SPIRIT OF AMERICA INVESTMENT FUND, INC.
477 Jericho Turnpike
Syosset, New York 11791
(516) 390-5555
Prospectus February 25, 1998
Spirit of America Investment Fund, Inc. (the "Fund") is an open-end diversified
mutual fund which seeks growth of capital and current income. The Fund seeks to
achieve its investment objective by investing in the equity securities of
companies in the real estate industry. The Fund's investment adviser is Spirit
of America Management Corp. ("Spirit Management" or the "Adviser").
The Fund offers two classes of shares through this Prospectus: Class A Shares
and Class B Shares. Each class of shares is sold pursuant to different sales
arrangements and bears different expenses. See "Alternative Purchase
Arrangements" for a complete description of the differences between the classes.
This Prospectus sets forth the information you should know before investing in
the Fund. Please read it carefully and keep it for future reference. Additional
information about the Fund contained in a Statement of Additional Information
dated February 25, 1998, as amended from time to time, has been filed with the
U.S. Securities and Exchange Commission (the "SEC"). It may be obtained free of
charge by calling the Fund's distributor, SSH Securities, Inc. at (516)
390-5565. Additionally, the SEC maintains a Web site (http://www.sec.gov) that
contains the Statement of Additional Information, material incorporated by
reference in this Prospectus and other information regarding the Fund. The
Statement of Additional Information is incorporated by reference in this
Prospectus.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE U.S. SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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Table of Contents
Page
A Brief Summary of The Fund. . . . . . . . . . . . . . .
Expense Information. . . . . . . . . . . . . . . . . . .
Description of the Fund. . . . . . . . . . . . . . . . .
Investment Objective . . . . . . . . . . . . . . . . . .
Investment Policies. . . . . . . . . . . . . . . . . . .
Investment Practices . . . . . . . . . . . . . . . . . .
Risk Considerations. . . . . . . . . . . . . . . . . . .
Certain Fundamental Investment Limitations . . . . . . .
How to Purchase Shares . . . . . . . . . . . . . . . . .
Alternative Purchase Arrangements. . . . . . . . . . . .
How to Redeem Shares . . . . . . . . . . . . . . . . . .
Special Services . . . . . . . . . . . . . . . . . . . .
Net Asset Value. . . . . . . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . . . . . . . . . . .
Dividends, Distributions and Taxes . . . . . . . . . . .
Performance Information. . . . . . . . . . . . . . . . .
General Information. . . . . . . . . . . . . . . . . . .
Distributor: Investment Adviser:
SSH Securities, Inc. Spirit of America Management Corp.
477 Jericho Turnpike 477 Jericho Turnpike
Syosset, New York 11791 Syosset, New York 11791
(516) 390-5565 (516) 390-5575
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A Brief Summary of the Fund
What is the Fund's Investment Objective?
The Fund seeks growth of capital and current income by investing in the equity
securities of companies in the real estate industry. There can be no assurance
that the Fund will be able to achieve its investment objective. See "Investment
Objective" and "Investment Policies."
Who is the Investment Adviser?
The Fund's investment adviser is Spirit of America Management Corp., a recently
organized investment manager. See "Management of the Fund" and "Risk
Considerations."
Who may want to Invest in the Fund?
The Fund may be appropriate for investors who are willing to ride out stock
market fluctuations in pursuit of potentially high long-term returns. The Fund
is designed for those looking for income and growth through an investment that
focuses on a wide range of equity securities in the real estate industry.
What risks are associated with an investment in the Fund?
The value of the Fund's investments will be affected by conditions in the real
estate industry. Real estate is a cyclical industry that is sensitive to
interest rates, economic conditions, property tax rates and other factors. The
price of shares of the Fund will fluctuate as the daily price of the equity
securities and debt instruments in which the Fund invests fluctuate, so that
your shares, when redeemed, may be worth more or less than their original cost.
An investment in the Fund may be suitable for long-term investors who may wish
to consider investing a portion of their overall equity portfolio in a real
estate mutual fund. By itself, the Fund does not constitute a balanced
investment plan. See "Risk Considerations."
Does the Fund pay dividends?
The Fund intends to make distributions quarterly in March, June, September and
December. These distributions may include ordinary income and capital gains
(each of which is taxable) and a return of capital (which is generally
non-taxable). All dividends and distributions are paid in additional shares
(without sales charge) unless payment in cash is requested. See "Dividends,
Distributions and Taxes."
How do I make an investment in the Fund?
Shares of the Fund may be purchased through broker-dealers or directly through
SSH Securities, Inc., the Fund's principal distributor. The minimum initial
investment for each class of shares is $1,000 and subsequent investments can be
made for as little as $50 for each class of shares. See "How to Purchase
Shares."
What are the "Alternative Purchase Arrangements"?
Investors may choose to purchase Class A Shares or Class B Shares of the Fund,
each representing an interest in the same portfolio of investments of the Fund.
Each class is subject to different expenses and sales charge structures and has
distinct advantages and disadvantages for different investors.
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Class A Shares are offered at net asset value plus any applicable sales charge
(maximum is 5.25% of public offering price) and subject to annual 12b-1 Plan
expenses of up to 0.30% of the Fund's average daily net assets attributable to
such shares.
Class B Shares are offered at net asset value per share and are subject to a
maximum contingent deferred sales charge ("CDSC") of 5.75% on redemptions made
within the first year after purchase and declining thereafter to 0.00% after the
seventh year of purchase. Class B Shares are subject to a combined annual 12b-1
Plan expense and service fee of up to 1.00% of the Fund's average daily net
assets attributable to such shares. See "Distribution Plans."
For detailed information about purchasing shares of the Fund, see "Alternative
Purchase Arrangements." In addition, the Fund offers several time and money
saving services to investors. Be sure to ask about the Automatic Investment
Plan, Retirement Plans and the Systematic
Withdrawal Plan.
How do I sell my shares?
Shares of the Fund may be redeemed at the current net asset value per share next
determined after receipt by the transfer agent of a redemption request in proper
form, less any applicable CDSC fees. Signature guarantees may be required for
certain redemption requests. See "How to Redeem Shares."
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EXPENSE INFORMATION
Shareholder Transaction Expenses are one of several factors to consider when you
invest in the Fund. The following table summarizes your maximum transaction
costs and estimated annual expenses for an investment in the Fund.
Class A Class B
Maximum sales charge imposed on purchases
(as a percentage of offering price) . . . . . . . 5.25%(1) None
Maximum sales charge imposed on reinvested
dividends (as a percentage of offering price). . . None None
Maximum contingent deferred sales charge
(as a percentage of the lesser of original
purchase price or redemption proceeds) . . . . . None(2) 5.75%(3)
Redemption Fees (as a percentage of amount
redeemed)(4). . . . . . . . . . . . . . . . . . . . None None
(1) Reduced for purchases of $100,000 and over, decreasing to zero for purchases
of $1 million and over. See "How to Purchase Shares - Sales Charge."
(2) Investments of $1 million or more are not subject to any sales charge at the
time of purchase, but a Contingent Deferred Sales Charge ("CDSC") of 1.00% may
be imposed on certain redemptions of $1 million or more made within one year of
the date of purchase. See "Alternative Purchase Arrangements."
(3) A CDSC is imposed on Class B Shares purchased at the following declining
rates for redemptions made 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.
(4) The Fund's transfer agent charges $15.00 per redemption for redemptions
remitted by wire. Purchases and redemptions may also be made through
broker-dealers and others who may charge a fee for their services.
Annual Fund Operating Expenses:
(as a percentage of average daily net assets) Class A Class B
Management fees(after fee waivers)(1) . . . . . . 0.00% 0.00%
12b-1 fees(2) . . . . . . . . . . . . . . . . . . 0.30% 1.00%
Other Expenses after expense reimbursement (1). . 1.67% 1.67%
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Total Fund operating expenses (after fee waivers)(1) 1.97% 2.67%
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(1) The above table reflects the Adviser's voluntary undertaking to waive
all or a portion of its fees and to reimburse certain expenses so that the total
operating expenses of Class A Shares and Class B Shares for the first year of
operations will not exceed 1.97% and 2.67%, respectively,
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of the average daily net assets of each Class. Spirit Management reserves the
right to terminate this waiver or any reimbursement at any time, in its sole
discretion. Any reductions in Spirit Management's fee are subject to
reimbursement by the Fund within the following three years, to the extent such
reimbursement would not cause total operating expenses to exceed 1.97% and
2.67%, respectively. Absent such waivers, total operating expenses for Class A
Shares and Class B Shares are estimated to be 2.22% and 2.92%, respectively, of
the respective average daily net assets of each Class. In subsequent years,
overall expenses for the Fund may not fall below 1.97% and 2.67%, respectively,
until the Adviser has been fully reimbursed for fees foregone or expenses it
paid under the Advisory Agreement. "Other Expenses" are based on estimated
amounts for the Fund's current fiscal year. Spirit Management has not previously
provided investment advisory services to registered investment companies.
(2) Class A Shares are subject to annual 12b-1 Plan fees of up to 0.30% of the
average daily net assets attributable to such class of shares. Class B Shares
are subject to a combined annual distribution and service fee of up to 1.00% of
the average daily net assets attributable to such class of shares. See
"Distribution Plans."
Example
Based on the level of expenses listed above, an investor would pay the following
expenses on a $1,000 investment assuming (i) imposition of the maximum sales
charge, (ii) 5% annual return and (iii) redemption at the end of each time
period:
Class A Class B
1 year $ 71 $ 86
3 years $111 $126
An investor would pay the following expenses on the same $1,000 investment (with
the imposition of the maximum sales charge) assuming no redemption at the end of
each time period:
Class A Class B
1 year $71 $ 27
3 years $111 $ 83
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN. The
purpose of the foregoing table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly.
Long-term shareholders may eventually pay more than the economic equivalent of
the maximum front-end sales charge permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD").
See "Distribution Plans."
