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SPIRIT OF AMERICA INVESTMENT FUND, INC.
477 Jericho Turnpike
Syosset, New York 11791
Prospectus February 26, 1999
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE U.S. SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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A BRIEF SUMMARY OF THE FUND................................................ 1
FEES AND EXPENSES OF THE FUND.............................................. 2
Example.................................................................. 3
INVESTMENT STRATEGIES AND RISKS............................................ 4
MANAGEMENT OF THE FUND..................................................... 6
Investment Adviser....................................................... 6
Portfolio Manager........................................................ 6
PRICING FUND SHARES........................................................ 7
HOW TO PURCHASE SHARES..................................................... 7
General.................................................................. 7
Purchases by Mail........................................................ 8
Purchases by Wire........................................................ 8
Purchases through Broker-Dealers......................................... 8
Purchases by Telephone................................................... 8
Subsequent Investments................................................... 9
DISTRIBUTION ARRANGEMENTS.................................................. 9
Class A Shares........................................................... 9
Class B Shares........................................................... 9
Factors to Consider in Choosing a Class of Shares........................ 9
Sale of Class A Shares................................................... 10
Reduced Sales Charges.................................................... 10
Sales at Net Asset Value................................................. 11
Sale of Class B Shares................................................... 11
CDSC Waivers............................................................. 12
Automatic Conversion of Class B Shares................................... 12
Rule 12b-1 Fees.......................................................... 12
HOW TO REDEEM SHARES....................................................... 13
Redemption by Mail....................................................... 13
Redemption by Telephone.................................................. 13
General Redemption Information........................................... 14
Minimum Balances......................................................... 14
SPECIAL SERVICES........................................................... 14
Automatic Investment Plan................................................ 14
Systematic Cash Withdrawal Plan.......................................... 15
DIVIDENDS, DISTRIBUTIONS AND TAXES......................................... 15
Dividends and Distributions.............................................. 15
U.S. Federal Income Taxes................................................ 15
YEAR 2000 COMPLIANCE....................................................... 16
FINANCIAL HIGHLIGHTS....................................................... 17
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A BRIEF SUMMARY OF THE FUND
INVESTMENT OBJECTIVES. Growth of capital and current income.
PRINCIPAL STRATEGIES. The fund invests primarily in Real Estate Investment
Trusts (REITs) with a successful track record. REITs are pooled investment
vehicles which invest primarily in income producing real estate or real estate
related loans or interests.
The fund looks for stock where the price is low in relationship to the
underlying value of the company and its real estate. The fund evaluates
price/earnings ratios to attempt to identify those REITs which have strong
underlying value. The fund selects REITs paying high dividends in comparison to
other REITs. The fund evaluates earnings and dividend growth potential and
continuously monitors interest rates, occupancies, rental income and new
construction. The fund also invests in the equity securities of real estate
industry companies, mortgage-backed securities and investment grade taxable
municipal obligations.
INVESTMENT RISKS. Any investment involves risk. The risks associated with an
investment in the fund include:
. The cyclical nature of the real estate industry, which subjects the
real estate and real estate related securities held by the fund to any
market or economic condition that may affect the value of real estate (up
or down)
. Real estate related fixed income securities are likely to decline in
value when interest rates rise. Fixed income securities may be subject to
prepayment, nonpayment or default.
. REIT securities may be more volatile in price than the securities of
larger market capitalization companies
. Mortgage-backed securities are subject to prepayment or non-payment on
the underlying mortgage
. The fund is concentrated in real estate and real estate related
securities and the real estate sector may underperform in comparison with
other investment sectors.
. The stocks purchased by the fund may not appreciate in value as the
advisor anticipates.
. The loss of your investment in the fund
SUITABILITY. An investment in the fund is suitable for long-term investors who
may wish to consider investing a portion of their overall equity portfolio in a
real estate mutual fund.
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FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases 5.25%(1) None
(as a percentage of offering price)
Maximum Sales Charge (Load) Imposed on Reinvested None None
Dividends (as a percentage of offering price)
Maximum Deferred Sales Charge (Load) (as a None%(2) 5.75%(3)
percentage of the lesser of original purchase
price or redemption proceeds)
Redemption Fees (as a percentage of amount None None
redeemed)(4)
ANNUAL FUND OPERATING EXPENSES: (expenses that are deducted from Fund assets)
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CLASS A CLASS B
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Management Fees 0.97% 0.97%
Distribution [and/or Service] (12b-1) Fees (6) 0.30% 1.00%
Other Expenses 5.06% 5.06%
Total Annual Fund Operating Expenses 6.33% 7.03%
Less Fee Waiver (4.36%) (4.36%)
Net Annual Operating Expenses 1.97%(5) 2.67%(5)
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(1) Reduced for purchases of $100,000 and over, decreasing to zero for
purchases of $1 million and over. See "Distribution Arrangements."
(2) Investments of $1 million or more are not subject to any sales charge at
the time of purchase, but a Contingent Deferred Sales Charge ("CDSC") of 1.00%
may be imposed on certain redemptions of $1 million or more made within one year
of the date of purchase. See "Distribution Arrangements."
(3) A CDSC is imposed on redemptions of Class B Shares purchased at the
following declining rates: within the first year -5.75%; second year - 5.0%;
third year - 4.0%; fourth year - 3.0%; fifth year - 2.0%; sixth year - 2.0%;
seventh year- 1.0% and eighth year and thereafter - none.
(4) The fund's transfer agent charges $15.00 per redemption for redemptions
remitted by wire. Purchases and redemptions may also be made through broker-
dealers and others who may charge a fee for their services.
(5) These are the net fees and expenses that the fund actually incurred for the
fiscal year ended October 31, 1998 because the adviser had contractually agreed
to waive advisory fees and/or reimburse expenses under its
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written Operating Expenses Agreement so that the total operating expenses of
Class A shares and Class B shares will not exceed 1.97% and 2.67%, respectively,
of the average daily net assets of each Class. The adviser has agreed to
continue to waive advisory fees and/or reimburse expenses for the Fund's fiscal
year ending October 31, 1999. Any amounts waived or reimbursed by the adviser
are subject to reimbursement by the Fund within the following three years,
provided the Fund is able to make such reimbursement and remain in compliance
with the expense limitations stated above. This agreement shall continue for
additional one year terms absent 60 days notice from the adviser.
(6) Long-term shareholders may eventually pay more than the economic equivalent
of the maximum front-end sales charge permitted by the Conduct Rules of the
National Association of Securities Dealers, Inc. (the "NASD"). See "Distribution
Arrangements."
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
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Class A Class B
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1 year $ 714 $ 830
3 years $ 2,289 $ 2,364
5 years $ 3,426 $ 3,474
10 years $ 6,139 $ 6,356
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You would pay the following expenses if you did not redeem your shares:
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Class A Class B
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1 year $ 714 $ 270
3 years $ 2,289 $ 2,046
5 years $ 3,426 $ 3,341
10 years $ 6,139 $ 6,356
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The Example does not reflect sales charges (loads) on reinvested dividends and
other distributions. If these sales charges (loads) were included, your costs
would be higher. This example is for comparison purposes only. Actual return
and expenses will be different and the fund's performance and expenses may be
higher or lower.
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INVESTMENT STRATEGIES AND RISKS
GENERAL. At least 60% of the fund's total assets will be invested in equity
REITs and other real estate industry companies. A "real estate industry
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 fund may also, but currently does not, invest up to 40% of its total assets
in (a) mortgage-backed securities; (b) investment grade taxable municipal
obligations; and (c) short-term investments. These instruments are described
below.
When selecting equity securities, the fund's investment adviser focuses on
whether the issuer can achieve sustainable growth in cash flow, which is a
prerequisite to higher dividend paying capability. The adviser looks for the
economic viability of property markets in which the issuer operates, and the
ability of management to add value through strategic focus and operating
expertise. The fund purchases equity securities when, in the judgment of the
adviser, the market price for such securities does not adequately reflect this
potential. In making this determination, the adviser will take into account
fundamental trends in underlying property markets as determined by site visits,
price-earnings ratios for real estate companies, cash flow growth and stability,
the relationship between asset value and market price of the securities,
dividend payment history, and any other factor which may from time to time be
relevant.
REITS. The fund may invest without limitation in shares of REITs. REITs are
pooled investment vehicles which invest primarily in income producing real
estate or real estate related loans or interests. REITs generally are classified
as equity REITs, mortgage REITs or a combination of equity and mortgage REITs.
Equity REITs invest the majority of their assets directly in real property and
derive income primarily from the collection of rents. Mortgage REITs invest the
majority of their assets in companies that own real estate mortgages and derive
income from the collection of interest payments. REITs are not taxed on income
distributed to shareholders provided they comply with several 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
it invests, in addition to the expenses incurred directly by the fund.
MORTGAGE-BACKED SECURITIES. The fund may invest in all types of mortgage-backed
securities.
