N-CSR 1 a2125886zn-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-08231 ------------------- Spirit of America Investment Fund, Inc. -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 477 Jericho Turnpike Syosset, NY 11791-9006 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) SSH Securities, Inc. 477 Jericho Turnpike P.O. Box 9006 Syosset, NY 11791 -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (516) 390-5555 -------------- Date of fiscal year end: October 31, 2003 --------------------- Date of reporting period: October 31, 2003 --------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. ITEM 1. REPORTS TO STOCKHOLDERS. December 2003 Dear Shareholder, We are pleased to present you with the annual report of the Spirit of America Real Estate Fund for the period ended October 31, 2003. We believe that the fund will continue to benefit from the continued growth of the economy. It is our belief that our present holdings have not fully appreciated in value and that we have invested in several sectors and individual companies which are still substantially under-valued due to short term factors or circumstances. Because of low interest rates over the past year, housing starts and sales grew and this was a cause for vacancies in many apartment REITS. This gave us the opportunity to invest at advantageous prices. In addition, we believe that tax law changes have not had their full positive impact on the economy. As a result, our recent investments in multi-family apartment, shopping center, industrial and office REITs have not completely benefited from economic increases. It is our intention to continue investing in under-valued sectors and stocks, while always attempting to minimize risks. However, please note that REITS are subject to the normal risks associated with the ownership of real estate. These include possible declines in value, environmental problems and changes in interest rates. For more complete information about the Spirit of America Real Estate Fund and a prospectus, call your broker or (800) 452-4892 or (610) 382-7819. Please read the prospectus completely before investing. We are grateful for your investment and support, and we will strive to continue to produce similar successful results. Sincerely, David Lerner ILLUSTRATION OF $10,000 INVESTMENT (UNAUDITED) SPIRIT OF AMERICA REAL ESTATE FUND - CLASS A The graph below compares the increase in value of a $10,000 investment in the Spirit of America Real Estate Fund - Class A with the performance of the Morgan Stanley REIT Index. The values and returns for the Spirit of America Real Estate Fund - Class A include reinvested dividends, and the impact of the maximum sales charge placed on purchases. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. [CHART] Average Annual Total Returns Periods Ended October 31, 2003 1 Year 23.20% 5 Year 11.33% Since Inception 7.35%
SPIRIT OF AMERICA REAL ESTATE FUND - CLASS A* MORGAN STANLEY REIT INDEX ------------------------------------------------------------------------------------------------------- 01/09/98 9,479 10,000 04/30/98 9,109 9,735 10/31/98 8,362 8,468 04/30/99 8,552 8,819 10/31/99 7,828 7,938 04/30/00 8,032 8,833 10/31/00 8,480 9,382 04/30/01 10,145 10,411 10/31/01 10,718 10,626 04/30/02 12,567 12,575 10/31/02 11,604 11,336 04/30/03 12,853 12,595 10/31/03 15,094 15,184
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. *Fund commenced operations January 9, 1998. ILLUSTRATION OF INVESTMENT (UNAUDITED) SPIRIT OF AMERICA REAL ESTATE FUND - CLASS B The graph below compares the increase in value of a $10,000 investment in the Spirit of America Real Estate Fund - Class B with the performance of the Morgan Stanley REIT Index. The values and returns for the Spirit of America Real Estate Fund - Class B include reinvested dividends, and the impact of the contingent deferred sales charge at redemption. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. [CHART] Average Annual Total Returns Periods Ended October 31, 2003 1 Year 23.36% 5 Year 10.47% Since Inception 7.43%*
SPIRIT OF AMERICA REAL ESTATE FUND - CLASS B* MORGAN STANLEY REIT INDEX -------------------------------------------------------------------------------------------------------------- 03/06/98 10,000 10,000 04/30/98 9,405 9,950 10/31/98 8,592 8,655 04/30/99 8,761 9,013 10/31/99 7,983 8,113 04/30/00 8,174 9,028 10/31/00 8,599 9,589 04/30/01 10,259 10,641 10/31/01 10,797 10,860 04/30/02 12,616 12,852 10/31/02 11,616 11,586 04/30/03 12,819 12,873 10/31/03 14,997 15,519
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. *Effective March 6, 1998, the Fund began offering Class B shares. SPIRIT OF AMERICA REAL ESTATE FUND SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
SHARES MARKET VALUE ------ ------------ COMMON STOCKS - 98.55% APARTMENTS (REITS) - 22.08% Amli Residential Properties Trust 113,300 $ 2,882,352 Apartment Investment & Management Co. 158,800 6,494,920 Associated Estates Realty Corp. 372,000 2,403,120 Cornerstone Realty Income Trust, Inc. 265,400 2,194,858 Gables Residential Trust 151,800 4,884,924 Mid-America Apartment Communities, Inc. 193,200 6,066,480 Pennsylvania Real Estate Investment Trust 117,900 3,937,860 Post Properties, Inc. 121,500 3,207,600 United Dominion Realty Trust, Inc. 52,000 907,400 -------------- 32,979,514 -------------- DIVERSIFIED (REITS) - 7.75% BNP Residential Properties, Inc. 128,100 1,416,786 Colonial Properties Trust 41,900 1,550,300 Crescent Real Estate Equities Co. 189,900 2,914,965 Duke Realty Corp. 4,000 117,120 FrontLine Capital Group * 640 6 Hospitality Properties Trust 32,300 1,184,441 PMC Commerical Trust 2,400 33,552 Sizeler Property Investors, Inc. 159,300 1,679,022 U.S. Restaurant Properties, Inc. 168,000 2,688,000 Vornado Operating, Inc.* 250 139 -------------- 11,584,331 -------------- HEALTHCARE (REITS) - 13.55% CLC Healthcare, Inc.* 400 370 Five Star Quality Care, Inc. * 1,353 4,424 Health Care Property Investors, Inc. 98,000 4,569,740 Health Care REIT, Inc. 147,100 4,876,365 Healthcare Realty Trust, Inc. 102,500 3,459,375 National Health Investors, Inc. 76,200 1,619,250 Nationwide Health Properties, Inc. 257,100 4,704,930 National Health Realty, Inc. 53,600 897,264 OMEGA Healthcare Investors, Inc.* 9,000 67,500 Senior Housing Properties Trust 2,700 40,203 -------------- 20,239,421 -------------- INDUSTRIAL (REITS) - 8.44% Bedford Property Investors, Inc. 13,000 341,380 Brandywine Realty Trust 16,000 405,440 First Industrial Realty Trust, Inc. 210,351 6,794,337 Keystone Property Trust 221,900 4,438,000 Prime Group Realty Trust * 101,200 629,464 -------------- 12,608,621 --------------