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DESCRIPTION OF THE FUND
The Fund is a diversified investment company. The Fund's investment objective is
fundamental and cannot be changed without a shareholder vote. Except as noted,
the Fund's investment policies are not fundamental and can be changed without a
shareholder vote. The Fund will not change these policies without notifying its
shareholders. There is no guarantee that the Fund will achieve its investment
objective.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek growth of capital and current income
by investing in equity securities of companies in the real estate industry. To a
lesser extent the Fund will invest in mortgage-backed securities and taxable
debt obligations of municipalities or their affiliates.
INVESTMENT POLICIES
Under normal circumstances, at least 60% of the Fund's total assets will be
invested in equity securities of real estate investment trusts ("REITs") and
other real estate industry companies. For purposes of the Fund's investments, a
"real estate industry company" is a company that derives at least 50% of its
gross revenues or net profits from either (a) the ownership, development,
construction, financing, management or sale of commercial, industrial or
residential real estate or (b) products or services related to the real estate
industry, like building supplies or mortgage servicing. The equity securities in
which the Fund will invest for this purpose consist of common stock, shares of
beneficial interest of REITs and securities with common stock characteristics,
such as preferred stock and debt securities convertible into common stock ("Real
Estate Equity Securities").
The Fund may invest up to 40% of its total assets in (a) securities that
directly or indirectly represent participations in, or are collateralized by and
payable from, mortgage loans secured by real property ("Mortgage-Backed
Securities"), such as mortgage pass-through certificates, real estate mortgage
investment conduit ("REMIC") certificates and collateralized mortgage
obligations ("CMOs"); (b) taxable investment grade securities issued by or on
behalf of states and municipal governments, other U.S. territories and
possessions of the United States, and their authorities, agencies,
instrumentalities and political subdivisions ("taxable municipal obligations");
and (c) short-term investments. These instruments are described below. See "Risk
Considerations" for a description of the risks associated with the Fund's
transactions in REMICs, CMOs, other types of mortgage-backed securities and
taxable municipal obligations.
The Fund may purchase or sell debt securities on a forward commitment basis or
enter into standby commitment agreements and engage in portfolio management
techniques such as selling short. See "Investment Practices."
As to any investment in Real Estate Equity Securities, Spirit Management's
analysis will focus on determining the degree to which the company involved can
achieve sustainable growth in cash flow and dividend paying capability. Spirit
Management believes that the primary determinant of this capability is the
economic viability of property markets in which the company operates and that
the secondary determinant of this capability is the ability of management to add
value through strategic focus and operating expertise. The Fund will purchase
Real Estate Equity Securities when, in the judgment of Spirit Management, their
market price does not adequately reflect this potential. In making this
determination, Spirit Management will
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take into account fundamental trends in underlying property markets as
determined by site visits conducted by individuals knowledgeable in local real
estate markets, price-earnings ratios (as defined for real estate companies),
cash flow growth and stability, the relationship between asset value and market
price of the securities, dividend payment history, and such other factors which
Spirit Management may determine from time to time to be relevant.
For temporary defensive purposes, the Fund may invest up to 100% of its total
assets in short-term, liquid, high-grade debt securities, which may include U.S.
Government securities, bank deposits, money market instruments, repurchase
agreements and short-term debt securities, including notes and bonds (rated A-1,
AA or better by Standard & Poors Ratings Group ("S&P") or rated Prime-1, Aa or
better by Moody's Investors Service, Inc. ("Moody's"). The Fund will assume a
temporary defensive posture only when economic and other factors affect the real
estate industry market to such an extent that Spirit Management believes there
are extraordinary risks in being invested primarily in Real Estate Securities.
For a description of the types of securities in which the Fund may invest while
in a temporary defensive position, please see the Statement of Additional
Information.
INVESTMENT PRACTICES
REAL ESTATE INVESTMENT TRUSTS
The Fund may invest without limitation in shares of REITs. REITs are pooled
investment vehicles which invest primarily in income producing real estate or
real estate related loans or interests. REITs are generally 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. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Similar to investment companies
such as the Fund, REITs are not taxed on income distributed to shareholders
provided they comply with several requirements of the Internal Revenue Code of
1986, as amended (the "Code"). The Fund will indirectly bear its proportionate
share of expenses incurred by REITs in which the Fund invests in addition to the
expenses incurred directly by the Fund.
MORTGAGE-BACKED SECURITIES
The Fund may invest in Mortgage-Backed Securities including mortgage
pass-through certificates and multiple-class pass-through securities, such as
REMIC pass-through certificates, CMOs and stripped mortgage-backed securities
("SMBs"), and other types of Mortgage-Backed Securities that may be available in
the future.
Mortgage-Backed Securities also include CMOs and REMIC pass-through or
participation certificates, which may be issued by, among others, U.S.
Government agencies and instrumentalities as well as private lenders. CMOs and
REMIC certificates are issued in multiple classes and the principal of and
interest on the mortgage assets may be allocated among the several classes of
CMOs or REMIC certificates in various ways. Each class of CMOs or REMIC
certificates, often referred to as a "tranche," is issued at a specific
adjustable or fixed interest rate and must be fully retired no later than its
final distribution date. Generally, interest is paid or accrues on all classes
of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by Ginnie Mae or Freddie Mac certificates but
also may be collateralized by other mortgage assets such as whole loans or
private mortgage pass-through securities. Debt service on CMOs is provided from
payments of principal and interest on collateral of mortgaged assets and any
reinvestment income thereon.
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A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase irregulars and "residual"
interest shares of beneficial interest in REMIC trusts although the Fund does
not intend to invest in residual interests.
The Fund may invest in guaranteed mortgage pass-through securities which
represent participation interests in pools of residential 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 certificates. Fannie Mae certificates
are guaranteed by Fannie Mae, a federally chartered and privately-owned
corporation for full and timely payment of principal and interest on the
certificates. Freddie Mac certificates are guaranteed 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 will invest in taxable municipal securities. These instruments
generally include debt obligations issued by municipalities and local agencies
within the United States to obtain funds for various public purposes, including
construction of a wide range of public facilities, refunding outstanding
obligations, obtaining funds for community improvement projects and lending such
funds to other public institutions and facilities. In addition, certain types of
taxable industrial development bonds are issued by or on behalf of public
authorities to provide for the construction, equipment, repair or improvement of
certain privately operated or local facilities. These obligations, 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-tree municipal securities, the interest on taxable municipal securities
generally will be included in gross income for federal income tax purposes and
may be subject to income taxes imposed by any state or political subdivision. It
is the Fund's current investment strategy to limit its investments in taxable
municipal securities to less than 25% of the Fund's net assets.
The Fund will only invest in taxable municipal obligations which on the date of
investment are within the four highest credit ratings of Moody's (Aaa, Aa, A,
Baa for bonds; MIG-1, MIG-2, MIG-3, MIG-4 for notes; P-1, Aa or better for
commercial paper) or S&P (AAA, AA, A, BBB for bonds; SP-1, SP-2 for notes; A-1,
AA or better for commercial paper) or are comparably rated by another nationally
recognized statistical rating organization or, if unrated, determined by Spirit
Management 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.
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
Management 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
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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.
SHORT-TERM INVESTMENTS
The short-term investments in which the Fund may invest are: corporate
commercial paper and other short-term commercial obligations, in each case rated
or issued by companies with similar securities outstanding that are rated
Prime-1, Aa or better by Moody's or A-1, AA or better by 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 instrumentalities with
remaining maturities not exceeding 18 months.
RATINGS ON DEBT SECURITIES
In addition to the permissible limits on short-term investments with reference
to ratings noted above, the Fund may invest in investment grade debt securities
(BBB or higher by S&P or Baa or higher by Moody's or, if not so rated, are of
equivalent credit quality as determined by Spirit Management). Securities rated
BBB by S&P or Baa by Moody's are considered to have speculative characteristics.
Sustained periods of deteriorating economic conditions or rising interest rates
are more likely to lead to a weakening in the issuer's capacity to pay interest
and repay principal than in the case of higher-rated securities. The Fund
expects that it will not retain a debt security which is downgraded below BBB or
Baa or, if unrated, determined by Spirit Management to have undergone similar
credit quality deterioration, subsequent to purchase by the Fund.
OTHER INVESTMENTS AND LIMITATIONS
While the Fund has no current intention of engaging in any of the
following investment practices, it may in the future determine to do so to the
extent indicated: (i) invest up to 15% of its net assets in rights or warrants;
(ii) invest up to 15% of its net assets in the convertible securities of
companies whose common stocks are eligible for purchase by the Fund; (iii) enter
into repurchase agreements of up to seven days' duration; (iv) enter into
forward commitment transactions as long as the Fund's aggregate commitments
under such transactions are not more than 15% of the Fund's total assets; (v)
enter into standby commitment agreements; and (vi) invest in illiquid securities
unless, as a result, more than 15% of its net assets would be so invested.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities. Illiquid
securities will generally include direct placements or other securities that are
subject to legal or contractual restrictions on resale or for which there is not
a readily available market (e.g., when trading in the security is suspended or,
in the case of unlisted securities, when market makers do not exist or will not
entertain bids or offers) and repurchase agreements not terminable within seven
days. Securities that may be resold without registration pursuant to Rule 144A
may be treated as liquid for these purposes, subject to the supervision and
oversight of the Board of Directors. These securities may include securities
issued by certain REITs that are not publicly traded.
REPURCHASE AGREEMENTS
A repurchase agreement arises when a buyer purchases a security and
simultaneously agrees to resell that security to the seller at an agreed upon
price on an agreed upon date, normally not more than seven days from the date of
purchase. The resale price is greater than the purchase price, reflecting an
agreed-upon interest rate for
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the period the buyer's money is invested in the security. 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. If a vendor defaults on its
repurchase obligation, the Fund would suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. If
a vendor goes bankrupt, the Fund might be delayed in, or prevented from, selling
the collateral for its benefit. Spirit Management monitors the creditworthiness
of the vendors with which the Fund enters into repurchase agreements.
