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.