SHARES MARKET VALUE ------ ------------ INTERNET CONTENT - 0.00% VelocityHSI, Inc.+ 1,260 - -------------- NET LEASE (REITS) - 6.56% Commercial Net Lease Realty 271,116 4,663,195 IStar Financial, Inc. 10,000 380,600 Lexington Corporate Properties Trust 248,700 4,770,066 -------------- 9,813,861 -------------- OFFICE SPACE (REITS) - 13.68% Arden Reality, Inc. 107,100 2,995,587 Glenborough Realty Trust, Inc. 174,000 3,393,000 Great Lakes REIT 24,300 389,529 Highwoods Properties, Inc. 182,500 4,525,999 HRPT Properties Trust 571,100 5,345,496 Koger Equity 40,000 774,800 Mack-Cali Realty Corp. 51,600 1,944,804 Reckson Associates Realty Corporation 47,800 1,062,116 -------------- 20,431,331 -------------- REGIONAL MALLS (REITS) - 11.68% Crown American Realty Trust 350,500 4,198,990 Glimcher Realty Trust 320,550 6,789,249 Macerich Company, The 82,200 3,304,440 Mills Corporation, The 69,700 2,843,760 Simon Property Group, Inc. 6,000 270,480 Taubman Centers, Inc. 2,000 40,320 -------------- 17,447,239 -------------- SHOPPING CENTERS (REITS) - 13.02% Burnham Pacific Properties, Inc. * 11,000 3,548 Developers Diversified Realty Corp. 146,104 4,222,406 Equity One, Inc. 139,500 2,336,625 Federal Realty Investment Trust 77,600 2,944,920 Malan Realty Investors, Inc. * 5,000 24,050 New Plan Excel Realty Trust 236,510 5,368,777 Price Legacy Corporation * 2,200 7,546 Ramco-Gershenson Properties Trust 165,300 3,991,995 Realty Income Corporation 14,000 551,600 -------------- 19,451,467 --------------
SHARES MARKET VALUE ------ ------------ STORAGE (REITS) - 1.79% Shurgard Storage Centers, Inc., Cl. A 4,000 144,800 Sovran Self Storage, Inc. 74,800 2,531,980 -------------- 2,676,780 -------------- TOTAL COMMON STOCKS (Cost $119,609,971) $ 147,232,565 -------------- PREFERRED STOCKS - 0.12% NET LEASE (REITS) - 0.12% Commercial Net Lease Realty 9% Series A (Cost $152,677) 6,352 173,092 -------------- TOTAL INVESTMENTS - 98.67% (Cost $119,762,648**) 147,405,657 CASH AND OTHER ASSETS NET OF LIABILITIES - 1.33% 1,987,356 -------------- NET ASSETS - 100.00% $ 149,393,013 ==============
+ Company filed for Chapter 7 bankruptcy on August 14, 2001. * Non-income producing security ** Cost for Federal income tax purposes is $119,762,648, and net unrealized appreciation consists of: Gross unrealized appreciation $ 30,303,175 Gross unrealized depreciation (2,660,166) ------------ Net unrealized appreciation $ 27,643,009 ============
See accompnaying notes to financial statements. SPIRIT OF AMERICA REAL ESTATE FUND STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2003 ASSETS Investments in securities at value (cost $119,762,648) (Note 1) $ 147,405,657 Cash 940,129 Receivables: Capital stock sold 586,547 Dividends and interest 927,564 Prepaid assets 13,258 -------------- TOTAL ASSETS 149,873,155 -------------- LIABILITIES Payables: Capital stock redeemed 186,062 Advisory fees 156,670 Distribution expenses (Note 3) 45,158 Other accrued exepnses 92,252 -------------- TOTAL LIABILITIES 480,142 -------------- NET ASSETS $ 149,393,013 ============== CLASS A SHARES Net assets applicable to 12,573,265 outstanding $0.001 par value shares (500,000,000 authorized shares) $ 137,410,342 ============== Net asset value and redemption price per Class A Share ($137,410,342 DIVIDED BY 12,573,265 shares) $ 10.93 ============== Offering price per share ($10.93 DIVIDED BY 0.9475) $ 11.54 ============== CLASS B SHARES Net assets applicable to 1,078,838 outstanding $0.001 par value shares (500,000,000 authorized shares) $ 11,982,671 ============== Net asset value and offering price per Class B Share ($11,982,671 DIVIDED BY 1,078,838 shares) $ 11.11 ============== Redemption price per share ($11.11 X 0.9425) $ 10.47 ============== SOURCE OF NET ASSETS At October 31, 2003, net assets consisted of: Paid-in capital $ 121,750,004 Net unrealized appreciation on investments 27,643,009 -------------- NET ASSETS $ 149,393,013 ==============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2003 INVESTMENT INCOME Dividends $ 6,004,376 Interest 6,129 --------------- TOTAL INVESTMENT INCOME 6,010,505 --------------- EXPENSES Investment advisory fees (Note 3) 1,170,121 Transfer agent fees 266,000 Administration fees 135,223 Distribution fees - Class A (Note 3) 329,662 Distribution fees - Class B (Note 3) 107,437 Accounting fees 75,143 Registration fees 23,700 Legal fees 20,405 Custodian fees 27,300 Printing expense 41,882 Amortization of organization costs (Note 1) 4,386 Auditing fees 9,500 Directors' fees 17,271 Insurance expense 16,045 Miscellaneous expense 4,295 --------------- TOTAL EXPENSES 2,248,370 Recoupment of waived and reimbursed expenses (Note 3) 203,267 --------------- NET EXPENSES 2,451,637 --------------- NET INVESTMENT INCOME 3,558,868 --------------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from security transactions 1,098,567 Net change in unrealized appreciation of investments 28,223,895 --------------- Net realized and unrealized gain on investments 29,322,462 --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 32,881,330 ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE YEAR ENDED ENDED OCTOBER 31, 2003 OCTOBER 31,2002 ---------------- --------------- OPERATIONS Net investment income $ 3,558,868 $ 3,191,643 Net realized gain from security transactions and REITs 1,098,567 1,301,351 Net change in unrealized appreciation/depreciation of investments 28,223,895 (1,124,599) ---------------- --------------- Net increase in net assets 32,881,330 3,368,395 ---------------- --------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Distributions from net investment income: Class A (3,280,399) (2,922,634) Class B (282,851) (317,570) ---------------- --------------- Total distributions from net investment income to shareholders (3,563,250) (3,240,204) ---------------- --------------- Distributions from realized gains Class A (1,007,189) (1,043,314) Class B (91,378) (115,240) ---------------- --------------- Total distributions from realized gains to shareholders (1,098,567) (1,158,554) ---------------- --------------- Excess of net investment income Class A - (128,803) Class B - (13,994) ---------------- --------------- Total distributions in excess of net investment income to shareholders - (142,797) ---------------- --------------- Return of capital: Class A (2,655,884) (783,371) Class B (228,510) (85,112) ---------------- --------------- Total distributions from net return of capital to shareholders (2,884,394) (868,483) ---------------- --------------- Total distributions to shareholders (7,546,211) (5,410,038) ---------------- --------------- CAPITAL SHARE TRANSACTIONS (DOLLAR ACTIVITY) Shares sold: Class A 43,934,245 49,957,616 Class B 1,304,630 4,028,639 Shares issued as reinvestment of distributions: Class A 4,949,904 3,407,909 Class B 458,177 395,801 Shares redeemed: Class A (20,373,141) (13,570,924) Class B (1,713,839) (949,265) ---------------- --------------- Increase in net assets derived from capital share transactions (a) 28,559,976 43,269,776 ---------------- --------------- Total increase in net assets 53,895,095 41,228,133 NET ASSETS Beginning of period 95,497,918 54,269,785 ---------------- --------------- End of period $ 149,393,013 $ 95,497,918 ================ =============== (a) Transactions in capital stock were: Shares sold: Class A 4,497,043 5,213,263 Class B 134,229 414,278 Shares issued as reinvestment of dividends: Class A 508,805 353,722 Class B 46,596 40,378 Shares redeemed: Class A (2,016,435) (1,416,401) Class B (154,195) (98,748) ---------------- --------------- Increase in shares outstanding 3,016,043 4,506,492 ================ ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. SPIRIT OF AMERICA REAL ESTATE FUND FINANCIAL HIGHLIGHTS The table below sets forth financial data for one share of beneficial interest outstanding throughout the periods presented.
