Communities, Inc.

  100,000     5,475,000

United Dominion Realty Trust, Inc.

  190,000     5,422,600
       

          28,653,350
       

Diversified – 6.2%

         

Colonial Properties Trust

  80,000     4,010,400

Crescent Real Estate Equities Co.

  100,000     2,107,000

Lexington Corporate Properties Trust

  190,000     3,961,500
       

          10,078,900
       

Health Care – 18.9%

         

Health Care Property Investors, Inc.

  145,800     4,140,720

Health Care REIT, Inc.

  135,000     5,143,500

Healthcare Realty Trust, Inc.

  120,000     4,485,600

National Health Investors, Inc.

  140,000     3,556,000

Nationwide Health Properties, Inc.

  215,000     4,622,500

Universal Health Realty Income Trust

  100,000     3,653,000

Ventas, Inc.

  155,000     5,142,900
       

          30,744,220
       

Industrial – 6.9%

         

EastGroup Properties, Inc.

  120,000     5,692,800

First Industrial Realty Trust, Inc.

  109,000     4,653,210

First Potomac Realty Trust

  32,600     920,950
       

          11,266,960
       

Lodging – 6.9%

         

Equity Inns, Inc.

  50,000     810,000

Hospitality Properties Trust

  115,000     5,022,050

Sunstone Hotel Investors, Inc.

  90,000     2,607,300

Winston Hotels, Inc.

  250,000     2,842,500
       

          11,281,850
       

Net Lease – 5.6%

         

Commercial Net Lease Realty

  235,000     5,475,500

Trustreet Properties, Inc.

  245,000     3,721,550
       

          9,197,050
       

    Number of
Shares


 

Market

Value


Office – 19.5%

           

Brandywine Realty Trust

    137,500   $ 4,367,000

Equity Office Properties Trust

    135,000     4,533,300

Glenborough Realty Trust, Inc.

    199,800     4,345,650

Highwoods Properties, Inc.

    120,000     4,047,600

Liberty Property Trust

    127,100     5,994,036

Mack-Cali Realty Corp.

    40,000     1,920,000

Reckson Associates Realty Corp.

    145,000     6,643,900
         

            31,851,486
         

Regional Malls – 6.6%

           

Glimcher Realty Trust

    185,000     5,254,000

Pennsylvania Real Estate
Investment Trust

    125,000     5,500,000
         

            10,754,000
         

Shopping Centers – 7.9%

           

Heritage Property Investment Trust

    150,000     5,938,500

New Plan Excel Realty Trust

    210,000     5,447,400

Urstadt Biddle Properties, Inc. Class A

    80,000     1,440,000
         

            12,825,900
         

Total Common Stocks
(Cost $108,677,258)

          156,653,716
         

    Principal
Amount


   

SHORT-TERM INVESTMENTS – 3.4%

PNC Bank Money Market Account 4.26%, due 04/03/06

  $ 5,600,643     5,600,643
         

Total Short-Term Investments
(Cost $5,600,643)

    5,600,643
         

Total Investments – 99.5%
(Cost $114,277,901*)

    162,254,359

Other Assets Less Liabilities – 0.5%

    763,896
         

NET ASSETS – 100.0%

        $ 163,018,255
         


*Aggregate cost is $114,277,901 and net unrealized appreciation is as follows:

 

Gross unrealized appreciation

        $ 48,005,618  

Gross unrealized depreciation

          (29,160 )
         


Net unrealized appreciation

        $ 47,976,458  
         


 

See accompanying notes to Schedules of Investments.

 

9


SCHEDULE OF INVESTMENTS March 31, 2006 (unaudited)


Stratton Small-Cap Value Fund

 

    Number of
Shares


 

Market

Value


COMMON STOCKS – 93.4%

         

Aerospace – 1.7%

         

Moog, Inc. Class A†

  236,925   $ 8,408,468
       

Banking/Financial – 2.4%

         

BankUnited Financial Corp. Class A

  200,000     5,408,000

Eaton Vance Corp.

  80,000     2,190,400

QC Holdings, Inc.†

  21,200     267,756

Webster Financial Corp.

  33,000     1,599,180

WSFS Financial Corp.

  35,000     2,199,050
       

          11,664,386
       

Basic Materials – 3.2%

         

Century Aluminum Co.†

  230,000     9,763,500

Schnitzer Steel Industries, Inc. Class A

  135,000     5,784,750
       

          15,548,250
       

Business Services – 5.7%

         

Aaron Rents, Inc.

