Document/Exhibit Description Pages Size
1: 485BPOS Form N-1A Registration Statement 55 231K
2: EX-99.23AII Articles Supplementary Dated February 26, 2001 2 10K
3: EX-99.23I Opinion of Counsel 1 7K
4: EX-99.23JI Consent of Independent Auditor 1 5K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 5 [ X ]
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 7 [ X ]
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SPIRIT OF AMERICA INVESTMENT FUND, INC.
(Exact name of Registrant as specified in charter)
477 Jericho Turnpike
Syosset, New York 11791
(Address of principal executive offices)
(516) 390-5555
Registrant's Telephone Number
Mr. David Lerner
SSH Securities, Inc.
477 Jericho Turnpike
Syosset, New York 11791
(Name and address of Agent for Service)
Copies to:
Stephanie Djinis, Esq.
1749 Old Meadow Road, Suite 310
McLean, Virginia 22102
It is proposed that this filing will become effective (check appropriate box).
[ X ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
[LOGO] SPIRIT OF AMERICA
TABLE OF CONTENTS
[Enlarge/Download Table]
Page
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A SUMMARY OF THE FUND................................................................. 2
FEES AND EXPENSES OF THE FUND......................................................... 4
Example.............................................................................. 4
INVESTMENT OBJECTIVES, PRINCIPLE INVESTMENT STRATEGIES AND RELATED RISKS.............. 5
MANAGEMENT OF THE FUND................................................................ 8
Investment Adviser................................................................... 8
Portfolio Manager.................................................................... 8
PRICING FUND SHARES................................................................... 8
HOW TO PURCHASE SHARES................................................................ 9
General.............................................................................. 9
Purchases by Mail.................................................................... 9
Purchases by Wire.................................................................... 9
Purchases through Broker-Dealers..................................................... 10
Purchases by Telephone............................................................... 10
Subsequent Investments............................................................... 10
DISTRIBUTION ARRANGEMENTS............................................................. 11
Rule 12b-1 Plans..................................................................... 11
Class A Shares....................................................................... 11
Class B Shares....................................................................... 11
Factors to Consider in Choosing a Class of Shares.................................... 11
Sale of Class A Shares............................................................... 12
Reduced Sales Charges................................................................ 12
Sales at Net Asset Value............................................................. 13
Sale of Class B Shares............................................................... 13
CDSC Waivers......................................................................... 14
Automatic Conversion of Class B Shares............................................... 14
HOW TO REDEEM SHARES.................................................................. 14
Redemption by Mail................................................................... 14
Redemption by Telephone.............................................................. 15
General Redemption Information....................................................... 15
Minimum Balances..................................................................... 16
SPECIAL SERVICES...................................................................... 16
Automatic Investment Plan............................................................ 16
Systematic Cash Withdrawal Plan...................................................... 16
DIVIDENDS, DISTRIBUTIONS AND TAXES.................................................... 16
Dividends and Distributions.......................................................... 16
U.S. Federal Income Taxes............................................................ 17
FINANCIAL HIGHLIGHTS.................................................................. 19
A SUMMARY OF THE FUND
Investment Objectives. Growth of capital and current income.
Principal Strategies. Spirit of America Investment Fund, Inc. (the "Fund")
invests primarily in Real Estate Investment Trusts (REITs) with successful
track records. REITs are pooled investment vehicles which invest primarily in
income producing real estate or real estate related loans or interests.
The Fund looks for stock where the price is low in relationship to the un-
derlying value of the company and its real estate. The Fund evaluates price-
/earnings ratios to attempt to identify those REITs which have strong under-
lying value. The Fund selects REITs paying high dividends in comparison to
other REITs. The Fund evaluates earnings and dividend growth potential and
continuously monitors interest rates, occupancies, rental income and new con-
struction. The Fund may also invest in equity securities of real estate indus-
try companies, mortgage-backed securities and investment grade taxable munici-
pal obligations.
Investment Risks. Any investment involves risk. The risks associated with
an investment in the Fund include:
. The cyclical nature of the real estate industry, which subjects the real
estate and real estate related securities held by the Fund to any market
or economic condition that may affect the value of real estate (up or
down).
. REIT securities may be more volatile in price than the securities of
larger market capitalization companies.
. Mortgage-backed securities are subject to prepayment or non-payment on
the underlying mortgage.
. The Fund is concentrated in real estate and real estate related securi-
ties and the real estate sector may underperform in comparison with
other investment sectors.
. The stocks purchased by the Fund may not appreciate in value as the ad-
visor anticipates.
. The loss of your investment in the Fund.
Suitability. An investment in the Fund may be suitable for long-term in-
vestors who wish to invest a portion of their overall equity portfolio in a
mutual fund that invests primarily in REITs. Investors should be willing to
accept the potential volatility of such investments.
2
Past Fund Performance.
The bar chart and performance table below illustrate the risks of investing
in the Fund by showing changes in the Fund's performance. The Fund's past per-
formance does not necessarily indicate how the Fund will perform in the fu-
ture.
The bar chart shows the changes in the annual total returns for each of the
last three calendar years for the Fund's Class A shares. Sales loads and ac-
count fees are not reflected in the bar chart; if they were, returns would be
less than shown.
[CHART]
Annual Returns (%)
2001 2000 1999
------ ------ ------
28.03% 17.45% -9.36%
The table shows how the Fund's average annual returns compare with those of
its benchmark, the Morgan Stanley REIT Index. The figures assume reinvestment
of all dividends and distributions. The performance calculations reflect the
deduction of the maximum sales charges and annual fund operating expenses.
Performance Table
(Average annual total returns as of December 31, 2001)
[Download Table]
Since
1 Year Inception*
------ -----------
Spirit of America Investment Fund--Class A.............
Return Before Taxes.................................. 21.36% 3.26%
Return After Taxes on Distributions(1)(2)............ 17.99% (0.52%)
Return After Taxes on Distributions and Sale of Fund
Shares(1)(2)........................................ 11.99% 0.17%
Morgan Stanley REIT Index (reflects no deduction for
fees, expenses or taxes).............................. 12.83% 3.66%
Since
1 Year Inception**
------ -----------
Spirit of America Investment Fund--Class B(3)..........
Return Before Taxes.................................. 20.01% 3.58%
Morgan Stanley REIT Index (reflects no deduction for
fees, expenses or taxes).............................. 12.83% 4.23%
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* January 9, 1998.
** March 6, 1998.
(1) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes.
(2) Actual after-tax returns depend on an investor's tax situation and may
differ from those shown, and after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements,
such as 401(k) plans or individual retirement accounts.
(3) Since the Fund has multiple classes, after-tax returns are shown for only
Class A shares and after-tax returns for Class B shares will vary.
3
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund.
Shareholder Fees
(paid directly from your investment)
[Download Table]
Class A Class B
------- -------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)..................... 5.25%(1) None
Maximum Deferred Sales Charge (Load) Imposed on
Redemptions (as a percentage of the lesser of original
purchase price or redemption proceeds).................. 1.00%(2) 5.75%(3)
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets)
Class A Class B
------- -------
Management Fees.......................................... 0.97% 0.97%
Distribution and Service (12b-1) Fees.................... 0.30% 1.00%
Other Expenses........................................... 1.04% 1.04%
----- -----
Total Annual Fund Operating Expenses..................... 2.31% 3.01%
===== =====
Less Fee Waiver and/or Expense Reimbursement............. (0.34%) (0.34%)
----- -----
Net Annual Operating Expenses............................ 1.97%(4) 2.67%(4)
===== =====
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(1) Reduced for purchases of $100,000 and over, decreasing to zero for pur-
chases of $1 million and over. See "Distribution Arrangements."
(2) A Contingent Deferred Sales Charge ("CDSC") of 1.00% may be imposed on
redemptions of $1 million or more made within one year of the date of
purchase. See "Distribution Arrangements."
(3) A CDSC is imposed on redemptions of Class B Shares purchased at the fol-
lowing declining rates: within the first year--5.75%; second year--5.0%;
third year--4.0%; fourth year--3.0%; fifth year--2.0%; sixth year--2.0%;
seventh year--1.0% and eighth year and thereafter--none. See "Distribu-
tion Arrangements."
(4) These are the net fees and expenses that the Fund actually incurred for
the fiscal year ended October 31, 2001. Spirit of America Management
Corp. (the "Adviser") has contractually agreed to waive advisory fees
and/or reimburse expenses under an Operating Expenses Agreement so that
the total operating expenses of Class A shares and Class B shares will
not exceed 1.97% and 2.67%, respectively, of the average daily net assets
of each Class. The Adviser has agreed to continue to waive advisory fees
and/or reimburse expenses for the Fund until February 24, 2003. Any
amounts waived or reimbursed by the Adviser are subject to reimbursement
by the Fund within the following three years, provided the Fund is able
to make such reimbursement and remain in compliance with the expense lim-
itations stated above. This agreement shall continue for additional one-
year terms, absent 60 days' notice from the Adviser.
Example
This Example is intended to help you compare the cost of investing in the
Fund with the cost of investing in other mutual funds.
The Example assumes that:
. you invest $10,000 in the Fund for the time periods indicated;
4
. you redeem all of your shares at the end of those periods;
. your investment has a 5% return each year; and
. the Fund's operating expenses for the one-year period are calculated net
of any fee waivers and/or expense reimbursements and the Fund's operat-
ing expenses for the other periods do not reflect any fee waivers and/or
expense reimbursements.
Although your actual costs may be higher or lower, based on these assump-
tions your costs would be:
[Download Table]
3 5
1 year years years 10 years
------ ------ ------ --------
Class A Shares.............................. $714 $1,178 $1,666 $3,007
Class B Shares.............................. $859 $1,327 $1,778 $3,313
You would pay the following expenses if you did not redeem your shares:
[Download Table]
3 5
1 year years years 10 years
------ ------ ------ --------
Class A Shares.............................. $714 $1,178 $1,666 $3,007
Class B Shares.............................. $270 $ 900 $1,556 $3,313
INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
Investment Objectives. Growth of capital and current income.
General. At least 60% of the Fund's total assets will be invested in equity
REITs and other real estate industry companies. A "real estate industry compa-
ny" is a company that derives at least 50% of its gross revenues or net prof-
its from either (a) the ownership, development, construction, financing, man-
agement or sale of commercial, industrial or residential real estate or (b)
products or services related to the real estate industry, like building sup-
plies or mortgage servicing.
The Fund may also, but currently does not, invest up to 40% of its total
assets in (a) mortgage-backed securities, (b) investment grade taxable munici-
pal obligations and (c) short-term investments. These instruments are de-
scribed below.
When selecting equity securities, the Fund's adviser focuses on whether the
issuer can achieve sustainable growth in cash flow, which is a prerequisite to
higher dividend paying capability. The adviser looks for the economic viabil-
ity of property markets in which the issuer operates, and the ability of man-
agement to add value through strategic focus and operating expertise. The Fund
purchases equity securities when, in the judgment of the adviser, the market
price for such securities does not adequately reflect this potential. In mak-
ing this determination, the adviser will take into account fundamental trends
in underlying property markets as determined by site visits, price-earnings
ratios for real estate companies, cash flow growth and stability, the rela-
tionship between asset value and market price of the securities, dividend pay-
ment history, and any other factor which may from time to time be relevant.
REITs. The Fund may invest without limitation in shares of REITs. REITs are
pooled investment vehicles which invest primarily in income-producing real es-
tate or real estate related loans or interests. REITs generally are classified
as equity REITs, mortgage REITs or a combination of equity and mortgage REITs.
Equity REITs invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. Mortgage REITs invest
the majority of their assets in companies that own real estate mortgages and
derive income from the collection of interest payments. REITs are not taxed on
income distributed to shareholders provided they comply with several require-
ments of the Internal Revenue Code of 1986, as amended
5
(the "Code"). The Fund will indirectly bear its proportionate share of ex-
penses incurred by REITs in which it invests, in addition to the expenses in-
curred directly by the Fund.
Mortgage-Backed Securities. The Fund may invest in all types of mortgage-
backed securities. The Fund also may invest in guaranteed mortgage pass-
through securities which represent participation interests in pools of resi-
dential mortgage loans and are issued by U.S. governmental or private agencies
or instrumentalities, including but not limited to the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
Ginnie Mae certificates are guaranteed by the full faith and credit of the
U.S. Government for timely payment of principal and interest on the certifi-
cates. Fannie Mae certificates are guaranteed by Fannie Mae, a federally
chartered and privately-owned corporation for full and timely payment of prin-
cipal and interest on the certificates. Freddie Mac certificates are guaran-
teed by Freddie Mac, a corporate instrumentality of the U.S. Government, for
timely payment of interest and the ultimate collection of all principal of the
related mortgage loans.
Taxable Municipal Obligations. The Fund may invest in investment grade tax-
able municipal securities. These securities are debt obligations issued by mu-
nicipalities and local agencies within the United States to obtain funds for
various public purposes. In addition, public authorities issue taxable indus-
trial development bonds to provide for the construction, equipment, repair or
improvement of certain privately operated or local facilities. These obliga-
tions, including those which are guaranteed by state, local and municipal
agencies or instrumentalities, may or may not be backed by the full faith and
credits or the taxing authority of the agency or instrumentality issuing the
obligation. Unlike tax-free municipal securities, the interest on taxable mu-
nicipal securities generally will be included in gross income for federal in-
come tax purposes and may be subject to income taxes imposed by any state or
political subdivision.
Investment grade securities are within the four highest credit ratings of
Moody's or S&P, or are comparably rated by another nationally recognized sta-
tistical rating organization or, if unrated, determined by the adviser to be
of comparable quality. Although bonds and notes rated in the fourth credit
rating category are commonly referred to as investment grade, they may have
speculative characteristics. The Fund generally will not retain securities
that fall below investment grade.