The fund also may invest in guaranteed mortgage pass-through securities which
represent participation interests in pools of residential mortgage loans and are
issued by U.S. governmental or private agencies or instrumentalities, including
but not limited to the Government National Mortgage Association ("Ginnie Mae"),
the Federal National Mortgage Association ("Fannie Mae") and the Federal Home
Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae certificates are
guaranteed by the full faith and credit of the U.S. Government for timely
payment of principal and interest on the certificates. Fannie Mae certificates
are guaranteed by Fannie Mae, a federally chartered and privately-owned
corporation for full and timely payment of principal and interest on the
certificates. Freddie Mac certificates are guaranteed by Freddie Mac, a
corporate instrumentality of the U.S. Government, for timely payment of interest
and the ultimate collection of all principal of the related mortgage loans.
TAXABLE MUNICIPAL OBLIGATIONS. The fund may invest in investment grade taxable
municipal securities. These securities are debt obligations issued by
municipalities and local agencies within the United States to obtain funds for
various public purposes. In addition, public authorities issue taxable
industrial development bonds to provide
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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-free 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.
Investment grade securities are within the four highest credit ratings of
Moody's or S&P, or are comparably rated by another nationally recognized
statistical rating organization or, if unrated, determined by the adviser to be
of comparable quality. Although bonds and notes rated in the fourth credit
rating category are commonly referred to as investment grade, they may have
speculative characteristics. The fund generally will not retain securities that
fall below investment grade.
SHORT-TERM INVESTMENTS. The short-term investments in which the fund may invest
are: corporate commercial paper and other short-term commercial 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.
CONCENTRATION OF INVESTMENTS. The fund invests primarily in real estate and
real estate related securities. This means the fund is concentrated in a
particular industry. A fund that concentrates its investments is subject to
greater risk of loss than is a fund that has a more diversified portfolio of
investments.
TEMPORARY INVESTMENTS. For temporary defensive purposes, the fund may invest up
to 100% of its total assets in short-term, liquid, high-grade debt securities.
The fund will assume a temporary defensive posture only when economic and other
factors affect the real estate industry market and, in the advisor's opinion,
present extraordinary risks in being invested primarily in real estate
securities. When the fund maintains a temporary defensive position, it may not
achieve its investment objective.
RISKS. Investments in real estate and real estate related equity securities
involve risks different from, and in certain cases greater than, the risks
presented by equity securities generally. Main risks are those equal to the
direct ownership of real estate or real estate industry securities, including
possible declines in the value of real estate, environmental problems and
changes in interest rates. To the extent that assets underlying the fund's
investments are concentrated geographically, by property type or in certain
other respects, the fund may be subject to these 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.
REITs are dependent upon management skills, are not diversified, are subject to
heavy cash flow dependency, default by borrowers and self-liquidation. REITs
are also subject to the possibilities of failing to qualify for tax free pass-
through of income under the Code.
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.
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Investment in investment grade taxable municipal obligations involves the risk
of default among one or more issuers of taxable municipal obligations which are
held by the fund. Another risk may be the inability to readily find a buyer at
or near the market price should the fund need to quickly dispose of one or more
of its positions in taxable municipal obligations. Also, there is no guarantee
that the municipal securities will remain at investment grade after the fund
invests in them.
REITs, municipal obligations, and some mortgage-backed securities are subject to
interest rate risks. 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.
Investing in mortgage-backed securities involves risks such as the failure of a
counterpart to meet its commitments and the effects of prepayments on mortgage
cash flows. Prepayment rates are influenced by changes in current interest
rates and a variety of 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.
The fund may fail to recoup fully its investment in mortgage-backed securities
due to the possibility of non-payment of the underlying mortgages,
notwithstanding any direct or indirect governmental or agency guarantee. When
the fund reinvests amounts representing payments and unscheduled prepayments of
principal, it may receive a rate of interest that is lower than the rate on
existing adjustable rate mortgage pass-through securities. Thus, mortgage-
backed securities, and adjustable rate mortgage pass-through securities in
particular, may be less effective than other types of U.S. Government securities
as a means of locking in interest rates.
MANAGEMENT OF THE FUND
INVESTMENT ADVISER
Spirit of America Management Corp., 477 Jericho Turnpike, Syosset, New York
11791, is the fund's investment adviser. Spirit Management was incorporated in
1997 and is a registered investment adviser under the Investment Advisers Act of
1940, as amended. Spirit Management has managed the investments of the fund
since its inception in January of 1998 and has no other assets under
management.
Spirit Management invests the fund's assets, manages the fund's business affairs
and supervises the fund's day-to-day operations. Spirit Management provides the
fund with advice on buying and selling securities in accordance with the fund's
investment objective, policies and limitations. Spirit Management also
furnishes office space and certain administrative and clerical services, and
employs the personnel needed with respect to Spirit Management's
responsibilities under its investment advisory contract with the fund.
The fund pays Spirit Management a fee at the annual rate of 0.97% of the fund's
average daily net assets. The fee is 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.
PORTFOLIO MANAGER
Ronald W. Weiss is primarily responsible for the day-to-day management of the
fund's portfolio. Mr. Weiss has been associated with Spirit Management since
its inception. Mr. Weiss has spent over twenty years in the real estate finance
and investment banking industry, which includes debt and equity 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
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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.
PRICING FUND SHARES
The offering price and net asset value per share of each Class of the fund are
calculated as of the close of regular trading on the NYSE, currently 4:00 p.m.,
Eastern Time. Currently, the NYSE is closed on the following holidays or days on
which the following holidays are observed: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas; therefore the Fund will not be priced on
these days.
The method and procedure for determining net asset value are identical for each
Class, but due to the specific distribution expenses and other costs allocable
to each Class, the net asset value of each Class will vary. Class A Shares are
purchased at the offering price per share (which includes a sales load), while
Class B Shares are purchased at the net asset value per share.
The net asset value per share for each Class of shares is computed by adding the
value of the fund's investments, cash and other assets attributable to the
relevant Class, deducting liabilities of the Class and dividing the result by
the number of shares of that Class outstanding. Expenses are accrued daily and
applied when determining the net asset value. The fund's equity securities are
valued based on market quotations or, when no market quotations are available,
at fair value as determined in good faith by, or under direction of, the fund's
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.
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.
HOW TO PURCHASE SHARES
GENERAL
You can purchase shares of the fund through broker-dealers. Class A shares are
sold at the net asset value next determined after receipt by the fund's transfer
agent, First Data Investor Services Group, Inc., plus an initial maximum sales
charge of up to 5.25% of the offering price (5.54% of the net amount invested)
reduced on investments of $100,000 or more. Class B shares are sold without a
sales charge at the current net asset value, but a CDSC may be imposed at the
time of redemption. The minimum initial investment for Class A shares and Class
B shares is $1,000. See "Distribution Arrangements."
Purchase orders for shares of the fund that are received by the transfer agent
in proper form by the close of the NYSE, on any day that the NYSE is open for
trading, will be purchased at the fund's next determined 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 reserve the right to reject any purchase
order in whole or in part. The fund reserves the right to suspend the offering
of its shares. The fund also reserves the right to vary the initial and
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subsequent investment minimums, or to waive the minimum investment requirements
for any investor. The fund will not accept as payment for purchase order a
check which has been endorsed by a third party.
When you sign your account application, you will be asked to certify that your
Social Security or taxpayer identification number is correct and that you are
not subject to 31% backup withholding for failing to report income to the
Internal Revenue Service ("IRS"). If you violate IRS regulations, the IRS can
require the fund to withhold 31% of your taxable distributions and redemptions.
PURCHASES BY MAIL
Shares may be purchased initially by completing the application accompanying
this Prospectus and mailing it to the transfer agent, together with a check
payable to the "Spirit of America Investment Fund, Inc." The check or money
order and application should be mailed to First Data Investor Services Group,
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
To invest by wire, you must first telephone the transfer agent at (800) 452-4892
or (610)239-4600 to receive an account number. Your name, account number,
taxpayer identification number or social security number and address must be
specified in the wire. In addition, an account application should be promptly
forwarded to: First Data Investor Services Group, Inc., 3200 Horizon Drive, P.O.
Box 61503, King of Prussia, PA 19406-0903.
If you have a commercial bank account at a member firm of the Federal Reserve
System, you may purchase shares of the fund by requesting your bank to transmit
funds by wire to: United Missouri Bank K.C. N.A., ABA #10-10-00695/Attention:
First Data Investor Services Group, A/C 98-7037-071-9/FPS "Spirit of America
Investment Fund, Inc.," along with your name and account number as specified on
your account registration.
Additional investments may be made at any time through the wire procedures
described above, which must include your name and account number. Your bank may
impose a fee for investments by wire. The fund will not be responsible for the
consequences of delays, including delays in the banking or Federal Reserve wire
systems. You may be subject to 31% withholding if your 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 approved by the fund. The broker-dealers or
service organizations must 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 offering price on the
following business day.
PURCHASES BY TELEPHONE
The fund only accepts telephone purchases from brokers, financial institutions
or service organizations. Individuals may not make purchases by telephone.
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SUBSEQUENT INVESTMENTS
Subsequent purchases may be made by mail, bank wire, automatic investing or
direct deposit. The minimum for subsequent investments for each class of shares
is $50 for all accounts.
When making subsequent investments by mail, please return the bottom portion of
a previous confirmation with your investment in the envelope that is provided
with each confirmation statement. Your check should be made payable to "Spirit
of America Investment Fund, Inc." and mailed to First Data Investor Services
Group, 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.