CLASS B CLASS B CLASS B CLASS B CLASS B ------------ ------------ ------------ ------------ ------------ FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2003 2002 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 9.11 $ 8.98 $ 7.53 $ 7.51 $ 8.64 ------------ ------------ ------------ ------------ ------------ Income from Investment Operations: Net investment income 0.26 0.35 0.28 0.40 0.40 Net realized and unrealized gain/(loss) on investments 2.30 0.36 1.63 0.16 (0.99) ------------ ------------ ------------ ------------ ------------ Total from investment operations 2.56 0.71 1.91 0.56 (0.59) ------------ ------------ ------------ ------------ ------------ Less Distributions: Distributions from net investment income (0.26) (0.34) (0.28) (0.40) (0.42) Distributions from capital gains (0.09) (0.12) - - - Distributions in excess of ordinary income - (0.01) Distributions from return of capital (0.21) (0.11) (0.18) (0.14) (0.12) ------------ ------------ ------------ ------------ ------------ Total distributions (0.56) (0.58) (0.46) (0.54) (0.54) ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE, END OF PERIOD $ 11.11 $ 9.11 $ 8.98 $ 7.53 $ 7.51 ============ ============ ============ ============ ============ TOTAL RETURN(1) 28.43% 7.59% 25.56% 7.72% (7.09)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $ 11,983 $ 9,583 $ 6,254 $ 2,560 $ 2,645 Ratio of expenses to average net assets: Before expense reimbursement or recapture 2.50% 2.63% 2.99% 4.43% 4.05% After expense reimbursement or recapture 2.67% 2.67% 2.67% 2.67% 2.67% Ratio of net investment income (loss) to average net assets: Before expense reimbursement or recapture 2.48% 3.34% 4.72% 3.59% 3.47% After expense reimbursement or recapture 2.31% 3.30% 5.04% 5.35% 4.85% Portfolio turnover 1.52% 1.25% 12.04% 21.55% 8.15%
(1) Calculation does not reflect CDSC charges. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
CLASS A CLASS A CLASS A CLASS A CLASS A ------------ ------------ ------------ ------------ ------------ FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2003 2002 2001 2000 1999 ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 8.96 $ 8.84 $ 7.41 $ 7.48 $ 8.66 ------------ ------------ ------------ ------------ ------------ Income from Investment Operations: Net investment income 0.30 0.40 0.31 0.45 0.49 Net realized and unrealized gain/(loss) on investments 2.30 0.36 1.63 0.15 (1.02) ------------ ------------ ------------ ------------ ------------ Total from investment operations 2.60 0.76 1.94 0.60 (0.53) ------------ ------------ ------------ ------------ ------------ Less Distributions: Distributions from net investment income (0.30) (0.40) (0.31) (0.45) (0.53) Distributions from capital gains (0.09) (0.12) - - - Distributions in excess of ordinary income - (0.01) Distributions from return of capital (0.24) (0.11) (0.20) (0.22) (0.12) ------------ ------------ ------------ ------------ ------------ Total distributions (0.63) (0.64) (0.51) (0.67) (0.65) ------------ ------------ ------------ ------------ ------------ NET ASSET VALUE, END OF PERIOD $ 10.93 $ 8.96 $ 8.84 $ 7.41 $ 7.48 ============ ============ ============ ============ ============ TOTAL RETURN(1) 30.07% 8.26% 26.40% 8.33% (6.38)% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $ 137,410 $ 85,915 $ 48,016 $ 10,936 $ 11,225 Ratio of expenses to average net assets: Before expense reimbursement or recapture 1.80% 1.93% 2.29% 3.73% 3.35% After expense reimbursement or recapture 1.97% 1.97% 1.97% 1.97% 1.97% Ratio of net investment income (loss) to average net assets: Before expense reimbursement or recapture 3.18% 4.04% 4.12% 4.29% 4.17% After expense reimbursement or recapture 3.01% 4.00% 4.44% 6.05% 5.55% Portfolio turnover 1.52% 1.25% 12.04% 21.55% 8.15%
(1) Calculation does not reflect sales load. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. SPIRIT OF AMERICA REAL ESTATE FUND NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2003 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Spirit of America Real Estate Fund (the "Fund"), a series of the Spirit of America Investment Fund, Inc. (the "Company"), is an open-end diversified mutual fund registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Company was incorporated under the laws of Maryland on May 15, 1997. The Fund commenced operations on January 9, 1998. The authorized capital stock of the Fund is one billion (1,000,000,000) shares, par value of $0.001 per share. The Fund seeks growth of capital and current income by investing in equity Real Estate Investment Trusts and the equity securities of real estate industry companies. The Fund offers two classes of shares (Class A and Class B). Each class of shares has equal rights as to earnings and assets except that each class bears different distribution expenses. Each class of shares has exclusive voting rights with respect to matters that affect just that class. Income, expenses (other than expenses attributable to a specific class), and realized and unrealized gains and losses on investments are allocated to each class of shares based on its relative net assets. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles for investment companies. A. SECURITY VALUATION: 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. The Fund's securities are valued at the official close or the last reported sales price on the principal exchange on which the security trades, or if no sales 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. 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. Fund securities for which market quotations are not readily available are valued at fair value as determined in good faith under procedures established by and under the supervision of the Board of Directors. There were no securities, however, fair valued during this fiscal year. B. INVESTMENT INCOME AND SECURITIES TRANSACTIONS: Security transactions are accounted for on the date the securities are purchased or sold (trade date). Cost is determined and gains and losses are based on the identified cost basis for both financial statement and federal income tax purposes. Dividend income and distributions to shareholders are reported on the ex-dividend date. Interest income and expenses are accrued daily. C. FEDERAL INCOME TAXES: The Fund intends to comply with all requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. D. NET ASSET VALUE PER SHARE: The methodology and procedures for determining net asset value are identical for each class of shares, but due to the specific