Short-Term Investments. The short-term investments in which the Fund may
invest are: corporate commercial paper and other short-term commercial obliga-
tions, in each case rated or issued by companies with similar securities out-
standing that are rated Prime-1, Aa or better by Moody's Investors Service,
Inc. ("Moody's") or A-1, AA or better by Standard & Poor's Ratings Group
("S&P"); obligations (including certificates of deposit, time deposits, demand
deposits and bankers' acceptances) of banks with securities outstanding that
are rated Prime-1, Aa or better by Moody's or A-1, AA or better by S&P; and
obligations issued or guaranteed by the U.S. Government or its agencies or in-
strumentalities with remaining maturities not exceeding 18 months.
Concentration of Investments. The Fund invests primarily in real estate re-
lated securities. This means the Fund is concentrated in the real estate in-
dustry. A fund that concentrates its investments is subject to greater risk of
loss than is a fund that has a more diversified portfolio of investments.
Temporary Investments. From time to time, the Fund may take temporary de-
fensive positions that are inconsistent with its principal investment strate-
gies. For temporary defensive purposes, the Fund may invest up to 100% of its
total assets in short-term, liquid, high-grade debt securities. The Fund will
assume a temporary defensive posture only when economic and other factors ad-
versely affect the real estate industry market and, in the advisor's opinion,
present extraordinary risks in being invested primarily in real estate securi-
ties. When the Fund maintains a temporary defensive position, it may not
achieve its investment objective.
6
Risks. Investments in real estate and real estate related equity securities
involve risks different from, and in certain cases greater than, the risks
presented by equity securities generally. Main risks are those equal to the
direct ownership of real estate or real estate industry securities, including
possible declines in the value of real estate, environmental problems and
changes in interest rates. To the extent that assets underlying the Fund's in-
vestments are concentrated geographically, by property type or in certain
other respects, the Fund may be subject to these risks to a greater extent.
The stocks purchased by the Fund may not appreciate in value as the advisor
anticipates.
In addition, if the Fund receives rental income or income from the disposi-
tion of real property acquired as a result of a default on securities the Fund
owns, the receipt of such income may adversely affect the Fund's ability to
retain its tax status as a regulated investment company.
REITs are dependent upon management skills, are not diversified, are sub-
ject to heavy cash flow dependency, default by borrowers and self-liquidation.
REITs are also subject to the possibilities of failing to qualify for tax free
pass-through of income under the Code. Due to the cyclical nature of the real
estate industry, REITs may underperform in comparison with other investment
sectors.
Investing in REITs involves risks similar to those associated with invest-
ing in small capitalization companies. REITs may have limited financial re-
sources, may trade less frequently and in a limited volume and may be subject
to more abrupt or erratic price movements than larger company securities. His-
torically, small capitalization stocks, such as REITs, have been more volatile
in price than the larger capitalization stocks included in the Standard &
Poor's 500 Composite Stock Price Index.
Investing in investment grade taxable municipal obligations involves the
risk of default among one or more issuers of taxable municipal obligations
which are held by the Fund. Another risk may be the inability to readily find
a buyer at or near the market price should the Fund need to quickly dispose of
one or more of its positions in taxable municipal obligations. Also, there is
no guarantee that the municipal securities will remain at investment grade af-
ter the Fund invests in them.
REITs are subject to interest rate risks. When interest rates decline, the
value of an investment in fixed rate obligations can be expected to rise. Con-
versely, when interest rates rise, the value of an investment in fixed rate
obligations can be expected to decline.
Investing in mortgage-backed securities involves risks such as the failure
of a counterparty to meet its commitments and the effects of prepayments on
mortgage cash flows. Prepayment rates are influenced by changes in current in-
terest rates and a variety of other factors, and cannot be predicted with cer-
tainty. Both adjustable rate mortgage loans and fixed rate mortgage loans may
be subject to a greater rate of principal prepayments in a declining interest
rate environment, and to a lesser rate of principal prepayments in an increas-
ing interest rate environment. Early payment associated with mortgage-backed
securities causes these securities to experience significantly greater price
and yield volatility than that experienced by traditional fixed-income securi-
ties. The Fund may fail to recoup fully its investment in mortgage-backed se-
curities due to the possibility of non-payment of the underlying mortgages,
notwithstanding any direct or indirect governmental or agency guarantee. When
the Fund reinvests amounts representing payments and unscheduled prepayments
of principal, it may receive a rate of interest that is lower than the rate on
existing adjustable rate mortgage pass-through securities. Thus, mortgage-
backed securities, and adjustable rate mortgage pass-through securities in
particular, may be less effective than other types of U.S. Government securi-
ties as a means of locking in interest rates.
7
MANAGEMENT OF THE FUND
Investment Adviser
Spirit of America Management Corp. ("Spirit Management"), 477 Jericho Turn-
pike, Syosset, New York 11791, is the Fund's investment adviser. Spirit Man-
agement was incorporated in 1997 and is a registered investment adviser under
the Investment Advisers Act of 1940, as amended. Spirit Management has managed
the investments of the Fund since its inception in January of 1998 and has no
other assets under management.
Spirit Management invests the Fund's assets, manages the Fund's business
affairs and supervises the Fund's day-to-day operations. Spirit Management
provides the Fund with advice on buying and selling securities in accordance
with the Fund's investment objective, policies and limitations. Spirit Manage-
ment also furnishes office space and certain administrative and clerical serv-
ices, and employs the personnel needed with respect to Spirit Management's re-
sponsibilities under its investment advisory contract with the Fund.
The Fund pays Spirit Management a fee at the annual rate of 0.97% of the
Fund's average daily net assets. The fee is accrued daily and paid monthly.
After fee waivers and expense reimbursements, Spirit Management received a fee
of 0.65% of the Fund's average daily net assets for the fiscal year ended Oc-
tober 31, 2001.
Portfolio Manager
Ronald W. Weiss is primarily responsible for the day-to-day management of
the Fund's portfolio. Mr. Weiss has been associated with Spirit Management
since its inception. Mr. Weiss has spent over twenty years in the real estate
finance and investment banking industry, which includes debt and equity fi-
nancing, real estate investment trusts, asset management, new investment prod-
uct development and venture capital transactions for financial services firms.
Most recently, Mr. Weiss was Senior Vice President of Gilford Securities,
Inc., New York, NY from April, 1996 to May, 1997.
PRICING FUND SHARES
Portfolio securities are valued and net asset value ("NAV") per share of
each Class of the Fund is calculated as of the close of regular trading on the
New York Stock Exchange ("NYSE"), currently 4:00 p.m. (Eastern Time) on each
day the NYSE is open for trading. The NYSE is closed on the following holidays
or days on which the following holidays are observed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day.
The procedure for determining the NAV is identical for each Class, but due
to the specific distribution expenses and other costs allocable to each Class,
the NAV of each Class will vary. Class A Shares are purchased at the offering
price per share (which includes a sales load), while Class B Shares are pur-
chased at the NAV per share.
The NAV for each Class of shares is computed by adding, with respect to
each Class of shares, the value of the Fund's investments, cash and other as-
sets attributable to that Class, deducting liabilities of the Class and divid-
ing the result by the number of shares of that Class outstanding. Expenses are
accrued daily and applied when determining the NAV of each class. The Fund's
equity securities are valued based on the last reported sales price on the
principal exchange on which the security trades, or if no sales price is re-
ported, the mean of the latest bid and asked prices is used. Securities traded
over-the-counter are priced at the mean of the latest bid and asked prices.
Short-term investments having a maturity of 60 days or less are valued at
amortized cost, which the Board of Directors believes represents fair value.
When a security is valued at amortized cost, it is valued at its cost
8
when purchased, and thereafter by assuming a constant amortization to maturity
of any discount or premium, regardless of the impact of fluctuating interest
rates on the market value of the instrument. All other securities and other
assets are valued at their fair value as determined in good faith under proce-
dures established by and under the supervision of the Board of Directors.
HOW TO PURCHASE SHARES
General
You can purchase shares of the Fund through broker-dealers that have exe-
cuted a selling agreement with the Fund's distributor, SSH Securities, Inc.
(the "Distributor"). Class A shares are sold at the NAV next determined after
receipt by the Fund's transfer agent, PFPC Inc. (the "Transfer Agent"), plus
an initial maximum sales charge of up to 5.25% of the offering price (5.54% of
the net amount invested) reduced on investments of $100,000 or more. Class B
shares are sold without a sales charge at the current NAV, but a Contingent
Deferred Sales Charge ("CDSC") may be imposed at the time of redemption. The
minimum initial investment for Class A shares and Class B shares is $500. See
"Distribution Arrangements."
Purchase orders for shares of the Fund that are received by the Transfer
Agent in proper form by the close of the NYSE, on any day that the NYSE is
open for trading, will be purchased at the Fund's next determined NAV (plus
any applicable sales charge). Orders for Fund shares received after 4:00 p.m.
Eastern Time will be purchased at the NAV (plus any applicable sales charge)
determined on the following business day.
The Fund and the Transfer Agent each reserve the right to reject any pur-
chase order in whole or in part. The Fund reserves the right to suspend the
offering of its shares. The Fund also reserves the right to vary the initial
and subsequent investment minimums, or to waive the minimum investment re-
quirements for any investor. The Fund will not accept checks endorsed by a
third party as payment for purchase orders.
When you sign your account application, you will be asked to certify that
your Social Security or taxpayer identification number is correct and that you
are not subject to 30% backup withholding for failing to report income to the
Internal Revenue Service ("IRS"). If you violate IRS regulations, the IRS can
require the Fund to withhold 30% of your taxable distributions and redemp-
tions.
Purchases by Mail
Shares may be purchased initially by completing the account application ac-
companying this Prospectus and mailing it to the Transfer Agent, together with
a check payable to "Spirit of America Investment Fund, Inc." The check or
money order and account application should be mailed to PFPC Inc., 211 South
Gulph Rd., P.O. Box 61767, King of Prussia, PA 19406. If this is an initial
purchase, please send a minimum of $500 (including IRA and SEP accounts).
Purchases by Wire
To invest by wire, you must first telephone the Transfer Agent at (800)
452-4892 to receive an account number. Your name, account number, taxpayer
identification number or social security number and address must be specified
in the wire. In addition, an account application should be promptly forwarded
to: PFPC Inc., 211 South Gulph Rd., P.O. Box 61767, King of Prussia, PA 19406.
If you have a commercial bank account at a member firm of the Federal Re-
serve System, you may purchase shares of the Fund by requesting your bank to
transmit funds by wire to: Boston Safe Deposit & Trust, ABA# 011001234, Cred-
it: Spirit of America Investment Fund, Inc., Acct#: 182095, FBO: (Insert name
and your account number).
9
You may make additional investments at any time through the wire procedures
described above, which must include your name and account number. Your bank
may impose a fee for investments by wire. The Fund will not be responsible for
the consequences of delays, including delays in the banking or Federal Reserve
wire systems. You may be subject to 30% withholding if the Fund does not have
complete, correct taxpayer information on file as required by law.
Purchases through Broker-Dealers
The Fund may accept telephone orders only from broker-dealers or financial
intermediaries that have been approved by the Fund. The broker-dealers or fi-
nancial intermediaries must promptly forward purchase orders and payments for
the same to the Fund. Brokers or financial intermediaries through which an in-
vestor purchases shares of the Fund may charge the shareholder a transaction
fee or other fee for their services at the time of purchase. Minimum invest-
ments through broker/dealers or accounts opened through a mutual fund network
may apply.
For any order to be confirmed at the current day's offering price, it must
be received by the Transfer Agent or the selling dealer by 4:00 p.m. Eastern
Time on the same day. For any dealer order to be confirmed at the current
day's offering price, it not only must be received by the dealer prior to 4:00
p.m. Eastern Time on that day, but it must be communicated to the Transfer
Agent by 5:00 p.m. Eastern Time on that day. It is the responsibility of the
dealer to communicate the details of the order to the Transfer Agent. Orders
received by dealers after 4:00 p.m. Eastern Time are confirmed at the offering
price on the following business day.
Purchases by Telephone
The Fund only accepts telephone purchases from brokers or financial inter-
mediaries. Individuals may not make purchases by telephone.
Subsequent Investments
You may make subsequent purchases by mail, bank wire, automatic investing
or direct deposit. The minimum for subsequent investments for each Class of
shares is $50 for all accounts.
When making subsequent investments by mail, please return the bottom por-
tion of a previous confirmation with your investment in the envelope that is
provided with each confirmation statement. Your check should be made payable
to "Spirit of America Investment Fund, Inc." and mailed to PFPC Inc., 211
South Gulph Road, P.O. Box 61767, King of Prussia, PA 19406. Orders to pur-
chase shares are effective on the day the Transfer Agent receives your check
or money order.
All investments must be made in U.S. dollars and, to avoid fees and delays,
checks must be drawn only on banks located in the United States. A charge
(minimum of $20) will be imposed if any check used for the purchase of shares
is returned. Investors who purchase Fund shares by check or money order may
not receive redemption proceeds until there is reasonable belief that the pur-
chase check has cleared, which may take up to eight business days after the
purchase date.
10
DISTRIBUTION ARRANGEMENTS
The Fund offers Class A and Class B shares. The two classes of shares rep-
resent interest in the same portfolio of investments, have the same rights and
are identical in all respects, except Class A shares charge a front-end sales
load and Class B shares bear a higher 12b-1 fee and are subject to a CDSC if
sold within seven years of purchase.
Rule 12b-1 Plans
The Fund has adopted two plans of distribution (each, a "12b-1 Plan") pur-
suant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"1940 Act"). Each Plan permits the Fund to pay the Distributor, from the as-
sets of each respective Class, a monthly fee for the Distributor's services
and expenses in distributing shares of the Fund ("distribution fees") and pro-
viding personal services and/or maintaining shareholder accounts ("service
fees"). Each Class has exclusive voting rights with respect to its 12b-1 Plan.