DISTRIBUTION ARRANGEMENTS
The fund offers Class A and Class B shares. The two classes of shares each
represents interest in the same portfolio of investments of the fund, have the
same rights and are identical in all respects, except Class A shares charge an
up front sales load and Class B shares bear a higher 12b-1 fee and are subject
to a CDSC if sold within seven years of purchase. Each class has exclusive
voting rights with respect to its 12b-1 Plan.
CLASS A SHARES
The offering price for Class A shares includes a front-end sales charge. The
maximum sales charge is 5.25% of the offering price (5.54% of the net amount
invested) and is reduced on investments of $100,000 or more. Class A shares are
subject to annual 12b-1 Plan expenses of up to a maximum of 0.30% of average
daily net assets of such shares. Certain purchases of Class A shares qualify
for reduced front-end sales charges.
CLASS B SHARES
Class B shares are offered without a front-end sales charge, but are subject to
a contingent deferred sales charge ("CDSC") if the shares are redeemed within
seven years of purchase. Class B shares are subject to annual 12b-1 Plan
expenses of up to a maximum of 1.00% (0.25% of which are service fees) of
average daily net assets of such shares for approximately eight years after
purchase. Class B shares permit all of your investment to work from the time
the investment is made. The higher 12b-1 Plan expenses paid by Class B shares
will cause such shares to have a higher expense ratio and to pay lower dividends
than Class A shares. At the end of approximately eight years after purchase,
the Class B shares will automatically be converted into Class A Shares and,
thereafter, for the remainder of the life of the investment, the annual 12b-1
Plan fee of 0.30% for Class A Shares will apply. See "Automatic Conversion of
Class B Shares."
FACTORS TO CONSIDER IN CHOOSING A CLASS OF SHARES
You should determine whether it is more advantageous for you to purchase Class A
shares and incur a front-end sales charge or purchase Class B Shares and have
your entire purchase invested in the fund, subject to a CDSC if you redeem
shares within seven years of purchase. In addition, you should consider the
level of annual 12b-1 Plan expenses applicable to each Class. The higher 12b-1
Plan expenses on Class B Shares will be offset to the extent a return is
realized on the additional money initially invested upon the purchase of such
shares. However, there can be no assurance as to the return, if any, that will
be realized on such additional money.
-9-
<PAGE>
SALE OF CLASS A SHARES
The sales charge you pay for Class A shares depends on the dollar amount
invested, as shown in the table below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Total Sales Charge
as a Percentage of Amount Paid to Dealer as a
------------------ Percentage of Offering
- -----------------------------------------------------------------------------------------
Offering Price Net Amount Invested Price
-------------- ------------------- ------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under $100,000 5.25% 5.54% 5.00%
- -----------------------------------------------------------------------------------------------------------------------------
Under $100,000 but less 4.50% 4.71% 4.25%
than $250,000
- -----------------------------------------------------------------------------------------------------------------------------
$250,000 but less than 3.75% 3.90% 3.50%
$500,000
- -----------------------------------------------------------------------------------------------------------------------------
$500,000 but less than 3.00% 3.09% 2.75%
$1,000,000
- -----------------------------------------------------------------------------------------------------------------------------
$1,000,000 or more* 0% 0% 0%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, although for such investments the fund imposes a CDSC of 1.00%
in the event of certain redemptions within one year of the purchase. The CDSC
incurred upon redemption is paid to the distributor in reimbursement for
distribution-related expenses. A commission will be paid to authorized dealers
who initiate and are responsible for purchases of $1 million or more.
The distributor will pay the dealer concession to those selected dealers who
have entered into an agreement with the distributor. The dealer's concession
may be changed from time to time. The distributor may from time to time offer
incentive compensation to dealers which sell shares of the fund subject to sales
charges, allowing such dealers to retain an additional portion of the sales
load. On some occasions, such cash or incentives will be conditioned upon the
sale of a specified minimum dollar amount of the shares of the fund during a
specified period of time. A dealer who receives all or substantially all of the
sales load may be considered an "underwriter" under the Securities Act of 1933,
as amended. All such sales charges are paid to the securities dealer involved
in the trade, if any. No sales charge is assessed on the reinvestment of
dividends or distributions.
REDUCED SALES CHARGES
The sales charge for purchases of Class A Shares may be reduced through rights
of accumulation or letter of intent. To qualify for a reduced sales charge, an
investor must so notify his or her distributor at the time of each purchase of
shares which qualifies for the reduction.
-10-
<PAGE>
RIGHTS OF ACCUMULATION. If you already own Class A shares, reduced sales
charges for Class A shares are applicable to subsequent purchases. The sales
charge on each additional purchase is determined by adding the current market
value of the shares currently owned to the amount being invested. The reduced
sales charge is applicable only to current purchases. You must notify the
transfer agent at the time of subsequent purchase that your purchase is eligible
for the right of accumulation. You must also state your account numbers, and
whether the account is held in the name of your spouse or minor children, the
age of such children, and the specific relationship of each such person to you.
LETTER OF INTENT. Class A investors may qualify for a reduced sales charge
immediately by signing a non-binding letter of intent stating the intent to
invest during the next 13 months a specified amount which, if made at one time,
would qualify for a reduced sales charge. The first 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 has been purchased. If the full amount is
not purchased within the 13-month period, escrowed shares will be redeemed in an
amount equal to the difference in the dollar amount of sales charge actually
paid and the amount of sales charge that would have been paid on total aggregate
purchases if such purchases had been made at a single time. You must notify the
transfer agent at the time you submit the letter of intent that prior purchases
you submit may apply.
SALES AT NET ASSET VALUE
The fund may sell Class A shares at net asset value (i.e., without any initial
sales charge) to certain 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, or minor children 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;
(v) employer-sponsored qualified pension or profit-sharing plans (including
Section 401(k) plans), custodial accounts maintained pursuant to Section
403(b)(7) retirement plans and individual retirement accounts (including
individual retirement accounts to which simplified employee pension ("SEP")
contributions are made) if such plans or accounts are established or
administered under programs sponsored by administrators or other persons that
have been approved by the distributor; and (vi)investors who redeem shares of
the fund and then decide to reinvest their redemption proceeds in additional
shares of the fund within 30 days.
SALE OF CLASS B SHARES
Class B shares are sold at net asset value next determined after receipt of an
order, without an initial sales charge. The full amount of your purchase is
immediately invested in the fund. A CDSC, however, will be imposed on certain
redemptions of Class B shares within seven years after purchase. Shares
acquired by reinvestment of distributions and shares held for more than seven
years may be redeemed without charge at any time. To determine the CDSC
assessed on any redemption, the Fund will first redeem shares not subject to a
CDSC, second, shares held for more than seven years, but before the eighth year
anniversary of shares acquired pursuant to reinvestment of dividends or
distributions, and third, shares held longest during this eight-year period.
This will result in your paying the lowest possible CDSC.
The CDSC is calculated by multiplying the lesser of the original purchase price
or the net asset value of such shares at the time of redemption by the
applicable percentage shown in the table below. No CDSC will be imposed on
-11-
<PAGE>
amounts representing increases in net asset value above the initial purchase
price of the shares identified for redemption.
Percentage of
Redemption Within Offering Price
--------------
First Year 5.75%
Second Year 5.0%
Third Year 4.0%
Fourth Year 3.0%
Fifth Year 2.0%
Sixth Year 2.0%
Seventh Year 1.0%
Eighth Year 0.0%
CDSC WAIVERS
The CDSC is waived on redemptions of Class B shares (i) following the death or
disability (as defined in the Internal Revenue Code) of all registered owners
occurring after the purchase of the shares being redeemed, (ii) in connection
with required minimum distributions from an IRA or other retirement plan, (iii)
in connection with returns of excess contributions to an IRA or other retirement
plan, and (iv) effected pursuant to the right of the fund to liquidate a
shareholder's account as described under "How to Redeem Shares."
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares held for eight years after purchase are automatically converted
into Class A shares on the eighth anniversary after purchase. The fund will
effect conversions of Class B shares into Class A shares only four times in any
calendar year, on the fifteenth business day of the months of March, June,
September and December (each, a "Conversion Date"). If the eighth anniversary
after a purchase of Class B shares falls on a Conversion Date, Class B shares
will be converted on that date. If the eighth anniversary occurs between
Conversion Dates, Class B shares will be converted on the next Conversion Date
after such anniversary.
The Class A shares into which the Class B shares will convert are subject to
ongoing annual 12b-1 Plan expenses of up to a maximum of 0.30% of average daily
net assets of such shares.
The automatic conversion of Class B shares constitutes a tax-free exchange for
federal income tax purposes.
RULE 12B-1 FEES
The fund has adopted two plans of distribution ("Class A Plan" and "Class B
Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. Each
Plan permits the fund to pay its distributor from the assets of each respective
Class a monthly fee for the distributor's services and expenses in distributing
("distribution fees") and providing personal services and/or maintaining
shareholder accounts ("service fees").
Under the Class A Plan, the fund pays the distributor and others up to 0.30% of
the Class A share's average daily net assets in any year. Under the Class B
Plan, the fund pays the distributor and others up to 1.00% (of which up to 0.25%
may be service fees) of the Class B share's average daily net assets in any
year. The Class B Plan is designed to permit an investor to purchase shares
without the assessment of a front-end sales load and at the same time permit the
distributor to compensate authorized dealers with respect to such shares. In
this regard, the purpose and function of the combined CDSC and distribution fee
is to provide for the financing of the distribution of Class B shares. The
distributor will not use the proceeds from the CDSC applicable to Class B shares
to defray distribution-related expenses attributable to Class A shares.