GENERAL
The successful use of the foregoing investment practices draws upon Spirit
Management's skills and experience with respect to such instruments and usually
depends on its ability to forecast price movements correctly. Should prices move
unexpectedly, the Fund may not achieve the anticipated benefits of the
transactions or may realize losses and thus be in a worse position than if such
strategies had not been used.
FUTURE DEVELOPMENTS
The Fund may, following written notice to its shareholders, take advantage of
other investment practices that are not currently contemplated for use by the
Fund or are not available but may yet be developed, to the extent such
investment practices are consistent with the Fund's investment objective and
legally permissible for the Fund. Such investment practices, if they arise, may
involve risks that exceed those involved in the activities described above.
PORTFOLIO TURNOVER
Spirit Management anticipates that the Fund's annual rate of turnover will not
exceed 100%. A 100% annual turnover rate would occur if all of the securities in
the Fund's portfolio are replaced once in a period of one year. A higher rate of
portfolio turnover (100% or more) involves correspondingly greater brokerage and
other expenses than a lower rate, which must be borne by the Fund and its
shareholders. High portfolio turnover also may result in the realization of
substantial net short-term capital gains. See "Investment Policies and
Techniques" in the Fund's Statement of Additional Information.
RISK CONSIDERATIONS
GENERAL
Investments in common stocks and other equity securities of real estate
investment trusts and other real estate industry companies and the use by the
Fund of various investment techniques involve risks different from, and, in
certain cases, greater than the risks presented by equity securities generally.
An investment in the Fund is subject to certain risks associated with the direct
ownership of real estate and with the real estate industry in general, including
possible declines in the value of real estate, general and local economic
conditions, environmental problems and changes in interest rates. To the extent
the Fund invests in taxable municipal debt obligations, the credit quality of
these instruments will depend upon the financial strength of the issuing
municipality or other public body. These risks and certain others are discussed
in this Prospectus. An investment in the Fund is suitable for moderately
aggressive, long-term investors who may wish to consider investing a portion of
their overall equity portfolio in a real estate mutual fund.
REAL ESTATE INDUSTRY
Although the Fund does not invest directly in real estate, it does invest
primarily in Real Estate Equity Securities and does have a policy of
concentration of its investments in the real estate industry. Therefore, an
investment in the Fund is subject to certain risks associated with the direct
ownership of real estate and with
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the real estate industry in general. These risks include, among others: possible
declines in the value of real estate; risks related to general and local
economic conditions; possible lack of availability of mortgage funds;
overbuilding; extended vacancies of properties; increases in competition,
property taxes and operating expenses; changes in zoning laws; costs resulting
from the clean-up of, and liability to third parties for damages resulting from,
environmental problems; casualty or condemnation losses; uninsured damages from
floods, earthquakes or other natural disasters; limitations on and variations in
rents; and changes in interest rates. To the extent that assets underlying the
Fund's investments are concentrated geographically, by property type or in
certain other respects, the Fund may be subject to certain of the foregoing
risks to a greater extent.
In addition, if the Fund receives rental income or income from the disposition
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. See "Dividends, Distributions and
Taxes" in the Statement of Additional Information. Investments by the Fund in
securities of companies providing mortgage servicing will be subject to the
risks associated with refinancings and their impact on servicing rights.
REITs
Investing in REITs involves certain unique risks in addition to those risks
associated with investing in the real estate industry in general. Equity REITs
may be affected by changes in the value of the underlying property owned by the
REITs, while mortgage REITs may be affected by the quality of any credit
extended. REITs are dependent upon management skills, are not diversified, are
subject 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.
REITs (especially mortgage REITs) are also subject to interest rate risks. When
interest rates decline, the value of a REIT's investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the
value of a REIT's investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on a REIT's investments in such loans will gradually
align themselves to reflect changes in market interest rates, causing the value
of such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated with investing in
small capitalization companies. REITs may have limited financial resources, may
trade less frequently and in a limited volume and may be subject to more abrupt
or erratic price movements than larger company securities. Historically, small
capitalization stocks, such as REITs, have been more volatile in price than the
larger capitalization stocks included in the S&P Index of 500 Common Stocks.
<PAGE>
MORTGAGE-BACKED SECURITIES
Investing in Mortgage-Backed Securities involves certain unique risks in
addition to those risks associated with investment in the real estate industry
in general. These risks include the failure of a counterpart to meet its
commitments, adverse interest rate changes and the effects of prepayments on
mortgage cash flows. When interest rates decline, the value of an investment in
fixed rate obligations can be expected to rise. Conversely, when interest rates
rise, the value of an investment in fixed rate obligations can be expected to
decline. In contrast, as interest rates on adjustable rate mortgage loans are
reset periodically, yields on investments in such loans will gradually align
themselves to reflect changes in market interest rates, causing the value of
such investments to fluctuate less dramatically in response to interest rate
fluctuations than would investments in fixed rate obligations.
Further, the yield characteristics of Mortgage-Backed Securities, such as those
in which the Fund may invest, differ from those of traditional fixed income
securities. The major differences typically include more frequent interest and
principal payments (usually monthly), the adjustability of interest rates, and
the possibility that prepayments of principal may be made substantially earlier
than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors, and cannot be
predicted with certainty. 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 increasing 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 securities. Under certain interest rate and prepayment
rate scenarios, the Fund may fail to recoup fully its investment in
Mortgage-Backed Securities 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 securities as a means of locking in interest rates.
SHORT SALE
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 any loss increased, by the amount of any premium or
interest the Fund may be required to pay in connection with a short sale.
TAXABLE MUNICIPAL OBLIGATIONS
The principal risk factors associated with ownership by the Fund of taxable
municipal obligations would be the risk of fluctuations in interest rates
whereby an increase in interest rates causes a decline in the value of the debt
obligation and the risk of default among one or more issuers of taxable
municipal obligations which are held by the Fund. Another risk of the Fund
investing in taxable municipal obligations would 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.
<PAGE>
SECURITIES RATINGS
The ratings of securities by S&P, Moody's, and other ratings services are a
generally accepted barometer of credit risk. They are, however, subject to
certain limitations from an investor's standpoint. The rating of an issuer is
heavily weighted by past developments and does not necessarily reflect probable
future conditions. There is frequently a lag between the time a rating is
assigned and the time it is updated. In addition, there may be varying degrees
of difference in credit risk of securities within each rating category.
ABSENCE OF OPERATING HISTORY
While principals of Spirit Management have experience in the purchase and sale
of the type of investments permitted by the Fund, neither Spirit Management nor
its principals have previously served as an adviser to a mutual fund and do not
have other advisory clients.
CERTAIN FUNDAMENTAL INVESTMENT LIMITATIONS
In addition to its fundamental investment objective, the Fund has adopted the
following fundamental investment limitations, which may not be changed without
the approval of its shareholders. Additional investment policies and limitations
are set forth in the Statement of Additional Information.
The Fund may not: (i) with respect to 75% of its total assets, have such assets
represented by other than: (a) cash and cash items, (b) U.S. Government
securities, or (c) securities of any one issuer (other than the U.S. Government
and its agencies or instrumentalities) not greater in value than 5% of the
Fund's total assets, and not more than 10% of the outstanding voting securities
of such issuer; (ii) 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 more than 25% of the outstanding
securities of any one class of securities of such issuer; (iii) 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; (iv) 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; or (v) 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.
HOW TO PURCHASE SHARES
General
You can purchase shares of the Fund through broker-dealers or directly through
SSH Securities, Inc. (the "Distributor"), the Fund's principal distributor.
Class A Shares are sold at the net asset value next determined after receipt by
the Fund's transfer agent, FPS Services, 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 net asset value, but a CDSC may
be imposed at the time of redemption. The minimum initial investment for Class A
Shares and Class B Shares is $1,000. See "Alternative Purchase Arrangements."
Shares of the Fund are offered only to residents of states in which the shares
are registered or qualified. No share certificates will be issued in connection
with the purchase of Fund shares. See "Sales Charge."
Purchase orders for shares of the Fund that are received by the Transfer Agent
in proper form by the close of the New York Stock
<PAGE>
Exchange ("NYSE")(currently 4:00 p.m. Eastern time), on any day that the NYSE is
open for trading, will be purchased at the Fund's next determined net asset
value (plus any applicable sales charge). Orders for Fund shares received after
4:00 p.m. Eastern time will be purchased at the net asset value (plus any
applicable sales charge) determined on the following business day.
The Fund and the Transfer Agent each reserves the right to reject any purchase
order in whole or in part. The Fund reserves the right to suspend the offering
of shares of the Fund. The Fund also reserves the right to vary the initial and
subsequent investment minimums, or to waive the minimum investment requirements
for any investor. The Fund will not accept as payment for purchase order a check
which has been endorsed by a third party.
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 31% 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 31% of your taxable distributions and redemptions.
Purchases by Mail
Shares may be purchased initially by completing the application accompanying
this Prospectus and mailing it to the Transfer Agent, together with a check
payable to the "Spirit of America Investment Fund, Inc." The check or money
order and application should be mailed to FPS Services, Inc., 3200 Horizon
Drive, P.O. Box 61503, King of Prussia, PA 19406-0903. If this is an initial
purchase, please send a minimum of $1,000 (including IRA and SEP accounts).
Purchases by Wire
Before making an initial investment by wire, an investor must first telephone
the Transfer Agent at (800) 452-4892 or (610) 239-4600 in order to be assigned
an account number. The investor's 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: FPS Services,
Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903.
Shareholders having an account with a commercial bank that is a member firm of
the Federal Reserve System may purchase shares of the Fund by requesting their
bank to transmit funds by wire to: United Missouri Bank K.C. N.A., ABA
#10-10-00695/Attention: FPS Services, Inc., A/C 98-7037-071-9/FPS "Spirit of
America Investment Fund, Inc.", along with the shareholder's name and account
number as specified on the shareholder's account registration.
Additional investments may be made at any time through the wire procedures
described above, which must include a shareholder's name and account number. The
shareholder's 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. Shareholders may be subject to 31% withholding
if original application is not received.