Since 12b-1 fees are paid out of the assets of each respective Class on an on-
going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Class A Shares
The offering price for Class A shares includes a front-end sales charge.
The maximum sales charge is 5.25% of the offering price (5.54% of the net
amount invested) and is reduced on investments of $100,000 or more. Class A
shares are subject to annual 12b-1 fees of up to a maximum of 0.30% of average
daily net assets of such class in any year. Certain purchases of Class A
shares qualify for reduced front-end sales charges.
Class B Shares
Class B shares are offered without a front-end sales charge, but are sub-
ject to a CDSC if the shares are redeemed within seven years of purchase.
Class B shares are subject to annual 12b-1 fees of up to a maximum of 1.00%
(0.25% of which are service fees) of average daily net assets of such class in
any year for approximately eight years after purchase. Class B shares permit
all of your investment to work from the time the investment is made.
The Class B shares are designed to permit you to purchase shares without
the assessment of a front-end sales load and, at the same time, permit the
Distributor to compensate authorized dealers with respect to such shares. In
this regard, the purpose and function of the CDSC and Rule 12b-1 fee is to
provide for the financing of the distribution of Class B shares. Higher 12b-1
fees paid by Class B shares will result in a higher expense ratio and lower
dividends than Class A shares.
At the end of approximately eight years after purchase, the Class B shares
will automatically be converted into Class A Shares and, thereafter, for the
remainder of the life of the investment, the annual 12b-1 Plan fee of 0.30%
for Class A Shares will apply. See "Automatic Conversion of Class B Shares."
Factors to Consider in Choosing a Class of Shares
You should determine whether it is more advantageous for you to purchase
Class A shares and incur a front-end sales charge or purchase Class B Shares
and have your entire purchase invested in the Fund, subject to a CDSC if you
redeem shares within seven years of purchase. In addition, you should consider
the level of annual 12b-1 Plan expenses applicable to each Class. The higher
12b-1 Plan expenses on Class B Shares will be offset to the extent a return is
realized on the additional money initially invested upon the purchase of such
shares. However, there can be no assurance as to the return, if any, that will
be realized on such additional money.
11
Sale of Class A Shares
The sales charge you pay for Class A shares depends on the dollar amount
invested, as shown in the table below.
[Download Table]
Total Sales Charge as a Percentage
of
----------------------------------
Offering Price Net Amount Invested
-------------- -------------------
Under $100,000........................ 5.25% 5.54%
$100,000 but less than $250,000....... 4.50% 4.71%
$250,000 but less than $500,000....... 3.75% 3.89%
$500,000 but less than $1,000,000..... 3.00% 3.09%
$1,000,000 or more*................... 0% 0%
--------
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments, the Fund imposes a CDSC of
1.00% in the event of certain redemptions within one year of the purchase.
The CDSC incurred upon redemption is paid to the Distributor in reimburse-
ment for distribution-related expenses. A commission will be paid to autho-
rized dealers who initiate and are responsible for purchases of $1 million
or more.
The Distributor will pay a dealer concession to those selected dealers who
have entered into an agreement with the Distributor. The dealer's concession
may be changed from time to time. The Distributor may, from time to time, of-
fer incentive compensation to dealers which sell shares of the Fund subject to
sales charges, allowing such dealers to retain an additional portion of the
sales load. On some occasions, such cash or incentives will be conditioned
upon the sale of a specified minimum dollar amount of the shares of the Fund
during a specified period of time. A dealer who receives all or substantially
all of the sales load may be considered an "underwriter" under the Securities
Act of 1933, as amended. All such sales charges are paid to the securities
dealer involved in the trade, if any. No sales charge is assessed on the rein-
vestment of dividends or distributions.
Reduced Sales Charges
The sales charge for purchases of Class A Shares may be reduced through
rights of accumulation or letter of intent. To qualify for a reduced sales
charge, you must so notify the Transfer Agent at the time of each purchase of
shares which qualifies for the reduction.
Rights of Accumulation. If you already own Class A shares, reduced sales
charges for Class A shares are applicable to subsequent purchases. The sales
charge on each additional purchase is determined by adding the current market
value of the shares currently owned to the amount being invested. The reduced
sales charge is applicable only to current purchases. You must notify the
Transfer Agent at the time of subsequent purchase that your purchase is eligi-
ble for the right of accumulation. You must also state your account number,
and whether the account is held in the name of your spouse or minor children,
the age of such children, and the specific relationship of each such person to
you.
Letter of Intent. Letter of Intent. Class A investors may qualify for a re-
duced sales charge immediately by signing a non-binding letter of intent stat-
ing the intent to invest during the next 13 months a specified amount which,
if made at one time, would qualify for a reduced sales charge. The first in-
vestment cannot be made more than 90 days prior to the date of the letter of
intent. Any redemptions made during the 13-month period will be subtracted
from the amount of purchases in determining whether the letter of intent has
been completed. During the term of the letter of intent, the Transfer Agent
will hold shares representing 5% of the indicated amount in escrow for payment
of a higher sales load if the full amount indicated in the letter of intent is
not purchased. The escrowed shares will be released when the full amount has
been purchased. If the full amount is not purchased
12
within the 13-month period, escrowed shares will be redeemed in an amount
equal to the difference in the dollar amount of sales charge actually paid and
the amount of sales charge that would have been paid on total aggregate pur-
chases if such purchases had been made at a single time. You must notify the
Transfer Agent at the time you submit the letter of intent that prior pur-
chases may apply.
Sales at Net Asset Value
The Fund may sell Class A shares at NAV (i.e., without any initial sales
charge) to certain investors, including: (i) investment advisory clients of
Spirit Management or its affiliates; (ii) (a) officers and present or former
directors of the Fund, (b) directors and present and full-time employees of
selected dealers or agents, or the spouse, or minor children of any such per-
son, or any trust, individual retirement account or retirement plan account
for the benefit of any such person or relative, or the estate of any such per-
son or relative, if such shares are purchased for investment purposes (such
shares may not be resold except to the Fund); (iii) Spirit Management, the
Distributor, and their affiliates, and certain employee benefit plans for em-
ployees of Spirit Management and the Distributor; (iv) persons who establish,
to the Distributor's satisfaction, that they are investing, within such time
period as may be designated by the Distributor, proceeds of redemption of
shares of such other registered investment companies as may be designated from
time to time by the Distributor; (v) employer-sponsored qualified pension or
profit-sharing plans (including Section 401(k) plans), custodial accounts
maintained pursuant to Section 403(b)(7) retirement plans and individual re-
tirement accounts (including individual retirement accounts to which simpli-
fied employee pension ("SEP") contributions are made) if such plans or ac-
counts are established or administered under programs sponsored by administra-
tors or other persons that have been approved by the Distributor; and (vi) in-
vestors who redeem shares of the Fund and then decide to reinvest their re-
demption proceeds in additional shares of the Fund within 30 days.
Sale of Class B Shares
Class B shares are sold at NAV, without an initial sales charge, next de-
termined after receipt of an order. The full amount of your purchase is imme-
diately invested in the Fund. A CDSC, however, will be imposed on certain re-
demptions of Class B shares within seven years after purchase. Shares acquired
by reinvestment of distributions and shares held for more than seven years may
be redeemed without charge at any time. To determine the CDSC assessed on any
redemption, the Fund will first redeem shares not subject to a CDSC, second,
shares held for more than seven years, but before the eighth year anniversary
of shares acquired pursuant to reinvestment of dividends or distributions, and
third, shares held longest during this eight-year period. This will result in
your paying the lowest possible CDSC.
The CDSC is calculated by multiplying the lesser of the original purchase
price or the NAV of such shares at the time of redemption by the applicable
percentage shown in the table below. No CDSC will be imposed on amounts repre-
senting increases in NAV above the initial purchase price of the shares iden-
tified for redemption.
[Download Table]
Redemption Percentage of Percentage of Net
Within Offering Price Amount Invested
---------- -------------- -----------------
First Year 5.75% 6.10%
Second Year 5.00% 5.26%
Third Year 4.00% 4.16%
Fourth Year 3.00% 3.09%
Fifth Year 2.00% 2.04%
Sixth Year 2.00% 2.04%
Seventh Year 1.00% 1.01%
Eighth Year 0.00% 0.00%
13
CDSC Waivers
The CDSC is waived on redemptions of Class B shares (i) following the death
or disability (as defined in the Internal Revenue Code) of all registered own-
ers occurring after the purchase of the shares being redeemed, (ii) in connec-
tion with required minimum distributions from an IRA or other retirement plan,
(iii) in connection with returns of excess contributions to an IRA or other
retirement plan, and (iv) effected pursuant to the right of the Fund to liqui-
date a shareholder's account as described under "How to Redeem Shares."
Automatic Conversion of Class B Shares
Class B shares held for eight years after purchase are automatically con-
verted into Class A shares on the eighth anniversary after purchase. The Fund
will effect conversions of Class B shares into Class A shares only four times
in any calendar year, on the fifteenth business day of the months of March,
June, September and December (each, a "Conversion Date"). If the eighth anni-
versary after a purchase of Class B shares falls on a Conversion Date, Class B
shares will be converted on that date. If the eighth anniversary occurs be-
tween Conversion Dates, Class B shares will be converted on the next Conver-
sion Date after such anniversary.
The Class A shares into which the Class B shares will convert are subject
to ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30% of average
daily net assets of such shares.
The automatic conversion of Class B shares constitutes a tax-free exchange
for federal income tax purposes.
HOW TO REDEEM SHARES
You may redeem your shares of the Fund on any business day that the NYSE is
open for business. Redemptions will be effective at NAV (subject to any appli-
cable CDSC fees) next determined after receipt by the Transfer Agent of a re-
demption request meeting the requirements described below.
Redemption by Mail
You may redeem shares by submitting a written request for redemption to
PFPC Inc., 211 South Gulph Rd., P.O. Box 61767, King of Prussia, PA 19406. A
written redemption request must: (i) identify your account name and account
number; (ii) state the number of shares or dollar amount to be redeemed; and
(iii) be signed by each registered owner exactly as the shares are registered.
To prevent fraudulent redemptions, a signature guarantee for the signature of
each person in whose name an account is registered is required for all written
redemption requests exceeding $10,000, or where proceeds are to be mailed to
an address other than the address of record. When the Fund requires a signa-
ture guarantee you must provide a medallion signature guarantee. A medallion
signature guarantee may be obtained from a domestic bank or trust company,
broker, dealer, clearing agency, savings association, or other financial in-
stitution which is participating in a medallion program recognized by the Se-
curities Transfer Association. The three recognized medallion programs are Se-
curities Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) and New York Stock Exchange, Inc. medallion Signature Program
(NYSE MSP). Signature guarantees from financial institutions which are not
participating in one of these programs will not be accepted. Notary public en-
dorsements will not be accepted. The Transfer Agent may require additional
supporting documents for redemptions made by corporations, executors, adminis-
trators, trustees or guardians and retirement plans.
A redemption request will not be considered received until the Transfer
Agent receives all required documents in proper form. Questions with respect
to the proper form for redemption requests should be directed to the Transfer
Agent at (800) 452-4892.
14
Redemption by Telephone
With prior authorization, you may redeem shares by calling the Transfer
Agent at (800) 452-4892 during normal business hours. To arrange for redemp-
tion by wire or telephone after your account has been opened, or to change the
bank or account designated to receive redemption proceeds, send a written re-
quest with a signature guarantee (as described above) to the Transfer Agent.
The Fund reserves the right to refuse a wire or telephone redemption if it
believes it is advisable to do so. Procedures for redeeming Fund shares by
wire or telephone may be modified or terminated at any time.
During periods of unusual economic or market changes, telephone redemptions
may be difficult to implement. In such event, you should follow the procedures
for redemption by mail.
Neither the Fund nor any of its service contractors will be liable for any
loss or expense in acting upon telephone instructions that are reasonably be-
lieved to be genuine. In this regard, the Fund and the Transfer Agent require
personal identification information before accepting a telephone redemption.
To the extent that the Fund or the Transfer Agent fails to use reasonable pro-
cedures to verify the genuineness of telephone instructions, the Fund may be
liable for losses due to fraudulent or unauthorized instructions. The Fund re-
serves the right to refuse a telephone redemption if it is believed advisable
to do so. Written confirmation will be provided for all redemption transac-
tions initiated by telephone. Proceeds from a telephone redemption shall be
sent only to the shareholder's address of record or wired to the shareholder's
bank account on file with the Transfer Agent.
General Redemption Information
When a request for redemption is made shortly after the purchase of shares
by check, you will not receive the redemption proceeds until the check(s) for
the shares purchased has cleared.
Although the redemption proceeds may be delayed, the redemption request
will be processed at the NAV next determined after receipt of the redemption
request in good order. The Fund will mail the redemption proceeds as soon as
the purchase check clears, which may take up to eight business days. You may
avoid such delays by purchasing shares by federal funds wire.
Redemption proceeds may be wired directly to any bank previously designated
on your new account application. There is a $15.00 charge for redemptions made
by wire to domestic banks. Wires to foreign or overseas banks may be charged
at higher rates. Banks may impose a fee for wire services. In addition, there
may be fees for redemptions made through brokers, financial institutions and
service organizations. If you execute your redemption order through an inter-
mediary, you may be subject to additional charges.
The Fund will satisfy redemption requests for cash to the fullest extent
feasible, as long as such payments would not, in the opinion of the Board of
Directors, result in the need for the Fund to sell assets under disadvanta-
geous conditions or to the detriment of the remaining shareholders of the
Fund. The Fund has reserved the right to redeem in-kind, or partly in cash and
partly in-kind.
The Fund has elected, pursuant to Rule 18f-1 under the 1940 Act to redeem
its shares solely in cash up to the lesser of $250,000 or 1% of the NAV of the
Fund, during any 90-day period for any one shareholder. Any portfolio securi-
ties paid or distributed in-kind would be in readily marketable securities and
valued in the manner described above. See "Pricing Fund Shares." In the event
that an in-kind distribution is made, you may incur additional expenses, such
as brokerage commissions, on the sale or other disposition of the securities
received from the Fund. In-kind payments need not constitute a cross-section
of the Fund's portfolio.