-12-
<PAGE>
Since 12b-1 fees are paid out of fund assets for each Class on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
HOW TO REDEEM SHARES
You may redeem your shares of the fund on any business day that the NYSE is open
for business. Redemptions will be effective at net asset value (subject to any
applicable CDSC fees) next determined after receipt by the transfer agent of a
redemption request meeting the requirements described below.
REDEMPTION BY MAIL
You may redeem shares by submitting a written request for redemption to First
Data Investor Services Group, Inc., 3200 Horizon Drive, P.O. Box 61503, King of
Prussia, PA 19406-0903. A written redemption request must: (i) identify your
account name and account number; (ii) state the number of shares or dollar
amount to be redeemed, and (iii) be signed by each registered owner exactly as
the shares are registered. To prevent fraudulent redemptions, a signature
guarantee for the signature of each person in whose name an account is
registered is required for all written redemption requests exceeding $10,000, or
where proceeds are to be mailed to an address other than the address of record.
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 considered received until the transfer agent
receives all required documents in proper form. Questions with respect to the
proper form for redemption requests should be directed to the transfer agent at
(800)452-4892.
REDEMPTION BY TELEPHONE
With prior authorization, you may redeem shares by calling the transfer agent at
(800)452-4892 or (610)239-4600 during normal business hours. To arrange for
redemption by wire or telephone after your account has been opened, or to change
the bank or account designated to receive redemption proceeds, send a written
request with a signature guarantee to the transfer agent.
The fund reserves the right to refuse a wire or telephone redemption if
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 be sent only to the
shareholder's address of record, or wired to the shareholder's bank account on
file with the transfer agent.
-13-
<PAGE>
GENERAL REDEMPTION INFORMATION
When a request for redemption is made shortly after the purchase of shares, by
check, you will not receive the redemption proceeds until the check(s) for the
shares purchased has cleared. Although the redemption proceeds may be delayed,
the redemption request will be processed at the 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. You may avoid such delays by purchasing shares by federal
funds wire.
Redemption proceeds may be wired directly to any bank previously designated on
your new account application. There is a $15.00 charge for redemptions made by
wire to domestic banks. Wires to foreign or overseas banks may be charged at
higher rates. Banks may impose a fee for wire services. In addition, there may
be fees for redemptions made through brokers, financial institutions and service
organizations.
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. The
fund has reserved the right to redeem in-kind, or partly in cash and partly in-
kind.
The fund has elected, pursuant to Rule 18f-1 under the Investment Company Act of
1940 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 above. See
"Pricing Fund Shares." In the event that an in-kind distribution is made, you
may incur additional expenses, such as brokerage commissions, on the sale or
other disposition of the securities received from the fund. In-kind payments
need not constitute a cross-section of the fund's portfolio.
The fund may suspend the right of redemption or postpone the date of 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 after shareholder redemptions, but not market
fluctuations. You will be notified if the value of your account is less than
the required minimum, and will be allowed at least 60 days to bring the value of
your account up to the minimum before the redemption is processed. No CDSC will
be imposed on any involuntary redemption.
SPECIAL SERVICES
AUTOMATIC INVESTMENT PLAN
You 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. You may authorize the automatic withdrawal of funds
from your bank account by opening an account with a minimum of $1,000 and
completing the automatic investment plan section of the New Account Application
enclosed with this Prospectus. Subsequent monthly investments are subject to a
minimum required amount of $50. The fund may alter, modify or terminate this
plan at any time.
-14-
<PAGE>
SYSTEMATIC CASH WITHDRAWAL PLAN
The fund offers a systematic cash withdrawal plan as another option by which to
withdraw funds from your account on a regular basis. To participate in this
option, you must either own or purchase shares having a value of $10,000 or
more. Automatic payments by check will be mailed to you on either a monthly,
quarterly, semi-annual or annual basis in amounts of $50 or more. All
withdrawals are processed on the 25th of the month or, if such day is not a
business day, on the next business day and paid promptly thereafter. The
systematic withdrawal plan is not available for Class B shares. For information
about starting a systematic cash withdrawal plan, call the transfer agent at
(800)452-4892 or (610)239-4600.
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 distributed more frequently as deemed
advisable by the Board of Directors. All such dividends and distributions are
taxable to the shareholder whether or not reinvested in shares. The fund will
distribute the return of capital it receives from the REITs in which the fund
invests. The REITs pay distributions based on cash flow, without regard to
depreciation and amortization. As a result, a portion of the distributions paid
to the fund and subsequently distributed to shareholders is a return of capital.
The final determination of the amount of the fund's return of capital
distributions for the period will be made after the end of each calendar year.
Dividends paid by the fund with respect to its Class A shares and Class B shares
are calculated in the same manner and at the same time. Both Class A shares and
Class B shares will share proportionately in the investment income and expenses
of the fund, except that the per share dividends of Class B shares will differ
from the per share dividends of Class A shares as a result of additional
distribution expenses applicable to Class B shares.
Each income dividend and capital gains distribution, if any, declared by the
fund on its outstanding shares will be paid in additional shares of the fund
having an aggregate net asset value as of the payment date of such dividend or
distribution equal to the cash amount of such income dividend or distribution,
unless payment in cash is specified by the shareholder by written request to the
fund. Election to receive income dividends and distributions in cash may be
made at the time shares are initially purchased or may be changed at any time
prior to the record date for 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
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.
-15-
<PAGE>
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 a capital gain.
A distribution will be treated as paid on December 31 of the current calendar
year if it is declared in October, November or December with a record date in
such a month and paid during January of the following calendar year. Any
dividend or distribution received by a shareholder on shares of the fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to him or her
as described above. If a shareholder held shares six months or less and during
that period received a distribution taxable to such shareholder as long-term
capital gain, any loss realized on the sale of such shares during such six-month
period would be a long-term capital loss to the extent of such distribution.
A dividend or capital gains distribution with respect to shares of the Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, will not
be taxable to the plan. Distributions from such plans will be taxable to
individual participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
The fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the fund, or if the shareholder is otherwise subject to backup withholding.
Shareholders will be advised annually as to the federal tax status of income
dividends and capital gains and return of capital distributions made by the fund
for the preceding year. Distributions by the fund may be subject to state and
local taxes. Shareholders are urged to consult their tax advisers regarding
their own tax situation.
YEAR 2000 COMPLIANCE
The fund could be adversely affected if the computer systems used by the fund or
its service providers do not properly process and calculate date-related
information after December 31, 1999. The Year 2000 issue affects virtually all
companies and organizations. While Year 2000-related computer problems could
have a negative effect on the fund, the adviser is working to avoid such
problems and to obtain assurances from the fund's service providers that they
are taking similar steps. Companies, organizations, governmental entities and
securities in which the fund invests could be affected by the Year 2000 issue,
but at this time the fund cannot predict the degree of impact. To the extent
the effect is negative, the fund's returns could be reduced.
-16-
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for one share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Class A Shares Class B Shares
For the Period For the Period
Ended Ended
October 31, 1998* October 31, 1998**
----------------------- ----------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.62
Income from Investment Operations:
Net investment income 0.20 0.15
Net unrealized loses on securities -1.38 -1.00
Total from investment operations -1.18 -0.85
Less Distributions:
Distributions from net investment income: -0.16 -0.13
Distributions from net capital gains: 0.00 0.00
Total distributions -0.16 -0.13
NET ASSET VALUE, END OF PERIOD $ 8.66 $ 8.64
------------ -----------
Total Return (11.78%)/1/ (8.84%)/3/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000s) $ 7,290 $ 669
Ratio of expenses to average net assets:
Before expense reimbursement 6.33%/2/ 7.03%/2/
After expense reimbursement 1.97%/2/ 2.67%/2/
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement (0.62%)/2/ (1.32%)/2/
After expense reimbursement 3.75%/2/ 3.05%/2/
Portfolio turnover rate 0.00% 0.00%
</TABLE>
* Class A Shares commenced investment operations on January 9, 1998.
** Class B Shares commenced investment operations on March 6, 1998
/1/ Total return calculation does not reflect sales load and is not annualized
/2/ Annualized.
/3/ Total return calculation does not reflect CDSC charges and is not
annualized.
-17-
<PAGE>
[BACK COVER PAGE 1]
INVESTMENT ADVISER
Spirit of America Management, Inc.
477 Jericho Turnpike
Syosset, NY 11791
(516) 390-5575
DISTRIBUTOR
SSH Securities, Inc.
477 Jericho Turnpike
Syosset, NY 11791
(516) 390-5565
SHAREHOLDER SERVICES
First Data Investor Services Group, 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
AUDITORS
Tait Weller & Baker
8 Penn Center Plaza, Suite 800
Philadelphia, PA 19103
-18-
<PAGE>
[OUTSIDE BACK COVER]
This prospectus sets forth the information you should know before investing in
the fund. Please read it carefully and keep it for future reference.