  334,500     9,088,365

Affiliated Managers Group, Inc.†

  91,800     9,786,798

Armor Holdings, Inc.†

  153,000     8,918,370
       

          27,793,533
       

Capital Goods – 11.2%

         

Cascade Corp.

  105,700     5,586,245

Crane Co.

  216,800     8,890,968

DRS Technologies, Inc.

  147,395     8,087,564

JLG Industries, Inc.

  368,800     11,355,352

Terex Corp.†

  126,900     10,055,556

United Rentals, Inc.†

  306,800     10,584,600
       

          54,560,285
       

Chemicals – 0.9%

         

PolyOne Corp.†

  495,700     4,619,924
       

Construction – 3.6%

         

Beazer Homes USA, Inc.

  63,300     4,158,810

D.R. Horton, Inc.

  75,000     2,491,500

Hovnanian Enterprises, Inc. Class A†

  97,000     4,261,210

M.D.C. Holdings, Inc.

  42,673     2,744,301

WCI Communities, Inc.†

  147,900     4,114,578
       

          17,770,399
       

Consumer Durables – 0.5%

         

Jacuzzi Brands, Inc.†

  264,800     2,602,984
       

Energy – 14.2%

         

Cabot Oil & Gas Corp.

  139,050     6,664,666

Foundation Coal Holdings, Inc.

  196,500     8,084,010
    Number of
Shares


 

Market

Value


Energy – Continued

         

Houston Exploration Co.†

  126,200   $ 6,650,740

KCS Energy, Inc.†

  332,400     8,642,400

Newfield Exploration Co.†

  86,000     3,603,400

Penn Virginia Corp.

  113,100     8,030,100

Pogo Producing Co.

  59,600     2,994,900

Remington Oil & Gas Corp.†

  84,000     3,630,480

TETRA Technologies, Inc.†

  250,900     11,802,336

Universal Compression Holdings, Inc.†

  180,000     9,120,600
       

          69,223,632
       

Entertainment – 3.5%

         

Isle of Capri Casinos, Inc.†

  244,481     8,136,328

Landry’s Restaurants, Inc.

  257,400     9,093,942
       

          17,230,270
       

Health Care – 8.9%

         

Alliance Imaging, Inc.†

  235,500     1,516,620

CONMED Corp.†

  226,000     4,327,900

Diagnostic Products Corp.

  145,000     6,906,350

First Horizon Pharmaceutical Corp.†

  355,000     8,949,550

Henry Schein, Inc.†

  88,500     4,235,610

LifePoint Hospitals, Inc.†

  150,000     4,665,000

Respironics, Inc.†

  86,000     3,346,260

West Pharmaceutical Services, Inc.

  281,100     9,759,792
       

          43,707,082
       

Insurance/Services – 2.5%

         

Scottish Re Group Ltd.

  233,200     5,785,692

Selective Insurance Group, Inc.

  123,100     6,524,300
       

          12,309,992
       

REITs – 7.1%

         

Equity Inns, Inc.

  248,900     4,032,180

FelCor Lodging Trust, Inc.

  385,000     8,123,500

Innkeepers USA Trust

  453,000     7,678,350

MeriStar Hospitality Corp.†

  633,700     6,577,806

Sunstone Hotel Investors, Inc.

  280,000     8,111,600
       

          34,523,436
       

Retailing – 5.1%

         

Circuit City Stores, Inc.

  190,400     4,660,992

GameStop Corp. Class A†

  148,371     6,994,209

Oxford Industries, Inc.

  112,000     5,726,560

Pacific Sunwear of California, Inc.†

  350,000     7,756,000
       

          25,137,761
       

 

See accompanying notes to Schedules of Investments.

 

10


SCHEDULE OF INVESTMENTS March 31, 2006 (unaudited) (continued)


Stratton Small-Cap Value Fund

 

    Number of
Shares


 

Market

Value


Technology – 16.0%

         

Anixter International, Inc.†

  189,200   $ 9,039,976

Bel Fuse, Inc. Class B

  40,000     1,401,200

Belden CDT, Inc.

  299,600     8,158,108

CommScope, Inc.†

  300,000     8,565,000

Digital River, Inc.†

  160,000     6,977,600

Komag, Inc.†

  178,000     8,472,800

MICROS Systems, Inc.†

  74,100     3,413,787

OmniVision Technologies, Inc.†

  195,000     5,889,000

ON Semiconductor Corp.†

  1,000,000     7,260,000

Palm, Inc.†

  350,000     8,106,000

Parametric Technology Corp.†

  450,000     7,348,500

Premiere Global Services, Inc.†

  345,000     2,777,250

Technitrol, Inc.