The Fund may suspend the right of redemption or postpone the date of pay-
ment for more than seven days during any period when (i) trading on the NYSE
is restricted or the NYSE is closed for other than customary
15
weekends and holidays, (ii) the SEC has by order permitted such suspension for
the protection of the Fund's shareholders, or (iii) an emergency exists making
disposal of portfolio securities or valuation of net assets of the Fund not
reasonably practicable.
Minimum Balances
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to involuntarily redeem shares in any account at their then
current NAV if at any time the account balance is less than $500 as a result
of shareholder redemptions, but not market fluctuations. You will be notified
in writing if the value of your account is less than the required minimum, and
will be allowed at least 60 days to bring the value of your account up to the
minimum before the redemption is processed. No CDSC will be imposed on any in-
voluntary redemption.
SPECIAL SERVICES
Automatic Investment Plan
You can make additional purchases of shares of the Fund through an auto-
matic investment plan. The automatic investment plan provides a convenient
method by which investors may have monies deducted directly from their bank
account for investment in the Fund. You may authorize the automatic withdrawal
of funds from your bank account by opening an account with a minimum of $500
and completing the automatic investment plan section of the account applica-
tion enclosed with this Prospectus. Subsequent monthly investments are subject
to a minimum required amount of $50. The Fund may alter, modify or terminate
this plan at any time.
Systematic Cash Withdrawal Plan
The Fund offers a systematic cash withdrawal plan as another option by
which to withdraw funds from your account on a regular basis. To participate
in this option, you must either own or purchase shares having a value of
$10,000 or more. Automatic payments by check will be mailed to you on either a
monthly, quarterly, semi-annual or annual basis in amounts of $50 or more. All
withdrawals are processed on the 25th of the month or, if such day is not a
business day, on the next business day and paid promptly thereafter. The sys-
tematic withdrawal plan is not available for Class B shares. For information
about starting a systematic cash withdrawal plan, call the Transfer Agent at
(800) 452-4892.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
The Fund intends to distribute substantially all of its net investment in-
come and capital gains to shareholders each year. Normally, dividends will be
paid quarterly. Capital gains, if any, will be distributed annually in Decem-
ber, but may be distributed more frequently if deemed advisable by the Board
of Directors. All such dividends and distributions are taxable to the share-
holder whether received in cash or reinvested in shares. The Fund will dis-
tribute the return of capital it receives from the REITs in which the Fund in-
vests. The REITs pay distributions based on cash flow, without regard to de-
preciation and amortization. As a result, a portion of the distributions paid
to the Fund and subsequently distributed to shareholders is a return of capi-
tal. The final determination of the amount of the Fund's return of capital
distributions for the period will be made after the end of each calendar year.
Dividends paid by the Fund with respect to its Class A shares and Class B
shares are calculated in the same manner and at the same time. Both Class A
shares and Class B shares will share proportionately in the investment
16
income and expenses of the Fund, except that the per share dividends of Class
B shares will differ from the per share dividends of Class A shares as a re-
sult of additional distribution expenses applicable to Class B shares.
Each income dividend and capital gains distribution, if any, declared by
the Fund on its outstanding shares will be paid in additional shares of the
Fund having an aggregate net asset value as of the payment date of such divi-
dend or distribution equal to the cash amount of such income dividend or dis-
tribution, unless payment in cash is specified by the shareholder by written
request to the Fund. Election to receive income dividends and distributions in
cash may be made at the time shares are initially purchased or may be changed
at any time prior to the record date for a particular dividend or distribu-
tion. There is no sales or other charge in connection with the reinvestment of
dividends and capital gains distributions.
If you buy shares just before the Fund deducts a distribution from its net
asset value, you will pay the full price for the shares and then receive a
portion of the price back as a taxable distribution.
Any check tendered in payment of dividends or other distributions which
cannot be delivered by the post office or which remains uncashed for a period
of more than one year may be reinvested in the shareholder's account at the
then current net asset value, and the dividend option may be changed from cash
to reinvest.
U.S. Federal Income Taxes
Dividends representing net investment income and distributions of net
short-term capital gains are taxable as ordinary income. The excess of net
capital gains over the net capital losses realized and distributed by the Fund
to its shareholders as capital gains distributions is expected to be taxable
to the shareholders as long-term capital gains, regardless of the length of
time a shareholder may have held his or her shares of the Fund.
Distributions received by a shareholder may include nontaxable returns of
capital, which will reduce a shareholder's basis in shares of the Fund. If
that basis is reduced to zero (which could happen if the shareholder does not
reinvest distributions and returns of capital are significant) any further re-
turns of capital will be taxable as a capital gain.
A distribution will be treated as paid on December 31 of the current calen-
dar year if it is declared in October, November or December with a record date
in such a month and paid during January of the following calendar year. Any
dividend or distribution received by a shareholder on shares of the Fund will
have the effect of reducing the net asset value of such shares by the amount
of such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect
a return of capital to that particular shareholder, would be taxable to him or
her as described above. If a shareholder held shares six months or less and
during that period received a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such shares during
such six-month period would be a long-term capital loss to the extent of such
distribution.
A dividend or capital gains distribution with respect to shares of the Fund
held by a tax-deferred or qualified plan, such as an individual retirement ac-
count, 403(b)(7) retirement plan or corporate pension or profit-sharing plan,
will not be taxable to the plan. Distributions from such plans will be taxable
to individual participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
The Fund will be required to withhold 30% of any payments made to a share-
holder if the shareholder has not provided a certified taxpayer identification
number to the Fund or if the shareholder is otherwise subject to backup with-
holding.
17
Shareholders will be advised annually as to the federal tax status of income
dividends and capital gains and return of capital distributions made by the
Fund for the preceding year. Distributions by the Fund may be subject to state
and local taxes. Shareholders are urged to consult their tax advisers regarding
their own tax situation.
18
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
Fund's financial performance for the periods indicated. Certain information
reflects results for a single Fund share. The total returns in the table rep-
resent the rate that an investor would have earned or lost on an investment in
the Fund, assuming reinvestment of all dividends and distributions. This re-
port has been audited by Tait, Weller & Baker, whose report, along with the
Fund's financial statements, are included in the annual report, which is
available upon request.
[Enlarge/Download Table]
Class A Class A Class A Class A
------------ ------------ ------------ --------------
For the Year For the Year For the Year
Ended Ended Ended For the Period
October 31, October 31, October 31, Ended October
2001 2000 1999 31, 1998*
------------ ------------ ------------ --------------
Net Asset Value,
Beginning of Period.... $ 7.41 $ 7.48 $ 8.66 $10.00
-------- -------- ------- ------
Income from Investment
Operations:
Net investment
income............... 0.31 0.45 0.49 0.20
Net realized and
unrealized
gain/(loss) on
investments.......... 1.63 0.15 (1.02) (1.38)
Total from
investment
operations......... 1.94 0.60 (0.53) (1.18)
-------- -------- ------- ------
Less Distributions:
Distributions from net
investment income.... (0.31) (0.45) (0.53) (0.16)
Distributions from
return of capital.... (0.20) (0.22) (0.12) 0.00
-------- -------- ------- ------
Total
distributions...... (0.51) (0.67) (0.65) (0.16)
Net Asset Value, End of
Period................. $ 8.84 $ 7.41 $ 7.48 $ 8.66
======== ======== ======= ======
Total Return............ 26.40%(2) 8.33%(2) (6.38%)(2) (11.78%)(1)
Ratios/Supplemental Data
Net assets, end of pe-
riod (000)............. $48, 016 $10, 936 $11,225 $7,290
Ratio of expenses to
average net assets:
Before expense
reimbursement(2)..... 2.29% 3.73% 3.35% 6.33%
After expense
reimbursement(2)..... 1.97% 1.97% 1.97% 1.97%
Ratio of net investment
income (loss) to
average net assets:
Before expense
reimbursement(2)..... 4.12% 4.29% 4.17% (0.62%)
After expense
reimbursement(2)..... 4.44% 6.05% 5.55% 3.75%
Portfolio turnover...... 12.04% 21.55% 8.15% 0.00%
--------
* Class A Shares commenced investment operations on January 9, 1998.
(1) Calculation does not reflect sales load and is not annualized.
(2) Calculation does not reflect sales load.
19
[Download Table]
Class B Class B Class B Class B
------------ ------------ ------------ --------------
For the Year For the Year For the Year
Ended Ended Ended For the Period
October 31, October 31, October 31, Ended October
2001 2000 1999 31, 1998*
------------ ------------ ------------ --------------
Net Asset Value,
Beginning of Period.... $ 7.53 $ 7.51 $ 8.64 $9.62
------ ------ ------ -----
Income from Investment
Operations:
Net investment
income............... 0.28 0.40 0.40 0.15
Net realized and
unrealized
gain/(loss) on
investments.......... 1.63 0.16 (0.99) (1.00)
Total from
investment
operations......... 1.91 0.56 (0.59) (0.85)
------ ------ ------ -----
Less Distributions:
Distributions from net
investment income.... (0.28) (0.40) (0.42) (0.13)
Distributions from
return of capital.... (0.18) (0.14) (0.12) 0.00
Total
distributions...... (0.46) (0.54) (0.54) (0.13)
------ ------ ------ -----
Net Asset Value, End of
Period................. $ 8.98 $ 7.53 $ 7.51 $8.64
====== ====== ====== =====
Total Return............ 25.56%(2) 7.72%(2) (7.09%)(2) (8.84%)(1)
Ratios/Supplemental Data
Net assets, end of
period (000)........... $6,254 $2,560 $2,645 $ 669
Ratio of expenses to
average net assets:
Before expense
reimbursement(2)..... 2.99% 4.43% 4.05% 7.03%
After expense
reimbursement(2)..... 2.67% 2.67% 2.67% 2.67%
Ratio of net investment
income (loss) to
average net assets:
Before expense
reimbursement(2)..... 4.72% 3.59% 3.47% (1.32%)
After expense
reimbursement(2)..... 5.04% 5.35% 4.85% 3.05%
Portfolio turnover...... 12.04% 21.55% 8.15% 0.00%
--------
* Class B Shares commenced investment operations on March 6, 1998.
(1) Calculation does not reflect CDSC charges and is not annualized.
(2) Calculation does not reflect CDSC charges.
20
The following notice does not constitute part of and is not
incorporated into the prospectus of the Fund.
DAVID LERNER ASSOCIATES, INC.
Privacy Policy Statement
David Lerner Associates, Inc. is committed to keeping nonpublic personal
information about you secure and confidential. This notice is intended to help
you understand how we fulfill this commitment.
From time to time, we may collect a variety of personal information about
you, including:
. Information we receive from you on applications or other forms or via
telephone calls with you;
. Information about your transactions with us (such as your purchases,
sales, or account balances); or
. Information we receive from consumer reporting agencies.
We do not disclose your nonpublic personal information to any non-affili-
ated third parties, except as permitted by applicable law or regulation. For
example, we may share this information with others in order to process your
transactions. We may also provide all of the above information to companies
that perform marketing or administrative services on our behalf, such as
printing and mailing, or to other financial institutions with whom we have
joint marketing agreements. We will require these companies to protect the
confidentiality of this information and to use it only to perform the services
for which we hired them.
With respect to our internal security procedures, we maintain physical,
electronic, and procedural safeguards to protect your nonpublic personal in-
formation, and we restrict access to this information.
If you decide at some point either to close your account(s) or become an
inactive customer, we will continue to adhere to our privacy policies and
practices with respect to your non-public personal information.
This notice also applies to the following entities that may be deemed to be
affiliated with David Lerner Associates, Inc.:
SSH Securities, Inc.
Spirit of America Investment Fund, Inc.
21
Investment Adviser Custodian
Spirit of America Management, Inc. The Bank of New York
477 Jericho Turnpike 48 Wall Street
Syosset, NY 11791 New York, New York 10286
(516) 390-5575
Distributor Auditors
SSH Securities, Inc. Tait Weller & Baker
477 Jericho Turnpike 8 Penn Center Plaza, Suite 800
Syosset, NY 11791 Philadelphia, PA 19103
(516) 390-5565
Shareholder Services
PFPC Inc.
211 South Gulph Rd., P.O. Box 61617
King of Prussia, PA 19406
(800) 452-4892
Additional information about the Fund is contained in the Statement of Ad-
ditional Information (the "SAI"). The SAI is incorporated by reference into
this Prospectus.
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its last
fiscal year.
To obtain an SAI, annual report or semi-annual report for the Fund without
charge, or request other information or make shareholder inquiries call col-
lect 516-390-5555.
The Fund's reports and SAI can be reviewed and copied at the Public
Reference Room of the Securities and Exchange Commission (the "SEC") in
Washington, D.C. Information on the operation of the Public Reference Room is
available from the SEC by calling 202-942-8090. The reports and other
information are available on the EDGAR Database on the SEC's internet site at
http://www.sec.gov. Copies of this information can be obtained, after paying a
duplicating fee, by electronic request at the following E-mail address:
publicinfo@sec.gov, or by writing the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
Investment Company File No. 811-8231
[LOGO] SPIRIT OF AMERICA
Prospectus
February 28, 2002
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
SPIRIT OF AMERICA INVESTMENT FUND, INC
477 Jericho Turnpike
Syosset, New York 11791
STATEMENT OF ADDITIONAL INFORMATION
February 28, 2002
This Statement of Additional Information is not a prospectus but supplements and
should be read in conjunction with the current Prospectus for the Spirit of
America Investment Fund, Inc. (the "Fund") dated February 28, 2002. No
investment in shares should be made without first reading the Prospectus. A
copy of the Prospectus may be obtained without charge by contacting the Fund's
Distributor, SSH Securities, Inc.(the "Distributor"), 477 Jericho Turnpike,
Syosset, New York 11791, or calling collect 516-390-5565.
