SPIRIT OF AMERICA INVESTMENT FUND, INC.
477 Jericho Turnpike
Syosset, New York 11791
(516) 390-5555
Prospectus January 9, 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").
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 January 9, 1998
has been filed with the 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
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATIONS TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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 . . . . . . . . . . . . . . . . .
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
<PAGE>
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. Shares can be purchased for a minimum initial
investment of $1,000 and subsequent investments can be made for as
little as $50. Purchases of shares are subject to a maximum sales
charge of 5.25%. For detailed information about purchasing
shares, see "How to Purchase Shares." 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. Signature guarantees may be
required for certain redemption requests. See "How to Redeem
Shares."
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.
Maximum sales charge imposed on purchases
(as a percentage of offering price)(1) . . . . . . . . . . .5.25%
Maximum sales charge imposed on reinvested
dividends (as a percentage of offering price). . . . . . . . None
Deferred sales charge (as a percentage of
original purchase price)(imposed on certain
redemptions of $1 million or more)(2). . . . . . . . . . . 1.00%
Redemption Fees (as a percentage of amount redeemed)(3). . . 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 of 1.00% may be imposed on certain redemptions made
within one year of the date of purchase. See "How to Purchase
Shares - Sales Charge."
(3) 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 net assets)
Management fees(4) . . . . . . . . . . . . . . . .0.97%
12b-1 fees(4) . . . . . . . . . . . . . . . . . . 0.30%
Other Expenses (4). . . . . . . . . . . . . . . . 0.70%
Total Fund operating expenses (after fee waivers)(4)1.97%
(4) The above table reflects Spirit Management's voluntary
undertaking to waive all or a portion of its fees and to
reimburse certain expenses to limit the total operating
expenses of the Fund for the first year of operations to
1.97% of the Fund's average daily net assets. 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%. Absent such
waiver, total operating expenses would be 2.22% of the Fund's
average daily net assets on an annualized basis. In
subsequent years, overall expenses for the Fund may not fall
below 1.97% 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.
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:
1 year 3 years
$ 71 $111
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 "Management of the Fund."
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 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 by 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.
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
United States 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 United States 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 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
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 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 "Dividends, Distributions and Taxes" 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 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
Internal Revenue Code (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.
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.
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. 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.
The minimum initial investment is $1,000. 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
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 a 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 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 "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/"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.
For any order to be confirmed at the current day's offering price,
it must be received by the Transfer Agent or the selling dealer by
4:00 p.m. Eastern time on the same day. For any dealer order to
be confirmed at the current day's offering price, it not only must
be received by the dealer prior to 4:00 p.m. Eastern time on that
day, but it must be communicated to the Transfer Agent by 5:00
p.m. Eastern time on that day. It is the responsibility of 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 public 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 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.
Sales Charge
The sales charge a shareholder pays depends on the dollar amount
invested, as shown in the table below.
Total Sales Charge Amount Paid to
as a Percentage of 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 contingent deferred sales charge of 1.00% in
the event of certain redemptions within one year of the purchase.
The contingent deferred sales charge 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 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 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, reduced
sales charges based upon the sales charge schedule 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 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 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 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; and (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.
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 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.
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.
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 a
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.
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 form enclosed with this Prospectus.
Subsequent monthly investments are subject to a minimum required
amount of $50. The Fund may alter, modify or terminate this plan
at any time.
Systematic Cash Withdrawal Plan
The Fund offers a Systematic Cash Withdrawal Plan as another
option 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. For information about starting a systematic cash
withdrawal plan, call the Transfer Agent at (800) 452-4892.
Retirement Plans
The Fund is available for investment by pension and profit sharing
plans including Individual Retirement Accounts, SEP, Keogh, 401(k)
and 403(b)(7) plans through which an investor may purchase Fund
shares. For details concerning any of these retirement plans,
please call the Transfer Agent at (800) 452-4892 or (610)
239-4700.
Net Asset Value
The offering price and net asset value per share is 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 net asset value per share is computed by adding the value of
all securities and other assets in the portfolio, deducting any
liabilities, and dividing by the total number of outstanding
shares. 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.
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 waived 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 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
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, (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 SEC and with state regulatory
authorities, and (x) such promotional, shareholder servicing and
other expenses as may be contemplated by the Distribution Services
Agreement, described below.