Purchases through Broker-Dealers
The Fund may accept telephone orders only from broker-dealers or service
organizations that have been previously approved by the Fund. It is the
responsibility of such broker-dealers or service organizations to promptly
forward purchase orders and payments for the same to the Fund. Brokers,
financial institutions, service organizations, banks and bank trust departments
through which an investor purchases shares of the Fund, may charge the
shareholder a transaction fee or other fee for their services at the time of
purchase. Minimums of broker/dealers or accounts opened through a fund network
may apply.
<PAGE>
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 by 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 that 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, financial institutions
or service organizations. Individuals are not able to make purchases by
telephone.
Subsequent Investments
Once an account has been opened, subsequent purchases may be made 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 portion 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 FPS Services, Inc., c/o United
Missouri Bank KC, N.A., P.O. Box 412797, Kansas City, Missouri 64141-2797.
Orders to purchase 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 check has
cleared, which may take up to fifteen calendar days after the purchase date.
<PAGE>
ALTERNATIVE PURCHASE ARRANGEMENTS
The Alternative Purchase Arrangements permit an investor to choose the method of
purchasing shares that is most beneficial given the amount of the purchase and
the length of time the investor expects to hold the shares. The primary
difference between the Classes lies in their sales charge structures and ongoing
expenses. Class A and Class B Shares represent interests in the same portfolio
of investments of the Fund.
Class A Shares
An investor who elects the front-end sales charge alternative acquires Class A
Shares, which incur a sales charge when they are purchased, but generally are
not subject to any sales charge when they are redeemed. 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
Plan expenses of up to a maximum of 0.30% of average daily net assets of such
shares. Certain purchases of Class A Shares qualify for reduced front-end sales
charges.
Class B Shares
An investor who elects the deferred sales charge alternative acquires Class B
Shares, which do not incur a front-end sales charge when they are purchased, but
are subject to a Contingent Deferred Sales Charge ("CDSC") if they are redeemed
within seven years of purchase. Class B Shares are subject to annual 12b-1 Plan
expenses of up to a maximum of 1.00% (0.25% of which are service fees to be paid
to the Distributor, dealers or others for providing personal service and/or
maintaining shareholder accounts) of average daily net assets of such shares for
approximately eight years after purchase. Class B Shares permit all of the
investor's dollars to work from the time the investment is made. The higher
12b-1 Plan expenses paid by Class B Shares will cause such shares to have a
higher expense ratio and to pay 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."
<PAGE>
Factors to Consider in Choosing a Class of Shares
The alternative purchase arrangements described above permit investors to choose
the method of purchasing shares that is most suitable given the amount of their
purchase, the length of time they expect to hold their shares and other relevant
circumstances. Investors should determine whether, given their particular
circumstances, it is more advantageous to purchase Class A Shares and incur a
front-end sales charge or purchase Class B Shares and have the entire initial
purchase amount invested in the Fund with their investment being subject to a
CDSC if they redeem shares within seven years of purchase. In addition,
investors 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.
For the distribution and related services provided to, and the expenses borne on
behalf of the Fund, the Distributor and others will be paid, in the case of
Class A Shares, from the proceeds of the front-end sales charge and 12b-1 Plan
fees and, in the case of Class B Shares, from the proceeds of the 12b-1 Plan
fees and the CDSC (if applicable) incurred upon redemption.
Purchasing Class A Shares
The applicable sales charge a shareholder of Class A Shares pays depends on the
dollar amount invested, as shown in the table below.
The sales charge is a variable percentage of the offering price depending upon
the amount of the sale.
Total Sales Charge
as a Percentage of Amount Paid to
----------------------- Dealer as a
Offering Net Amount Percentage of
Price Invested Offering Price
----- -------- --------------
Under $100,000 5.25% 5.54% 5.00%
$100,000 but less
than $250,000 4.50% 4.71% 4.25%
$250,000 but less
than $500,000 3.75% 3.90% 3.50%
$500,000 but
less than
$1,000,000 3.00% 3.09% 2.75%
$1,000,000
or more* 0% 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 reimbursement for
distribution-related expenses. A commission will be paid to authorized dealers
who initiate and are responsible for purchases of $1 million or more.
The Distributor will pay the 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 offer
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
<PAGE>
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 will be assessed on the
reinvestment 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, an
investor must so notify his or her distributor at the time of each purchase of
shares which qualifies for the reduction.
Rights of Accumulation
For investors who already have an account with the Fund in Class A shares,
reduced sales charges based upon the sale charge schedule 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 the investor
currently owns to the amount being invested. The reduced sales charge is
applicable only to current purchases. It is the investor's responsibility to
notify the Transfer Agent at the time of subsequent purchases that the account
is eligible for the Right of Accumulation. The investor must also give the
account numbers of his accounts, and those accounts held in the name of his
spouse or for minor children, the age of such children and the specific
relationship of each such person to the investor.
Letter of Intent
An investor of Class A Shares may qualify for a reduced sales charge immediately
by signing a non-binding Letter of Intent stating the investor's intention 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 investment 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 indicated has been purchased. If the full
amount indicated is not purchased within the 13-month period, a shareholder's
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 the
shareholder would have had to pay on his or her aggregate purchases if the total
of such purchases had been made at a single time. It is the shareholder's
responsibility to notify the Transfer Agent at the time the Letter of Intent is
submitted that there are prior purchases that may apply.
The term "single purchaser" refers to (i) an individual, (ii) an individual and
spouse purchasing shares of the Fund for their own account or for trust or
custodial accounts of their minor children, or (iii) a fiduciary purchasing for
any one trust, estate or fiduciary account, including employee benefit plans
created under Sections 401 and 457 of the Code including related plans of the
same employer.
Sales at Net Asset Value
The Fund may sell Class A Shares at net asset value (i.e., without any initial
sales charge) to certain categories of investors, including: (i) investment
advisory clients of the Adviser or its affiliates; (ii) officers and present or
former Directors of the Fund; directors and present and full-time employees of
selected dealers or agents; or the spouse, sibling, direct ancestor or direct
descendant (collectively "relatives") of any such person; or any
<PAGE>
trust, individual retirement account or retirement plan account for the benefit
of any such person or relative; or the estate of any such person or relative, if
such shares are purchased for investment purposes (such shares may not be resold
except to the Fund); (iii) the Adviser, the Distributor, and their affiliates;
and certain employee benefit plans for employees of the Adviser 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 retirement accounts (including
individual retirement accounts to which simplified employee pension ("SEP")
contributions are made), if such plans or accounts are established or
administered under programs sponsored by administrators or other persons that
have been approved by the Distributor; and (vi)investors who redeem shares of
the Fund and then decide to reinvest their redemption proceeds in additional
shares of the Fund within 30 days.
Purchasing Class B Shares
Class B Shares are sold at net asset value next determined without an initial
sales charge so that the full amount of an investor's purchase payment may be
immediately invested in the Fund. A CDSC, however, will be imposed on certain
redemptions of Class B Shares redeemed within seven years after purchase. The
CDSC will be assessed on an amount equal to the lesser of the then current net
asset value or the original purchase price of the Class B Shares being redeemed.
Accordingly, no CDSC will be imposed on amounts representing increases in net
asset value above the initial purchase price of the shares identified for
redemption. The following types of
<PAGE>
shares may be redeemed without charge at any time: (i) shares acquired by
reinvestment of distributions and (ii) shares held for more than seven years. In
determining whether a CDSC is payable 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 or 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 amount of any applicable CDSC will be calculated by multiplying the lesser
of the original purchase price or the net asset value of such shares at the time
of redemption by the applicable percentage shown in the table below.
Redemption Within Percentage
----------------- ----------
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%
Eighth Year 0.0%
CDSC Waivers
The CDSC is waived on redemptions of Class B Shares (i) following the death or
disability (as defined in the Code) of all registered owners occurring after the
purchase of the shares being redeemed, (ii) in connection 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 liquidate 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 will be automatically
converted into Class A Shares on the eighth year 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
anniversary after a purchase of Class B Shares falls on a Conversion Date, an
investor's Class B Shares will be converted on that date. If the eighth
anniversary occurs between Conversion Dates, an investor's Class B Shares will
be converted on the next Conversion Date after such anniversary. Consequently,
if a shareholder's eighth anniversary falls on the date after a Conversion Date,
that shareholder will have to hold Class B Shares for as long as an additional
three months after the eighth anniversary after purchase before the shares will
automatically convert into Class A Shares.
Investors are reminded that 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.
All such automatic conversions of Class B Shares will constitute a tax-free
exchange for federal income tax purposes.
How to Redeem Shares
Shareholders may redeem their shares of the Fund on any business day that the
NYSE is open for business. Redemptions will be effective at the net asset value
(subject to any applicable CDSC fees) next determined after receipt by the
Transfer Agent of a redemption request meeting the requirements described below.
Redemption by Mail
Shareholders may redeem their shares by submitting a written request for
redemption to FPS Services, Inc., 3200 Horizon Drive, P.O. Box 61503, King of
Prussia, PA 19406-0903.
<PAGE>
A written redemption request to the Transfer Agent must be in good order, which
means that it must: (i) identify the shareholder's 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. A guarantee may be obtained from any
commercial bank, credit union, member firm of a national securities exchange,
registered securities association, clearing agency or savings and loan
association. A credit union must be authorized to issue signature guarantees.
Signature guarantees will be accepted from any eligible guarantor institution
that participates in a signature guarantee program. Notary public endorsements
will not be accepted. The Transfer Agent may require additional supporting
documents for redemptions made by corporations, executors, administrators,
trustees or guardians and retirement plans.
A redemption request will not be deemed to be properly 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.
Redemption by Telephone
Shareholders who have so indicated on the application, or have subsequently
arranged in writing to do so, may redeem shares by calling the Transfer Agent at
(800)452-4892 or (610) 239-4600 during normal business hours. In order to
arrange for redemption by wire or telephone after an account has been opened, or
to change the bank or account designated to receive redemption proceeds, a
written request with a signature guarantee must be sent to the Transfer Agent.