The Fund's most recent annual and semi-annual reports to shareholders are
separate documents that are incorporated by reference into this Statement of
Additional Information. The annual and semi-annual reports are also available
without charge by calling collect 516-390-5565.
TABLE OF CONTENTS
[Enlarge/Download Table]
Page
Fund History............................................................................ 2
Investment Strategies, Policies and Related Risks....................................... 2
Management of the Fund.................................................................. 7
Control Persons and Principal Holders of Securities..................................... 12
Investment Advisory and Other Services.................................................. 13
Shareholder Services.................................................................... 16
Retirement Plans........................................................................ 17
Net Asset Value......................................................................... 19
Dividends, Distributions and Taxes...................................................... 19
Brokerage and Portfolio Transactions.................................................... 21
Performance Information................................................................. 22
Capital Stock........................................................................... 23
Financial Statements.................................................................... 24
FUND HISTORY
The Fund, a Maryland corporation organized on May 15, 1997, is a diversified,
open-end management investment company. The Fund offers two classes of shares:
Class A shares and Class B shares.
INVESTMENT STRATEGIES,
POLICIES AND RELATED RISKS
The following supplements the information contained in the Prospectus concerning
a description of securities and investment practices of the Fund. You should
read it together with the section in the Prospectus entitled "Investment
Objectives, Principal Investment Strategies, and Related Risks."
The investment practices described below are not fundamental and may be changed
by the Board of Directors without the approval of the Fund's shareholders.
Shareholders will, however, be given contemporaneous written notification of any
changes in the investment policies. As a fundamental policy, the Fund, under
normal circumstances, intends to invest at least 60% of its total assets in
equity securities of real estate investment trusts ("REIT's") and other real
estate industry companies.
Convertible Securities
Although the Fund has no current intention of purchasing convertible securities,
the Fund may invest up to 15% of its total assets in convertible securities of
issuers whose common stocks are eligible for purchase by the Fund. Convertible
securities are instruments that are convertible at a stated exchange rate into
common stock. Prior to their conversion, convertible securities have the same
general characteristics as nonconvertible securities which provide a stable
stream of income with generally higher yields than those of equity securities of
the same or similar issuers. The market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline.
Convertible securities rank senior to common stocks in an issuer's capital
structure. They are consequently of higher quality and entail less risk than the
issuer's common stock, although the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security.
Forward Commitments, When-Issued Securities and Delayed Delivery Transactions
Although the Fund may purchase securities on a when-issued basis, or purchase or
sell securities on a forward commitment basis, or purchase securities on a
delayed delivery basis, the Fund does not have the current intention of doing so
in the foreseeable future. The Fund will normally realize a capital gain or loss
in connection with these transactions.
No forward commitments will be made by the Fund if, as a result, the Fund's
aggregate commitments under such transactions would be more than 15% of the then
current value of the Fund's total assets. The Fund's right to receive or deliver
a security under a forward commitment may be sold prior to the settlement date,
but the Fund will enter into forward commitments only with
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the intention of actually receiving or delivering the securities, as the case
may be. To facilitate such transactions, the Fund's custodian will maintain, in
a segregated account of the Fund, liquid assets having value equal to, or
greater than, any commitments to purchase securities on a forward commitment
basis and, with respect to forward commitments to sell portfolio securities of
the Fund, the portfolio securities themselves. If the Fund, however, chooses to
dispose of the right to receive or deliver a security subject to a forward
commitment prior to the settlement date of the transaction, it may incur a gain
or loss. In the event the other party to a forward commitment transaction were
to default, the Fund might lose the opportunity to invest money at favorable
rates or to dispose of securities at favorable prices.
Standby Commitment Agreements
Although the Fund has no current intention of entering into standby commitments,
the Fund may purchase a security subject to a standby commitment agreement. The
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment fee.
In the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment. The Fund will at all
times maintain a segregated account with its custodian of liquid assets in an
aggregate amount equal to the purchase price of the securities underlying the
commitment.
There can be no assurance that the securities subject to a standby commitment
will be issued and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the Fund will bear the
risk of capital loss in the event the value of the security declines and may not
benefit from an appreciation in the value of the security during the commitment
period if the issuer decides not to issue and sell the security to the Fund.
Short Sales
The Fund may attempt to limit exposure to a possible decline in the market value
of portfolio securities through short sales of securities which Spirit of
America Management, Inc. (the "Adviser") believes possess volatility
characteristics similar to those being hedged. The Fund also may use short sales
in an attempt to realize gain. To effect a short sale, the Fund borrows a
security from a brokerage firm to make delivery to the buyer. The Fund is then
obligated to replace the borrowed security by purchasing it at the market price
at the time of replacement. No short sale will be effected which will, at the
time of making such short sale transaction, cause the aggregate market value of
all securities sold short to exceed 15% of the value of the Fund's net assets.
To secure the Fund's obligation to replace any borrowed security, it will place
in a segregated account, an amount of cash or U.S. Government securities equal
to the difference between the market value of the securities sold short at the
time of the short sale, and any cash or U.S. Government securities originally
deposited with the broker in connection with the short sale (excluding the
proceeds of the short sale). The Fund will thereafter maintain daily the
segregated amount at such a level that the amount deposited in it plus the
amount originally deposited with the
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broker as collateral will equal the greater of the current market value of the
securities sold short, or the market value of the securities at the time they
were sold short.
A short position may be adversely affected by imperfect correlation between
movements in the price of the security sold short and the securities being
hedged. The Fund will realize a gain on the security sold short if the security
declines in price between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will incur a loss if the price of
the security increases between those dates. The amount of any gain will be
decreased, and the amount of the loss increased, by the amount of any premium or
interest the Fund may be required to pay in connection with a short sale.
Repurchase Agreements
The Fund may enter into repurchase agreements pertaining to U.S. Government
Securities with member banks of the Federal Reserve System or Primary dealers
(as designated by the Federal Reserve Bank of New York) in such securities.
There is no percentage restriction on the Fund's ability to enter into
repurchase agreements. Currently, the Fund intends to enter into repurchase
agreements only with its custodian and such primary dealers. A repurchase
agreement arises when a buyer purchases a security and simultaneously agrees to
resell it to the vendor at an agreed-upon future date, normally one day or a few
days later. The resale price is greater than the purchase price, reflecting an
agreed-upon interest rate which is effective for the period of time the buyer's
money is invested in the security and which is related to the current market
rate rather than the coupon rate on the purchased security. This results in a
fixed rate of return insulated from market fluctuations during such period. Such
agreements permit the Fund to keep all of its assets at work while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. The
Fund requires continual maintenance by its custodian for its account in the
Federal Reserve/Treasury Book Entry System of collateral in an amount equal to,
or in excess of, the resale price. In the event a vendor defaulted on its
repurchase obligation, the Fund might suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. In
the event of a vendor's bankruptcy, the Fund might be delayed in, or prevented
from, selling the collateral for its benefit. The Fund's Board of Directors has
established procedures, which are periodically reviewed by the Board, pursuant
to which the Adviser monitors the creditworthiness of the dealers with which the
Fund enters into repurchase agreement transactions.
Illiquid Securities
The Fund may invest up to 15% of its net assets in illiquid securities.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days.
-4-
A mutual fund might also have to register such restricted securities in order to
dispose of them, resulting in additional expense and delay. Adverse market
conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain
securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
The Fund may invest in restricted securities issued under Section 4(2) of the
Securities Act, which exempts from registration transactions by an issuer not
involving any public offering. Section 4(2) instruments are restricted in the
sense that they can only be resold through the issuing dealer to institutional
investors and in private transactions; they cannot be resold to the general
public without registration.
Rule 144A under the Securities Act allows a broader institutional trading market
for securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a safe harbor from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. An insufficient number of qualified institutional buyers interested in
purchasing certain restricted securities held by the Fund, however, could affect
adversely the marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable prices.
The Adviser, under the supervision of the Board of Directors, will monitor the
liquidity of restricted securities in the Fund's portfolio. In reaching
liquidity decisions, the Adviser will consider, among other factors, the
following: (1) the frequency of trades and quotes for the security; (2) the
number of dealers making quotations to purchase or sell the security; (3) the
number of other potential purchasers of the security; (4) the number of dealers
undertaking to make a market in the security; (5) the nature of the security
(including its unregistered nature) and the nature of the marketplace for the
security (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer); and (6) any applicable
U.S. Securities and Exchange Commission (the "Commission") interpretation or
position with respect to such type of security.
Rights and Warrants
The Fund has no current intention to invest in rights and warrants, although the
Fund may invest up to 15% of its net assets in rights or warrants only if the
underlying equity securities are themselves deemed appropriate by the Adviser
for inclusion in the Fund's portfolio. Rights and warrants entitle the holder to
buy equity securities at a specific price for a specific period of time. Rights
are similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative than certain other types
of equity investments in that they do not entitle a
-5-
a holder to dividends or voting rights with respect to the underlying securities
nor do they represent any rights in the assets of the issuing company. The value
of rights or warrants does not necessarily change with the value of the
underlying security, although the value of a right or warrant may decline
because of a decrease in the value of the underlying security, the passage of
time or a change in perception as to the potential of the underlying security,
or any combination thereof. If the market price of the underlying security is
below the exercise price set forth in the warrant on the expiration date, the
warrant will expire worthless. Moreover, a right or warrant ceases to have value
if it is not exercised prior to the expiration date.
Portfolio Turnover
It is the Fund's policy to sell any security whenever, in the judgment of the
Adviser, its appreciation possibilities have been substantially realized or the
business or market prospects for such security have deteriorated, irrespective
of the length of time that such security has been held. The Adviser anticipates
that the Fund's annual rate of portfolio turnover will not exceed 100%. A 100%
annual turnover rate would occur if all securities in the Fund's portfolio were
replaced once within a period of one year. For the fiscal year ended October 31,
2001, the Fund had a portfolio turnover of 12.04%.
Temporary Investments. From time to time, the Fund may take temporary defensive
positions that are inconsistent with its principal investment strategies. For
temporary defensive purposes, the Fund may invest up to 100% of its total assets
in short-term, liquid, high-grade debt securities. The Fund will assume a
temporary defensive posture only when economic and other factors adversely
affect the real estate industry market and, in the advisor's opinion, present
extraordinary risks in being invested primarily in real estate securities. When
the Fund maintains a temporary defensive position, it may not achieve its
investment objective.
Fundamental Policies
In addition to the Fund's investment objective, the following fundamental
policies may not be changed without approval by the vote of a majority of the
Fund's outstanding voting securities, which means the affirmative vote of the
holders of (i) 67% or more of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented, or (ii) more than 50% of the
outstanding shares, whichever is less. As a matter of fundamental policy the
Fund may not:
(a) with respect to 75% of its total assets, have such assets represented
by other than: (i) cash and cash items, (ii) U.S. Government
securities, or (iii) securities of any one issuer (other than the U.S.
Government and its agencies or instrumentalities) not greater than 5%
of the Fund's total assets, and not more than 10% of the outstanding
voting securities of such issuer;
(b) purchase the securities of any one issuer, other than the U.S.
Government and its agencies or instrumentalities, if as a result (a)
the value of the holdings of the Fund in the securities of such issuer
exceeds 15% of its total assets, or (b) the Fund owns
-6-
more than 25% of the outstanding securities of any one class of
securities of such issuer;
(c) invest 25% or more of its total assets in the securities of issuers
conducting their principal business activities in any one industry
(other than the real estate industry, in which the Fund will invest at
least 25% or more of its total assets), except that this restriction
does not apply to U.S. Government securities;
(d) purchase or sell real estate, except that it may purchase and sell
securities of companies which deal in real estate or interests
therein, including real estate equity securities;
(e) borrow money except for temporary or emergency purposes or to meet
redemption requests, in an amount not exceeding 5% of the value of its
total assets at the time the borrowing is made;
(f) pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings;
(g) make loans except through (a) the purchase of debt obligations in
accordance with its investment objectives and policies; or (b) the use
of repurchase agreements;
(h) participate on a joint or joint and several basis in any securities
trading account;
(i) invest in companies for the purpose of exercising control;
(j) issue any senior security;
(k) (i) purchase or sell commodities or commodity contracts including
futures contracts; (ii) invest in interests in oil, gas, or other
mineral exploration or development programs; (iii) purchase securities
on margin, except for such short-term credits as may be necessary for
the clearance of transactions; and (iv) act as an underwriter of
securities, except that the Fund may acquire restricted securities
under circumstances in which, if such securities were sold, the Fund
might be deemed to be an underwriter for purposes of the Securities
Act.
MANAGEMENT OF THE FUND
Directors and Officers
The
-7-
Board of Directors has responsibility for the overall management and
operations of the Fund. The Board establishes the Fund's policies and oversees
and reviews the management of the Fund. The Board meets regularly to review the
activities of the officers, who are responsible for day-to-day operations of the
Fund.
Set forth below are the Directors and executive officers of the Fund, their
ages, business addresses, positions and terms of office, their principal
occupations during the past five years, and other directorships held by them.
An asterisk indicates a Director who may be deemed to be an "interested person"
of the Fund (as that term is defined in the Investment Company Act of 1940, as
amended (the "1940 Act")).
-8-
[Enlarge/Download Table]
Number of
Term of Portfolios
Office/1/ in Fund
and Complex
Length Overseen Other
Name, Address and (Age) of Time Principal Occupation(s) During Past Five by Directorships
Position(s) with the Fund Served Years Director Held by Director
----------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS
--------------------
David Lerner* (66) Since 1998 President and founder, David Lerner 1 Director of Spirit
477 Jericho Turnpike Associates, Inc., a registered broker-dealer; of America
Syosset, New York 11791 President, Spirit of America Management Management Corp.,
Corp., the Fund's investment adviser; and the Fund's
Chairman of the Board of Chief Executive Officer and President of SSH investment adviser,
Directors Securities, Inc., the Fund's distributor. and Director of SSH
Securities, Inc.,
the Fund's
distributor.