Additional information about the fund contained in a Statement of Additional
Information dated February 26, 1999 has been filed with the U.S. Securities and
Exchange Commission (the "SEC"). The Statement of Additional Information is
incorporated by reference into this Prospectus. It may be obtained free of
charge by calling the Fund's distributor, SSH Securities, Inc. collect 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 into this Prospectus, and other information regarding the fund.
Copies of this information may be obtained upon payment of a duplicating fee, by
writing the Public Reference Section of the SEC, Washington, D.C. 20549-6009.
Additional information about the fund's investments is available in the fund's
annual and semi-annual reports to shareholders. In the fund's annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the fund's performance during its last fiscal year.
The fund's annual and semi-annual reports are available without charge by
calling 1-800-332-6459.
Information about the fund can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. Call the SEC at 1-800-SEC-0330 for
information about the operations of the Public Reference Room.
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.
Investment Company File No. 811-8231
-i-
<PAGE>
SPIRIT OF AMERICA INVESTMENT FUND, INC.
477 Jericho Turnpike
Syosset, New York 11791
STATEMENT OF ADDITIONAL INFORMATION
February 26, 1999
This Statement of Additional Information is not a prospectus but supplements and
should be read in conjunction with the current Prospectus for the Spirit of
America Investment Fund, Inc. (the "Fund") dated February 28, 1999. No
investment in shares should be made without first reading the Prospectus. A
copy of the Prospectus may be obtained without charge by contacting SSH
Securities, Inc. 447 Jericho Turnpike, Syosset, New York 11791, or calling
collect 516-390-5565.
The Fund's most recent annual and semi-annual reports to shareholders are
separate documents that are incorporated by reference into this Statement of
Additional Information. The annual and semi-annual reports are also available
without charge by calling the Fund's administrator at 1-800-332-6459.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
Fund History......................................... 2
Investment Strategies, Policies and Risks............ 2
Management of the Fund............................... 7
Control Persons and Principal Holders of Securities.. 9
Investment Advisory and Other Services............... 10
Shareholder Services................................. 13
Retirement Plans..................................... 14
Net Asset Value...................................... 15
Dividends, Distributions and Taxes................... 15
Brokerage and Portfolio Transactions................. 17
Performance Information.............................. 18
Capital Stock........................................ 20
Financial Statements.................................
</TABLE>
<PAGE>
FUND HISTORY
The Fund, a Maryland corporation organized on May 15, 1997, is a diversified,
open-end management investment company. The Fund offers two classes of shares:
Class A shares and Class B shares.
INVESTMENT STRATEGIES, POLICIES AND RISKS
The following supplements the information contained in the Prospectus concerning
a description of securities and investment practices of the Fund. You should
read it together with the sections in the
Prospectus entitled "Investment Strategies and Risks."
The investment practices described below are not fundamental and may be changed
by the Board of Directors without the approval of the shareholders of the Fund.
Shareholders will, however, be given contemporaneous written notification of any
changes in the investment policies. As a fundamental policy, the Fund, under
normal circumstances intends to invest at least 60% of its total assets in
equity securities of REITs and other real estate industry companies.
CONVERTIBLE SECURITIES
Although the Fund has no current intention of purchasing convertible securities,
the Fund may invest up to 15% of its total assets in convertible securities of
issuers whose common stocks are eligible for purchase by the Fund. Convertible
securities are instruments that are convertible at a stated exchange rate into
common stock. Prior to their conversion, convertible securities have the same
general characteristics as nonconvertible securities which provide a stable
stream of income with generally higher yields than those of equity securities of
the same or similar issuers. The market value of convertible securities tends to
decline as interest rates increase and, conversely, to increase as interest
rates decline.
Convertible securities rank senior to common stocks in an issuer's capital
structure. They are consequently of higher quality and entail less risk than the
issuer's common stock, although the extent to which such risk is reduced depends
in large measure upon the degree to which the convertible security sells above
its value as a fixed income security.
FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS
Although the Fund may purchase securities on a when-issued basis, or purchase or
sell securities on a forward commitment basis, or purchase securities on a
delayed delivery basis, the Fund does not have the current intention of doing so
in the foreseeable future. The Fund will normally realize a capital gain or
loss in connection with these transactions.
No forward commitments will be made by the Fund if, as a result, the Fund's
aggregate commitments under such transactions would be more than 15% of the then
current value of the Fund's total assets. The Fund's right to receive or deliver
a security under a forward commitment may be sold prior to the settlement date,
but the Fund will enter into forward commitments only with
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<PAGE>
the intention of actually receiving or delivering the securities, as the case
may be. To facilitate such transactions, the Fund's custodian will maintain, in
a segregated account of the Fund, liquid assets having value equal to, or
greater than, any commitments to purchase securities on a forward commitment
basis and, with respect to forward commitments to sell portfolio securities of
the Fund, the portfolio securities themselves. If the Fund, however, chooses to
dispose of the right to receive or deliver a security subject to a forward
commitment prior to the settlement date of the transaction, it may incur a gain
or loss. In the event the other party to a forward commitment transaction were
to default, the Fund might lose the opportunity to invest money at favorable
rates or to dispose of securities at favorable prices.
STANDBY COMMITMENT AGREEMENTS
Although the Fund has no current intention of entering into standby commitments,
the Fund may purchase a security subject to a standby commitment agreement. The
related commitment fee will be recorded on the date on which the security can
reasonably be expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net asset value. The
cost basis of the security will be adjusted by the amount of the commitment fee.
In the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment. The Fund will at all
times maintain a segregated account with its custodian of liquid assets in an
aggregate amount equal to the purchase price of the securities underlying the
commitment.
There can be no assurance that the securities subject to a standby commitment
will be issued and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the Fund will bear the
risk of capital loss in the event the value of the security declines and may not
benefit from an appreciation in the value of the security during the commitment
period if the issuer decides not to issue and sell the security to the Fund.
SHORT SALES
The Fund may attempt to limit exposure to a possible decline in the market value
of portfolio securities through short sales of securities which the Fund's
adviser believes possess volatility characteristics similar to those being
hedged. The Fund also may use short sales in an attempt to realize gain. To
effect a short sale, the Fund borrows a security from a brokerage firm to make
delivery to the buyer. The Fund is then obligated to replace the borrowed
security by purchasing it at the market price at the time of replacement. No
short sale will be effected which will, at the time of making such short sale
transaction, cause the aggregate market value of all securities sold short to
exceed 15% of the value of the Fund's net assets.
To secure the Fund's obligation to replace any borrowed security, it will place
in a segregated account, an amount of cash or U.S. Government securities equal
to the difference between the market value of the securities sold short at the
time of the short sale, and any cash or U.S. Government securities originally
deposited with the broker in connection with the short sale (excluding the
proceeds of the short sale). The Fund will thereafter maintain daily the
segregated amount at such
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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.
A short position may be adversely affected by imperfect correlation between
movements in the price of the security sold short and the securities being
hedged. The Fund will realize a gain on the security sold short if the security
declines in price between the date of the short sale and the date on which the
Fund replaces the borrowed security. The Fund will incur a loss if the price of
the security increases between those dates. The amount of any gain will be
decreased, and the amount of the loss increased, by the amount of any premium or
interest the Fund may be required to pay in connection with a short sale.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements pertaining to U.S. Government
Securities with member banks of the Federal Reserve System or Primary dealers
(as designated by the Federal Reserve Bank of New York) in such securities.
There is no percentage restriction on the Fund's ability to enter into
repurchase agreements. Currently, the Fund intends to enter into repurchase
agreements only with its custodian and such primary dealers. A repurchase
agreement arises when a buyer purchases a security and simultaneously agrees to
resell it to the vendor at an agreed-upon future date, normally one day or a few
days later. The resale price is greater than the purchase price, reflecting an
agreed-upon interest rate which is effective for the period of time the buyer's
money is invested in the security and which is related to the current market
rate rather than the coupon rate on the purchased security. This results in a
fixed rate of return insulated from market fluctuations during such period. Such
agreements permit the Fund to keep all of its assets at work while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature. The
Fund requires continual maintenance by its custodian for its account in the
Federal Reserve/Treasury Book Entry System of collateral in an amount equal to,
or in excess of, the resale price. In the event a vendor defaulted on its
repurchase obligation, the Fund might suffer a loss to the extent that the
proceeds from the sale of the collateral were less than the repurchase price. In
the event of a vendor's bankruptcy, the Fund might be delayed in, or prevented
from, selling the collateral for its benefit. The Fund's Board of Directors has
established procedures, which are periodically reviewed by the Board, pursuant
to which the adviser monitors the creditworthiness of the dealers with which the
Fund enters into repurchase agreement transactions.
ILLIQUID SECURITIES
The Fund may invest up to 15% of its net assets in illiquid securities.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation.
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<PAGE>
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
U.S. Securities and Exchange Commission (the "Commission") interpretation or
position with respect to such type of security.
RIGHTS AND WARRANTS
- -------------------
The Fund has no current intention to invest in rights and warrants, although the
Fund may invest up to 15% of its net assets in rights or warrants only if the
underlying equity securities are themselves deemed appropriate by the adviser
for inclusion in the Fund's portfolio. Rights and warrants entitle
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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 rights
or warrants does not necessarily change with the value of the underlying
security, although the value of a right or warrant may decline because of a
decrease in the value of the underlying security, the passage of time or a
change in perception as to the potential of the underlying security, or any
combination thereof. If the market price of the underlying security is below the
exercise price set forth in the warrant on the expiration date, the warrant will
expire worthless. Moreover, a right or warrant ceases to have value if it is not
exercised prior to the expiration date.