distribution expenses and other costs allocable to each class of shares, the net asset value of each class of shares 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. E. ORGANIZATION COSTS: Organization costs are being amortized on a straight-line basis over five years from commencement of operation. F. USE OF ESTIMATES: In preparing financial statements in conformity with generally accepted accounting principles in the United States, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. G. DISTRIBUTIONS TO SHAREHOLDERS: The Fund intends to distribute substantially all of its net investment income and capital gains to shareholders each year. Normally, income dividends will be paid quarterly. All such dividends and distributions are taxable to the shareholders whether received in cash or reinvested in shares. As a result, a portion of the distributions paid to the Fund and subsequently distributed to shareholders may be characterized as a return of capital. NOTE 2 - PURCHASES AND SALES OF SECURITIES Investment transactions for the fiscal year ended October 31, 2003, excluding short-term investments, were as follows:
PROCEEDS PURCHASES FROM SALES ---------------------------------------------------------- Real Estate Fund $ 30,450,172 $ 1,810,715
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES Spirit of America Management Corp. ("Spirit Management") has been retained to act as the Company's manager and investment adviser pursuant to an Investment Advisory Agreement (the "Advisory Agreement"). Spirit Management was incorporated in 1997 and is a registered investment adviser under the Investment Advisers Act of 1940, as amended. Under the Advisory Agreement, the Fund pays Spirit Management a monthly fee of 1/12 of 0.97% on the Fund's average daily net assets. Investment advisory fees and other transactions with affiliates, for the fiscal year ended October 31, 2003, were as follows:
INVESTMENT ADVISORY VOLUNTARY EXPENSE FEE RATE LIMITATION ADVISORY FEES ----------------------------------------------------------------- Real Estate Fund Class A 0.97% 1.97% $ 1,065,989 Real Estate Fund Class B 0.97% 2.67% 104,132
EXPENSES WAIVED EXPENSES REMAINING AND REIMBURSED RECAPTURED RECAPTURABLE BY THE ADVISOR BY THE ADVISOR EXPENSES AVAILABLE ----------------------------------------------------------------- Real Estate Fund $ - $ 203,267 $ 64,452
The Fund has adopted distribution plans for Real Estate Fund Class A Shares and Real Estate Fund Class B Shares pursuant to Rule 12b-1 (each a "Plan"). Each Plan permits the Real Estate Fund to pay SSH Securities, Inc. (the "Distributor"), a monthly fee from the assets of the respective class for the Distributor's services and expenses in distributing shares of each class and providing personal services and/or maintaining shareholder accounts.
DISTRIBUTION DISTRIBUTION FEE RATE FEES -------------- -------------------- Real Estate Fund Class A 0.30% $ 329,662 Real Estate Fund Class B 1.00% 107,437
Real Estate Fund Class A Shares are subject to an initial sales charge imposed at the time of purchase, in accordance with the Fund's current prospectus. Certain redemptions of Real Estate Fund Class B shares made within six years of purchase are subject to a contingent deferred sales charge ("CDSC"), in accordance with the Fund's current prospectus. For the fiscal year ended October 31, 2003, sales charges and CDSC fees received by the Distributor were as follows:
SALES CHARGES CONTINGENT DEFERRED RECEIVED BY SSH SALES CHARGES ------------------- --------------------- Real Estate Class A $ 2,418,679 $ - Real Estate Class B - 61,369
Certain officers and directors of the Company are "affiliated persons" of Spirit Management or the Distributor, as that term is defined in the 1940 Act. There are no directors' fees paid to affiliated directors of the Company. All officers serve without direct compensation from the Company. In addition, David Lerner Associates, Inc., a registered broker-dealer affiliated with Spirit Management and the Distributor, received the following brokerage commissions for the fiscal year ended October 31, 2003:
BROKERAGE COMMISSIONS ------------------------- Real Estate Fund $ 77,906
NOTE 4 - FEDERAL INCOME TAXES The tax character of distributions paid for the fiscal years ended October 31, 2002 and 2003 were as follows: 2003 TAXABLE DISTRIBUTIONS
DISTRIBUTIONS IN ORDINARY NET LONG TERM EXCESS OF TOTAL TAXABLE RETURN TOTAL INCOME CAPITAL GAINS ORDINARY INCOME DISTRIBUTIONS OF CAPITAL DISTRIBUTION Real Estate Fund Class A $ 3,280,399 $ 1,007,189 $ - $ 4,287,588 $ 2,655,884 $ 6,943,472 Real Estate Fund Class B 282,851 91,378 - 374,229 228,510 602,739
2002 TAXABLE DISTRIBUTIONS
DISTRIBUTIONS IN ORDINARY NET LONG TERM EXCESS OF ORDINARY TOTAL TAXABLE RETURN TOTAL INCOME CAPITAL GAINS INCOME DISTRIBUTIONS OF CAPITAL DISTRIBUTION Real Estate Fund Class A $ 2,922,634 $ 1,043,314 $ 128,803 $ 4,094,751 $ 783,371 $ 4,878,122 Real Estate Fund Class B 317,570 115,240 13,994 446,804 85,112 531,916
As of October 31, 2003, the components of distributable earnings/(deficit) for the Fund on a tax basis were as follows: Undistributed ordinary income $ - Undistributed long term capital gains - Unrealized appreciation 27,643,009 ------------- Total Distributable Earnings $ 27,643,009 =============
An estimate of qualified dividend income of $0.00 was received by the fund through October 31,2003 that qualifies for a reduced tax rate pursuant to The Jobs and Growth Tax Relief Reconciliation Act of 2003. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS SPIRIT OF AMERICA INVESTMENT FUND, INC. SYOSSET, NEW YORK We have audited the accompanying statements of assets and liabilities of Spirit of America Real Estate Fund, a series of shares of beneficial interest in Spirit of America Investment Fund, Inc., including the schedule of investments as of October 31, 2003, the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on those financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2003 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Spirit of America Real Estate Fund as of October 31, 2003, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER PHILADELPHIA, PENNSYLVANIA NOVEMBER 26, 2003 Spirit of America Real Estate Fund MANAGEMENT OF THE COMPANY (Unaudited) Information pertaining to the Directors and officers of the Company is set forth below. The statement of additional information includes additional information about the Directors and is available without charge, upon request, by calling 516-390-5565.