Daniel Lerner* (41) Since 1998 Senior Vice President, Investment Counselor 1 None
477 Jericho Turnpike with David Lerner Associates, Inc., a
Syosset, New York 11791 registered broker-dealer, since September
2000. Previously: Broker with Prudential
Director Securities from February 2000 to July 2000;
Broker with Bear Stearns from January 1999 to
May 1999; Vice President of SSH Securities,
Inc., the Fund's distributor and Senior Vice
President, Investment Counselor and Assistant
Director of Training for David Lerner
Associates, Inc., from 1984 to 1997.
DISINTERESTED
-------------
DIRECTORS
---------
Allen Kaufman (65) Since 1998 President and Chief Executive Officer of 1 Director of K.G.K.
7600 Jericho Turnpike K.G.K. Agency, Inc., a property and casualty Agency, Inc., a
Woodbury, New York 11797 insurance agency, since 1963. property and
casualty insurance
Director agency.
Thomas P. Reynolds (62) Since 1999 President of Thomas P. Reynolds Securities, 1 Director of Thomas
45 Broadway Ltd., a broker-dealer, since 1979. P. Reynolds
New York, New York 10006 Securities, Ltd., a
broker-dealer.
Director
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[Enlarge/Download Table]
Stanley Thune (66) Since 1998 President and Chief Executive Officer, 1 Director of Freight
31 Brearly Rd. Freight Management Systems, Inc., from Management Systems,
Princeton, New Jersey 08540 January 1994 to present; President and CEO of Inc.
Energy Conservation Management, Inc., from
July 1995 to present.
Director
EXECUTIVE OFFICERS
------------------
David Lerner
(see biography above)
President and Treasurer
Constance Ferreira (52) Since 1998 Chief Operating Officer, David Lerner NA NA
477 Jericho Turnpike Associates, Inc., a registered broker-dealer;
Syosset, New York 11791 Chief Operating Officer of Spirit of America
Management Corp., the Fund's investment
Vice President and Secretary adviser; and Chief Operating Officer and
Chief Financial Officer of SSH Securities,
Inc., the Fund's distributor.
/1/ Each Director serves for an indefinite term, until his successor is elected
* David Lerner is an "interested" Director, as defined in the 1940 Act, by
reason of his position with the Adviser and Daniel Lerner is an "interested"
Director by reason of his position with the Distributor. Daniel Lerner is
the son of David Lerner.
Committees
----------
The Board has an Audit Committee, comprised of Messrs. Kaufman, Reynolds and
Thune. The Audit Committee makes recommendations to the Board of Directors with
respect to the engagement of independent auditors and reviews with the
independent auditors the plan and results of the audit engagement and matters
having a material effect on the Fund's financial operations. During the fiscal
year ended October 31, 2001, there was one meeting of the Audit Committee.
Security and Other Interests
----------------------------
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The following table sets forth the dollar range of equity securities
beneficially owned by each Director in the Fund as of December 31, 2001.
[Enlarge/Download Table]
Aggregate Dollar Range of Equity
Securities in All Registered Investment
Companies Overseen by Director within
Name of Director Dollar Range of Equity Securities in the Fund the Family of Investment Companies
---------------------------------------------------------------------------------------------------------------------------------
David Lerner Over $100,000 Over $100,000
Daniel Lerner $10,001-$50,000 $10,001-$50,000
Allen Kaufman None None
Thomas Reynolds None None
Stanley Thune None None
With respect to the Directors who are not "interested persons" of the Fund as
defined in the 1940 Act, as of December 31, 2001, neither they or any of their
immediate family members owned, beneficially or of record, any securities in the
Adviser or Distributor of the Fund, or any securities in a person (other than a
registered
-11-
investment company) directly or indirectly controlling, controlled by or under
common control with the Adviser or Distributor of the Fund.
Compensation
------------
The table below sets forth the compensation paid to the Directors of the Fund
for the fiscal year ended October 31, 2001. The Fund does not compensate the
officers for the services they provide.
[Enlarge/Download Table]
Pension or Total
Retirement Compensation
Benefits Estimated from Fund and
Aggregate Accrued as Annual Fund Complex
Compensation Part of Fund Benefits Upon Paid to
Name of Director from Fund Expenses Retirement Directors*
--------------------------------------------------------------------------------------------------
David Lerner $ 0 $0 $0 $ 0
Daniel Lerner $ 0 $0 $0 $ 0
Allen Kaufman $2,750 $0 $0 $2,750
Thomas Reynolds $2,500 $0 $0 $2,500
Stanley Thune $2,750 $0 $0 $2,750
* The total amount compensated to the Director for his service on the Fund's
Board and the Board of any other investment company in the fund complex.
Code of Ethics
--------------
The Fund, Adviser and the Distributor have adopted a Code of Ethics under Rule
17j-1 under the 1940 Act. The Code of Ethics restricts the investing activities
of Fund officers and Directors and personnel of the Distributor and Adviser in
an effort to prevent deceptive, manipulative or fraudulent activities in
connection with securities held or to be acquired by the Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
---------------------------------------------------
As of February 1, 2002, the officers and Directors, as a group, owned
beneficially less than 1% of the outstanding voting shares of the Fund's Class A
Shares and Class B Shares.
As of February 1, 2002, no shareholders owned of record or beneficially 5% or
more of the outstanding shares of either Class A, Class B of the Fund.
-12-
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser
Mr. David Lerner is the sole shareholder and director of Spirit of America
Management Corp.(the "Adviser"). Mr. Lerner also is a director, chief executive
officer, and president of SSH Securities, Inc. (the "Distributor"). Mr. Lerner
also is a director, chief executive officer, and president of David Lerner
Associates, Inc., a registered broker-dealer affiliated with the Adviser and
Distributor.
The Fund employs the Adviser to manage the investment and reinvestment of the
assets of the Fund, to determine in its discretion the assets to be held
uninvested, to provide the Fund with records concerning the Adviser's activities
which the Fund is required to maintain, and to render regular reports to the
Fund's officers and Board of Directors concerning the Adviser's discharge of the
foregoing responsibilities. The advisory fee payable by the Fund is 0.97% of the
Fund's average daily net assets. The fee is accrued daily and paid monthly. For
the fiscal years ended October 31, 2001, October 31, 2000 and October 31, 1999,
the Adviser was entitled to receive a fee of $296,004, $115,841 and $117,814,
respectively under the advisory agreement. However, the Adviser waived receipt
of $98,621 of its fees for the fiscal year ended October 31, 2001 and all of its
fees for the fiscal years ended October 31, 2000 and October 31, 1999. The
Adviser has agreed to waive all or a portion of its fee and to reimburse certain
expenses so that the total operating expenses of Class A shares and Class B
shares until February 24, 2003 would not exceed 1.97% and 2.67%, respectively.
In subsequent years, overall expenses for each Fund class may not fall below
1.97% and 2.67% respectively, until the Adviser has been fully reimbursed for
fees forgone or expenses paid. Each Fund class bears its pro rata share of the
fee payable to the Adviser.
The Board approved the continuation of the Investment Advisory Agreement with
the Adviser at its December 12, 2001 Quarterly Meeting. In considering the
continuation of the Agreement, the Board reviewed the Fund's performance in
comparison to relevant market indices and the performance of a peer group of
investment companies pursuing broadly similar strategies. The Board also
considered whether the degree of risk undertaken by the Adviser is consistent
with shareholders' expectations and the Board's comfort level, and whether the
Adviser's management of the Fund has been free of significant compliance
problems. The Board also considered the fairness of the Agreement. In
particular, the Board reviewed the fee structure and profitability of the
Adviser relative to the services provided as well as the standard of care the
Adviser has observed in providing those services
Principal Distributor
SSH Securities, Inc. is located at 477 Jericho Turnpike, Syosset, New York
11791. Mr. David Lerner, director, chief executive officer and president of the
Distributor is also the sole shareholder and director of the Fund's Adviser.
-13-
Distribution Plans
The Fund has adopted a Rule 12b-1 Plan with respect to each class of its shares
(each a "Plan" and, together, the "Plans").
The Plans provide that the Distributor may use its own resources to finance the
distribution of the Fund's shares. These expenses include, among other things,
preparing and distributing advertisements, sales literature, and prospectuses
and reports used for sales purposes, compensating sales and marketing personnel,
holding special promotions for specified periods of time, and paying
distribution and maintenance fees to brokers, dealers and others. The Plan fees
collected from Class B Shares are also used to pay the Distributor for advancing
the commission costs to dealers with respect to the initial sales of such
shares.
The Plans provide that the Distributor will use the distribution fees received
from the Fund in their entirety for payments (i) to compensate broker-dealers or
other persons for providing distribution assistance, (ii) to otherwise promote
the sale of shares of the Fund, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to the Fund's
shareholders. Distribution fees received from the Fund will not be used to pay
any interest expenses, carrying charges or other financing costs or allocation
of overhead of the Distributor. The Plans also provide that the Distributor may
use its own resources to finance the distribution of the Fund's shares.
The Plans are characterized as compensation plans because the distribution and
service fees will be paid to the Distributor without regard to the distribution
or shareholder services expenses incurred by the Distributor or the amount of
payments made to financial institutions and intermediaries.
The Fund is not obligated under the Plans to pay any distribution services fee
in excess of the amounts set forth above. All expenses of distribution and
marketing in excess of the maximum amounts permitted by the Class A Plan and
Class B Plan per annum will be borne by the distributor and any amounts paid for
the above services will be paid pursuant to a servicing or other agreement.
Distribution expenses accrued by the Distributor in one fiscal year may not be
paid from distribution services fees received from the Fund in subsequent fiscal
years. The Fund intends to operate the Plans in accordance with their terms and
in accordance with the rules of the NASD concerning sales charges.
The fees paid to the Distributor under the Plans are subject to annual review
and approval by the Fund's independent Directors who have the authority to
reduce the fees or terminate the Plans at any time. All payments to the Plan
shall be made for the purpose of selling shares issued by the Fund or servicing
shareholder accounts. The distribution fee of one class will not be used to
subsidize the sale of the other class of shares.
-14-
Under the Plans, the Distributor reports the amounts expended under the Plans,
set forth separately by class of shares, and the purposes for which such
expenditures were made, to the Directors of the Fund for their review on a
quarterly basis. Also, the Plans provide that the selection and nomination of
Directors who are not interested persons of the Fund, as defined in the 1940
Act, are committed to the discretion of such disinterested Directors then in
office.
The Adviser may from time to time make payments for distribution services to the
Distributor from its own funds or such other resources as may be permitted by
rules of the Securities and Exchange Commission (the "Commission"). The
Distributor may in turn pay part or all of such compensation to brokers or other
persons for their distribution assistance.
In the event that the Plan is terminated or not continued (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the Distributor; and (ii) the Fund would not be obligated to pay the
Distributor for any amounts expended under the Plan not previously recovered by
the Distributor from distribution fees in respect to the sale of shares or
through deferred sales charges.
For the fiscal year ended October 31, 2001, Class A shares paid $78,932 in 12b-1
fees and Class B shares paid $42,051 in 12b-1 fees.
Mr. David Lerner is a director, the chief executive officer and president of the
Distributor. Mr. Lerner is also a director, the chief executive officer and
president of David Lerner Associates, Inc., a registered broker-dealer
affiliated with the Adviser and the Distributor.
Administrative Services Agent and Fund Accountant
PFPC Inc. ("PFPC"), a wholly-owned subsidiary of PNC Bank Corp., which has its
principal business address at 400 Bellevue Parkway, Wilmington, DE 19809,
provides the back office services for the Fund. The services include the day-
to-day administration of matters necessary to the Funds' operations, maintenance
of records and books, preparation of reports and compliance monitoring.
PFPC also serves as the accounting agent for the Fund and maintains the
accounting books and records of the Fund, calculates the Fund's net asset value
in accordance with the provisions of the Fund's current Prospectus and prepares
for Fund approval and use various government reports, tax returns, and proxy
materials.
For the fiscal years ended October 31, 2001, October 31, 2000 and October 31,
1999, the Fund paid PFPC $234,319, $214,940 and $177,180, respectively.
Transfer Agent
-15-
PFPC serves as the Fund's transfer agent and maintains the records of each
shareholder's account, answers shareholder inquiries, processes purchases and
redemptions and acts as dividend disbursing agent.
Custodian and Custody Administrator
PFPC Trust Company, 8800 Tinicum Boulevard, 3rd Floor, Philadelphia, PA 19153,
is custodian of the Fund's assets pursuant to a custodian agreement. Under the
custodian agreement, PFPC Trust Company (i) maintains a separate account or
accounts in the name of the Fund (ii) holds and transfers portfolio securities
on account of the Fund, (iii) accepts receipts and make disbursements of money
on behalf of the Fund, (iv) collects and receives all income and other payments
and distributions on account of the Fund's securities and (v) makes periodic
reports to the Trustees concerning the Fund's operations.
Independent Auditors
Tait, Weller & Baker, 8 Penn Center Plaza, Suite 800, Philadelphia, PA 19103,
serves as independent auditor for the Fund.
Shareholder Reports and Inquiries
The Fund issues unaudited financial information semi-annually and audited
financial statements annually. Shareholder inquires should be addressed to the
Fund c/o PFPC Inc., 211 South Gulph Rd., P.O. Box 61767, King of Prussia, PA
19406. Purchase and redemption transactions should be made through PFPC by
calling (800) 452-4892.
SHAREHOLDER SERVICES
The following information supplements that set forth in the Fund's Prospectus
under the heading "How to Purchase Shares."