DISTRIBUTION SERVICES AGREEMENT
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 a Rule 12b-1 plan (the "Plan") and has
entered into a Distribution Services Agreement (the "Agreement")
with SSH Securities, Inc. ("SSH" or the "Distributor"). The Plan
permits the Fund to pay the Distributor from the assets of the
Fund, a monthly fee which may not exceed an annual rate of 0.30%
of the Fund's aggregate average daily net assets.
The Plan provides that SSH will use the distribution services fee
received from the Fund in its entirety for payments (i) to
compensate broker-dealers or other persons for providing
distribution assistance, (ii) to otherwise promote the sale of
shares of the Fund, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for
providing administrative, accounting and other services with
respect to the Fund's shareholders. Distribution services 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 SSH. The Plan also provides that SSH may use its
own resources to finance the distribution of the Fund's shares.
The Fund is not obligated under the Plan to pay any distribution
services fee in excess of the amounts set forth above.
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 Plan in
accordance with its terms and within the rules of the NASD
concerning sales charges.
The fees paid to the Distributor under the Plan are subject to
review and approval by the Fund's independent Directors who have
the authority to reduce the fees or terminate the Plan at any
time. All payments to the Plan shall be made for the purpose of
selling shares issued by the Fund or servicing shareholder
accounts.
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.
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 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.
Under the current federal tax law, the amount of an income
dividend or capital gains distribution declared by the Fund during
October, November and December of a year to shareholders of record
as of a specified date in such a month that is paid during January
of the following year is includable in the prior year's taxable
income of shareholders that are calendar year taxpayers.
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 they are
otherwise subject to backup withholding.
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 may be useful in reviewing the
performance of the Fund and for providing a basis for comparison
with other investment alternatives. However, because the net
investment return 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 Fund's performance 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 and the
maximum sales charges applicable to purchases and redemptions of
the Fund's shares are assumed to have been paid. 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.
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. Under Maryland Law, the Fund's Board of Directors may
increase the number of authorized shares without approval of the
shareholders. All of the shares of the Fund currently outstanding
and offered by this Prospectus are of a single class.
Each share of common stock carries one vote on matters submitted
to a vote of stockholders. 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 Fund is empowered to 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, subject to a minimum annual fee
of $55,000, as compared to an asset based fee computed 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 average net assets in excess of $100 million.
TRANSFER AGENT AND FUND ACCOUNTANT
FPS also acts as 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 Corp.
477 Jericho Turnpike
Syosset, NY 11791
(516) 390-5575
DISTRIBUTOR
SSH Securities, Inc.
477 Jericho Turnpike
Syosset, NY 11791
(516) 390-5565
SHAREHOLDER SERVICES/TRANSFER AGENT
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
Two Penn Center, Suite 700
Philadelphia, PA 19102-1707
<PAGE>
SPIRIT OF AMERICA INVESTMENT FUND, INC.
477 Jericho Turnpike
Syosset, New York 11791
(516)390-5555
STATEMENT OF ADDITIONAL INFORMATION
January 9, 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 January 9, 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., 477 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 . . . . . . . . . . . . . . . . .
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.
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 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.
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 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 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 of America Management
Corp. (the "Adviser") for inclusion in the Fund's portfolio.
Rights and warrants entitle the holder to buy equity securities at
a specific price for a specific period of time. Rights are similar
to warrants except that they have a substantially shorter
duration. Rights and warrants may be considered more speculative
than certain other types of 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.
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 (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.
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 M.B.A 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 President and CEO of Energy Conservation Management, Inc.
(July 1995 to present). Mr. Thune is also 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 been
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
University of Miami Law School.
ALLEN KAUFMAN, 60, Director; 223 Hamlet Drive, Jericho, New York
11797; President and Chief Executive Officer of K.G.K. Agency,
Inc., a property and casualty insurance agency located in
Woodbury, New York, since 1963; 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).
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
Compensation from
Fund
complex paid
Estimated Aggregate to Directors
Compensation from for Fiscal year
Fund for fiscal Ended 10/31/98
Name of Director/ Year ended 10/31/98
Officer
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
The Adviser
Spirit of America Management Corp. (the "Spirit Management" or
"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, expenditures pursuant to the Distribution Services
Agreement described below, 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 January 9, 1998. The
Advisory Agreement will continue in effect until January 9, 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 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) coordination 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) maintenance of such books and records of
the Fund as may be required by applicable federal or state law;
(4) prepares and, after approval by the Fund, files and arranges
for the distribution of proxy materials and periodic reports to
shareholders of the Fund as required by applicable law; (5)
prepares and, after approval by the Fund, arranges 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)
reviews and submits to the officers of the Fund for their
approval, invoices or other requests for payment of the Fund's
expenses and instructs the custodian to issue checks in payment
thereof; and (7) takes 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 greater of a flat fee of $55,000 as
compared to an asset based fee computed 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. FPS also receives
fees under the Agreement for providing the other services
mentioned.