PORTFOLIO TURNOVER
It is the Fund's policy to sell any security whenever, in the judgment of the
adviser, its appreciation possibilities have been substantially realized or the
business or market prospects for such security have deteriorated, irrespective
of the length of time that such security has been held. The adviser anticipates
that the Fund's annual rate of portfolio turnover will not exceed 100%. A 100%
annual turnover rate would occur if all securities in the Fund's portfolio were
replaced once within a period of one year. For the fiscal year ended October 31,
1998, the Fund had a portfolio turnover of 0%.
FUNDAMENTAL POLICIES
In addition to the Fund's investment objective, the following fundamental
policies may not be changed without approval by the vote of a majority of the
Fund's outstanding voting securities, which means the affirmative vote of the
holders of (i) 67% or more of the shares represented at a meeting at which more
than 50% of the outstanding shares are represented, or (ii) more than 50% of the
outstanding shares, whichever is less. As a matter of fundamental policy the
Fund may not:
(a) with respect to 75% of its total assets, have such assets represented
by other than: (i) cash and cash items, (ii) U.S. Government
securities, or (iii) securities of any one issuer (other than the U.S.
Government and its agencies or instrumentalities) not greater than 5%
of the Fund's total assets, and not more than 10% of the outstanding
voting securities of such issuer;
(b) purchase the securities of any one issuer, other than the U.S.
Government and its agencies or instrumentalities, if as a result (a)
the value of the holdings of the Fund in the securities of such issuer
exceeds 15% of its total assets, or (b) the Fund owns more than 25% of
the outstanding securities of any one class of securities of such
issuer;
(c) invest 25% or more of its total assets in the securities of issuers
conducting their principal business activities in any one industry,
other than the real estate industry
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in which the Fund will invest at least 25% or more of its total
assets, except that this restriction does not apply to U.S. Government
securities;
(d) purchase or sell real estate, except that it may purchase and sell
securities of companies which deal in real estate or interests
therein, including real estate equity securities;
(e) borrow money except for temporary or emergency purposes or to meet
redemption requests, in an amount not exceeding 5% of the value of its
total assets at the time the borrowing is made;
(f) pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings;
(g) make loans except through (a) the purchase of debt obligations in
accordance with its investment objectives and policies; or (b) the use
of repurchase agreements;
(h) participate on a joint or joint and several basis in any securities
trading account;
(i) invest in companies for the purpose of exercising control;
(j) issue any senior security;
(k) (i) purchase or sell commodities or commodity contracts including
futures contracts; (ii) invest in interests in oil, gas, or other
mineral exploration or development programs; (iii) purchase securities
on margin, except for such short-term credits as may be necessary for
the clearance of transactions; and (iv) act as an underwriter of
securities, except that the Fund may acquire restricted securities
under circumstances in which, if such securities were sold, the Fund
might be deemed to be an underwriter for purposes of the Securities
Act.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Fund is managed by a Board of Directors, and all powers and authorities are
exercised by or under the direction of the Directors. 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.
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<PAGE>
DIRECTORS
DAVID LERNER*, 62, 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-three years as President and founder. Mr. Lerner received his
B.A. and MBA degrees from the City University of New York, New York, NY.
STANLEY THUNE, 61, P.O. Box 1055, Merrimack, New Hampshire 03054; Director;
President and Chief Executive Officer, Freight Management Systems, Inc., from
April 1993 to present. Mr. Thune is also President and CEO of Energy
Conservation Management, Inc. (July 1995 to present). Mr. Thune is involved in
property development. 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.
ALLEN KAUFMAN, 61, 223 Hamlet Drive, Jericho, New York 11797; Director;
President and Chief Executive Officer of K.G.K. Agency, Inc., a property and
casualty insurance agency located in Woodbury, New York, since 1963; Mr. Kaufman
is a graduate of C.C.N.Y. Baruch School of Business Administration (B.B.A.
degree). Mr. Kaufman majored in real estate and insurance.
DANIEL LERNER*, 37, 477 Jericho Turnpike, Syosset, New York 11791; Director;
Broker with Bear Stearns from January 1999 to present; previously 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 attended the State University of New York at Binghamton.
Daniel Lerner is the son of David Lerner.
THOMAS P. REYNOLDS, 58, 45 Broadway, New York, NY 10006; Director; President of
Reynolds Securities, Ltd., since 1979.
Officers
DAVID LERNER, 62, 477 Jericho Turnpike, Syosset, New York 11791; President and
Treasurer (see biography above).
CONSTANCE FERREIRA, 48, 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-three years. Ms. Ferreira attended the City
University of New York.
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The Fund pays each of its Directors who is not an affiliated person of the
Fund's 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.
<TABLE>
<CAPTION>
COMPENSATION TABLE
Directors and Officers
<S> <C> <C>
Total Compensation
from Fund Complex
Aggregate Compensation paid to Directors for
from Fund for Fiscal Year Calendar Year
Name of Director/Officer ended October 31, 1998 ending December 31, 1998
- ------------------------------------------------- ---------------------- ------------------------
David Lerner* $ 0 $ 0
Stanley Thune $ 2,250 $ 2,250
Herbert Grant $ 2,250 $ 2,250
Allen Kaufman $ 2,250 $ 2,250
Daniel Lerner* $ 0 $ 0
Constance Ferreira $ 0 $ 0
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of December 1, 1998, the officers and Directors, as a group, owned
beneficially 1.14% of the outstanding voting shares of the Trust, the Fund and
the Class A Shares.*
The following persons beneficially own of record or are known to beneficially
own of record 5 percent or more of the outstanding common stock of the Fund's
Class B Shares as set forth below as of December 1, 1998. No persons own 5
percent or more of the Fund's Class A Shares.
Name and Address PERCENTAGE OF FUND
---------------- ------------------
DCG 5.24%
FBO George Blake, IRA Account
9 Parker Drive
Mahopac, NY 10541
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INVESTMENT ADVISORY AND OTHER SERVICES
THE ADVISER
Mr. David Lerner is the sole shareholder and director of Spirit of America
Management Corp., the Fund's adviser. Mr. Lerner also is a director, chief
executive officer, and president of SSH Securities, Inc., the Fund's principal
distributor. Mr. Lerner also is a director, chief executive officer, and
president of David Lerner Associates, Inc., a registered broker-dealer
affiliated with the adviser and distributor.
The advisory fee payable by the Fund is 0.97% of the Fund's average daily net
assets. The fee is accrued daily and paid monthly. For the fiscal period ended
October 31, 1998, the advisor was entitled to receive a fee equal to $37,487
under the advisory agreement. However, the adviser waived receipt of its fee
for the fiscal period ended October 31, 1998. The adviser voluntarily has
agreed to waive all or a portion of its fee and to reimburse certain expenses so
that the total operating expenses of Class A shares and Class B shares for the
first year of Fund Operations would not exceed 1.97% and 2.67%, respectively.
In subsequent years, overall expenses for each Fund class may not fall below
1.97% and 2.67% respectively, until the adviser has been fully reimbursed for
fees forgone or expenses paid. The adviser may terminate this waiver and/or
reimbursement at any time, in its sole discretion. Each Fund class bears its
pro rata share of the fee payable to the adviser.
PRINCIPAL DISTRIBUTOR
SSH Securities, Inc., 477 Jericho Turnpike, Syosset, New York 11791, serves as
the Fund's principal distributor. Mr. David Lerner, director, chief executive
officer and president of SSH Securities, is the sole shareholder and director of
Spirit of America Management Corp., the Fund's investment adviser.
SERVICE PROVIDER TO THE FUND
First Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-
owned subsidiary of First Data Corporation, 4400 Computer Drive, Westborough, MA
01581, provides the back office services for the fund. Investor Services Group
provides fund administration, fund accounting, transfer agency and custody
administration.
The main tasks that Investor Services Group performs on behalf of the Fund are:
(1)coordinating and monitoring, 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 Investor
Services Group's responsibilities; (3) maintaining such books and records of the
Fund as may be required by applicable federal or state law; (4) preparing and,
after approval by the Fund, filing and arranging for the distribution of proxy
materials and periodic reports to shareholders of the Fund as required by
applicable law; (5) preparing and, after approval by the Fund, arranging for the
filing of such registration statements and other documents with the U.S.
Securities and Exchange Commission and any other federal or state regulatory
authorities as may be required by applicable law; and (6) reviewing and
submitting to the officers of the Fund for their approval, invoices or other
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requests for payment of the Fund's expenses and instructing the custodian to
issue checks in payment thereof.
The Fund pays Investor Services Group a fee for performing administrative
services at the annual rate of 0.15% of the first $50 million of total average
net assets, 0.10% of the next $50 million of total average net assets and 0.05%
of total net assets in excess of $100 million, subject to a minimum annual fee
of $67,000. FPS also receives fees for providing the other services mentioned.
For the fiscal period ended October 31, 1998, the Fund paid Investor Services
Group $123,460.
DISTRIBUTION PLANS
The Fund has adopted a Rule 12b-1 Plan with respect to each class of its shares.