NUMBER OF TERM OF PORTFOLIOS OFFICE(2) IN FUND AND COMPLEX LENGTH OVERSEEN OTHER NAME, ADDRESS(1) AND (AGE) OF TIME PRINCIPAL OCCUPATION(S) DURING PAST FIVE BY DIRECTORSHIPS POSITION(S) WITH THE COMPANY SERVED YEARS DIRECTOR HELD BY DIRECTOR ------------------------------------------------------------------------------------------------------------------------- INTERESTED DIRECTORS David Lerner(3) (67) Since President and founder, David Lerner 2 Director of 477 Jericho Turnpike 1998 Associates, Inc., a registered Spirit of America Syosset, New York 11791 broker-dealer; President, Spirit of Management Corp., America Management Corp., the the Company's Chairman of the Board of Company's investment adviser; and investment Directors Chief Executive Officer and President adviser; Director of SSH Securities, Inc., the Company's of SSH distributor. Securities, Inc., the Company's distributor; Director of David Lerner Associates, Inc., a registered broker dealer. Daniel Lerner(3) (42) Since Senior Vice President, Investment 2 Director of 477 Jericho Turnpike 1998 Counselor with David Lerner David Lerner Syosset, New York 11791 Associates, Inc., a registered Associates, Inc., broker-dealer, since September 2000. a registered Director Previously: Broker with Prudential broker-dealer. Securities from February 2000 to July 2000; Broker with Bear Stearns from January 1999 to May 1999; Vice President of SSH Securities, Inc., the Company's distributor and Senior Vice President, Investment Counselor and Assistant Director of Training for David Lerner Associates, Inc., from 1984 to 1997. DISINTERESTED DIRECTORS Allen Kaufman (67) Since President and Chief Executive Officer 2 Director of 1998 of K.G.K. Agency, Inc., a property and K.G.K. Agency, Director casualty insurance agency, since 1963. Inc., a property and casualty insurance agency.
NUMBER OF TERM OF PORTFOLIOS OFFICE(2) IN FUND AND COMPLEX LENGTH OVERSEEN OTHER NAME, ADDRESS(1) AND (AGE) OF TIME PRINCIPAL OCCUPATION(S) DURING PAST FIVE BY DIRECTORSHIPS POSITION(S) WITH THE COMPANY SERVED YEARS DIRECTOR HELD BY DIRECTOR ------------------------------------------------------------------------------------------------------------------------- Thomas P. Reynolds (63) Since President of Thomas P. Reynolds 2 Chairman of the 1999 Securities, Ltd., a broker-dealer, Board of Director since 1979. Directors of Thomas P. Reynolds Securities, Ltd., a broker-dealer. Stanley S. Thune (67) Since President and Chief Executive Officer, 2 Director of 1998 Freight Management Systems, Inc., a Freight Management Director third party logistics management Systems, Inc. company, since 1994; private investor. EXECUTIVE OFFICERS David Lerner (see biography above) President Alan P. Chodosh (49) Since Senior Vice President and Chief NA NA 477 Jericho Turnpike 2003 Financial Officer of David Lerner Syosset, New York 11791 Associates, Inc. since June 1997 Treasurer
(1) If necessary, each Director may be contacted by writing to the Company, c/o Spirit of America Management Corp., 477 Jericho Turnpike, Syosset, New York 11791. (2) Each Director serves for an indefinite term, until his successor is elected. (3) David Lerner is an "interested" Director, as defined in the 1940 Act, by reason of his position with Spirit of America Management Corp., the Company's adviser and Daniel Lerner is an "interested" Director by reason of his position with SSH Securities Inc., the Company's distributor. Daniel Lerner is the son of David Lerner. Proxy Voting Information A description of the Company's proxy voting policies and procedures is available (i) without charge, upon request, by calling (516) 390-5565; and (ii) on the Securities and Exchange Commissions website at http://www.sec.gov. December 2003 Dear Shareholder, We are pleased to present you with the annual report of the Spirit of America Value Fund for the period ended October 31, 2003. We believe that the fund will continue to benefit from the continued growth of the economy. We believe that our present holdings have not fully appreciated in value and that we have invested in several sectors and individual companies, which are substantially under-valued due to short term factors or circumstances. We invest in New York Stock Exchange listed stocks, specifically avoiding investment in higher risk, small cap tech and bio-tech stocks which may produce short term rapid appreciation, but whose prices are based on very high price/earnings ratios, and therefore, we believe contain substantial down-side risk. We believe that our portfolio contains companies which may benefit from a continued economic recovery over the next 12 to 18 months. Although all investment contains risk, it is our intention to continue investing in under-valued sectors and stocks, while always attempting to minimize risks. You should however be aware that the return on your investment will fluctuate and that upon redemption or sale of your shares the value of your shares may be less than the value of your original investment. For more complete information about the Spirit of America Value Fund and a prospectus, call your broker or (800) 452-4892 or (610) 382-7819. Please read the prospectus completely before investing. We are grateful for your investment and support, and we will strive to continue to produce similar successful results. Sincerely David Lerner SPIRIT OF AMERICA VALUE FUND ILLUSTRATION OF $10,000 INVESTMENT The graph below compares the increase in value of a $10,000 investment in the Spirit of America Value Fund with the performance of the Russell 1000 Value Index. The values and returns for Spirit of America Value Fund include reinvested dividends, and the impact of the maximum sales charges placed on purchases. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the redemption of fund shares. [CHART] Average Annual Total Returns Periods Ended October 31, 2003 1 Year 10.29% Since Inception 5.02%*
SPIRIT OF AMERICA VALUE FUND* RUSSELL 1000 VALUE INDEX 8/1/2002 9,475 10,000 10/31/2002 9,128 9,816 01/31/03 8,862 9,673 04/30/03 9,249 10,194 07/31/03 9,952 11,078 10/31/03 10,631 11,749
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. *Fund commenced operations August 1, 2002. SPIRIT OF AMERICA VALUE FUND SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
SHARES MARKET VALUE ------ ------------ COMMON STOCKS - 97.60% ALUMINUM - 1.19% Alcan, Inc. 3,100 $ 123,783 Alcoa, Inc. 2,600 82,082 ------------ 205,865 ------------ APARTMENTS (REITS) - 2.32% Apartment Investment & Management Co. 9,800 400,820 ------------ BANKS - 13.44% Bank of America Corp. 5,300 401,369 Bank One Corp. 10,200 432,990 Fleet Boston Financial Corp. 6,500 262,535 KeyCorp 7,600 214,700 US Bankcorp 20,800 566,176 Wells Fargo & Co. 7,900 444,928 ------------ 2,322,698 ------------ COMPUTER INDUSTRY - 8.48% Hewlett-Packard 33,600 749,616 International Business Machines Corp. 8,000 715,840 ------------ 1,465,456 ------------ CONSUMER PRODUCTS - 10.32% Altria Group, Inc. 11,300 525,450 Avon Products, Inc. 4,900 333,004 Colgate-Palmolive Co. 3,700 196,803 Gillette Co. 6,100 194,590 Kimberly-Clark Corp. 800 42,248 Maytag Corp. 15,100 383,540 Procter & Gamble Co. 1,100 108,119 ------------ 1,783,754 ------------ DIVERSIFIED FINANCIAL SERVICES - 15.01% American Express Co. 14,800 694,564 Capital One Financial Corp. 12,000 729,600 Citigroup Inc. 11,200 530,880 MBNA Corp. 25,800 638,550 ------------ 2,593,594 ------------ ENERGY - 4.91% American Electric Power Company, Inc. 11,300 318,547 Consolidated Edison, Inc. 8,700 352,089 Duke Energy Corp. 9,800 177,870 ------------ 848,506 ------------