  42,000     1,007,160
       

          78,416,381
       

Transportation – 2.5%

         

Freightcar America, Inc.

  120,000     7,632,000

Maritrans, Inc.

  40,500     989,415

YRC Worldwide, Inc.†

  93,487     3,558,115
       

          12,179,530
       

Utilities – 4.4%

         

El Paso Electric Co.†

  380,000     7,235,200

Energen Corp.

  182,700     6,394,500

Southwest Gas Corp.

  275,000     7,686,250
       

          21,315,950
       

Total Common Stocks
(Cost $347,051,818)

        457,012,263
       

    Principal
Amount


 

Market

Value


 

SHORT-TERM INVESTMENTS – 8.5%

 

PNC Bank Money Market Account 4.26%, due 04/03/06

  $ 41,695,526   $ 41,695,526  
         


Total Short-Term Investments
(Cost $41,695,526)

    41,695,526  
         


Total Investments – 101.9%
(Cost $388,747,344*)

    498,707,789  

Liabilities in Excess of Other Assets – (1.9)%

    (9,512,089 )
         


NET ASSETS  –  100.0%

  $ 489,195,700  
         



Non-income producing security
* Aggregate cost is $388,747,344 and
  net unrealized appreciation is as follows:

 

Gross unrealized appreciation

   $ 116,321,804  

Gross unrealized depreciation

     (6,361,359 )
    


Net unrealized appreciation

   $ 109,960,445  
    


 

See accompanying notes to Schedules of Investments.

 

11


NOTES TO SCHEDULES OF INVESTMENTS


March 31, 2006 (unaudited)

 

Note 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 official closing 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.

 

Note B. Tax Disclosure – No provision for Federal income taxes is required since the Funds intend to continue to comply with all requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its taxable income and capital gains to shareholders. Federal income tax regulations differ from accounting principles generally accepted in the United States of America; therefore, distributions determined in accordance with tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The amount and character to tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of March 31, 2006.

 

For additional information regarding the accounting policies of the Funds, refer to the most recent financial statements in the N-CSR filing at www.sec.gov.

 

12


SHAREHOLDER INFORMATION


 

General Information on the Funds

 

Requests for a Prospectus, application, financial information including past performance figures or any additional information on the Funds and the available programs should be directed to the Funds’ toll free number at 1-800-634-5726.

 

Please visit our web site at www.strattonfunds.com to stay up to date on the Funds’ performance and to learn more about the Funds and the services we offer such as our Stratton Funds News Alert. The Alert keeps subscribers informed of any television programs and financial publications that feature our managers. In addition, it features updates on the Funds, bringing insight from our portfolio managers, and addresses changes in the markets and how they affect the Funds’ performance.

 

Minimum Investment

 

The minimum amount for the initial purchase of shares of the Funds is $2,000 each for non-retirement accounts. Subsequent purchases may be made in amounts of $100 or more. There is no minimum amount for initial or subsequent investments in retirement accounts.

 

Redemption Fees

 

The Funds will assess a redemption fee of 1.50% of the total redemption proceeds if shares are sold or exchanged within 120 days after the purchase date. This fee is retained by the Funds to offset the brokerage commissions, market impact and other costs associated with fluctuations in Fund asset levels and cash flow caused by short-term trading. For purposes of determining whether the redemption fee applies, the shares that have been held the longest will be redeemed first. The fee does not apply to shares purchased through reinvested dividends or capital gains.

 

Existing Shareholder Account Services

 

Shareholders seeking information regarding their accounts and other Fund services, and shareholders executing redemption requests, should call 1-800-472-4266 or write the transfer agent at the following addresses:

 

Via First Class Mail


 

Via Overnight Courier


Stratton Mutual Funds   Stratton Mutual Funds
c/o PFPC Inc.   c/o PFPC Inc.
P. O. Box 9801   101 Sabin Street
Providence, RI 02940   Pawtucket, RI 02860-1427

 

Investment Portfolio Activities

 

Questions regarding any of the Funds’ investment portfolios should be directed to the Funds’ Advisor:

 

Stratton Management Company

Plymouth Meeting Executive Campus

610 W. Germantown Pike, Suite 300

Plymouth Meeting, PA 19462-1050

1-800-578-8261

 

Please do not send account related correspondence to the Advisor. Doing so may delay the processing of your account related request.

 

13


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