The Fund reserves the right to refuse a wire or telephone redemption if it is
believed 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, shareholders 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 believed 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 procedures to
verify the genuineness of telephone instructions, the Fund may be liable for
losses due to fraudulent or unauthorized instructions. The Fund reserves the
right to refuse a telephone redemption if it is believed advisable to do so.
Written confirmation will be provided for all redemption transactions initiated
by telephone. Proceeds from a telephone redemption shall only be sent to the
shareholder's address of record or wired to the shareholder's bank account on
file with the Transfer Agent.
<PAGE>
General Redemption Information
When a request for redemption is made shortly after the purchase of shares, you
will not receive the redemption proceeds until the check(s) received for the
shares purchased has cleared. Although the redemption proceeds may be delayed,
the redemption request will be processed at the net asset value 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
15 calendar days or more. You may avoid such delays by purchasing shares by
federal funds wire.
Redemption proceeds may be wired directly to any bank previously designated by
an investor on his or her 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. It should also be noted that banks may impose a
fee for wire services. In addition, there may be fees for redemptions made
through brokers, financial institutions and service organizations.
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 disadvantageous
conditions or to the detriment of the remaining shareholders of the Fund.
Pursuant to the Fund's Articles of Incorporation, however, payment for shares
redeemed may also be made in-kind, or partly in cash and partly in-kind.
The Fund has elected, pursuant to Rule 18f-1 under the Investment Company Act of
1940, as amended (the "1940 Act"), to redeem its shares solely in cash up to the
lesser of $250,000 or 1% of the net asset value of the Fund, during any 90-day
period for any one shareholder. Any portfolio securities paid or distributed
in-kind would be in readily marketable securities and valued in the manner
described below. See "Net Asset Value." In the event that an in-kind
distribution is made, a shareholder 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 payment for
more than seven days during any period when (1) trading on the NYSE is
restricted or the NYSE is closed for other than customary weekends and holidays,
(2) the SEC has by order permitted such suspension for the protection of the
Fund's shareholders, or (3) 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 its then
current net asset value if at any time the total investment does not have a
value of at least $500 as result of shareholder redemptions, but not market
fluctuations. A shareholder will be notified that the value of his or her
account is less than the required minimum and will be allowed at least 60 days
to bring the value of the account up to the minimum before the redemption is
processed. No CDSC will be imposed on any involuntary redemption.
SPECIAL SERVICES
Automatic Investment Plan
Once an account has been opened, a shareholder can make additional purchases of
shares of the Fund through an automatic 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. An
investor may authorize the automatic withdrawal of funds from his or her bank
account by opening an account with a minimum of $1,000 and completing the
automatic investment plan section of the New Account Application 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.
<PAGE>
Systematic Cash Withdrawal Plan
The Fund offers a Systematic Cash Withdrawal Plan as another option which may be
utilized by an investor who wishes to withdraw funds from his or her account on
a regular basis. To participate in this option, an investor must either own or
purchase shares having a value of $10,000 or more. Automatic payments by check
will be mailed to the investor 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 Systematic Withdrawal Plan is not
available with respect to Class B Shares. For information about starting a
systematic cash withdrawal plan, call the Transfer Agent at (800)452-4892 or
(610)239-4600.
<PAGE>
Net Asset Value
The offering price and net asset value per share of each Class of the Fund are
calculated as of the close of regular trading on the NYSE, currently 4:00 p.m.,
Eastern Time. Currently, 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.
The methodology and procedures for determining net asset value are identical for
each Class, but due to the specific distribution expenses and other costs
allocable to each Class, the net asset value of each Class will vary. Class A
Shares are purchased at the offering price per share, while Class B Shares are
purchased at the net asset value per share.
The net asset value 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.
Expenses are accrued daily and applied when determining the net asset value. The
Fund's equity securities are valued based on market quotations or, when no
market quotations are available, at fair value as determined in good faith by,
or under direction of, the Board of Directors. Market quotations are generally
the last reported sales price on the principal exchange on which the security
trades, or if no sale price is reported, 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. When market quotations are not readily available,
securities and other assets are valued at fair value as determined in good faith
by the Board of Directors.
Securities are valued through valuations obtained from a commercial pricing
service or at the most recent mean of the bid and asked prices provided by
investment dealers in accordance with procedures established by the Board of
Directors.
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 when
purchased, and thereafter by assuming a constant amortization to maturity of any
discount or premium, regardless of the impact on 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 procedures
established by and under the supervision of the Board of Directors.
MANAGEMENT OF THE FUND
Board of Directors
The Fund is managed by its Board of Directors and all powers and authorities are
exercised by or under the direction of the Board of Directors.
Investment Adviser
Subject to the policies of, review by, and overall control of the Board of
Directors of the Fund, Spirit of America Management Corp. ("Spirit Management"),
477 Jericho Turnpike, Syosset, New York 11791, has been retained to act as the
Fund's manager and investment adviser pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"). Spirit Management was incorporated in 1997
and is a registered investment adviser under the Investment Advisers Act of
1940, as amended. Spirit Management is engaged in the business of managing the
investments of the Fund. Mr. David Lerner is the sole shareholder, director and
controlling person of Spirit Management.
<PAGE>
Spirit Management supervises the management of the Fund including, among other
things, reporting to the Directors regarding economic and statistical
information as requested by the Directors. 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 policies and
limitations. Spirit Management also furnishes office space and certain
administrative and clerical services, and employs the personnel needed with
respect to Spirit Management's responsibilities under the Advisory Agreement.
Under the Advisory Agreement, 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 higher
than the management fees paid by most U.S. registered investment companies,
although Spirit Management believes that the fee is generally comparable to the
management fees paid by other open-end registered investment companies that
invest in securities similar to the Fund. The fee is accrued daily and paid
monthly.
From time to time, Spirit Management may voluntarily waive all or a portion of
its management fee and/or reimburse the Fund for certain expenses without
further notification of the commencement or termination of such waiver or
reimbursement. Any such waiver or absorption will have the effect of lowering
the overall expense ratio of the Fund and increasing the Fund's overall return
to investors at the time any such amounts are waiver and/or absorbed. Spirit
Management has voluntarily agreed to waive all or a portion of its fee, and/or
to reimburse expenses of the Fund to the extent necessary in order to limit net
operating expenses for the first year of operations to an annual rate of not
more than 1.97% of the Fund's average daily net assets. Any amounts waived or
reimbursed by Spirit Management are subject to reimbursement by the Fund within
the following three years, provided that the Fund is able to effect such
reimbursement and remain in compliance with the stated expense limitation.
The person primarily responsible for the day-to-day management of the Fund's
portfolio since inception is Ronald W. Weiss. Mr. Weiss has been associated with
Spirit Management since its inception when it was formed for the purpose of
advising the Fund with respect to its investments. Mr. Weiss has spent over
twenty years in the real estate finance and investment banking industry, which
includes debt and equity financing, real estate investment trusts, asset
management, new investment product 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. Mr.
Weiss was Senior Real Estate Investment Trust Analyst and Vice President of
First Albany Corporation, New York, NY from 1994 through April of 1996. Prior to
that, Mr. Weiss was Managing Director and Real Estate General Counsel for
Primerica Corporation, New York, NY from 1991 to 1994. From 1972 through 1990 he
served as founder, Chairman and CEO of Shearson Lehman Real Estate Corporation,
Executive Vice President of Shearson Lehman Brothers, Inc., and an officer and
director of thirty-five Shearson subsidiary companies.
EXPENSES OF THE FUND
Expenses attributable to the Fund, but not a particular Class, will be allocated
to each Class on the basis of relative net assets. In addition to the payments
to Spirit Management under the Advisory Agreement described above, the Fund pays
certain other costs, including, but not limited to: (i) custody, transfer agent
and administrator expenses, (ii) fees of the Directors who are not affiliated
with Spirit Management, (iii) legal and auditing expenses,
<PAGE>
(iv) clerical, accounting and other office costs, (v) costs of printing the
Fund's prospectuses and shareholder reports, (vi) costs of maintaining the
Fund's existence, (vii) interest charges, taxes, brokerage fees and commissions,
(viii) costs of stationery and supplies, (ix) expenses and fees related to
registration and filing with the U.S. Securities and Exchange Commission ("SEC"
or "Commission") and with state regulatory authorities, and (x) such
promotional, shareholder servicing and other expenses as may be contemplated by
the Distribution Plans pursuant to Rule 12b-1, described below.
Class-specific expenses relating to the distribution fee payments associated
with a Rule 12b-1 plan for a particular class of shares and any other costs
relating to implementing or amending such plan (including obtaining shareholder
approval of such plan or any amendment thereto), will be borne solely by
shareholders of such class or classes.
DISTRIBUTION PLANS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. The Fund has adopted two plans of
distribution ("Class A Plan" and "Class B Plan") pursuant to Rule 12b-1. Each
Plan permits the Fund to pay SSH Securities, Inc.("SSH" or the "Distributor")
from the assets of the respective Classes a monthly fee for the Distributor's
services and expenses in distributing and promoting sales of shares and
providing personal services and/or maintaining shareholder accounts ("service
fees"). The Plans provide that SSH 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 12b-1 plan expenses relating to the 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.
Under the Class A Plan, the fees paid by the Fund from the assets of the Class A
Shares to the Distributor and others may not exceed 0.30% of the Class A Shares'
average daily net assets in any year. Amounts payable to the Distributor with
respect to Class A Shares under the Class A Plan in a given year may not fully
reimburse the Distributor for its actual distribution-related expenses during
such year. In such event, there is no carryover of such reimbursement
obligations to succeeding years.
Under the Class B Plan, the fees paid by the Fund from the assets of the Class B
Shares to the Distributor and others may not exceed 1.00% (of which up to 0.25%
may be service fees to be paid by the Fund to the Distributor, dealers and
others, for providing personal service and/or maintaining shareholder accounts)
of the Class B Shares' average daily net assets in any year. The Class B Plan is
designed to permit an investor to purchase such 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 combined CDSC and distribution fee is to provide for the
financing of the distribution of Class B shares. The Distributor will not use
the proceeds from the CDSC applicable to Class B Shares to defray
distribution-related expenses attributable to Class A 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
<PAGE>
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 SSH and any amounts paid for the above
services will be paid pursuant to a servicing or other agreement.