Automatic Investment Plan
-16-
Investors may purchase shares of the Fund through an automatic investment
program utilizing electronic funds transfers drawn on the investor's own bank
account. Under such a program, pre-authorized monthly drafts for a fixed amount
(at least $50) are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering price next
determined after the distributor receives the proceeds from the investor's bank.
In electronic form, drafts can be made on or about a date each month selected by
the shareholder. Investors wishing to establish an automatic investment program
in connection with their initial investment should complete the appropriate
portion of the account application found in the Prospectus. Current shareholders
should contact the Distributor at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an automatic
investment program.
Systematic Withdrawal Plan
Any Class A shareholder who owns or purchases shares of the Fund having a
current net asset value of at least $10,000 may establish a systematic
withdrawal plan under which the shareholder will receive payments from his or
her account on a regular basis. Systematic withdrawal plan participants must
elect to have their dividends and distributions from the Fund automatically
reinvested in additional shares of the Fund.
Shares of the Fund owned by a participant in the Fund's systematic withdrawal
plan will be redeemed as necessary to meet withdrawal payments and such
withdrawal payments will be subject to any taxes applicable to redemptions.
Shares acquired with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other shares will be
liquidated to the extent necessary. A systematic withdrawal plan may be
terminated at any time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a shareholder's account
reaches a certain minimum level. Therefore, redemptions of shares under the plan
may reduce or even liquidate a shareholder's account and may subject the
shareholder to the Fund's involuntary redemption provisions. The Systematic
Withdrawal Plan is not available with respect to the Class B Shares.
RETIREMENT PLANS
The Fund may be a suitable investment vehicle for part or all of the assets held
in various types of retirement plans, such as those listed below. The Fund has
available forms of such plans pursuant
-17-
to which investments can be made in the Fund. Persons desiring information
concerning these plans should contact SSH Securities, Inc. at (516) 390-5565, or
write to:
SSH Securities, Inc.
477 Jericho Turnpike
Syosset, New York 11791
Traditional Individual Retirement Account ("IRA"). Individuals who receive
compensation, including earnings from self-employment, may be entitled to
establish and make contributions to an IRA. Taxation of the income and gains
paid to an IRA by the Fund is deferred until distribution from the IRA.
Roth IRAs. The Taxpayers Relief Act of 1997 created the new Roth IRA. While
contributions to a Roth IRA are not currently deductible, the amounts invested
in a Roth account accumulate tax-free and qualified distributions will not be
included in a shareholder's taxable income. The contribution limit is $2000
annually ($4,000 for joint returns) in aggregate with contributions to
Traditional IRAs. Certain income phaseouts apply.
Education IRAs. The Taxpayers Relief Act of 1997 also created the new Education
IRA. Like the Roth IRA, contributions are non-deductible, but the investment
earnings accumulate tax-free, and distributions used for higher education
expenses are not taxable. Contribution limits are $500 per account and certain
income phaseouts apply.
Employer-Sponsored Qualified Retirement Plans. Sole proprietors, partnerships
and corporations may sponsor qualified money purchase pension and profit-sharing
plans, including Section 401(k) plans ("qualified plans"), under which annual
tax-deductible contributions are made within prescribed limits based on
compensation paid to participating individuals.
Simplified Employee Pension Plan ("SEP"). Sole proprietors, partnerships and
corporations may sponsor a SEP under which they make annual tax-deductible
contributions to an IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt organizations and public
educational institutions may sponsor retirement plans under which an employee
may agree that monies deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account established
for the employee under the plan.
Distributions from retirement plans are subject to certain Internal Revenue Code
(the "Code") requirements in addition to normal redemption procedures. For
additional information please contact SSH Securities, Inc.
-18-
Statements and Reports. Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments, financial statements
and, in the case of the annual report, the report of the Fund's independent
auditors, as well as confirmation of each purchase and redemption. By contacting
his or her broker, a shareholder can arrange for copies of his or her account
statements to be sent to another person.
NET ASSET VALUE
The net asset value ("NAV") per share for each Class of shares is computed by
adding, with respect to each Class of shares, the value of the Fund's
investments, cash and other assets attributable to that Class, deducting
liabilities of the Class and dividing the result by the number of shares of that
Class outstanding.
The NAV of all outstanding shares of each Class of the Fund will be computed on
a pro rata basis for each outstanding share based on the proportionate
participation in the Fund represented by the value of shares of each Class. All
income earned and expenses incurred by the Fund will be borne on a pro rata
basis by each outstanding share of such class, except that each Class will bear
expenses payable under its respective 12b-1 Plan.
Portfolio securities are valued and NAV per share is calculated as of the close
of regular trading on the New York Stock Exchange ("NYSE"), currently 4:00 p.m.
(Eastern Time), on each day the NYSE is open for trading.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Federal Income Taxes
The Fund has elected and qualified and intends to continue to qualify to be
treated as a "regulated investment company" under Sub-Chapter M of the Code. To
so qualify, the Fund must, among other things, (i) derive at least 90% of its
gross income in each taxable year from dividends, interest, payments with
respect to securities loans, gains from sale or other disposition of stock or
securities or foreign currency, or certain other income (including, but not
limited to, gains from options, futures and forward contracts) derived with
respect to its business of investing in stock, securities or currency; (ii)
diversify its holdings so that, at the end of each quarter of its taxable year,
the following two conditions are met: (a) at least 50% of the value of the
Fund's assets is represented by cash, U.S. Government Securities, securities of
other regulated investment companies and other securities with respect to which
the Fund's investment is limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's assets and 10% of the outstanding voting
securities of such issuer, and (b) not more than 25% of the value of the Fund's
assets is invested in securities of any one issuer (other than U.S. Government
Securities or securities of other regulated investment companies).
If the Fund qualifies as a regulated investment company for any taxable year and
makes timely distributions to its shareholders of 90% or more of its net
investment income for that year (calculated without regard to its net capital
gain, i.e., the excess of its net long-term capital gain over its net
-19-
short-term capital loss), it will not be subject to federal income tax on the
portion of its taxable income for the year (including any net capital gain) that
it distributes to shareholders.
The Fund intends to also avoid the 4% federal excise tax that would otherwise
apply to certain undistributed income for a given calendar year if it makes
timely distributions to the shareholders equal to the sum of (i) 98% of its
ordinary income for that year; (ii) 98% of its capital gain net income and
foreign currency gains for the twelve month period ending on October 31 of that
year; and (iii) any ordinary income or capital gain net income from the
preceding calendar year that was not distributed during that year. For this
purpose, income and gain retained by the Fund that is subject to corporate
income tax will be considered to have been distributed by the Fund by year-end.
For federal income and excise tax purposes, dividends declared and payable to
shareholders of record as of a date in October, November or December of a given
year but actually paid during the immediately following January will be treated
as if paid by the fund on December 31 of that calendar year, and will be taxable
to these shareholders for the year declared, and not for the year in which the
shareholders actually receive the dividend.
Dividends and Distributions
The Fund intends to make timely distributions of the Fund's taxable income
(including any net capital gain) so that the Fund will not be subject to federal
income and excise taxes. The excess of net capital gains over the net capital
losses realized and distributed by the Fund to its shareholders is expected to
be taxable to the shareholders as long-term capital gains, regardless of the
length of time a shareholder may have held his Fund shares. Dividends of the
Fund's net ordinary income and distributions of any net realized short-term
capital gain are taxable to shareholders as ordinary income. Due to
distributions of amounts representing a return of capital the Fund will receive
from REITs in which the Fund is invested, distributions made by the Fund may
also include nontaxable returns of capital, which will reduce a shareholder's
basis in shares of the Fund. If a shareholder's basis is reduced to zero (which
could happen if a shareholder does not reinvest distributions and returns of
capital are significant), any further returns of capital will be taxable as a
capital gain. Any dividend or distribution received by a shareholder on shares
of the Fund will have the effect of reducing the net asset value of such shares
by the amount of such dividend or distribution. Furthermore, a dividend or
distribution made shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular shareholder, would be
taxable in the manner discussed regardless of whether they are paid to the
shareholder in cash or reinvested in additional shares of the Fund.
After the end of the taxable year, the Fund will notify shareholders of the
federal income tax status of any distributions made by the Fund to shareholders
during such year.
It is the present policy of the Fund to distribute to shareholders all net
investment income quarterly and to distribute realized capital gains, if any,
annually. There can be no assurance that the Fund will pay any dividends. The
amount of any dividend or distribution paid on shares of the Fund must
necessarily depend upon the realization of income and capital gains from the
Fund's investments.
Sales and Redemptions
-20-
Any gain or loss arising from a sale or redemption of Fund shares generally will
be capital gain or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if such shareholder has
held such shares for more than one year at the time of the sale or redemption;
otherwise it will be short-term capital gain or loss. However, if a shareholder
has held shares in the Fund for six months or less and during that period has
received a distribution taxable to the shareholder as a long-term capital gain,
any loss recognized by the shareholder on the sale of those shares during the
six-month period will be treated as a long-term capital loss to the extent of
the dividend. In determining the holding period of such shares for this
purpose, any period during which a shareholder's risk of loss is offset by means
of options, short sales or similar transactions is not counted.
Backup Withholding
The Fund may be required to withhold U.S. federal income tax at the rate of 30%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification numbers or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain
other shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any amounts so
withheld may be credited against a U.S. shareholder's U.S. federal income tax
liability or refunded.
BROKERAGE AND PORTFOLIO TRANSACTIONS
The Adviser has the responsibility for allocating its brokerage orders and may
direct orders to any broker. It is the Fund's general policy to seek favorable
net prices and prompt reliable execution in connection with the purchase or sale
of all portfolio securities. In the purchase and sale of over-the-counter
securities, it is the Fund's policy to use the primary market makers except when
a better price can be obtained by using a broker. The Board of Directors has
approved, as in the best interests of the Fund and the shareholders, a policy of
considering, among other factors, sales of the Fund's shares as a factor in
selection of broker-dealers to execute portfolio transactions, subject to best
execution. The Adviser is authorized to place brokerage business with such
brokers and dealers. The use of brokers who supply supplemental research and
analysis and other services may result in the payment of higher commissions than
those available from other brokers and dealers who provide only the execution of
portfolio transactions. In addition, the supplemental research and analysis and
other services that may be obtained from brokers and dealers through which
brokerage transactions are affected may be useful to the adviser in connection
with advisory clients other than the Fund.
Investment decisions for the Fund are expected to be made independently from
those for other advisory accounts managed by the Adviser. It may happen, on
occasion, that the same security is held in the portfolio of the Fund and one or
more of such accounts. Simultaneous transactions are likely when several
accounts are managed by the same adviser, particularly when a security is
suitable for the investment objectives of more than one of such accounts. If
two or more accounts managed by the adviser are simultaneously engaged in the
purchase or sale of the same security, the transactions will be allocated to the
respective accounts both as to amount and price,
-21-
in accordance with a method deemed equitable to each account. In some cases this
system may adversely affect the price paid or received by the Fund or the size
of the position obtainable for the Fund.
Allocations are made by the officers of the Fund or of the Adviser. Purchases
and sales of portfolio securities are determined by the Adviser and are placed
with broker-dealers by the Adviser.
The extent to which commissions that will be charged by broker-dealers selected
by the Fund may reflect an element of value for research that cannot presently
be determined. To the extent that research services of value are provided by
broker-dealers with or through whom the Fund places portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise bear. Research
services furnished by broker-dealers could be useful and of value to the Adviser
in servicing its other clients as well as the Fund. Consistent with the Conduct
Rules of the National Association of Securities Dealers, Inc. and subject to
seeking best execution, the Fund may consider sales of shares of the Fund as a
factor in the selection of brokers to execute portfolio transactions for the
Fund. For the fiscal years ended October 31, 2001, October 31, 2000 and October
31, 1999, brokerage commissions in the amount of $140,985, $17,905 and $27,775,
respectively, were paid to David Lerner Associates ("DLA"), which is affiliated
with the Adviser and Distributor. The amount of commissions paid to DLA during
the most recent fiscal year represents 100% of the Fund's aggregate brokerage
commissions and 100% of the Fund's total portfolio transactions.
PERFORMANCE INFORMATION
General
From time to time, advertisements quoting performance rankings of the Fund as
measured by financial publications or by independent organizations such as
Lipper Analytical Services, Inc. and Morningstar, Inc., and advertisements
presenting the historical record of payments of income dividends by the Fund may
be sent to investors or placed in newspapers and/or magazines such as The Wall
Street Journal, The New York Times, Barrons, Investor's Daily, Money Magazine,
Changing Times, Business Week and Forbes or other media on behalf of the Fund.
Total return may be used to compare the performance of the Fund against certain
widely acknowledged standards or indices for stock and bond market performance
such as the Standard & Poor's 500 Composite Index and the Dow Jones Industrial
Average. The Fund may compare its total return to that of the Morgan Stanley
REIT Index or the National Association of Real Estate Investment Trusts (NAREIT)
Equity REIT Index.
Total return is calculated separately for Class A Shares and Class B Shares.
Class A Shares' total return figures include the maximum sales charge of 5.25%
and 12b-1 fees; Class B Shares' total return figures include any applicable
contingent deferred sales charge and 12b-1 fees. Because of the differences in
sales charges and distribution fees, the total returns for the classes will
differ.
-22-
Average Annual Total Return
From time to time the Fund may advertise its total return for prior periods.
The Fund's total return is its average annual compounded total return for its
most recently completed one, five, and ten-year periods (or the period since the
Fund's inception). The Fund's total return for such a period is computed by
finding, through the use of a formula prescribed by the Commission below, the
average annual compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment at the end of
the period. For purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charge applicable to purchase of Fund
shares is assumed to have been paid. This calculation can be expressed as
follows:
P(1 + T)/n/= ERV
Where:
ERV = ending redeemable value at the end of the period covered by the
computation of a hypothetical $1,000 payment made at the beginning of
the period
P = hypothetical investment payment of $1,000
n = period covered by the computation, expressed in terms of years.