SHARES MARKET VALUE ------ ------------ FOOD & BEVERAGE - 13.05% Archer-Daniels-Midland Co. 6,500 93,275 Cadbury Schweppes plc. 6,200 161,200 Coca-Cola Co. 9,900 459,360 Del Monte Foods Co. * 1,161 11,041 General Mills, Inc. 6,100 273,585 H.J. Heinz Co. 9,200 325,036 Kellog Co. 5,800 192,154 Kraft Foods, Inc. 1,300 37,830 Kroger Co. * 8,800 153,912 PepsiCo Inc. 3,600 172,152 Sara Lee Corp. 14,300 284,999 Wm. Wrigley Jr. Co. 1,600 90,240 ------------ 2,254,784 ------------ HEALTHCARE (REITS) - 1.04% National Health Investors, Inc. 4,700 99,875 Nationwide Health Properties, Inc. 4,400 80,520 ------------ 180,395 ------------ INDUSTRIAL (REITS) - 1.29% First Industrial Realty Trust, Inc. 6,900 222,870 ------------ INSURANCE - 0.06% Travelers Property Casualty Corp. CL A 216 3,521 Travelers Property Casualty Corp. CL B 443 7,252 ------------ 10,773 ------------ MULTIMEDIA - 1.92% Time Warner Inc. * 10,600 162,074 Viacom, Inc. CL A 1,400 55,776 Walt Disney Co. 5,000 113,200 ------------ 331,050 ------------ NET LEASE (REITS) - 1.25% Lexington Corp. Properties Trust 11,300 216,734 ------------ OFFICE SPACE (REITS) - 1.29% Mack-Cali Realty Corp. 5,900 222,371 ------------ PHARMACEUTICALS - 1.28% Bristol-Myers Squibb Co. 3,000 76,110 Eli Lilly and Co. 1,000 66,620 Medco Health Solutions, Inc. * 192 6,374 Merck and Co. Inc. 1,600 70,800 ------------ 219,904 ------------ REGIONAL MALLS (REITS) - 0.91% Glimcher Realty Trust 7,400 156,732 ------------ RESTURANTS - 0.30% Wendy's International, Inc. 1,400 51,870 ------------
SHARES MARKET VALUE ------ ------------ RETAIL - 13.00% Target Corp. 17,100 679,554 TJX Companies Inc. 18,500 388,315 Walgreen Co. 12,000 417,840 Wal-Mart Stores Inc. 12,900 760,455 ------------ 2,246,164 ------------ SHOPPING CENTERS (REITS) - 4.30% Commercial Net Lease Realty 12,400 213,280 Federal Realty Investment Trust 5,000 189,750 New Plan Excel Realty Trust 9,900 224,730 Ramco-Gershenson Properties Trust 2,500 60,375 Realty Income Corp. 1,400 55,160 ------------ 743,295 ------------ TRANSPORT SERVICES - 1.34% FedEx Corp. 1,700 128,792 United Parcel Service, Inc. 1,400 101,528 ------------ 230,320 ------------ WASTE MANAGEMENT - 0.90% Waste Management, Inc. 6,000 155,520 ------------ TOTAL INVESTMENTS - 97.60% (Cost $15,199,382**) 16,863,475 CASH AND OTHER ASSETS NET OF LIABILITIES - 2.40% 415,396 ------------ NET ASSETS - 100.00% $ 17,278,871 ============
* Non-income producing security ** Cost for Federal income tax purposes is $15,199,382, and net unrealized appreciation consists of: Gross unrealized appreciation $ 1,728,948 Gross unrealized depreciation (64,855) ------------ Net unrealized appreciation $ 1,664,093 ============
See accompanying notes to financial statements. SPIRIT OF AMERICA VALUE FUND STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2003 ASSETS Investments in securities at value (cost $15,199,382)(Note 1) $ 16,863,475 Cash 179,579 Receivables: Capital stock sold 275,435 Dividends and interest 20,508 Prepaid assets 4,900 ------------ TOTAL ASSETS 17,343,897 ------------ LIABILITIES Payables: Capital stock redeemed 32,194 Accrued expenses 19,273 Accrued distribution expense (Note 3) 4,145 Due to Advisor 9,414 ------------ TOTAL LIABILITIES 65,026 ------------ NET ASSETS Net assets applicable to 1,557,623 outstanding $0.001 par value shares (500,000,000 authorized shares) $ 17,278,871 ============ Net asset value and redemption price per share ($17,278,871 DIVIDED BY 1,557,623 shares) $ 11.09 ============ Offering price per share ($11.09 DIVIDED BY 0.9475) $ 11.70 ============ SOURCE OF NET ASSETS At October 31, 2003, net assets consisted of: Paid-in capital $ 15,616,891 Accumulated net realized loss on investments (2,113) Net unrealized appreciation on investments 1,664,093 ------------ NET ASSETS $ 17,278,871 ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2003 INVESTMENT INCOME Dividends (net of foreign taxes withheld of $591) $ 239,686 Interest 3,745 ------------ TOTAL INVESTMENT INCOME 243,431 ------------ EXPENSES Investment advisory fees (Note 3) 84,919 Transfer agent fees 35,600 Administration fees 15,456 Distribution fees (Note 3) 26,264 Accounting fees 27,175 Registration fees 13,600 Legal fees 1,372 Custodian fees 8,500 Printing expense 3,100 Auditing fees 12,200 Directors' fees 1,207 Insurance expense 2,271 Miscellaneous expense 1,000 ------------ TOTAL EXPENSES 232,664 Expenses waived and reimbursed by Advisor (Note 3) (60,199) ------------ NET EXPENSES 172,465 ------------ NET INVESTMENT INCOME 70,966 ------------ REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain from security transactions 12,985 Net change in unrealized appreciation of investments 1,691,734 ------------ Net realized and unrealized gain on investments 1,704,719 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,775,685 ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR FOR THE PERIOD ENDED ENDED OCTOBER 31, 2003 OCTOBER 31, 2002* ---------------- ----------------- OPERATIONS Net investment income $ 70,966 $ 2,115 Net realized gain/(loss) from security transactions 12,985 (15,141) Net change in unrealized appreciation/(depreciation) of investments 1,691,734 (27,641) ---------------- ----------------- Net increase/(decrease) in net assets 1,775,685 (40,667) ---------------- ----------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Distributions from net investment income: (73,081) - Return of capital: (36,922) - ---------------- ----------------- Total distributions to shareholders (110,003) - ---------------- ----------------- CAPITAL SHARE TRANSACTIONS (DOLLAR ACTIVITY) Shares sold: 14,136,780 2,615,521 Shares issued as reinvestment of distributions: 99,340 - Shares redeemed: (1,050,253) (147,532) ---------------- ----------------- Increase in net assets derived from capital share transactions (a) 13,185,867 2,467,989 ---------------- ----------------- Total increase in net assets 14,851,549 2,427,322 ---------------- ----------------- NET ASSETS Beginning of period 2,427,322 - ---------------- ----------------- End of period $ 17,278,871 2,427,322 ================ ================= (a) Transactions in capital stock were: Shares sold: 1,448,983 266,737 Shares issued as reinvestment of dividends: 9,778 - Shares redeemed: (153,102) (14,773) ---------------- ----------------- Increase in shares outstanding 1,305,659 251,964 ================ =================
* Spirit of America Value Fund commenced investment operation on August 1, 2002 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. SPIRIT OF AMERICA VALUE FUND FINANCIAL HIGHLIGHTS The table below sets forth financial data for one share of beneficial interest outstanding throughout the periods presented.