Distribution expenses accrued by SSH 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 within
the rules of the NASD concerning sales charges.
The fees paid to the Distributor under the Plans are subject to 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 Plans 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment income
and capital gains to shareholders each year. Normally, dividends are declared in
March, June, September and December. Capital gains, if any, will normally be
distributed in December but may be made more frequently as deemed advisable by
the Board of Directors. All such dividends and distributions are taxable to the
shareholder whether or not reinvested in shares. The Fund will distribute the
return of capital it receives from the REITs in which the Fund invests. The
REITs pay distributions based on cash flow, without regard to depreciation and
amortization. As a result, a portion of the distributions paid to the Fund and
subsequently distributed to shareholders is a return of capital. 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 of the Fund will share proportionately in the investment 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 result 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 dividend or
distribution equal to the cash amount of such income dividend or distribution,
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
<PAGE>
a particular dividend or distribution. 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
The Fund intends to qualify each year as a "regulated investment company" under
the Code so it will not pay federal taxes on either income or capital gains
distributed to shareholders, although there can be no assurance that they will
so qualify. 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 mid-term or long-term capital
gains, irrespective of the length of time a shareholder may have held his or her
stock. Capital gains distributions are not eligible for the dividends-received
deduction referred to above.
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
returns of capital will be taxable as capital gain.
A distribution will be treated as paid on December 31 of the current calendar
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 account,
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 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or if the shareholder is otherwise subject to backup withholding.
<PAGE>
Shareholders will be advised annually as to the federal tax status of income
dividends and capital gain 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.
PERFORMANCE INFORMATION
Performance information such as total return for the Fund may be quoted in
advertisements or in communications to shareholders. Such performance
information, which is calculated separately for Class A Shares and Class B
Shares, may be useful in reviewing the performance of each Class and for
providing a basis for comparison with other investment alternatives. However,
because the net investment return of each Class of the Fund changes in response
to fluctuations in market conditions, interest rates and Fund expenses, any
given performance quotation should not be considered representative of the
performance of each Class for any future period. The value of an investment in
the Fund will fluctuate and an investor's shares, when redeemed, may be worth
more or less than their original cost.
The Fund's total return is the change in value of an investment in the Fund over
a particular period, assuming that all distributions have been reinvested. Thus,
total return reflects not only income earned, but also variations in share
prices at the beginning and end of the period. Average annual return reflects
the average percentage change per year in the value of an investment in the
Fund. Aggregate total return reflects the total percentage change over the
stated period. Please refer to the Statement of Additional Information for more
information on performance.
From time to time, the Fund advertises its total return. Such advertisements
disclose the Fund's average annual compounded total return for the periods
prescribed by the SEC. The Fund's total return for each such period is computed
by finding, through the use of a formula prescribed by the SEC, the average
annual compounded rate of return over the period that would equate an assumed
initial amount invested to the value of the 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. Any quotation of investment performance not reflecting the maximum
initial sales charge or contingent deferred sales charge would be reduced if the
sales charges were used. The Fund's advertisements may quote performance
rankings or ratings of the Fund by financial publications or independent
organizations such as Lipper Analytical Services, Inc. and Morningstar, Inc. or
compare the Fund's performance to various indices.
The performance of Class A Shares and Class B Shares will differ because of the
front-end sales charge (when applicable) for Class A Shares and the contingent
deferred sales charge (when applicable) and higher 12b-1 distribution expenses
for Class B Shares.
GENERAL INFORMATION
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the NASD and subject to seeking best price
and execution, the Fund may consider sales of its shares as a factor in the
selection of dealers to enter into portfolio transactions with the Fund.
ORGANIZATION
Spirit of America Investment Fund, Inc. is a Maryland corporation organized on
May 15, 1997. The authorized capital stock of the Fund is one billion
(1,000,000,000) shares, par value of $0.001 per share.
<PAGE>
Under Maryland Law, the Fund's Board of Directors may increase the number of
authorized shares without approval of the shareholders. Currently, there are two
classes of shares issued by the Fund.
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 to 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. The Board of Directors may establish, without shareholder approval,
additional portfolios, which may have different investment objectives, and
additional classes of shares. If an additional portfolio or class were
established in the Fund, each share of the portfolio or class would normally be
entitled to one vote for all purposes. 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. Certain additional
matters relating to the Fund's organization are discussed in its Statement of
Additional Information.
SHAREHOLDER MEETINGS
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 ADMINISTRATOR
The Fund has retained FPS Services, Inc. ("FPS"), 3200 Horizon Drive, P.O. Box
61503, King of Prussia, PA 19406-0903, to provide administrative services to the
Fund. Such services relate to administration, operations and compliance. For
such services, the Fund has agreed to pay FPS a fee, at the annual rate of 0.15%
of the first $50 million of total average net assets, 0.10% of the next $50
million of total average net assets and 0.05% of total net assets in excess of
$100 million, subject to a minimum annual fee of $67,000.
TRANSFER AGENT AND FUND ACCOUNTANT
FPS also 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. FPS also performs certain
accounting and pricing services for the Fund, including the daily calculation of
the Fund's net asset value per share. The Fund intends to be fully year 2000
compliant by December, 1999.
CUSTODIAN
The Bank of New York serves as custodian for the safekeeping of securities, cash
and other assets of the Fund.
PRINCIPAL DISTRIBUTOR
SSH Securities, Inc., located at 477 Jericho Turnpike, Syosset, New York 11791,
is the principal distributor of shares of the Fund.
SHAREHOLDER REPORTS AND INQUIRIES
The Fund issues unaudited financial information semiannually and audited
financial statements annually. Shareholder inquiries should be addressed to the
Fund c/o FPS Services, Inc., 3200 Horizon Drive, P. O. Box 61503, King of
Prussia, PA 19406-0903. Purchase and redemption transactions should be made
through FPS Services, Inc. by calling (800)452-4892.
<PAGE>
[OUTSIDE BACK COVER]
INVESTMENT ADVISER
Spirit of America Management, Inc.
477 Jericho Turnpike
Syosset, NY 11791
(516) 390-5575
DISTRIBUTOR
SSH Securities, Inc.
477 Jericho Turnpike
Syosset, NY 11791
(516) 390-5565
SHAREHOLDER SERVICES
FPS Services, Inc.
3200 Horizon Drive, P. O. Box 61503
King of Prussia, PA 19406-0903
(800) 452-4892
(610) 239-4600
CUSTODIAN
The Bank of New York
48 Wall Street
New York, New York 10286
LEGAL COUNSEL
Ruthann G. Niosi, Esq., P.C.
91 East End Avenue
New York, New York 10028
AUDITORS
Tait Weller & Baker
8 Penn Center Plaza
Suite 800
Philadelphia, PA 19103
<PAGE>
[GRAPHIC OMITTED]
SPIRIT OF AMERICA INVESTMENT FUND, INC. CLASS A AND
ACCOUNT APPLICATION CLASS B
ACCOUNT REGISTRATION (Please Print -- check only one)
[ ] INDIVIDUAL OR JOINT ACCOUNT [ ] Mr. [ ] Mrs. [ ] Miss [ ] Ms.
- -
- --------------------------------------------------------------------------------
Individual Owner's Name Social Security Number
- -
- --------------------------------------------------------------------------------
Joint Owner's Name (if applicable) Social Security Number
[ ] GIFT OR TRANSFER TO A MINOR
, as a custodian for
- --------------------------------------------------------------------------------
Custodian's Name (only one)____________________ Minor's Name__________________
under the UGMA/UTMA (circle one) - -
-----------------------------------------------------------------------
State Minor's Social Security Number
[ ] TRUST ACCOUNT
- --------------------------------------------------------------------------------
Trustee(s) Name of Trust
- --------------------------------------------------------------------------------
Trust Date Trust's Taxpayer Identification Number
[ ] CORPORATION, PARTNERSHIP OR OTHER ENTITY (If corporation, please include
completed corporate resolution.)
- --------------------------------------------------------------------------------
Name of Corporation, Partnership, Association or Other Entity
- --------------------------------------------------------------------------------
Type of Entity Taxpayer Identification Number
ADDRESS
( ) ( )
- --------------------------------------------------------------------------------
Street Address or P.O. Box Home Telephone Number Business Telephone Number
Citizen of: [ ] U.S. [ ] Other
- --------------------------------------------------------------------------------
City State Zip Code
INVESTMENT SELECTION (MINIMUM $1,000)
[ ] By Check: Please make your check payable to SPIRIT OF AMERICA INVESTMENT
FUND, INC. "CLASS A" OR "CLASS B" Amount of Investment $_____
[ ] CLASS A SHARES [ ] CLASS B SHARES
[ ] By wire: Funds were wired on ______________ Amount of Investment $_____
Date
DISTRIBUTION OPTIONS
All distributions will be reinvested, unless noted below:
[ ] Reinvest both income dividends [ ] Pay income dividends in cash and
and capital gains in shares. reinvest capital gains in shares.
[ ] Reinvest income dividends and pay [ ] Pay income dividends and capital
capital gains in cash. gains in cash.
LETTER OF INTENT(CLASS A SHARES ONLY) RIGHTS OF ACCUMULATION
[x] I agree to the terms of the Letter [x] I currently have investment(s) in
of Intent set forth in the Prospectus. the Fund which may qualify me for a
Although I am not obliged to do so, it reduced sales charge.
is my intention to invest over a
13-month period an aggregate at least
equal to:
[ ] $100,000 [ ] $250,000 Account Title
[ ] $500,000 [ ] $1,000,000 -------------------------------------
Account Number
-------------------------------------
(Note: For a Letter of Intent, the Amount $
minimum initial investment must equal -------------------------------------
at least 5% of the intended amount).