EXPENSES OF THE FUND
Distribution Plan Pursuant to Rule 12b-1
The Fund has adopted a distribution plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act. Distribution services fees are
accrued daily and paid monthly and are charged as expenses of the
Fund as accrued. The initial sales charge and distribution
services fees provide the financing of the distribution of the
Fund's shares.
Under the Plan, the principal financial officer of the Fund
reports the amounts expended under the Rule 12b-1 Plan and the
purposes for which such expenditures were made to the Directors of
the Fund for their review on a quarterly basis. Also, the Plan
provides that the selection and nomination of Directors who are
not interested persons of the Fund, as defined in the 1940 Act,
are committed to the discretion of such disinterested Directors
then in office.
The Adviser may from time to time 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 services 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 services 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; to
terminate the Plan only, the Fund need give no notice to the
Distributor. 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."
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 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.
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 has created the new Roth IRA.
While contributions to a Roth IRA are not currently deductible,
the amounts within the accounts accumulate tax-free and qualified
distributions will not be included in a shareholder's taxable
income. The contribution limit is $2,000 annually ($4,000 for
joint returns) in aggregate with contributions to Traditional
IRAs. Certain income phaseouts apply.
Education IRAs. The Taxpayers Relief Act has 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 Code
requirements in addition to normal redemption procedures. For
additional information please contact SSH Securities, Inc.
Systematic Withdrawal Plan
Any 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.
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 of all outstanding shares 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. All income earned and expenses incurred by the Fund
will be borne on a pro-rata basis by each outstanding share.
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; and (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, it will
not be subject to federal income tax on the portion of its taxable
income for the year (including any net capital gain) that it
distributes to shareholders.
The Fund intends to also avoid the 4% federal excise tax that
would otherwise apply to certain undistributed income for a given
calendar year if it makes timely distributions to the shareholders
equal to the sum of (i) 98% of its ordinary income for that year;
(ii) 98% of its capital gain net income and foreign currency gains
for the twelve month period ending on October 31 of that year; and
(iii) any ordinary income or capital gain net income from the
preceding calendar year that was not distributed during that year.
For this purpose, income and gain retained by the Fund that is
subject to corporate income tax will be considered to have been
distributed by the Fund by year-end. For federal income and excise
tax purposes, dividends declared and payable to shareholders of
record as of a date in October, November or December of a given
year but actually paid during the immediately following January
will be treated as if paid by the fund on December 31 of that
calendar year, and will be taxable to these shareholders for the
year declared, and not for the year in which the shareholders
actually receive the dividend.
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 or excise taxes. However,
exchange control or other regulations on the repatriation of
investment income, capital or the proceeds of securities sales, if
any exist or are enacted in the future, may limit the Fund's
ability to make distributions sufficient in amount to avoid being
subject to one or both of such federal taxes.
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
shareholder does not reinvest distributions and returns of capital
are significant), any further returns of capital will be taxable
as capital gain.
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 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 shareholders 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 United States 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 United States shareholder's United States federal income tax
liability or refunded.
BROKERAGE AND PORTFOLIO TRANSACTION
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.
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.
Average Annual Total Return
From time to time the Fund may advertise its total return for
prior periods. The Fund's total return is its average annual
compounded total return for its most recently completed one, five,
and ten-year periods (or the period since the Fund's inception).
The Fund's total return for such a period is computed by finding,
through the use of a formula prescribed by the Commission below,
the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of
such investment at the end of the period. For purposes of
computing total return, income dividends and capital gains
distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charge applicable to
purchase of Fund shares is assumed to have been paid. This
calculation can be expressed as follows:
P(1 + T)n = ERV
Where:
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical $1,000
payment made at the beginning of the period
P = hypothetical investment payment of $1,000
n = period covered by the computation, expressed in
terms of years.
T = average annual total return
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. 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 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 Securities and Exchange
Commission under the Securities Act of 1933. Copies of the
Registration Statement may be obtained at a reasonable charge from
the Securities and Exchange Commission or may be examined, without
charge, at the offices of the Securities and Exchange Commission
in Washington, D.C.