T = average annual total return
Based upon the foregoing calculations, the average annual total return for Class
A shares for the fiscal years ended October 31, 2001, October 31, 2000 and
October 31, 1999 was 19.81%, 2.64% and (11.30%), respectively. The average
annual total return for Class B shares for the fiscal years ended October 31,
2001, October 31, 2000 and October 31, 1999 was 18.34%, 1.53% and (12.43%),
respectively. These calculations reflect the deduction of the maximum sales
charges and annual fund operating expenses.
Cumulative Total Return
The Fund may also quote the cumulative total return in addition to the average
annual total return. These quotations are computed the same way, except the
cumulative total return will be based on the actual return for a specified
period rather than on the average return over one, five and ten year periods, or
fractional portion thereof.
CAPITAL STOCK
-23-
The authorized capital stock of the Fund currently consists of 1 billion shares
of Common Stock each having a par value of $.001 per share. Under Maryland law,
the Fund's Directors may increase the number of authorized shares without
shareholder approval. The Fund currently offers two classes of shares,
designated Class A Shares and Class B Shares. All shares of the Fund, when
issued, are fully paid and non-assessable. Each issued and outstanding share of
common stock is entitled to one vote on matters submitted to a vote of
shareholders. Only shareholders of a particular Class may vote on matters
related solely to that class, including the Rule 12b-1 Plan associated with that
Class. A shareholder in the Fund will be entitled to his or her share pro rata
with other holders of the same class of shares of all dividends and
distributions arising from the Fund's assets and, upon redeeming shares, will
receive the then current net asset value of the Fund represented by the redeemed
shares.
Under Maryland law, the Fund is not required, and does not intend to hold annual
meetings of shareholders unless, under certain circumstances, it is required to
do so under the 1940 Act. Shareholders of 10% or more of the Fund's outstanding
shares may request that a special meeting be called to consider the removal of
any Directors. The Fund will assist in the communication with other
shareholders.
The Directors are authorized to reclassify and issue any unissued shares to any
number of additional series and classes without shareholder approval.
Accordingly, the Directors in the future, for reasons such as the desire to
establish one or more additional portfolios with different investment
objectives, policies or restrictions, may create additional classes or series of
shares. Any issuance of shares of another class or series would be governed by
the 1940 Act and the laws of the State of Maryland. If shares of another series
were issued in connection with the creation of a second portfolio, each share of
either portfolio would normally be entitled to one vote for all purposes.
Generally, shares of both portfolios would vote as a single series on matters,
such as the election of Directors, that affected both portfolios in
substantially the same manner. As to matters affecting each portfolio
differently, such as approval of the advisory agreement and changes in
investment policy, shares of each portfolio would vote as a separate series.
Procedures for calling a shareholders' meeting for the removal of Directors of
the Fund, similar to those set forth in Section 16(c) of the 1940 Act, will be
available to shareholders of the Fund.
Shares are freely transferable, are entitled to dividends as determined by the
Directors, and, in liquidation of the Fund, are entitled to receive the net
assets of the Fund.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto for the Fund, contained in
the Annual Report to Shareholders dated October 31, 2001, and the report thereon
of Tait, Weller & Baker, independent auditor, also contained therein, are
incorporated by reference in this Statement of Additional Information. No other
parts of the Annual Report are incorporated by reference herein.
-24-
You can obtain a copy of the Annual Report to Shareholders dated October 31,
2001 by writing or calling the Distributor at the address or telephone number
set forth on the cover of this Statement of Additional Information.
-25-
SPIRIT OF AMERICA INVESTMENT FUND, INC.
Form N-1A
Part C -- Other Information
Part C. Other Information
Item 23. Exhibits
(a) (i) Articles of Incorporation are incorporated by reference
to Registrants Initial Registration Statement on Form
N-1A, File number 333-27925 filed May 28, 1997.
(ii) Articles Supplementary dated February 26, 2001 - filed
herewith.
(b) By-Laws are incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A, File number 333-27925 filed
May 28, 1997.
(c) All Instruments Defining the Rights of Holders.
(i) Articles of Incorporation are incorporated by reference
to Registrants Initial Registration Statement on Form
N-1A, File number 333-27925 filed May 28, 1997.
(ii) Articles Supplementary dated February 26, 2001 - filed
herewith as exhibit 23(a)(ii)
(iii) By-Laws are incorporated by reference to Registrant's
Initial Registration Statement on Form N-1A, File number
333-27925 filed May 28, 1997.
(d) Investment Advisory Contracts -- Investment Advisory Agreement
between Spirit of America Management Corp. and the Registrant is
incorporated by reference to Registrant's Pre-Effective Amendment
No.1 filed December 18, 1997.
(e) Underwriting Agreement --Underwriting Agreement between SSH
Securities, Inc. and the Registrant is incorporated by reference
to Registrant's Pre-Effective Amendment No. 1 filed December 18,
1997.
(f) Bonus, Profit Sharing, Pension or Other Similar Contracts - Not
Applicable
(g) Custodian Agreements -- Executed Custodian Agreement between The
Bank of New York and Registrant is incorporated by reference to
Registrant's Pre-Effective Amendment No.1 filed December 18,
1997.
(h) Other Material Contracts
(i) Investment Company Services Agreement -- Investment
Company Services Agreement is incorporated by reference
to Registrant's Pre-Effective Amendment No.1 filed
December 18, 1997.
(i) Opinion and Consent of Counsel - filed herewith.
(j) Other Opinions, Appraisals or Rulings
-1-
(i) Consent of Independent Auditors - filed herewith.
(k) All Financial Statements omitted from Item 22 - not applicable
(l) Agreements or Understandings Made in Consideration for Providing
the Initial Capital -- is incorporated by reference to
Registrant's Pre-Effective Amendment No.2 filed December 31,
1997.
(m) Plan of Distribution pursuant to Rule 12b-1
(i) Distribution Plan - Class A Shares incorporated by
reference to Post-Effective Amendment No. 1, filed on
February 5, 1998.
(ii) Distribution Plan - Class B Shares incorporated by
reference to Post-Effective Amendment No. 1, filed on
February 5, 1998.
(n) 18f-3 Plan with respect to Multiple Class Shares -incorporated by
reference to Post-Effective Amendment No. 1, filed on February 5,
1998.
(p) Code of Ethics of Spirit of America Investment Fund. Inc., Spirit
of America Management Co. and SSH Securities - incorporated by
reference to Post-Effective Amendment No. 4, filed on February
28, 2001.
Item 24. Persons Controlled by or Under Common Control with Registrant - None.
Item 25. Indemnification.
It is the Registrant's policy to indemnify its directors and officers,
employees and other agents to the maximum extent permitted by Section
2-418 of the General Corporation Law of the State of Maryland, which is
incorporated by reference herein, and as set forth in Article EIGHT of
Registrant's Articles of Incorporation, incorporated by reference in
connection with Exhibit 1 hereto, Article VII and Article VIII of
Registrant's By-Laws, incorporated by reference in connection with
Exhibit 2 hereto. The Adviser's liability for any loss suffered by the
Registrant or its shareholders is set forth in Section 4 of the
proposed Advisory Agreement, incorporated by reference in connection
with Exhibit 5 hereto.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
In accordance with Release No. IC-11330 (September 2, 1980), the
Registrant will indemnify its directors, officers, investment manager
and principal underwriters only if (1) a final decision on the merits
was issued by the court or other body before whom the proceeding was
brought that the person to be indemnified (the "indemnitee") was not
liable by reason of willful misfeasance, bad
-2-
faith, gross negligence or reckless disregard of the duties involved in
the conduct of his office ("disabling conduct") or (2) a reasonable
determination is made, based upon a review of the facts, that the
indemnitee was not liable by reason of disabling conduct, by (a) the
vote of a majority of a quorum of the directors who are neither
"interested persons" of the Registrant as defined in section 2(a)(19)
of the Investment Company Act of 1940, as amended, nor parties to the
proceeding ("disinterested, non-party directors"), or (b) an
independent legal counsel in a written opinion. The Registrant will
advance attorneys fees or other expenses incurred by its directors,
officers, investment adviser or principal underwriters in defending a
proceeding, upon the undertaking by or on behalf of the indemnitee to
repay the advance unless it is ultimately determined that he is
entitled to indemnification and, as a condition to the advance, (1) the
indemnitee shall provide a security for his undertaking, (2) the
Registrant shall be insured against losses arising by reason of any
lawful advances, or (3) a majority of a quorum of disinterested, non-
party directors of the Registrant, or an independent legal counsel in a
written opinion, shall determine, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that there
is reason to believe that the indemnitee ultimately will be found
entitled to indemnification.
Item 26. Business and Other Connections of Investment Adviser.
Since the date of its incorporation on April 24, 1997, Spirit of
America Management Corp. has not been engaged in any other business
other than acting as adviser to Registrant. During the past twenty-four
years, David Lerner, a director and officer of the Adviser, has served
as the Chief Executive Officer and Director of David Lerner Associates,
Inc. The business address of the company is 477 Jericho Turnpike,
Syosset, New York 11791.
For information as to any other business, vocation or employment of a
substantial nature in which each Director or officer of the
Registrant's investment adviser has been engaged for his own account or
in the capacity of Director, officer, employee, or partner reference is
made to Form ADV (File #801-54782) filed by the Adviser under the
Investment Advisers Act of 1940, as amended.
Item 27. Principal Underwriter.
(a) SSH Securities, Inc., the Registrant's distributor, does not act
as principal underwriter, depositor or investment adviser for any
other investment company.
(b) The table below sets forth certain information with respect to
each director, officer and control person of SSH Securities, Inc.
[Enlarge/Download Table]
Name and Principal Position and Offices Position and Offices
Business Address With Underwriter With Registrant
---------------- ---------------- ---------------
David Lerner Director, Chief Executive Officer Chairman of the Board, Director,
477 Jericho Turnpike and President President and Treasurer
Syosset, NY 11791
Constance Ferreira Vice President, Chief Operating Vice President and Secretary
477 Jericho Turnpike Officer and Chief Financial Officer
Syosset, NY 11791
Daniel E. Chafetz Chief Compliance Officer Compliance Officer
477 Jericho Turnpike
Syosset, NY 11791
-3-
[Download Table]
Name and Principal Position and Offices Position and Offices
Business Address With Underwriter With Registrant
---------------- ---------------- ---------------
(c) Not Applicable.
Item 28. Location of Accounts and Records.
All records described in Section 31(a) of the 1940 Act and the Rules 17
CFR 270.31a-1 to 31a-3 promulgated thereunder, are maintained by the
Fund's Investment Adviser, Spirit of America Management, Inc., 477
Jericho Turnpike, Syosset, New York 11791, except for those maintained
by the Fund's Custodian, The Bank of New York, 48 Wall Street, New
York, New York 10172 and the Fund's Administrator, Transfer Agent and
Fund Accounting Services Agent, PFPC Inc., 3200 Horizon Drive, P.O. Box
61503, King of Prussia, PA 19406-0903.
Item 29. Management Services.
None.
Item 30. Undertakings.
Not Applicable.
-4-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the
"Securities Act") and the Investment Company Act of 1940, as amended, the
Registrant certifies that it meets all the requirements for effectiveness of
this registration statement under Rule 485(b) under the Securities Act and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Syosset, and State of New
York on the 28th day of February, 2002.
Spirit of America Investment Fund, Inc.
Registrant
By: /s/ David Lerner
------------------------------
David Lerner, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
[Download Table]
Signature Capacity Date
--------- -------- ----
/s/ David Lerner Chairman of the Board February 28, 2002
--------------------------- President & Director
David Lerner
/s/ Thomas P. Reynolds* Director February 28, 2002
---------------------------
Thomas P. Reynolds
/s/ Allen Kaufman* Director February 28, 2002
---------------------------
Allen Kaufman
/s/ Daniel Lerner* Director February 28, 2002
---------------------------
Daniel Lerner
/s/ Constance Ferreira Principal Financial and February 28, 2002
--------------------------- Accounting Officer
Constance Ferreira
/s/ Stanley Thune* Director February 28, 2002
---------------------------
Stanley Thune
By: /s/ Thomas N. Calabria
--------------------------
*Attorney-in-Fact
-5-
The Spirit of America Investment Fund, Inc.
Index to Exhibits to Form N-1A
------------------------------
Exhibit No.
-----------
23(a)(ii) Articles Supplementary dated February 26, 2001
23(i) Opinion of Counsel
23(j)(i) Consent of Independent Auditor
-6-
Dates Referenced Herein and Documents Incorporated by Reference
10 Subsequent Filings that Reference this Filing
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent
4/29/24 Spirit of America Inv Fund Inc. 485BPOS 4/29/24 14:5.5M Blu Giant, LLC/FA
3/28/24 Spirit of America Inv Fund Inc. 485BPOS 3/29/24 15:3M Blu Giant, LLC/FA
4/28/23 Spirit of America Inv Fund Inc. 485BPOS 5/01/23 13:4.5M Blu Giant, LLC/FA
3/30/23 Spirit of America Inv Fund Inc. 485BPOS 3/30/23 14:3M Blu Giant, LLC/FA
1/27/23 Spirit of America Inv Fund Inc. 485BPOS 1/29/23 24:2.2M Blu Giant, LLC/FA
11/15/22 Spirit of America Inv Fund Inc. 485APOS 2:692K Blu Giant, LLC/FA
4/28/22 Spirit of America Inv Fund Inc. 485BPOS 4/29/22 14:5.5M Blu Giant, LLC/FA
3/30/22 Spirit of America Inv Fund Inc. 485BPOS 3/30/22 13:2.4M Blu Giant, LLC/FA
4/29/21 Spirit of America Inv Fund Inc. 485BPOS 4/30/21 3:1.6M Blu Giant, LLC/FA
3/29/21 Spirit of America Inv Fund Inc. 485BPOS 3/30/21 2:997K Blu Giant, LLC/FA
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