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN (CLASS A SHARES ONLY)
You may start a Systematic Withdrawal Plan and direct the Fund to send a
specified amount ($50 minimum) to your Account Registration Address on a
monthly, quarterly, semiannual or annual basis. This requires a minimum balance
of $10,000. Please refer to the Prospectus for complete details.
[ ] Please establish a Systematic Withdrawal Plan under which I will receive
payments:
[ ]monthly [ ]quarterly [ ]semiannually [ ]annually in the amount of____________
($50 minimum)
I would like the checks to begin ________/________. Checks will be mailed on or
month year
about the 25th day of each period.
AUTOMATIC INVESTMENT PLAN
[ ] I have read the terms and conditions of the Automatic Investment Plan set
forth in the Prospectus. I wish to invest on a monthly/ quarterly basis,
directly from my checking account into the Fund. Please provide the wiring
information under "Telephone Redemption" and ATTACH A VOIDED CHECK. Please
designate the amount you would like invested each month/quarter
$_________________
($50 minimum)
[ ] monthly [ ] quarterly (check one)
To begin on the 10th, 15th, 20th (circle one) of the period.
TELEPHONE REDEMPTION
I hereby authorize the acceptance of telephone redemption orders for any or
all shares from this account.
[ ] Redeem by wire
(Proceeds are to be transmitted to the commercial bank designated below)
- --------------------------------------------------------------------------------
Name of Bank
- --------------------------------------------------------------------------------
Bank's ABA (Federal Funds Routing) Number
- --------------------------------------------------------------------------------
Address City State Zip Code
- --------------------------------------------------------------------------------
Account Title Account Number
[ ] Redeem by mail
(Proceeds are to be mailed to the name and address in which account is
registered)
SIGNATURE AND CERTIFICATION
I have received, read and agree to the Under penalties of perjury, I certify
terms of the current Prospectus of the that the social security or taxpayer
Fund. I have the authority and legal identification number entered above is
capacity to purchase shares of the correct and that I have not been
Fund and I am of legal age in my notified by the IRS that I am subject
state. I authorize FPS Services, Inc., to backup withholding.
its affiliates, and the Fund to act on
any instructions believed to be If you are subject to backup
genuine for any service autho rized on withholding check here: [ ]
this form. I agree that they will not
be liable for any resulting loss or
expense.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP WITHHOLDING.
PLEASE SIGN HERE:
- --------------------------------------------------------------------------------
Signature of Owner, Trustee, or Custodian Date
- --------------------------------------------------------------------------------
Signature of Joint Owner (if any) Date
BROKER/DEALER OR INVESTMENT ADVISER AUTHORIZATION
The undersigned Dealer/Adviser agrees to all applicable provisions in this
Application, and guarantees the genuineness of the signature on the Application.
If the shareholder does not sign this Application, the Dealer warrants that this
Application is completed in accordance with the shareholder's instructions and
agrees to indemnify the Funds, Adviser, Distributor and FPS Services, Inc. for
any loss or liability from acting or relying upon such instructions.
------------------------------------- -------------------------------------
Firm's Name Representative's/Adviser's
Name Number
------------------------------------- -------------------------------------
Firm's Address Authorized Signature
<PAGE>
SPIRIT OF AMERICA INVESTMENT FUND, INC.
477 Jericho Turnpike
Syosset, New York 11791
(516)390-5555
STATEMENT OF ADDITIONAL INFORMATION
February 25, 1998
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 25 , 1998. No
investment in shares should be made without first reading the Prospectus. This
Statement of Additional Information is intended to provide additional
information regarding activities and operations of the Fund, and should be read
in conjunction with the Prospectus. A copy of the Prospectus may be obtained
without charge by contacting SSH Securities, Inc. 447 Jericho Turnpike, Syosset,
New York 11791, or calling (516)390-5565.
TABLE OF CONTENTS
Page
Investment Policies and Techniques . . . . . . . . . . .
Investment Restrictions. . . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . . . . . . . . . . .
Control Persons and Principal Holders of Securities. . .
Expenses of the Fund . . . . . . . . . . . . . . . . . .
Shareholder Services . . . . . . . . . . . . . . . . . .
Retirement Plans . . . . . . . . . . . . . . . . . . . .
Net Asset Value. . . . . . . . . . . . . . . . . . . . .
Dividends, Distributions and Taxes . . . . . . . . . . .
Brokerage and Portfolio Transactions . . . . . . . . . .
Performance Information. . . . . . . . . . . . . . . . .
General Information. . . . . . . . . . . . . . . . . . .
Financial Statements.. . . . . . . . . . . . . . . . . .
<PAGE>
INVESTMENT POLICIES AND TECHNIQUES
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 sections in the Prospectus entitled "Investment
Objective", "Investment Policies" and "Investment Practices."
The investment practices described below are not fundamental and may be changed
by the Board of Directors without the approval of the shareholders of the Fund.
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 REITs 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 include bonds, debentures, corporate notes and preferred stocks.
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. While convertible securities generally offer
lower interest yields than non-convertible debt securities of similar quality,
they do enable the investor to benefit from increases in the market price of the
underlying common stock.
When the market price of the common stock underlying a convertible security
increases, the price of the convertible security increasingly reflects the value
of the underlying common stock and may rise accordingly. As the market price of
the underlying common stock declines, the convertible security tends to trade
increasingly on a yield basis, and thus may not depreciate to the same extent as
the underlying common stock. 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
<PAGE>
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
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
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 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.
<PAGE>
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
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. 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
<PAGE>
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 Spirit
Management 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 investments in that they do not entitle 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 right or
warrant 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.
<PAGE>
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.
INVESTMENT RESTRICTIONS
The following restrictions, which supplement those set forth in the Fund's
Prospectus, 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.
To reduce investment risk, as a matter of fundamental policy the Fund may not:
(i) pledge, hypothecate, mortgage or otherwise encumber its assets,
except to secure permitted borrowings;
(ii) 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;
(iii) participate on a joint or joint and several basis in any securities
trading account;
(iv) invest in companies for the purpose of exercising control;
(v) issue any senior security within the meaning of the Investment
Company Act of 1940, as amended, (the "1940 Act");
(vi) (a) purchase or sell commodities or commodity contracts including
futures contracts; (b) invest in interests in oil, gas, or other
mineral exploration or development programs; (c) purchase securities
on margin, except for such short-term credits as may be necessary
for the clearance of transactions; and (d) 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.
<PAGE>
MANAGEMENT OF THE FUND
Directors and Officers
The Directors and principal officers of the Fund, their ages and their principal
occupations during the past five years are set forth below. Each Director who is
an "interested person" of the Fund, as that term is defined in the 1940 Act, is
indicated by an asterisk.
Directors
DAVID LERNER*, 61, 477 Jericho Turnpike, Syosset, New York 11791; Chairman of
the Board of Directors, President and Treasurer of the Fund; President and a
Director of newly formed Spirit of America Management Corp., the Fund's
investment adviser, and Director, Chief Executive Officer and President of SSH
Securities, Inc., the Fund's principal distributor. Mr. Lerner has been
associated with David Lerner Associates, Inc., a registered broker-dealer, for
over twenty-one years as President and founder. Mr. Lerner received his B.A. and
MBA degrees from the City University of New York, New York, NY.
STANLEY THUNE, 60, P.O. Box 1055, Merrimack, New Hampshire 03054; Director;
President and Chief Executive Officer, Freight Management Systems, Inc., from
April 1993 to present. Mr. Thune is also President and CEO of Energy
Conservation Management, Inc. (July 1995 to present). Mr. Thune is involved in
property development. Previously, Mr. Thune was President and CEO of Residuals
Management Group from September 1989 to April 1993 and President and CEO of
Research Cottrell, Inc., from July 1987 to September 1989. Mr. Thune received
his B.S. in Chemical Engineering from The City College of New York and his
M.B.A. from Baruch School of Business, The City University of New York.
HERBERT GRANT, 73, 409 Old Courthouse Road, New Hyde Park, New York 11040;
Director; For the past 42 years, Mr. Grant has owned and/or operated various
Automobile Dealerships. He is presently the owner of Central Avenue Chrysler,
Plymouth, Jeep, Eagle in Yonkers, New York, which is the fifth largest
dealership in New York. Mr. Grant also owns Nanuet Chrysler-Jeep, Mazda, Subaru,
located in Nanuet, New York. Mr. Grant received a B.S. degree from New York
University and his J.D. degree from the University of Miami Law School.
ALLEN KAUFMAN, 60, 223 Hamlet Drive, Jericho, New York 11797; Director;
President and Chief Executive Officer of K.G.K. Agency, Inc., a property and
casualty insurance agency located in Woodbury, New York, since 1963; Mr. Kaufman
is a graduate of C.C.N.Y. Baruch School of Business Administration (B.B.A.
degree). Mr. Kaufman majored in real estate and insurance.
DANIEL LERNER*, 36, 477 Jericho Turnpike, Syosset, New York 11791; Director;
Vice President of SSH Securities, the Fund's principal distributor; Senior Vice
President - Investment Counselor and Assistant Director of Training for David
Lerner Associates, Inc., a registered broker-dealer, Syosset, New York from 1984
to present. Mr. Lerner received his B.A. from the State University of New York
at Binghamton. Daniel Lerner is the son of David Lerner.
Officers
DAVID LERNER, 61, 477 Jericho Turnpike, Syosset, New York 11791; President and
Treasurer (see biography above).
<PAGE>
CONSTANCE FERREIRA, 46, 477 Jericho Turnpike, Syosset, New York 11791; Vice
President and Secretary; Chief Operating Officer of Spirit of America Management
Corp., the Fund's investment adviser, and Chief Operating Officer and Chief
Financial Officer of SSH Securities, Inc., the Fund's principal distributor;
Chief Operating Officer with David Lerner Associates, Inc., a registered
broker-dealer located in New York. Ms. Ferreira has been associated with David
Lerner Associates, Inc. for over twenty-one years.
The Fund pays each of its Directors who is not an affiliated person of the
Adviser or Distributor an annual retainer of $1,000 and $250 per Board meeting
and committee meeting attended, as well as reimbursement for out-of-pocket
expenses relating to attendance at such meetings.