FOR THE FOR THE YEAR ENDED PERIOD ENDED OCTOBER 31, 2003 OCTOBER 31, 2002* ---------------- ----------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.63 $ 10.00 ---------------- ----------------- Income from Investment Operations: Net investment income 0.07 0.01 Net realized and unrealized gain/(loss) on investments 1.51 (0.38) ---------------- ----------------- Total from investment operations 1.58 (0.37) ---------------- ----------------- Less Distributions: Distributions from net investment income (0.08) - Distributions from return of captial (0.04) - ---------------- ----------------- Total distributions (0.12) - ---------------- ----------------- NET ASSET VALUE, END OF PERIOD 11.09 $ 9.63 ================ ================= TOTAL RETURN(2) 16.47% (3.70)%(1) RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000) $ 17,279 $ 2,427 Ratio of expenses to average net assets: Before expense reimbursement 2.65% 7.38%(3) After expense reimbursement 1.97% 1.97%(3) Ratio of net investment income (loss) to average net assets: Before expense reimbursement 0.12% (4.75)%(3) After expense reimbursement 0.80% 0.66%(3) Portfolio turnover 0.00%% 21.59%(1)
* The Fund commenced investment operations on August 1, 2002. (1) Calculation is not annualized. (2) Calculation does not reflect sales load. (3) Calculation is annualized SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. SPIRIT OF AMERICA VALUE FUND NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2003 NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Spirit of America Value Fund (the "Fund"), a series of Spirit of America Investment Fund, Inc. (the "Company"), is an open-end diversified mutual fund registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Company was incorporated under the laws of Maryland on May 15, 1997. The Fund commenced operations on August 1, 2002. The authorized capital stock of the Fund is 500 million (500,000,000) shares, par value of $0.001 per share. The Fund seeks capital appreciation with a secondary objective of current income by investing in equity securities in the value segment of the market. The Fund offers one class of shares. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles for investment companies. A. SECURITY VALUATION: The offering price and net asset value per share for the Fund are calculated as of the close of regular trading on the NYSE, currently 4:00 p.m., Eastern Time. The Fund's securities are valued at the official close or the last reported sales price on the principal exchange on which the security trades, or if no sales 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. 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. Fund securities for which market quotations are not readily available are valued at fair value as determined in good faith under procedures established by and under the supervision of the Board of Directors. There were no securities, however, fair valued during this fiscal year. B. INVESTMENT INCOME AND SECURITIES TRANSACTIONS: Security transactions are accounted for on the date the securities are purchased or sold (trade date). Cost is determined and gains and losses are based on the identified cost basis for both financial statement and federal income tax purposes. Dividend income and distributions to shareholders are reported on the ex-dividend date. Interest income and expenses are accrued daily. C. FEDERAL INCOME TAXES: The Fund intends to comply with all requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no federal income tax provision is required. D. USE OF ESTIMATES: In preparing financial statements in conformity with generally accepted accounting principles in the United States, management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. E. DISTRIBUTIONS TO SHAREHOLDERS: The Fund intends to distribute substantially all of its net investment income and capital gains to shareholders each year. Normally, income dividends will be paid quarterly. All such dividends and distributions are taxable to the shareholders whether received in cash or reinvested in shares. As a result, a portion of the distributions paid to the Fund and subsequently distributed to shareholders may be characterized as a return of capital. NOTE 2 - PURCHASES AND SALES OF SECURITIES Investment transactions for the fiscal year ended October 31, 2003, excluding short-term investments, were as follows:
PROCEEDS PURCHASES FROM SALES -------------------------------------------------- $ 13,509,642 $ 26
NOTE 3 - INVESTMENT MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES Spirit of America Management Corp. ("Spirit Management") has been retained to act as the Company's manager and investment adviser pursuant to an Investment Advisory Agreement (the "Advisory Agreement"). Spirit Management was incorporated in 1997 and is a registered investment adviser under the Investment Advisers Act of 1940, as amended. Under the Advisory Agreement, the Fund pays Spirit Management a monthly fee of 1/12 of 0.97% on the Fund's average daily net assets. Investment advisory fees and other transactions with affiliates, for the fiscal year ended October 31, 2003, were as follows:
INVESTMENT ADVISORY VOLUNTARY EXPENSE FEE RATE LIMITATION ADVISOR FEES ---------------------------------------------------------------------------- 0.97% 1.97% $ 84,919
ADVISORY FEES WAIVED AND EXPENSES REMAINING RECAPTURABLE REIMBURSED BY THE ADVISOR EXPENSES AVAILABLE ------------------------------------------------------------------- $ 60,199 $ 77,536
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 (the "Plan). The Plan permits the Fund to pay SSH Securities, Inc. (the "Distributor") a monthly fee from the assets of the Fund for the Distributor's services and expenses in distributing shares of the Fund and providing personal services and/or maintaining shareholder accounts.