The Plans provide that the distributor may use its own resources to finance the
distribution of the Fund's shares. These expenses include, among other things,
preparing and distributing advertisements, sales literature, and prospectuses
and reports used for sales purposes, compensating sales and marketing personnel,
holding special promotions for specified periods of time, and paying
distribution and maintenance fees to brokers, dealers and others. The 12b-1
plan expenses relating to the Class B Shares are also used to pay the
distributor for advancing the commission costs to dealers with respect to the
initial sales of such shares.
The Plans provide that the distributor will use the distribution fees received
from the Fund in their entirety for payments (i) to compensate broker-dealers or
other persons for providing distribution assistance, (ii) to otherwise promote
the sale of shares of the Fund, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for providing
administrative, accounting and other services with respect to the Fund's
shareholders. Distribution fees received from the Fund will not be used to pay
any interest expenses, carrying charges or other financing costs or allocation
of overhead of the distributor. The Plans also provide that the distributor may
use its own resources to finance the distribution of the Fund's shares.
The Plans are characterized as compensation plans because the distribution and
service fees will be paid to the distributor without regard to the distribution
or shareholder services expenses incurred by the distributor or the amount of
payments made to financial institutions and intermediaries.
The Fund is not obligated under the Plans to pay any distribution services fee
in excess of the amounts set forth above. All expenses of distribution and
marketing in excess of the maximum amounts permitted by the Class A Plan and
Class B Plan per annum will be borne by the distributor and any amounts paid for
the above services will be paid pursuant to a servicing or other agreement.
Distribution expenses accrued by the distributor in one fiscal year may not be
paid from distribution services fees received from the Fund in subsequent fiscal
years. The Fund intends to operate the Plans in accordance with their terms and
within the rules of the NASD concerning sales charges.
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<PAGE>
The fees paid to the distributor under the Plans are subject to review and
approval by the Fund's independent directors who have the authority to reduce
the fees or terminate the Plans at any time. All payments to the Plan shall be
made for the purpose of selling shares issued by the Fund or servicing
shareholder accounts. The distribution fee of one class will not be used to
subsidize the sale of the other class of shares.
Under the Plans, the principal financial officer of the Fund reports the amounts
expended under the Plans, set forth separately by class of shares, and the
purposes for which such expenditures were made, to the Directors of the Fund for
their review on a quarterly basis. Also, the Plans provide that the selection
and nomination of Directors who are not interested persons of the Fund, as
defined in the 1940 Act, are committed to the discretion of such disinterested
Directors then in office.
The adviser may from time to time and from its own funds or such other resources
as may be permitted by rules of the Commission make payments for distribution
services to the distributor; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
In the event that the Plan is terminated or not continued (i) no distribution
fees (other than current amounts accrued but not yet paid) would be owed by the
Fund to the distributor, and (ii) the Fund would not be obligated to pay the
distributor for any amounts expended under the Plan not previously recovered by
the distributor from distribution fees in respect of shares or through deferred
sales charges.
For the fiscal period ended October 31, 1998, Class A shares paid $10,717 in
12b-1 fees and Class B shares paid $2,923 in 12b-1 fees.
TRANSFER AGENT AND FUND ACCOUNTANT
Investor Services Group also serves as the Fund's transfer agent and maintains
the records of each shareholder's account, answers shareholder inquiries,
processes purchases and redemptions and acts as dividend disbursing agent.
Investor Services Group performs certain accounting and pricing services for the
Fund, including the daily calculation of the Fund's net asset value per share.
CUSTODIAN
The Bank of New York, 48 Wall Street, New York, NY 10286, serves as custodian
for the safekeeping of securities, cash and other assets of the Fund.
INDEPENDENT AUDITORS
Tait, Weller & Baker, 8 Penn Center Plaza, Suite 800, Philadelphia, PA 19103,
serves as independent auditor for the Fund.
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<PAGE>
SHAREHOLDER REPORTS AND INQUIRIES
The Fund issues unaudited financial information semi-annually and audited
financial statements annually. Shareholder inquires should be addressed to the
Fund c/o First Data Investor Services Group, Inc., 3200 Horizon Drive, P.O. Box
61503, King of Prussia, PA 19406-0903. Purchase and redemption transactions
should be made through First Data Investor Services Group, Inc. by calling (800)
452-4892.
SHAREHOLDER SERVICES
The following information supplements that set forth in the Fund's Prospectus
under the heading "How to Purchase Shares."
AUTOMATIC INVESTMENT PLAN
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.
SYSTEMATIC WITHDRAWAL PLAN
Any Class A shareholder who owns or purchases shares of the Fund having a
current net asset value of at least $10,000 may establish a systematic
withdrawal plan under which the shareholder will receive payments from his or
her account on a regular basis. Systematic withdrawal plan participants must
elect to have their dividends and distributions from the Fund automatically
reinvested in additional shares of the Fund.
Shares of the Fund owned by a participant in the Fund's systematic withdrawal
plan will be redeemed as necessary to meet withdrawal payments and such
withdrawal payments will be subject to any taxes applicable to redemptions.
Shares acquired with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other shares will be
liquidated to the extent necessary, and depending upon the amount withdrawn, the
investor's principal may be depleted. A systematic withdrawal plan may be
terminated at any time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a shareholder's account
reaches a certain minimum level. Therefore, redemptions of shares under the plan
may reduce or even liquidate a
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<PAGE>
shareholder's account and may subject the shareholder to the Fund's involuntary
redemption provisions. The Systematic Withdrawal Plan is not available with
respect to the Class B Shares.
RETIREMENT PLANS
The Fund may be a suitable investment vehicle for part or all of the assets held
in various types of retirement plans, such as those listed below. The Fund has
available forms of such plans pursuant to which investments can be made in the
Fund. Persons desiring information concerning these plans should contact SSH
Securities, Inc. at (516) 390-5565, or write to:
SSH Securities, Inc.
477 Jericho Turnpike
Syosset, New York 11791
TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individuals who receive
compensation, including earnings from self-employment, may be entitled to
establish and make contributions to an IRA. Taxation of the income and gains
paid to an IRA by the Fund is deferred until distribution from the IRA.
ROTH IRAS. The Taxpayers Relief Act of 1997 created the new Roth IRA. While
contributions to a Roth IRA are not currently deductible, the amounts invested
in a Roth account accumulate tax-free and qualified distributions will not be
included in a shareholder' taxable income. The contribution limit is $2000
annually ($4,000 for joint returns) in aggregate with contributions to
Traditional IRAs. Certain income phaseouts apply.
EDUCATION IRAS. The Taxpayers Relief Act of 1997 also created the new Education
IRA. Like the Roth IRA, contributions are non-deductible, but the investment
earnings accumulate tax-free, and distributions used for higher education
expenses are not taxable. Contribution[s] limits are $500 per account and
certain income phaseouts apply.
EMPLOYER-SPONSORED QUALIFIED RETIREMENT PLANS. Sole proprietors, partnerships
and corporations may sponsor qualified money purchase pension and profit-sharing
plans, including Section 401(k) plans ("qualified plans"), under which annual
tax-deductible contributions are made within prescribed limits based on
compensation paid to participating individuals.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole proprietors, partnerships and
corporations may sponsor a SEP under which they make annual tax-deductible
contributions to an IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(B)(7) RETIREMENT PLAN. Certain tax-exempt organizations and public
educational institutions may sponsor retirement plans under which an employee
may agree that monies deducted from his
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or her compensation (minimum $25 per pay period) may be contributed by the
employer to a custodial account established for the employee under the plan.
Distributions from retirement plans are subject to certain Internal Revenue Code
(the "Code") requirements in addition to normal redemption procedures. For
additional information please contact SSH Securities, Inc.
STATEMENTS AND REPORTS. Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments, financial statements
and, in the case of the annual report, the report of the Fund's independent
auditors, as well as confirmation of each purchase and redemption. By contacting
his or her broker, a shareholder can arrange for copies of his or her account
statements to be sent to another person.
NET ASSET VALUE
The net asset value per share is computed by dividing the value of the assets of
the Fund, less its liabilities, by the number of shares outstanding. The net
asset value per share for each class of shares is computed by adding, with
respect to each class of shares, the value of the Fund's investments, cash and
other assets attributable to that class, deducting liabilities of the class and
dividing the result by the number of shares of that class outstanding.
The net asset value of all outstanding shares of each class of the Fund will be
computed on a pro rata basis for each outstanding share based on the
proportionate participation in the Fund represented by the value of shares of
each class. All income earned and expenses incurred by the Fund will be borne
on a pro rata basis by each outstanding share of such class, except that each
class will bear expenses payable under its respective 12b-1 Plan.
Portfolio securities are valued and net asset value per share is determined as
of the close of regular trading on the New York Stock Exchange ("NYSE") which
currently is 4:00 p.m. (Eastern Time), on each day the NYSE is open for trading.
