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At Stratton Management Company,
our investment philosophy is centered on Value Investing. Value stocks are
stocks that appear undervalued based on traditional measures such as price-to-earnings,
price-to-cash flow, and price-to-book ratios. We believe that undervalued
companies with good earnings prospects have superior appreciation potential
with reasonable levels of risk.
Stratton's Institutional Model
Portfolio is invested utilizing a strict value-oriented stock selection
process. This proprietary model relies on a four-part quantitative screening
process to identify stocks that have those characteristics that we believe
are essential to a successful long-term investment strategy.
When we begin to build a new portfolio
for an individual client, our bias will always be toward the value-oriented
areas of the market. However, our strong commitment to personalized client
service empowers our managers to assess the needs and concerns of each of
our clients on an individual basis. We examine a client's risk tolerance,
his or her investing time horizon, the need for current income, and his or
her own expectations of how their portfolio should flourish and grow. In this
way, Stratton Management Company is able to tailor an investment program that
is suitable to each particular investor's needs.

The initial stock selection process
for Stratton's Institutional Model Portfolio focuses on stocks based on several
valuation measures, including market capitalization, discounted cash flow
return, price to cash flow, earnings estimate revisions, and relative price
strength. The firm's investment committee tracks the portfolio relative to
its benchmark, the S&P Barra Value Index. The process allows the investment
committee to over- or under-weight certain business sectors of the model relative
to the Index in order to capitalize on areas of the market that the committee
believes are undervalued. However, the process also includes certain specific
limitations as to deviations from the benchmark's sector weightings to ensure
maximum diversification and meaningful representation from all areas in the
Value universe. Finally, traditional fundamental analysis is employed focusing
on management quality, business strength, new products and innovations, earnings
stability and predictability, and catalysts for positive change.
Stocks become candidates for sale
in the portfolio due to lower rankings in our proprietary quantitative model,
deteriorating fundamentals, or significant price appreciation. Additionally,
Stratton utilizes its 25-25 Rule. Any stock that declines 25% absolutely from
cost and 25% relative to the market from the date of purchase becomes a candidate
for sale.

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