COMPENSATION TABLE
Directors and Officers
Estimated total
Estimated Aggregate Compensation from Fund
Compensation from Fund Complex paid to Directors
Name of for fiscal year for calendar year ending
Director/Officer ending October 31, 1998 December 31, 1998
David Lerner* $ 0 $ 0
Stanley Thune $ 2,000 $ 2,000
Herbert Grant $ 2,000 $ 2,000
Allen Kaufman $ 2,000 $ 2,000
Daniel Lerner* $ 0 $ 0
Constance Ferreira $ 0 $ 0
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 2, 1998, the officers and Directors, as a group, owned
beneficially 10,475 of the outstanding voting shares of the Trust, the Fund and
the Class A Shares.*
The following persons beneficially own of record or are known to beneficially
own of record 5 percent or more of the outstanding common stock of the Fund's
Class A Shares as set forth below as of February 2, 1998.*
NAME AND ADDRESS PERCENTAGE OF FUND
David Lerner 6.57%
477 Jericho Turnpike
Syosset, NY 11791
* As of February 2, 1998, the Fund's Class B Shares had not commenced
operations.
<PAGE>
The Adviser
Spirit of America Management Corp. ("Spirit Management" or the "Adviser"), 477
Jericho Turnpike, Syosset, New York, New York 11791, of which Mr. David Lerner
is the sole shareholder and director, manages the Fund and provides it with
investment advice pursuant to an Advisory Agreement. Under the agreement, Spirit
Management manages the Fund's investments, including the provision of investment
advisory services and order placement facilities for the Fund (subject to
overall control and direction of the Fund's Board of Directors) and pays all
compensation of Directors and officers of the Fund who are affiliated persons of
Spirit Management. Spirit Management or its affiliates also furnishes the Fund,
without charge, with management supervision and assistance and office facilities
and provides persons satisfactory to the Fund's Board of Directors to serve as
the Fund's officers.
The Advisory Agreement is terminable without penalty by a vote of a majority of
the Fund's outstanding voting securities or by a vote of majority of the Fund's
Directors on 60 days' written notice, or by the Adviser on 60 days' written
notice, and will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful misfeasance, bad
faith or gross negligence on the part of the Adviser, or of reckless disregard
of its obligations thereunder, the Adviser shall not be liable for any action or
failure to act in accordance with its duties thereunder.
The Advisory Agreement provides that the Adviser will reimburse the Fund for its
expenses (exclusive of interest, taxes, brokerage and extraordinary expenses as
to the extent permitted by applicable state securities laws and regulations)
which in any year exceed the limits prescribed by any state in which the Fund's
shares are qualified for sale. The Fund may not qualify its shares for sale in
every state. Expense reimbursements, if any, are accrued daily and paid monthly.
The Advisory Agreement became effective on December 16, 1997. The Advisory
Agreement will continue in effect until December 16, 2000 and thereafter for
successive twelve-month periods provided, however, that such continuance is
specifically approved at least annually by a vote of a majority of the Fund's
outstanding voting securities or by the Fund's Board of Directors, including in
either case approval by a majority of the Directors who are not parties to the
Advisory Agreement or interested persons of any such party as defined by the
1940 Act.
Service Provider to the Fund
FPS Services, Inc. ("FPS"), 3200 Horizon Drive, P.O. Box 61503, King of Prussia,
PA 19406-0903 has been engaged by the Fund to provide the back office services
on the Fund's behalf. Pursuant to an agreement entitled "Investment Company
Services Agreement" (the "Agreement"), FPS provides the services commonly and
separately referred to as: Fund Administration, Fund Accounting, Transfer Agency
and Custody Administration. The Agreement was approved by the Board of Directors
<PAGE>
at the organizational meeting of the Fund which was held on July 9, 1997. The
management of the Fund oversees FPS in the fulfillment of its obligations under
the Agreement and FPS reports to the Board on a quarterly basis with regard to
those obligations.
Included among the many tasks which FPS performs on behalf of the Fund are:
(1)coordinating and monitoring, through the Fund Administration function, the
activities of any other third party service provider providing services to the
Fund (e.g. the Fund's independent auditors, printers, etc.); (2) providing the
Fund with necessary office space, telephones and other communications facilities
and personnel competent to perform the responsibilities under the Agreement; (3)
maintaining such books and records of the Fund as may be required by applicable
federal or state law; (4) preparing and, after approval by the Fund, filing and
arranging for the distribution of proxy materials and periodic reports to
shareholders of the Fund as required by applicable law; (5) preparing and, after
approval by the Fund, arranging for the filing of such registration statements
and other documents with the U.S. Securities and Exchange Commission and any
other federal or state regulatory authorities as may be required by applicable
law; (6) reviewing and submitting to the officers of the Fund for their
approval, invoices or other requests for payment of the Fund's expenses and
instructing the custodian to issue checks in payment thereof; and (7) taking
such other action with respect to the Fund as may be deemed by FPS to
appropriately perform its duties under the Agreement.
Pursuant to the Agreement, FPS receives a fee for performing Administrative
Services at the annual rate of 0.15% of the first $50 million of total average
net assets, 0.10% of the next $50 million of total average net assets and 0.05%
of total net assets in excess of $100 million, subject to a minimum annual fee
of $67,000. FPS also receives fees under the Agreement for providing the other
services mentioned.
EXPENSES OF THE FUND
Distribution Plans
The Fund has adopted a distribution plan (the "Plan" or collectively, the
"Plans) with respect to each class of its shares pursuant to Rule 12b-1 under
the 1940 Act.
Under the Plans, the principal financial officer of the Fund 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.
<PAGE>
The Adviser may from time to time and from its own funds or such other resources
as may be permitted by rules of the Commission make payments for distribution
services to the Distributor; the latter 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 of shares or through deferred
sales charges.
The Plan provides that it will continue in full force and effect from year to
year so long as such continuance is specifically approved by a vote of the
Directors, including a vote of the disinterested Directors, cast in person at a
meeting called for the purpose of voting on the plan. All material amendments to
the Plan must be approved by a vote of the Directors or the holders of the
Fund's outstanding voting securities, and in either case, by a majority of the
disinterested Directors, cast in person at a meeting called for the purpose of
voting on such approval; and the Plan may not be amended in order to increase
materially the costs that shareholders may bear pursuant to the Plan without the
approval of a majority of the holders of the outstanding voting shares of the
Fund. The Plan may be terminated (a) by the Fund without penalty at any time by
a majority vote of the holders of the outstanding voting securities of the Fund,
or by a majority vote of the Directors who are not "interested persons" as
defined in the 1940 Act, or (b) by the Distributor. To terminate the Plan, any
party must give the other parties 60 days' written notice. The Plan will
terminate automatically in the event of its assignment.
SHAREHOLDER SERVICES
The following information supplements that set forth in the Fund's Prospectus
under the heading "How to Purchase Shares."
Alternative Purchase Arrangement
The Fund offers two classes of shares: Class A Shares and Class B Shares. The
two classes of shares each represent interests in the same portfolio of
investments of the Fund, have the same rights and are identical in all respects,
except Class A Shares charge an up front sales load and Class B Shares bear a
higher 12b-1 Plan fee and are subject to a CDSC if sold within seven years of
purchase. Each Class has exclusive voting rights with respect to the 12b-1 Plan
pursuant to which its distribution fees are paid.
Automatic Investment Plan
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
<PAGE>
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 Application Form found in the Prospectus. Current
shareholders should contact SSH Securities, Inc. 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, and depending upon the amount withdrawn, the
investor's principal may be depleted. 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 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.
<PAGE>
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. Contributions 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 retirements 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.
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
A more complete discussion of the Fund's determination of net asset value is
contained in the Prospectus. The net asset value per share is computed by
dividing the value of the assets of the Fund, less its liabilities, by the
number of shares outstanding. The net asset value 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 net asset value 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.
<PAGE>
Portfolio securities are valued and net asset value per share is determined as
of the close of regular trading on the New York Stock Exchange ("NYSE") which
currently is 4:00 p.m. (Eastern Time), on each day the NYSE is open for trading.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Federal Income Taxes
The Fund intends to qualify and elect to be treated as a "regulated investment
company" under sections 851 through 855 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 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
<PAGE>
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 mid-term or long-term capital gains,
irrespective 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 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 are 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 is no fixed dividend rate and 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
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
<PAGE>
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 31%
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 management of the Fund 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 under the
Advisory Agreement 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, 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.
<PAGE>
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 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.
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
also from time to time 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 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.
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
<PAGE>
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
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.
GENERAL INFORMATION
Capitalization
The authorized capital stock of the Fund currently consists of 1,000,000,000
shares of Common Stock each having a par value of $.001 per share. 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.
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 law 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.
Custodian
The Bank of New York, New York, NY will act as the Fund's custodian. The Fund's
securities and cash are held under a custodian agreement by rules adopted under
the 1940 Act which permit the Fund to maintain its securities and cash in the
custody of certain eligible banks and securities depositories.
Principal Distributor
SSH Securities, Inc., 477 Jericho Turnpike, Syosset, New York 11791, serves as
the Fund's Principal Distributor, and as such may solicit orders from the public
to purchase shares of the Fund. Under the
<PAGE>
Underwriting Agreement, the Fund has agreed to indemnify the Distributor, in the
absence of its willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations thereunder, against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended.
Independent Auditors
Tait Weller & Baker, have been appointed as independent auditors for the Fund.
Additional Information
Any shareholder inquiries may be directed to the shareholder's broker or to SSH
Securities, Inc. at the address or telephone number shown on the front cover of
this Statement of Additional Information. This Statement of Additional
Information does not contain all the information set forth in the Registration
Statement filed by the Fund with the U.S. Securities and Exchange Commission
under the Securities Act of 1933. Copies of the Registration Statement may be
obtained at a reasonable charge from the U.S. Securities and Exchange Commission
or may be examined, without charge, at the offices of the U.S. Securities and
Exchange Commission in Washington, D.C.