DIVIDENDS, DISTRIBUTIONS AND TAXES
FEDERAL INCOME TAXES
The Fund intends to qualify and elect to be treated as a "regulated investment
company" under sections 851 through 855 of the Code. To so qualify, the Fund
must, among other things, (i) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to securities
loans, gains from sale or other disposition of stock or securities or foreign
currency, or certain other income (including, but not limited to, gains from
options, futures and forward contracts) derived with respect to its business of
investing in stock, securities or currency; (ii)diversify its holdings so that,
at the end of each quarter of its taxable year, the following two
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conditions are met: (a) at least 50% of the value of the Fund's assets is
represented by cash, U.S. Government Securities, securities of other regulated
investment companies and other securities with respect to which the Fund's
investment is limited, in respect of any one issuer, to an amount not greater
than 5% of the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the value of the Fund's assets is
invested in securities of any one issuer (other than U.S. Government Securities
or securities of other regulated investment companies).
If the Fund qualifies as a regulated investment company for any taxable year and
makes timely distributions to its shareholders of 90% or more of its net
investment income for that year (calculated without regard to its net capital
gain, i.e., the excess of its net long-term capital gain over its net short-term
capital loss), it will not be subject to federal income tax on the portion of
its taxable income for the year (including any net capital gain) that it
distributes to shareholders.
The Fund intends to also avoid the 4% federal excise tax that would otherwise
apply to certain undistributed income for a given calendar year if it makes
timely distributions to the shareholders equal to the sum of (i) 98% of its
ordinary income for that year; (ii) 98% of its capital gain net income and
foreign currency gains for the twelve month period ending on October 31 of that
year; and (iii) any ordinary income or capital gain net income from the
preceding calendar year that was not distributed during that year. For this
purpose, income and gain retained by the Fund that is subject to corporate
income tax will be considered to have been distributed by the Fund by year-end.
For federal income and excise tax purposes, dividends declared and payable to
shareholders of record as of a date in October, November or December of a given
year but actually paid during the immediately following January will be treated
as if paid by the fund on December 31 of that calendar year, and will be taxable
to these shareholders for the year declared, and not for the year in which the
shareholders actually receive the dividend.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to make timely distributions of the Fund's taxable income
(including any net capital gain) so that the Fund will not be subject to federal
income and excise taxes. The excess of net capital gains over the net capital
losses realized and distributed by the Fund to its shareholders is expected to
be taxable to the shareholders as mid-term or long-term capital gains,
irrespective of the length of time a shareholder may have held his Fund shares.
Dividends of the Fund's net ordinary income and distributions of any net
realized short-term capital gain are taxable to shareholders as ordinary income.
Due to distributions of amounts representing a return of capital the Fund will
receive from REITs in which the Fund is invested, distributions made by the Fund
may also include nontaxable returns of capital, which will reduce a
shareholder's basis in shares of the Fund. If a shareholder's basis is reduced
to zero (which could happen if a shareholder does not reinvest distributions and
returns of capital are significant), any further returns of capital will be
taxable as a capital gain. Any dividend or distribution received by a
shareholder on shares of the Fund will have the effect of reducing the net asset
value of such shares by the amount of such dividend or distribution.
Furthermore, a dividend or distribution made shortly after the purchase of such
shares by a shareholder, although in effect a return of capital to that
particular shareholder, would be taxable
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in the manner discussed regardless of whether they are paid to the shareholder
in cash or are reinvested in additional shares of the Fund.
After the end of the taxable year, the Fund will notify shareholders of the
federal income tax status of any distributions made by the Fund to shareholders
during such year.
It is the present policy of the Fund to distribute to shareholders all net
investment income quarterly and to distribute realized capital gains, if any,
annually. There is no fixed dividend rate and there can be no assurance that the
Fund will pay any dividends. The amount of any dividend or distribution paid on
shares of the Fund must necessarily depend upon the realization of income and
capital gains from the Fund's investments.
SALES AND REDEMPTIONS
Any gain or loss arising from a sale or redemption of Fund shares generally will
be capital gain or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if such shareholder has
held such shares for more than one year at the time of the sale or redemption;
otherwise it will be short-term capital gain or loss. However, if a shareholder
has held shares in the Fund for six months or less and during that period has
received a distribution taxable to the shareholder as a long-term capital gain,
any loss recognized by the shareholder on the sale of those shares during the
six-month period will be treated as a long-term capital loss to the extent of
the dividend. In determining the holding period of such shares for this purpose,
any period during which a shareholder's risk of loss is offset by means of
options, short sales or similar transactions is not counted.
BACKUP WITHHOLDING
The Fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification numbers or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Corporate shareholders and certain other
shareholders specified in the Code are exempt from such backup withholding.
Backup withholding is not an additional tax; any amounts so withheld may be
credited against a U.S. shareholder's U.S. federal income tax liability or
refunded.
BROKERAGE AND PORTFOLIO TRANSACTIONS
The adviser has the responsibility for allocating its brokerage orders and may
direct orders to any broker. It is the Fund's general policy to seek favorable
net prices and prompt reliable execution in connection with the purchase or sale
of all portfolio securities. In the purchase and sale of over-the-counter
securities, it is the Fund's policy to use the primary market makers except when
a better price can be obtained by using a broker. The Board of Directors has
approved, as in the best interests of the Fund and the shareholders, a policy of
considering, among other factors, sales of the Fund's shares as a factor in
selection of broker-dealers to execute portfolio transactions, subject to
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best execution. The adviser is authorized to place brokerage business with such
brokers and dealers. The use of brokers who supply supplemental research and
analysis and other services may result in the payment of higher commissions than
those available from other brokers and dealers who provide only the execution of
portfolio transactions. In addition, the supplemental research and analysis and
other services that may be obtained from brokers and dealers through which
brokerage transactions are affected may be useful to the adviser in connection
with advisory clients other than the Fund.
Investment decisions for the Fund are expected to be made independently from
those for other advisory accounts managed by the adviser. It may happen, on
occasion, that the same security is held in the portfolio of the Fund and one or
more of such accounts. Simultaneous transactions are likely when several
accounts are managed by the same adviser, particularly when a security is
suitable for the investment objectives of more than one of such accounts. If two
or more accounts managed by the adviser are simultaneously engaged in the
purchase or sale of the same security, the transactions will be allocated to the
respective accounts both as to amount and price, 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. For the fiscal period ended October 31, 1998, brokerage commissions in the
amount of $16,015 were paid to David Lerner Associates, which is affiliated with
the Fund's adviser and principal distributor.
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.
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Total return may be used to compare the performance of the Fund against certain
widely acknowledged standards or indices for stock and bond market performance
such as the Standard & Poor's 500 Composite Index and the Dow Jones Industrial
Average. The Fund may compare its total return to that of the National
Association of Real Estate Investment Trusts (NAREIT) Equity REIT Index.
Total return is calculated separately for Class A Shares and Class B Shares.
Class A Shares' total return figures include the maximum sales charge of 5.25%
and 12b-1 fees; Class B Shares' total return figures include any applicable
contingent deferred sales charge and 12b-1 fees. Because of the differences in
sales charges and distribution fees, the total returns for the classes will
differ.
AVERAGE ANNUAL TOTAL RETURN
From time to time the Fund may advertise its total return for prior periods. The
Fund's total return is its average annual compounded total return for its most
recently completed one, five, and ten-year periods (or the period since the
Fund's inception). The Fund's total return for such a period is computed by
finding, through the use of a formula prescribed by the Commission below, the
average annual compounded rate of return over the period that would equate an
assumed initial amount invested to the value of such investment at the end of
the period. For purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Fund are assumed to have been
reinvested when paid and the maximum sales charge applicable to purchase of Fund
shares is assumed to have been paid. This calculation can be expressed as
follows:
P(1 + T)n = ERV
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
For the period from January 9, 1998 to October 31, 1998, the total return of the
Fund's Class A Shares was (11.78)%. For the period from March 6, 1998 to
October 31, 1998, the total return of the Fund's Class B Shares was (8.84)%.
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
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the actual return for a specified period rather than on the average return over
one, five and ten year periods, or fractional portion thereof.
CAPITAL STOCK
The authorized capital stock of the Fund currently consists of 1 billion shares
of Common Stock each having a par value of $.001 per share. Under Maryland law,
the Fund's Directors may increase the number of authorized shares without
shareholder approval. The Fund currently offers two classes of shares,
designated Class A Shares and Class B Shares. All shares of the Fund, when
issued, are fully paid and non-assessable. Each issued and outstanding share of
common stock is entitled to one vote on matters submitted to a vote of
shareholders. Only shareholders of a particular Class may vote on matters
related to the Rule 12b-1 Plan associated with that Class. A shareholder in the
Fund will be entitled to his or her share pro rata with other holders of the
same class of shares of all dividends and distributions arising from the Fund's
assets and, upon redeeming shares, will receive the then current net asset value
of the Fund represented by the redeemed shares.
Under Maryland law, the Fund is not required, and does not intend to hold annual
meetings of shareholders unless, under certain circumstances, it is required to
do so under the 1940 Act. Shareholders of 10% or more of the Fund's outstanding
shares may request that a special meeting be called to consider the removal of
any directors. The Fund will assist in the communication with other
shareholders.
The Directors are authorized to reclassify and issue any unissued shares to any
number of additional series and classes without shareholder approval.
Accordingly, the Directors in the future, for reasons such as the desire to
establish one or more additional portfolios with different investment
objectives, policies or restrictions, may create additional classes or series of
shares. Any issuance of shares of another class or series would be governed by
the 1940 Act and the 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.
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.
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