DISTRIBUTION DISTRIBUTION FEE RATE FEES ------------------------ ------------------ 0.30% $ 26,264
The Fund's shares are subject to an initial sales charge imposed at the time of purchase, in accordance with the Fund's current prospectus. For the fiscal year ended October 31, 2003, sales charges received by the Distributor were as follows: SALES CHARGES RECEIVED BY SSH --------------- $ 734,043 Certain officers and directors of the Company are "affiliated persons" of Spirit Management or the Distributor, as that term is defined in the 1940 Act. There are no directors' fees paid to affiliated directors of the Company. All officers serve without direct compensation from the Company. In addition, David Lerner Associates, Inc., a registered broker-dealer affiliated with Spirit Management and the Distributor, received the following brokerage commissions for the fiscal year ended October 31, 2003: BROKERAGE COMMISSIONS --------------------- $ 21,660 NOTE 4 - FEDERAL INCOME TAXES The tax character of distributions paid for the fiscal year ended October 31, 2003 is as follows:
DISTRIBUTIONS IN EXCESS OF RETURN ORDINARY NET LONG TERM ORDINARY TOTAL TAXABLE OF TOTAL INCOME CAPITAL GAINS INCOME DISTRIBUTION CAPITAL DISTRIBUTIONS -------- ------------- ------------- ------------- --------- ------------- $ 73,081 $ - $ - $ 73,081 $ 36,922 $ 110,003
As of October 31, 2003, the components of distributable earnings/(deficit) for the Fund on a tax basis were as follows: Undistributed ordinary income $ - Capital loss carryforward (2,113) Unrealized appreciation 1,664,093 ----------- Total Distributable Earnings $ 1,661,980 ===========
As of October 31, 2003, the Fund has a capital loss carryover available to offset future capital gains, if any, as follows: EXPIRING IN 2010 ---------------- $ 2,113 An estimate of qualified income of $64,475 was received by the Fund through October 31,2003 that qualifies for a reduced tax rate pursuant to The Jobs and Growth Tax Relief Reconciliation Act of 2003. REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS AND BOARD OF DIRECTORS SPIRIT OF AMERICA INVESTMENT FUND, INC. SYOSSET, NEW YORK We have audited the accompanying statement of assets and liabilities of Spirit of America Value Fund, a series of shares of beneficial interest in Spirit of America Investment Fund, Inc., including the schedule of investments as of October 31, 2003, the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for the periods indicated thereon. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on those financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2003 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Spirit of America Value Fund as of October 31, 2003, the results of its operations for the year then ended, and changes in its net assets and the financial highlights for the periods indicated thereon, in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER PHILADELPHIA, PENNSYLVANIA NOVEMBER 26, 2003 Spirit of America Value Fund MANAGEMENT OF THE COMPANY (Unaudited) Information pertaining to the Directors and officers of the Company is set forth below. The statement of additional information includes additional information about the Directors and is available without charge, upon request, by calling 516-390-5565.
NUMBER OF TERM OF PORTFOLIOS OFFICE(2) IN FUND AND COMPLEX LENGTH OVERSEEN OTHER NAME, ADDRESS(1) AND (AGE) OF TIME PRINCIPAL OCCUPATION(S) DURING PAST FIVE BY DIRECTORSHIPS POSITION(S) WITH THE COMPANY SERVED YEARS DIRECTOR HELD BY DIRECTOR ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED DIRECTORS David Lerner(3) (67) Since President and founder, David Lerner 2 Director of Spirit 477 Jericho Turnpike 1998 Associates, Inc., a registered of America Syosset, New York 11791 broker-dealer; President, Spirit of Management Corp., America Management Corp., the Company's the Company's Chairman of the Board of investment adviser; and Chief Executive investment adviser; Directors Officer and President of SSH Securities, Director of SSH Inc., the Company's distributor. Securities, Inc., the Company's distributor; Director of David Lerner Associates, Inc., a registered broker dealer. Daniel Lerner(3) (42) Since Senior Vice President, Investment 2 Director of David 477 Jericho Turnpike 1998 Counselor with David Lerner Associates, Lerner Associates, Syosset, New York 11791 Inc., a registered broker-dealer, since Inc., a registered September 2000. Previously: Broker with broker-dealer. Director Prudential Securities from February 2000 to July 2000; Broker with Bear Stearns from January 1999 to May 1999; Vice President of SSH Securities, Inc., the Company's distributor and Senior Vice President, Investment Counselor and Assistant Director of Training for David Lerner Associates, Inc., from 1984 to 1997. DISINTERESTED DIRECTORS Allen Kaufman (67) Since President and Chief Executive Officer of 2 Director of K.G.K. 1998 K.G.K. Agency, Inc., a property and Agency, Inc., a Director casualty insurance agency, since 1963. property and casualty insurance agency.
NUMBER OF TERM OF PORTFOLIOS OFFICE(2) IN FUND AND COMPLEX LENGTH OVERSEEN OTHER NAME, ADDRESS(1) AND (AGE) OF TIME PRINCIPAL OCCUPATION(S) DURING PAST FIVE BY DIRECTORSHIPS POSITION(S) WITH THE COMPANY SERVED YEARS DIRECTOR HELD BY DIRECTOR ------------------------------------------------------------------------------------------------------------------------------------ Thomas P. Reynolds (63) Since President of Thomas P. Reynolds 2 Chairman of the 1999 Securities, Ltd., a broker-dealer, since Board of Directors Director 1979. of Thomas P. Reynolds Securities, Ltd., a broker-dealer. Stanley S. Thune (67) Since President and Chief Executive Officer, 2 Director of Freight 1998 Freight Management Systems, Inc., a Management Systems, Director third party logistics management Inc. company, since 1994; private investor. EXECUTIVE OFFICERS David Lerner (see biography above) President Alan P. Chodosh (49) Since Senior Vice President and Chief NA NA 477 Jericho Turnpike 2003 Financial Officer of David Lerner Syosset, New York 11791 Associates, Inc. since June 1997 Treasurer
(1) If necessary, each Director may be contacted by writing to the Company, c/o Spirit of America Management Corp., 477 Jericho Turnpike, Syosset, New York 11791. (2) Each Director serves for an indefinite term, until his successor is elected. (3) David Lerner is an "interested" Director, as defined in the 1940 Act, by reason of his position with Spirit of America Management Corp., the Company's adviser and Daniel Lerner is an "interested" Director by reason of his position with SSH Securities Inc., the Company's distributor. Daniel Lerner is the son of David Lerner. Proxy Voting Information A description of the Company's proxy voting policies and procedures is available (i) without charge, upon request, by calling (516) 390-5565; and (ii) on the Securities and Exchange Commissions website at http://www.sec.gov. ITEM 2. CODE OF ETHICS. (a) The registrant, as of the end of the period covered by this report, has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (b) There have been no amendments, during the period covered by this report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. (c) The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, that relates to one or more of the items set forth in paragraph (b) of this item's instructions. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Registrant's Board of Directors has determined that it does not have an "audit committee financial expert" serving on its audit committee. While Registrant believes that each of the members of its audit committee has sufficient knowledge of accounting principles and financial statements to serve on the audit committee, none has the requisite experience to qualify as an "audit committee financial expert"; as such term is defined by the Securities and Exchange Commission. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 9. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. (a)(1) Code of ethics, or any amendment thereto, that is the subject of disclosure required by Item 2 is attached hereto. (a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Spirit of America Investment Fund, Inc. ----------------------------------------------------------- By (Signature and Title)* /s/ David Lerner ---------------------------------------------- David Lerner, President (principal executive officer) Date January 5, 2004 ------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ David Lerner ---------------------------------------------- David Lerner, President (principal executive officer) Date January 5, 2004 ------------------------------------------------------------------- By (Signature and Title)* /s/ Alan Chodosh ---------------------------------------------- Alan Chodosh, Treasurer (principal financial officer) Date January 5, 2004 ------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature.