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
P.O. Box 9006
Syosset, NY 11791-9006
(Address of principal executive offices) (Zip code)
Mr. David Lerner
David Lerner Associates
477 Jericho Turnpike
P.O. Box 9006
Syosset, NY 11791-9006
(Name and address of agent for service)
Registrant’s telephone number, including area code: (516) 390-5565
Date of fiscal year end: December 31
Date of reporting period: December 31, 2009
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, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. | Reports to Stockholders. |
The Report to Shareholders is attached herewith.
MESSAGE TO OUR SHAREHOLDERS
Dear Shareholder,
As 2010 begins, we would like to take this opportunity to review 2009. We are very pleased to provide you with a copy of the annual report for The Spirit of America High Yield Tax Free Bond Fund, (“the Fund”).
In 2009, the Fund showed strong and steady growth. We look forward to the continued inflows and further development of the Fund during 2010.
Utilizing our many years of experience in the municipal bond market has allowed us to effectively pursue a balance between yield and risk. Our goal is to continue seeking high current income that is exempt from federal income tax, while employing a relatively conservative approach to investing in the high yield sector of the municipal market. Although the mandate of the Fund allows it to invest in lower rated securities, at this time, the focus will continue to be investing in bonds which are investment grade.
We have been proud to watch the increasing number of investors in the Fund in 2009. We appreciate your support of our fund and look forward to your future investment in the Spirit of America High Yield Tax Free Bond Fund.
Thank you for being a part of the Spirit of America Family of Funds.
Sincerely,
![]() | ![]() | ![]() | ![]() | |||
David Lerner | Doug Revello | |||||
President | Portfolio Manager |
Any investment in debt securities is subject to risk and market values may fluctuate with economic conditions, interest rates, civil unrest and other factors, which will affect its market value. As with any mutual fund, an investor’s shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results.
Prospective investors should consider the investment objective, risks and charges and expenses of the Fund carefully before investing. The maximum sales charge on share purchases is 4.75% of the offering price. The Fund’s prospectus contains this and other information about the Fund and may be obtained through your broker or by calling 1-800-452-4892. The prospectus should be read carefully before investing.
HIGH YIELD TAX FREE BOND FUND | 1 |
MANAGEMENT DISCUSSION
Introduction
The Spirit of America High Yield Tax Free Bond Fund’s (SOAMX), (“the Fund”), objective is to maintain current income that is exempt from federal income tax. The emphasis of the Fund is in the High Yield section of the municipal market. We are pursuing a balance between yield and risk.
As a High Yield Bond Fund, the mandate allows the Fund to invest in lower rated securities; however we have kept our focus on investing in bonds in the “Baa3”/ “BBB-” range and higher. Our plan is to continue with this relatively conservative approach to investing in the high yield municipal market.
In keeping with this philosophy, the Fund has been able to maintain attractive yields without venturing into the speculative, below investment grade, segment of the high yield municipal market. As of December 31, 2009, 99.25% of the portfolio was investment grade, with over 50% rated “A” or better.
Overview
High yield municipal bonds are typically issued by government entities to finance economic or industrial development projects, as well as, housing, healthcare and environmental projects. Other high yield municipals are issued to finance such things as airport terminals, charter schools, and projects related to utilities. In addition, a large number of bonds have been issued by local governments in anticipation of revenues owed by the tobacco industry. The interest payments are usually covered by a special tax or revenue from the project, and the bonds are often backed by hard assets or mortgage income associated with the project. High yield municipals may also be issued to finance private projects that benefit the community, such as waste remediation or public utilities. In those cases the debt is usually backed and paid for by a corporation. As with the broader municipal market, high yield municipal bonds provide income that is exempt from federal, and sometimes state, income taxes.
Municipal bonds performed extremely well in 2009. The 30-Year “AAA” Municipal Market Data (MMD) rallied from 5.05 to 4.15 during the year. This was partially attributed to the issuance of taxable Build America Bonds (BABs), created as part of the American Recovery and Reinvestment Act of 2009, by municipalities. Many municipalities issued these taxable BABs instead of traditional tax-exempt bonds. The lack of tax-exempt supply and the increased investor demand fueled the municipal market rally.
One of the Fund’s goals has been to diversify with respect to location and sector. As of December 31, 2009, the Fund consisted of 177 different issues varied across 37 states, 2 territories and the District of Columbia. The holdings ranged throughout 26 sectors of the market, including areas such as, hospitals, higher education, industrial development and transportation. Also, while it certainly has not been a primary goal of the Fund, we have been able to maintain a percentage of our bonds in states and territories which have a state tax exemption in New York, New Jersey and Connecticut, where most of our clients reside.
Summary
Spirit of America High Yield Tax Free Bond Fund continues to grow at a steady and healthy pace. The Fund saw inflows over $44 million, while outflows were approximately $6 million for 2009. Since inception in March, 2008, the Fund has seen net inflows of over $70 million. We expect continued growth in assets under management in the future.
2 | SPIRIT OF AMERICA |
MANAGEMENT DISCUSSION (CONT.)
Our plan is to proceed with the same strategy that we have utilized since the Fund’s inception. We will continue to seek out municipal bonds that provide a balance between credit risk and the potential to offer high current income and consistently attractive yields.
Summary of Portfolio Holdings (Unaudited)
The Securities and Exchange Commission (“SEC”) has adopted a requirement that all funds present their categories of portfolio holdings in a table, chart or graph format in their annual and semi-annual shareholder reports, whether or not a schedule of investments is utilized. The following table, which presents portfolio holdings as a percentage of total market value, is provided in compliance with such requirement.
Spirit of America High Yield Tax Free Bond Fund
December 31, 2009
New York | 14.97 | % | $ | 9,864,644 | ||
Puerto Rico | 13.61 | 8,968,683 | ||||
Ohio | 7.62 | 5,023,703 | ||||
California | 7.50 | 4,946,506 | ||||
Texas | 6.13 | 4,037,375 | ||||
New Jersey | 6.01 | 3,959,894 | ||||
Michigan | 4.09 | 2,694,066 | ||||
Wisconsin | 4.03 | 2,658,528 | ||||
Louisiana | 4.00 | 2,637,000 | ||||
Florida | 3.97 | 2,619,946 | ||||
Illinois | 2.32 | 1,531,042 | ||||
Washington | 2.29 | 1,509,020 | ||||
North Dakota | 2.08 | 1,367,820 | ||||
Pennsylvania | 2.03 | 1,336,964 | ||||
Indiana | 1.84 | 1,209,590 | ||||
Colorado | 1.60 | 1,052,992 | ||||
Maryland | 1.31 | 860,501 | ||||
West Virginia | 1.26 | 830,789 | ||||
Kentucky | 1.23 | 813,750 | ||||
Oregon | 1.12 | 740,190 | ||||
Arizona | 1.02 | 673,889 | ||||
Alaska | 0.96 | 631,640 | ||||
New Mexico | 0.90 | 595,304 | ||||
North Carolina | 0.85 | 563,421 | ||||
District of Columbia | 0.83 | 547,765 | ||||
Rhode Island | 0.79 | 521,225 | ||||
Missouri | 0.77 | 506,640 | ||||
Georgia | 0.76 | 502,545 | ||||
Connecticut | 0.71 | 465,958 | ||||
New Hampshire | 0.52 | 342,598 | ||||
Iowa | 0.48 | 318,597 | ||||
South Carolina | 0.43 | 286,218 | ||||
Mississippi | 0.38 | 247,255 | ||||
Wyoming | 0.32 | 211,564 | ||||
Massachusetts | 0.30 | 199,925 | ||||
Alabama | 0.30 | 195,512 | ||||
Virgin Islands | 0.29 | 188,615 | ||||
Maine | 0.15 | 100,431 | ||||
South Dakota | 0.15 | 100,143 | ||||
Nevada | 0.08 | 49,465 | ||||
Total Investments | 100.00 | % | $ | 65,911,713 | ||
HIGH YIELD TAX FREE BOND FUND | 3 |
ILLUSTRATION OF INVESTMENT (UNAUDITED)
The graph below compares the increase in value of a $10,000 investment in the Fund with the performance of the Barclays Capital Municipal Bond Index. The values and returns for the Fund include reinvested distributions, and the impact of the maximum sales charge of 4.75% 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.
Aggregate Total Returns
For the Periods Ended December 31, 2009
Shares | |||
1 Year (with sales charge) | 24.54 | %a | |
1 Year (without sales charge) | 30.78 | % | |
Since Inception (with sales charge)b | (0.23 | %)a | |
Since Inception (without sales charge)b | 2.45 | % |
Past performance is not indicative of future results.
a | Reflects a 4.75% front-end sales charge. |
b | Inception date: February 29, 2008. |
Growth of $10,000
(includes one-time 4.75% maximum sales charge and reinvestment of all distributions)
* | Fund commenced operations February 29, 2008. |
** | The Barclays Capital Municipal Bond Index benchmark is based on a start date of February 29, 2008. |
The Barclays Capital Municipal Bond Index is an unmanaged index. The performance of an index assumes no transaction costs, taxes, management fees or other expenses. A direct investment in an index is not possible.
4 | SPIRIT OF AMERICA |
DISCLOSURE OF FUND EXPENSES (UNAUDITED)
FOR THE PERIOD JULY 1, 2009 TO DECEMBER 31, 2009
We believe it is important for you to understand the impact of fees regarding your investment. All mutual funds have operating expenses. As a shareholder of the Fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from the Fund’s gross income, directly reduce the investment return of the Fund.
The Fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing fees (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
Spirit of America High Yield Tax Free Bond Fund
Beginning Account Value 7/1/09 | Ending Account Value 12/31/09 | Expense Ratio(1) | Expenses Paid During Period(2) | |||||||||
Actual Fund Return | $ | 1,000.00 | $ | 1,125.50 | 0.90 | % | $ | 4.82 | ||||
Hypothetical 5% Return | $ | 1,000.00 | $ | 1,020.67 | 0.90 | % | $ | 4.58 |
This table illustrates your Fund’s costs in two ways:
Actual Fund Return: This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, the third column shows the period’s annualized expense ratio, and the last column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund at the beginning of the period. You may use the information here, together with your account value, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period.”
Hypothetical 5% Return: This section is intended to help you compare your Fund’s costs with those of other mutual funds. It assumes that the Fund had a return of 5% before expenses during the period shown, but that the expense ratio is unchanged. In this case, because the return used is not the Fund’s actual return, the results do not apply to your investment. You can assess your Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), or redemption fees.
(1) | Annualized, based on the Fund’s most recent half-year expenses. |
(2) | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the period, then divided by 365. |
HIGH YIELD TAX FREE BOND FUND | 5 |
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Municipal Bonds 97.03% | ||||||
Alabama 0.29% | ||||||
Cullman County Health Care Authority, Refunding Revenue Bonds, Series A, (OID), 5.75%, 02/01/19 | $ | 100,000 | $ | 97,924 | ||
Cullman County Health Care Authority, Refunding Revenue Bonds, Series A, Callable 02/01/19 @ 100 (OID), 6.75%, 02/01/29 | 100,000 | 97,588 | ||||
195,512 | ||||||
Alaska 0.93% | ||||||
Alaska Housing Finance Corp., State Single-Family Housing Revenue Bonds, Series C, Callable 12/01/18 @ 100, 5.35%, 12/01/39 | 250,000 | 252,225 | ||||
Northern TOB Securitization Corp., Refunding Revenue Bonds, Series A, Callable 06/01/14 @ 100 (OID), 5.00%, 06/01/32 | 500,000 | 379,415 | ||||
631,640 | ||||||
Arizona 0.99% | ||||||
Arizona Health Facilities Authority, Refunding Revenue Bonds, Series D, Callable 07/01/19 @ 100 (OID), 5.00%, 07/01/28 | 100,000 | 98,459 | ||||
Pima County Industrial Development Authority, Refunding Revenue Bonds, Series O, Callable 07/01/16 @ 100, 5.00%, 07/01/26 | 750,000 | 575,430 | ||||
673,889 | ||||||
California 7.28% | ||||||
California Health Facilities Financing Authority, Hospital Improvements Revenue Bonds, Series A, Callable 07/01/14 @ 100 (OID), 6.00%, 07/01/34 | 1,000,000 | 1,052,850 | ||||
City of Compton, Water & Utility Improvements Revenue Bonds, Callable 08/01/19 @ 100 (OID), 6.00%, 08/01/39 | 250,000 | 255,645 | ||||
City of Turlock, Hospital Improvements Certificate of Participation, Callable 10/15/14 @ 100 (OID), 5.38%, 10/15/34 | 250,000 | 215,028 | ||||
City of Turlock, Hospital Improvements Certificate of Participation, Series B, Callable 10/15/17 @ 100, 5.50%, 10/15/37 | 250,000 | 216,588 | ||||
County of San Bernardino, Refunding Bonds, Certificate of Participation, Series A, Callable 08/01/19 @ 100, 5.50%, 08/01/22 | 250,000 | 254,832 |
6 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
California (cont.) | ||||||
County of San Bernardino, Refunding Bonds, Certificate of Participation, Series A, Callable 08/01/19 @ 100 (OID), 5.25%, 08/01/26 | $ | 50,000 | $ | 48,492 | ||
Golden State Tobacco Securitization Corp., Refunding Revenue Bonds, Series A-1, Callable 06/01/17 @ 100, 5.75%, 06/01/47 | 165,000 | 122,557 | ||||
Hesperia Public Financing Authority, Miscellaneous Purposes Tax Allocation Bonds, Series A, Callable 09/01/17 @ 100, (OID) (XLCA), 5.00%, 09/01/37 | 500,000 | 403,755 | ||||
State of California, Public Improvements, General Obligation Unlimited, Callable 04/01/19 @ 100, 6.00%, 04/01/35 | 500,000 | 512,770 | ||||
State of California, Public Improvements, General Obligation Unlimited, Callable 04/01/19 @ 100 (OID), 6.00%, 04/01/38 | 100,000 | 101,977 | ||||
State of California, Refunding Bonds, General Obligation Unlimited, Callable 10/01/19 @ 100, 5.00%, 10/01/29 | 250,000 | 237,350 | ||||
State of California, Refunding Notes, General Obligation Unlimited, Callable 06/01/17 @ 100, 5.00%, 06/01/32 | 500,000 | 460,950 | ||||
State of California, Refunding Notes, General Obligation Unlimited, Callable 08/01/18 @ 100 (OID), 5.00%, 08/01/34 | 500,000 | 458,950 | ||||
University of California, University & College Improvements Revenue Bonds, Series A, Callable 05/15/15 @ 101, (BHAC-CR) (MBIA) (OID), 4.50%, 05/15/47 | 500,000 | 445,720 | ||||
Washington Township Health Care District, Hospital Improvements, General Obligation Unlimited, Series A, Callable 08/01/19 @ 100 (OID), 5.00%, 08/01/20 | 20,000 | 20,196 | ||||
Washington Township Health Care District, Hospital Improvements, General Obligation Unlimited, Series A, Callable 08/01/19 @ 100 (OID), 5.25%, 08/01/28 | 140,000 | 138,846 | ||||
4,946,506 | ||||||
Colorado 1.55% | ||||||
Colorado Educational & Cultural Facilities Authority, School Improvements Revenue Bonds, Callable 12/01/18 @ 102 (OID), 7.25%, 12/01/28 | 250,000 | 290,277 | ||||
Colorado Educational & Cultural Facilities Authority, School Improvements Revenue Bonds, Callable 12/01/18 @ 102 (OID), 7.63%, 12/01/40 | 250,000 | 281,750 |
HIGH YIELD TAX FREE BOND FUND | 7 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Colorado (cont.) | ||||||
Montrose Memorial Hospital, Hospital Improvements Revenue Bonds, Callable 12/01/13 @ 102 (OID), 6.00%, 12/01/33 | $ | 500,000 | $ | 480,965 | ||
1,052,992 | ||||||
Connecticut 0.69% | ||||||
Connecticut State Development Authority, Refunding Revenue Bonds, Series A, Callable 05/01/17 @ 100, (LOC Citibank) (OID), 4.75%, 05/01/42 | 250,000 | 210,410 | ||||
Connecticut State Health & Educational Facility Authority, University & College Improvements Revenue Bonds, Callable 07/01/18 @ 100, (BHAC-CR) (NATL-RE) (OID), 5.00%, 07/01/37 | 250,000 | 255,548 | ||||
465,958 | ||||||
District of Columbia 0.81% | ||||||
District of Columbia, Hospital Improvements Revenue Bonds, Series 2, Callable 07/15/18 @ 101 (FSA), 5.45%, 07/15/35 | 535,000 | 547,765 | ||||
Florida 3.86% | ||||||
City of Jacksonville, Public Improvements Revenue Bonds, Series A, Callable 10/01/19 @ 100 (OID), 4.75%, 10/01/34 | 200,000 | 192,384 | ||||
City of Miami, Public Improvements Revenue Bonds, Callable 01/01/18 @ 100, (NATL-RE) (OID), 5.00%, 01/01/37 | 500,000 | 488,415 | ||||
County of Miami-Dade, Hospital Improvements Revenue Bonds, Callable 06/01/19 @ 100, (Assured Guaranty) (OID), 5.75%, 06/01/39 | 100,000 | 103,818 | ||||
County of Miami-Dade, Public Improvements, General Obligation Unlimited, Series B1, Callable 07/01/18 @ 100 (OID), 5.63%, 07/01/38 | 250,000 | 262,460 | ||||
County of Miami-Dade, Recreational Facility Improvements Revenue Bonds, Series C, Callable 10/01/19 @ 100, (Assured Guaranty) (OID), 5.38%, 10/01/28 | 250,000 | 262,645 | ||||
Florida Housing Finance Corp., State Single-Family Housing Revenue Bonds, Series 2, Callable 07/01/19 @ 100, (Ginnie Mae) (Fannie Mae) (Freddie Mac), 5.00%, 07/01/39 | 125,000 | 125,280 | ||||
Florida State Board of Education, School Improvements Revenue Bonds, Series A, Callable 07/01/18 @101 (OID), 5.25%, 07/01/24 | 380,000 | 402,409 | ||||
Halifax Hospital Medical Center, Refunding Revenue Bonds, Series B2, Callable 06/01/18 @ 100, (AGM) (OID), 5.38%, 06/01/31 | 250,000 | 252,765 |
8 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Florida (cont.) | ||||||
Hillsborough County Industrial Development Authority, School Improvements Revenue Bonds, Series A, Callable 05/15/17 @ 100, 5.13%, 05/15/37 | $ | 250,000 | $ | 173,540 | ||
Miami-Dade County Educational Facilities Authority, University & College Improvements Revenue Bonds, Series A, Callable 04/01/16 @ 100 (OID), 5.50%, 04/01/38 | 250,000 | 253,397 | ||||
Orange County Health Facilities Authority, Hospital Improvements Revenue Bonds, 5.25%, 10/01/19 | 100,000 | 102,833 | ||||
2,619,946 | ||||||
Georgia 0.74% | ||||||
City of Atlanta, Refunding Revenue Bonds, Series B, Callable 11/01/19 @ 100, (FSA) (OID), 5.38%, 11/01/39 | 250,000 | 255,628 | ||||
Coffee County Hospital Authority, Refunding Revenue Bonds, Series PJ, Callable 12/01/14 @ 100, 5.00%, 12/01/19 | 250,000 | 246,917 | ||||
502,545 | ||||||
Illinois 2.25% | ||||||
City of Markham, Public Improvements, General Obligation Unlimited, Series A, Callable 02/01/18 @ 100, 6.00%, 02/01/25 | 360,000 | 347,872 | ||||
Illinois Finance Authority, Hospital Improvements Revenue Bonds, Callable 02/15/18 @ 100 (OID), 5.50%, 02/15/38 | 250,000 | 242,148 | ||||
Illinois Finance Authority, Hospital Improvements Revenue Bonds, Callable 08/15/19 @ 100 (OID), 7.00%, 08/15/44 | 250,000 | 255,760 | ||||
Illinois Finance Authority, Hospital Improvements Revenue Bonds, Series A, Callable 08/15/18 @ 100, (Assured Guaranty) (OID), 5.25%, 08/15/47 | 250,000 | 241,637 | ||||
Illinois Finance Authority, Refunding Revenue Bonds, Callable 08/15/18 @ 100 (OID), 5.50%, 08/15/30 | 500,000 | 443,625 | ||||
1,531,042 | ||||||
Indiana 1.78% | ||||||
Indiana Finance Authority, Hospital Improvements Revenue Bonds, Callable 11/01/19 @ 100 (OID), 5.25%, 11/01/39 | 150,000 | 148,649 | ||||
Indiana Finance Authority, Refunding Revenue Bonds, Series A, Callable 05/01/19 @ 100, (OID), 5.75%, 05/01/31 | 100,000 | 102,381 | ||||
Indiana Finance Authority, Refunding Revenue Bonds, Series A, Callable 12/01/19 @ 100 (OID), 5.25%, 12/01/38 | 250,000 | 254,760 |
HIGH YIELD TAX FREE BOND FUND | 9 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Indiana (cont.) | ||||||
Indiana Health & Educational Facilities Financing Authority, Hospital Improvements Revenue Bonds, Callable 03/01/17 @ 100, 5.50%, 03/01/37 | $ | 750,000 | $ | 703,800 | ||
1,209,590 | ||||||
Iowa 0.47% | ||||||
Iowa Finance Authority, Hospital Improvements Revenue Bonds, Series A, Callable 08/15/19 @ 100, (Assured Guaranty) (OID), 5.38%, 08/15/29 | 300,000 | 318,597 | ||||
Kentucky 1.20% | ||||||
Kentucky Economic Development Finance Authority, Recreational Facility Improvements Revenue Bonds, Series A1, Callable 06/01/18 @ 100, (Assured Guaranty) (OID), 6.00%, 12/01/38 | 750,000 | 813,750 | ||||
Louisiana 3.88% | ||||||
Louisiana Public Facilities Authority, Refunding Revenue Bonds, Series A, Callable 07/01/19 @ 100 (OID), 6.00%, 07/01/29 | 250,000 | 262,152 | ||||
Parish of St. John Baptist, Industrial Improvements Revenue Bonds, Series A, Callable 06/01/17 @ 100, 5.13%, 06/01/37 | 2,660,000 | 2,374,848 | ||||
2,637,000 | ||||||
Maine 0.15% | ||||||
Maine State Housing Authority, Local Single-Family Housing Revenue Bonds, Series C, Callable 01/15/19 @ 100, 5.00%, 11/15/29 | 100,000 | 100,431 | ||||
Maryland 1.27% | ||||||
Maryland Community Development Administration, State Multi-Family Housing Revenue Bonds, Series B, Callable 09/01/18 @ 100, 4.75%, 09/01/39 | 250,000 | 241,875 | ||||
Maryland Community Development Administration, State Single-Family Housing Revenue Bonds, Series C, Callable 09/01/18 @ 100, 4.55%, 09/01/39 | 500,000 | 471,265 |
10 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Maryland (cont.) | ||||||
Maryland Health & Higher Educational Facilities Authority, Hospital Improvements Revenue Bonds, Callable 05/15/16 @ 100, 5.25%, 05/15/46 | $ | 150,000 | $ | 147,361 | ||
860,501 | ||||||
Massachusetts 0.29% | ||||||
Massachusetts Housing Finance Agency, State Multi-Family Housing Revenue Bonds, Series C, Callable 06/01/19 @ 100, 4.85%, 12/01/29 | 100,000 | 99,730 | ||||
Massachusetts Housing Finance Agency, State Multi-Family Housing Revenue Bonds, Series C, Callable 06/01/19 @ 100, 5.13%, 12/01/39 | 100,000 | 100,195 | ||||
199,925 | ||||||
Michigan 3.97% | ||||||
Cesar Chavez Academy, Inc., School Improvements Certificate of Participation, Callable 02/01/13 @ 102, 6.50%, 02/01/33 | 185,000 | 156,147 | ||||
Crossroads Charter Academy, Refunding Revenue Bonds, Callable 06/01/17 @ 100 (OID), 5.25%, 06/01/35 | 250,000 | 182,760 | ||||
Michigan Public Educational Facilities Authority, School Improvements Revenue Bonds, Series A, Callable 12/01/15 @ 100, 6.00%, 12/01/35 | 500,000 | 390,895 | ||||
Michigan State Hospital Finance Authority, Refunding Revenue Bonds, Callable 11/15/19 @ 100 (OID), 5.63%, 11/15/29 | 100,000 | 97,141 | ||||
Michigan State Hospital Finance Authority, Refunding Revenue Bonds, Callable 11/15/19 @ 100 (OID), 5.75%, 11/15/39 | 250,000 | 240,675 | ||||
Michigan Tobacco Settlement Finance Authority, Miscellaneous Purposes Revenue Bonds, Series A, Callable 06/01/17 @ 100 (OID), 6.00%, 06/01/48 | 1,165,000 | 887,963 | ||||
Michigan Tobacco Settlement Finance Authority, Refunding Revenue Bonds, Series A, Callable 06/01/18 @ 100 (OID), 6.88%, 06/01/42 | 250,000 | 225,505 | ||||
Royal Oak Hospital Finance Authority, Refunding Revenue Bonds, Series W, Callable 08/01/14 @ 100, 6.00%, 08/01/29 | 250,000 | 253,665 |
HIGH YIELD TAX FREE BOND FUND | 11 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Michigan (cont.) | ||||||
Royal Oak Hospital Finance Authority, Refunding Revenue Bonds, Series W, Callable 08/01/19 @ 100, 6.38%, 08/01/29 | $ | 250,000 | $ | 259,315 | ||
2,694,066 | ||||||
Mississippi 0.36% | ||||||
Mississippi Hospital Equipment & Facilities Authority, Refunding Revenue Bonds, Callable 01/01/20 @ 100, 5.25%, 01/01/30 | 250,000 | 247,255 | ||||
Missouri 0.75% | ||||||
Hanley Road Corridor Transportation Development District, Refunding Revenue Bonds, Series A, Callable 10/01/19 @ 100 (OID), 5.88%, 10/01/36 | 250,000 | 262,780 | ||||
Missouri Housing Development Commission, State Single-Family Housing Revenue Bonds, Series D, Callable 09/01/19 @ 100, (Ginnie Mae) (Fannie Mae), 4.70%, 03/01/35 | 250,000 | 243,860 | ||||
506,640 | ||||||
Nevada 0.07% | ||||||
City of Reno, Hospital Improvements Revenue Bonds, Callable 06/01/18 @ 100, (AMBAC) (OID), 5.50%, 06/01/28 | 50,000 | 49,465 | ||||
New Hampshire 0.50% | ||||||
New Hampshire Health & Education Facilities Authority, Refunding Revenue Bonds, Callable 01/01/15 @ 100, (ACA), 5.00%, 01/01/36 | 250,000 | 233,145 | ||||
New Hampshire Health & Education Facilities Authority, Refunding Revenue Bonds, Callable 10/01/19 @ 100, 6.25%, 04/01/26 | 100,000 | 109,453 | ||||
342,598 | ||||||
New Jersey 5.83% | ||||||
Jersey City Municipal Utilities Authority, Refunding Revenue Bonds, (NATL-RE) (FGIC) (OID), 3.50%, 01/01/15 | 250,000 | 242,555 | ||||
New Jersey Economic Development Authority, Economic Improvements Revenue Bonds, Callable 06/15/10 @ 100, 5.63%, 06/15/19 | 500,000 | 500,510 | ||||
New Jersey Economic Development Authority, Economic Improvements Revenue Bonds, Callable 06/15/12 @ 100 (OID), 5.50%, 06/15/24 | 290,000 | 285,171 |
12 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
New Jersey (cont.) | ||||||
New Jersey Health Care Facilities Financing Authority, Hospital Improvements Revenue Bonds, Callable 01/01/14 @ 100, (Assured Guaranty) (OID), 5.38%, 07/01/29 | $ | 500,000 | $ | 513,595 | ||
New Jersey Health Care Facilities Financing Authority, Hospital Improvements Revenue Bonds, Series A, Callable 10/01/19 @ 100 (OID), 5.75%, 10/01/31 | 520,000 | 553,025 | ||||
New Jersey Health Care Facilities Financing Authority, Refunding Revenue Bonds, Series A, Callable 07/01/18 @ 100 (OID), 5.00%, 07/01/27 | 250,000 | 252,408 | ||||
New Jersey Housing & Mortgage Finance Agency, State Single-Family Housing Revenue Bonds, Series CC, Callable 04/01/19 @ 100, 5.00%, 10/01/34 | 185,000 | 185,257 | ||||
Newark Housing Authority, Public Improvements Revenue Bonds, Callable 12/01/19 @ 100 (Assured Guaranty) (GO OF CITY), 6.75%, 12/01/38 | 750,000 | 840,278 | ||||
Tobacco Settlement Financing Corp., Refunding Revenue Bonds, Series 1A, Callable 06/01/17 @ 100 (OID), 5.00%, 06/01/41 | 850,000 | 587,095 | ||||
3,959,894 | ||||||
New Mexico 0.88% | ||||||
New Mexico Hospital Equipment Loan Council, Hospital Improvements Revenue Bonds, Callable 08/01/19 @ 100, 5.13%, 08/01/35 | 375,000 | 375,409 | ||||
New Mexico Hospital Equipment Loan Council, Hospital Improvements Revenue Bonds, Callable 08/01/19 @ 100 (OID), 5.00%, 08/01/39 | 225,000 | 219,895 | ||||
595,304 | ||||||
New York 14.52% | ||||||
Long Island Power Authority, Refunding Revenue Bonds, Series A, Callable 04/01/19 @ 100 (OID), 5.75%, 04/01/39 | 250,000 | 271,415 | ||||
Metropolitan Transportation Authority, Refunding Revenue Bonds, Series A, Callable 11/15/12 @ 100, 5.75%, 11/15/32 | 250,000 | 257,535 | ||||
Metropolitan Transportation Authority, Refunding Revenue Bonds, Series E, Callable 11/15/12 @ 100, (BHAC-CR) (OID), 5.25%, 11/15/31 | 500,000 | 518,890 | ||||
New York City Housing Development Corp, State Single-Family Housing Revenue Bonds, Series K, Callable 05/01/19 @ 100, 4.75%, 11/01/29 | 100,000 | 99,994 |
HIGH YIELD TAX FREE BOND FUND | 13 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
New York (cont.) | ||||||
New York City Housing Development Corp., Refunding Revenue Bonds, Series J, Callable 05/01/19 @ 100, 4.80%, 05/01/36 | $ | 250,000 | $ | 245,220 | ||
New York City Housing Development Corp., State Multi-Family Housing Revenue Bonds, Series A, Callable 09/15/19 @ 100 (Fannie Mae), 4.50%, 09/15/25 | 200,000 | 198,942 | ||||
New York City Housing Development Corp., State Multi-Family Housing Revenue Bonds, Series F, Callable 05/01/19 @ 100, 4.60%, 11/01/29 | 100,000 | 97,642 | ||||
New York City Housing Development Corp., State Multi-Family Housing Revenue Bonds, Series F, Callable 05/01/19 @ 100, 4.85%, 05/01/41 | 250,000 | 244,002 | ||||
New York City Industrial Development Agency, Recreational Facility Improvements Revenue Bonds, Callable 01/01/19 @ 100, (Assured Guaranty) (OID), 6.50%, 01/01/46 | 650,000 | 730,893 | ||||
New York City Industrial Development Agency, Recreational Facility Improvements Revenue Bonds, Callable 09/01/16 @ 100 (FGIC), 5.00%, 03/01/31 | 145,000 | 140,212 | ||||
New York City Industrial Development Agency, Recreational Facility Improvements Revenue Bonds, Callable 09/01/16 @ 100 (NATL-RE), 5.00%, 03/01/36 | 200,000 | 187,254 | ||||
New York City Industrial Development Agency, Recreational Facility Improvements Revenue Bonds, Callable 09/01/16 @ 100 (FGIC), 5.00%, 03/01/46 | 1,900,000 | 1,734,852 | ||||
New York City Industrial Development Agency, Recreational Facility Improvements Revenue Bonds, Callable 09/01/16 @ 100, (FGIC) (OID), 4.50%, 03/01/39 | 100,000 | 85,421 | ||||
New York City Transitional Finance Authority, School Improvements Revenue Bonds, Series S-3, Callable 01/15/19 @ 100, (State Aid Withholding) (OID), 5.38%, 01/15/34 | 250,000 | 263,232 | ||||
New York State Dormitory Authority, Hospital Improvements Revenue Bonds, Callable 02/08/10 @ 101 (AMBAC) (FHA), 5.15%, 08/01/38 | 250,000 | 250,438 | ||||
New York State Dormitory Authority, Hospital Improvements Revenue Bonds, Series A, Callable 05/01/17 @ 100, 5.00%, 05/01/22 | 650,000 | 646,412 | ||||
New York State Dormitory Authority, Hospital Improvements Revenue Bonds, Series A, Callable 05/01/19 @ 100, 5.50%, 05/01/30 | 500,000 | 506,140 |
14 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||
New York (cont.) | ||||
New York State Dormitory Authority, Hospital Improvements Revenue Bonds, Series A, Callable 05/01/19 @ 100 (OID), 5.50%, 05/01/37 | 350,000 | 350,476 | ||
New York State Dormitory Authority, Hospital Improvements Revenue Bonds, Series A, Callable 11/01/16 @ 100, 5.00%, 11/01/34 | 750,000 | 711,150 | ||
New York State Dormitory Authority, Refunding Revenue Bonds, Callable 08/15/15 @ 100 (FHA), 4.90%, 08/15/31 | 500,000 | 492,115 | ||
New York State Dormitory Authority, University & College Improvements Revenue Bonds, Callable 07/01/19 @ 100, (OID) (GO OF INSTN), 5.25%, 07/01/33 | 200,000 | 204,042 | ||
New York State Dormitory Authority, University & College Improvements Revenue Bonds, Series A, Callable 07/01/18 @ 100, 5.25%, 07/01/48 | 750,000 | 765,428 | ||
New York State Housing Finance Agency, State Multi-Family Housing Revenue Bonds, Series B, Callable 05/01/19 @ 100, 4.80%, 11/01/34 | 250,000 | 249,372 | ||
New York State Housing Finance Agency, State Multi-Family Housing Revenue Bonds, Series B, Callable 05/01/19 @ 100, 4.85%, 11/01/41 | 205,000 | 199,477 | ||
New York State Housing Finance Agency, State Multi-Family Housing Revenue Bonds, Series B, Callable 05/01/19 @ 100, 5.00%, 11/01/45 | 150,000 | 148,190 | ||
Tobacco Settlement Financing Corp., Housing Revenue Bonds, Series B-1C, Callable 06/01/13 @ 100, 5.50%, 06/01/19 | 250,000 | 265,900 | ||
9,864,644 | ||||
North Carolina 0.83% | ||||
Charlotte-Mecklenburg Hospital Authority, Refunding Revenue Bonds, Series A, Callable 01/15/19 @ 100 (OID), 5.25%, 01/15/34 | 100,000 | 102,015 | ||
North Carolina Eastern Municipal Power Agency, Refunding Revenue Bonds, Series B, Callable 01/01/19 @ 100 (OID), 4.50%, 01/01/22 | 250,000 | 251,100 |
HIGH YIELD TAX FREE BOND FUND | 15 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
North Carolina (cont.) | ||||||
North Carolina Turnpike Authority, Highway Improvements Revenue Bonds, Series A, Callable 01/01/19 @ 100, (Assured Guaranty) (OID), 5.75%, 01/01/39 | $ | 200,000 | $ | 210,306 | ||
563,421 | ||||||
North Dakota 2.01% | ||||||
City of Grand Forks, Hospital Improvements Revenue Bonds, Callable 02/08/10 @ 100 (NATL-RE) (OID), 5.63%, 08/15/27 | 1,500,000 | 1,367,820 | ||||
Ohio 7.40% | ||||||
Buckeye Tobacco Settlement Financing Authority, Miscellaneous Purposes Revenue Bonds, Series A-2, Callable 06/01/17 @ 100, 6.50%, 06/01/47 | 5,050,000 | 4,152,968 | ||||
Buckeye Tobacco Settlement Financing Authority, Miscellaneous Purposes Revenue Bonds, Series A-2, Callable 06/01/17 @ 100 (OID), 5.88%, 06/01/47 | 800,000 | 602,432 | ||||
Ohio Higher Educational Facility Commission, Hospital Improvements Revenue Bonds, Series A, Callable 01/15/15 @ 100, 7.00%, 01/15/39 | 250,000 | 268,303 | ||||
5,023,703 | ||||||
Oregon 1.09% | ||||||
Oregon Health & Science University, Cash Flow Management Revenue Bonds, Series A, Callable 07/01/19 @ 100, 5.88%, 07/01/33 | 500,000 | 542,950 | ||||
Oregon State Facilities Authority, Refunding Revenue Bonds, Series A, Callable 11/01/19 @ 100, 5.00%, 11/01/39 | 200,000 | 197,240 | ||||
740,190 | ||||||
Pennsylvania 1.97% | ||||||
City of Philadelphia, Public Improvements, General Obligation Limited, Series B, Callable 07/15/16 @ 100, (Assured Guaranty) (OID), 7.13%, 07/15/38 | 750,000 | 870,352 | ||||
Pennsylvania Higher Educational Facilities Authority, University & College Improvements Revenue Bonds, Callable 05/01/13 @ 100 (OID), 5.50%, 05/01/34 | 100,000 | 99,858 | ||||
Philadelphia Municipal Authority, Public Improvements Revenue Bonds, Callable 04/01/19 @ 100 (OID), 6.38%, 04/01/29 | 250,000 | 261,960 |
16 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Pennsylvania (cont.) | ||||||
Philadelphia Municipal Authority, Public Improvements Revenue Bonds, Callable 04/01/19 @ 100 (OID), 6.50%, 04/01/39 | $ | 100,000 | $ | 104,794 | ||
1,336,964 | ||||||
Puerto Rico 13.20% | ||||||
Commonwealth of Puerto Rico, Public Improvements, General Obligation Unlimited, Series A, Callable 07/01/14 @ 100, 5.25%, 07/01/20 | 350,000 | 350,136 | ||||
Commonwealth of Puerto Rico, Public Improvements, General Obligation Unlimited, Series A, Callable 07/01/14 @ 100, 5.00%, 07/01/24 | 500,000 | 478,620 | ||||
Commonwealth of Puerto Rico, Public Improvements, General Obligation Unlimited, Series A, Callable 07/01/14 @ 100 (CIFG-TCRS), 5.00%, 07/01/29 | 200,000 | 192,528 | ||||
Commonwealth of Puerto Rico, Public Improvements, General Obligation Unlimited, Series A, Callable 07/01/16 @ 100, 5.25%, 07/01/26 | 250,000 | 241,703 | ||||
Commonwealth of Puerto Rico, Public Improvements, General Obligation Unlimited, Series A, Callable 07/01/18 @ 100 (OID), 5.38%, 07/01/33 | 250,000 | 233,730 | ||||
Commonwealth of Puerto Rico, Refunding Bonds, General Obligation Unlimited, Callable 07/01/16 @ 100, 5.00%, 07/01/18 | 250,000 | 250,272 | ||||
Commonwealth of Puerto Rico, Refunding Bonds, General Obligation Unlimited, Series A, (NATL-RE), 5.50%, 07/01/19 | 500,000 | 513,375 | ||||
Commonwealth of Puerto Rico, Refunding Bonds, General Obligation Unlimited, Series A, Callable 07/01/18 @ 100 (OID), 5.00%, 07/01/22 | 250,000 | 241,220 | ||||
Commonwealth of Puerto Rico, Refunding Bonds, General Obligation Unlimited, Series A-4, Callable 01/01/20 @ 101 (AGM), 5.00%, 07/01/31 | 200,000 | 202,190 | ||||
Commonwealth of Puerto Rico, Refunding Bonds, General Obligation Unlimited, Series B, Callable 07/01/14 @ 100, 5.88%, 07/01/36 | 100,000 | 100,331 | ||||
Commonwealth of Puerto Rico, Refunding Bonds, General Obligation Unlimited, Series C, Callable 07/01/19 @ 100 (OID), 6.00%, 07/01/39 | 1,500,000 | 1,506,435 |
HIGH YIELD TAX FREE BOND FUND | 17 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Puerto Rico (cont.) | ||||||
Puerto Rico Commonwealth Aqueduct & Sewer Authority, Water & Utility Improvements Revenue Bonds, Series A, Callable 07/01/18 @ 100 (OID), 6.00%, 07/01/44 | $ | 355,000 | $ | 362,803 | ||
Puerto Rico Commonwealth Aqueduct & Sewer Authority, Water & Utility Improvements Revenue Bonds, Series A, Callable 07/01/18 @ 100, (Assured Guaranty) (OID), 5.13%, 07/01/47 | 500,000 | 497,105 | ||||
Puerto Rico Commonwealth Aqueduct & Sewer Authority, Water & Utility Improvements Revenue Bonds, Series A, Callable 07/01/18 @ 100 (OID), 6.00%, 07/01/38 | 150,000 | 153,398 | ||||
Puerto Rico Electric Power Authority, Electric Light & Power Improvements Revenue Bonds, Series RR, Callable 07/01/15 @ 100 (AGM), 5.00%, 07/01/20 | 500,000 | 523,905 | ||||
Puerto Rico Electric Power Authority, Electric Light & Power Improvements Revenue Bonds, Series TT, Callable 07/01/17 @ 100, 5.00%, 07/01/37 | 250,000 | 234,065 | ||||
Puerto Rico Highway & Transportation Authority, Highway Improvements Revenue Bonds, Series D, Callable 07/01/12 @ 100, (FSA) (OID), 5.00%, 07/01/32 | 250,000 | 250,402 | ||||
Puerto Rico Public Buildings Authority, Economic Improvements Revenue Bonds, Series N, Callable 07/01/17 @ 100, (Commonwealth Guaranteed), 5.50%, 07/01/20 | 210,000 | 212,694 | ||||
Puerto Rico Public Buildings Authority, Public Improvements Revenue Bonds, Series I, Callable 07/01/14 @ 100, (Commonwealth Guaranteed) (OID), 5.25%, 07/01/33 | 645,000 | 600,579 | ||||
Puerto Rico Public Buildings Authority, Refunding Revenue Bonds, Series M, (Commonwealth Guaranteed), 6.25%, 07/01/31 | 300,000 | 318,750 | ||||
Puerto Rico Public Buildings Authority, Refunding Revenue Bonds, Series P, Callable 06/01/14 @ 100 (Commonwealth Guaranteed), 7.00%, 07/01/25 | 250,000 | 263,770 | ||||
Puerto Rico Public Buildings Authority, Refunding Revenue Bonds, Series P, Callable 07/01/19 @ 100, (Commonwealth Guaranteed) (OID), 6.25%, 07/01/26 | 350,000 | 366,300 | ||||
Puerto Rico Public Buildings Authority, Refunding Revenue Bonds, Series P, Callable 07/01/19 @ 100, (Commonwealth Guaranteed) (OID), 6.75%, 07/01/36 | 240,000 | 255,732 | ||||
Puerto Rico Public Buildings Authority, Refunding Revenue Bonds, Series Q, Callable 07/01/14 @ 100 (Commonwealth Guaranteed), 6.00%, 07/01/38 | 100,000 | 100,544 |
18 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Puerto Rico (cont.) | ||||||
Puerto Rico Public Buildings Authority, Refunding Revenue Bonds, Series Q, Callable 07/01/19 @ 100, (Commonwealth Guaranteed) (OID), 5.63%, 07/01/39 | $ | 220,000 | $ | 210,998 | ||
Puerto Rico Sales Tax Financing Corp., Public Improvements Revenue Bonds, Series A, Callable 08/01/19 @ 100 (OID), 5.75%, 08/01/37 | 295,000 | 307,098 | ||||
8,968,683 | ||||||
Rhode Island 0.77% | ||||||
Rhode Island Student Loan Authority, Student Loans Revenue Bonds, Series A, Callable 12/01/19 @ 100, 6.35%, 12/01/30 | 500,000 | 521,225 | ||||
South Carolina 0.42% | ||||||
South Carolina Jobs-Economic Development Authority, Refunding Revenue Bonds, Callable 08/01/14 @ 100 (OID), 5.75%, 08/01/36 | 250,000 | 238,865 | ||||
South Carolina Jobs-Economic Development Authority, Refunding Revenue Bonds, Callable 08/01/19 @ 100 (OID), 5.75%, 08/01/39 | 50,000 | 47,353 | ||||
286,218 | ||||||
South Dakota 0.15% | ||||||
South Dakota Housing Development Authority, State Single-Family Housing Revenue Bonds, Series B, Callable 05/01/19 @ 100, 4.70%, 05/01/27 | 100,000 | 100,143 | ||||
Texas 5.94% | ||||||
Garza County Public Facility Corp., Public Improvements Revenue Bonds, Callable 10/01/16 @ 100, 5.75%, 10/01/25 | 250,000 | 254,920 | ||||
North Texas Tollway Authority, Refunding Revenue Bonds, Series A, Callable 01/01/19 @ 100 (OID), 6.25%, 01/01/39 | 250,000 | 265,335 | ||||
North Texas Tollway Authority, Refunding Revenue Bonds, Series B, Callable 01/01/18 @ 100 (OID), 5.75%, 01/01/40 | 200,000 | 204,620 | ||||
North Texas Tollway Authority, Refunding Revenue Bonds, Series F, Callable 01/01/16 @ 100, 6.13%, 01/01/31 | 1,250,000 | 1,304,250 | ||||
North Texas Tollway Authority, Refunding Revenue Bonds, Series F, Callable 01/01/18 @ 100 (OID), 5.75%, 01/01/33 | 550,000 | 563,783 | ||||
Tarrant County Cultural Education Facilities Finance Corp., Hospital Improvements Revenue Bonds, Series B, (Assured Guaranty) (OID), 4.50%, 09/01/19 | 100,000 | 98,533 |
HIGH YIELD TAX FREE BOND FUND | 19 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Texas (cont.) | ||||||
Tarrant County Cultural Education Facilities Finance Corp., Hospital Improvements Revenue Bonds, Series B, Callable 09/01/14 @ 100, (Assured Guaranty) (OID), 5.38%, 09/01/30 | $ | 500,000 | $ | 505,800 | ||
Tarrant County Cultural Education Facilities Finance Corp., Hospital Improvements Revenue Bonds, Series B, Callable 09/01/19 @ 100, (Assured Guaranty) (OID), 5.13%, 09/01/25 | 100,000 | 101,018 | ||||
Texas State Public Finance Authority, Refunding Revenue Bonds, Series A, Callable 02/15/14 @ 100, (ACA), 5.00%, 02/15/36 | 900,000 | 739,116 | ||||
4,037,375 | ||||||
Virgin Islands 0.28% | ||||||
Virgin Islands Public Finance Authority, Public Improvements Revenue Bonds, Series A-1, Callable 10/01/19 @ 100, 5.00%, 10/01/39 | 100,000 | 90,438 | ||||
Virgin Islands Public Finance Authority, Refunding Revenue Bonds, Series B, Callable 10/01/19 @ 100, 5.00%, 10/01/25 | 100,000 | 98,177 | ||||
188,615 | ||||||
Washington 2.22% | ||||||
Grays Harbor County Public Utility District No. 1, Electric Light & Power Improvements Revenue Bonds, Callable 01/01/17 @ 100, (NATL-RE) (FGIC), 5.00%, 07/01/24 | 250,000 | 258,178 | ||||
Washington Health Care Facilities Authority, Hospital Improvements Revenue Bonds, Callable 10/01/19 @ 100 (OID), 5.63%, 10/01/38 | 500,000 | 512,355 | ||||
Washington Health Care Facilities Authority, Refunding Revenue Bonds, Callable 11/01/19 @ 100, 5.00%, 11/01/28 | 250,000 | 246,682 | ||||
Washington State Housing Finance Commission, State Single-Family Housing Revenue Bonds, Series 2N, Callable 06/01/19 @ 100, (Ginnie Mae) (Fannie Mae) (Freddie Mac), 4.70%, 06/01/36 | 500,000 | 491,805 | ||||
1,509,020 | ||||||
West Virginia 1.22% | ||||||
West Virginia Hospital Finance Authority, Hospital Improvements Revenue Bonds, Series A, 5.00%, 09/01/19 | 250,000 | 251,315 |
20 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
West Virginia (cont.) | ||||||
West Virginia Hospital Finance Authority, Hospital Improvements Revenue Bonds, Series A, Callable 09/01/19 @ 100, (OID), 5.63%, 09/01/32 | $ | 600,000 | $ | 579,474 | ||
830,789 | ||||||
Wisconsin 3.91% | ||||||
Wisconsin Health & Educational Facilities Authority, Hospital Improvements Revenue Bonds, Callable 08/15/16 @ 100, 5.25%, 08/15/18 | 350,000 | 344,746 | ||||
Wisconsin Health & Educational Facilities Authority, Hospital Improvements Revenue Bonds, Callable 08/15/16 @ 100, 5.25%, 08/15/31 | 100,000 | 88,875 | ||||
Wisconsin Health & Educational Facilities Authority, Refunding Revenue Bonds, Series A, Callable 08/15/13 @ 100, (OID), 5.13%, 08/15/33 | 2,060,000 | 1,784,887 | ||||
Wisconsin Health & Educational Facilities Authority, Refunding Revenue Bonds, Series B, Callable 08/15/16 @ 100, 5.13%, 08/15/30 | 500,000 | 440,020 | ||||
2,658,528 | ||||||
Wyoming 0.31% | ||||||
County of Campbell, Resource Recovery Improvements Revenue Bonds, Series A, Callable 07/15/19 @ 100, 5.75%, 07/15/39 | 200,000 | 211,564 | ||||
Total Investments — 97.03% | ||||||
(Cost $63,844,506*) | $ | 65,911,713 | ||||
Cash and Other Assets Net of Liabilities — 2.97% | 2,017,266 | |||||
NET ASSETS — 100.00% | $ | 67,928,979 | ||||
HIGH YIELD TAX FREE BOND FUND | 21 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
ACA - Insured by ACA Financial Guaranty Corp.
AGM - Assured Guaranty Municipal.
AMBAC - Insured by AMBAC Indemnity Corp.
BHAC-CR - Berkshire Hathaway Assurance Corp. Custodial Receipts.
CIFG - Insured by CDC IXIS Financial Guaranty.
FGIC - Insured by Financial Guaranty Insurance Corp.
FHA - Insured by Federal Housing Administration.
FSA - Financial Security Assurance.
GO - General Obligation.
LOC - Letter of Credit.
MBIA - Insured by MBIA.
NATL-RE - Insured by National Public Finance Guarantee Corp.
OID - Original Issue Discount.
TCRS - Transferable Custodial Receipts.
XLCA - Insured by XL Capital Assurance.
* | The aggregate cost for federal income tax purposes is $63,844,506, and net unrealized appreciation consists of: |
Gross unrealized appreciation | $ | 3,049,005 | ||
Gross unrealized depreciation | (981,798 | ) | ||
Net unrealized appreciation | $ | 2,067,207 |
22 | SPIRIT OF AMERICA |
STATEMENT OF ASSETS AND LIABILITIES | DECEMBER 31, 2009
ASSETS | ||||
Investments in securities at value (cost $63,844,506) (Note 1) | $ | 65,911,713 | ||
Cash | 824,264 | |||
Receivable for Fund shares sold | 504,609 | |||
Dividends and interest receivable | 1,048,762 | |||
Prepaid expenses | 17,936 | |||
TOTAL ASSETS | 68,307,284 | |||
LIABILITIES | ||||
Payable for Fund shares redeemed | 245,341 | |||
Payable for investment advisory fees | 3,627 | |||
Payable for distributions to shareholders | 57,534 | |||
Payable for distribution fees (Note 3) | 8,376 | |||
Other accrued expenses | 63,427 | |||
TOTAL LIABILITIES | 378,305 | |||
NET ASSETS | $ | 67,928,979 | ||
Net assets applicable to 7,292,534 shares outstanding, $0.001 par value (500,000,000 authorized shares) | $ | 67,928,979 | ||
Net asset value and redemption price per share ($67,928,979 ÷ 7,292,534 shares) | $ | 9.31 | ||
Maximum offering price per share ($9.31 ÷ 0.9525) | $ | 9.77 | ||
SOURCE OF NET ASSETS | ||||
As of December 31, 2009, net assets consisted of: | ||||
Paid-in capital | $ | 66,601,693 | ||
Accumulated net realized loss on investments | (739,921 | ) | ||
Net unrealized appreciation on investments | 2,067,207 | |||
NET ASSETS | $ | 67,928,979 |
See accompanying notes to financial statements.
HIGH YIELD TAX FREE BOND FUND | 23 |
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2009 | ||||
INVESTMENT INCOME | ||||
Interest | $ | 3,120,376 | ||
TOTAL INVESTMENT INCOME | 3,120,376 | |||
EXPENSES | ||||
Investment Advisory fees (Note 3) | 262,825 | |||
Distribution fees (Note 3) | 65,706 | |||
Accounting and Administration fees | 99,465 | |||
Auditing fees | 15,500 | |||
Chief Compliance Officer salary (Note 3) | 4,552 | |||
Custodian fees | 11,134 | |||
Directors’ fees | 7,775 | |||
Insurance expense | 15,654 | |||
Legal fees | 27,236 | |||
Printing expense | 41,378 | |||
Registration fees | 14,350 | |||
Transfer Agent fees | 47,142 | |||
Other expenses | 3,745 | |||
TOTAL EXPENSES | 616,462 | |||
Fees waived and reimbursed by Adviser (Note 3) | (222,224 | ) | ||
NET EXPENSES | 394,238 | |||
NET INVESTMENT INCOME | 2,726,138 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | ||||
Net realized loss from investment transactions | (556,635 | ) | ||
Net change in unrealized appreciation of investments | 7,893,041 | |||
Net realized and unrealized gain on investments | 7,336,406 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 10,062,544 |
See accompanying notes to financial statements.
24 | SPIRIT OF AMERICA |
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 2009 | For the Period Ended December 31, 2008* | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 2,726,138 | $ | 792,785 | ||||
Net realized loss from investment transactions | (556,635 | ) | (183,286 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 7,893,041 | (5,825,834 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 10,062,544 | (5,216,335 | ) | |||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
Distributions from net investment income | (2,726,138 | ) | (792,785 | ) | ||||
Total distributions to shareholders | (2,726,138 | ) | (792,785 | ) | ||||
CAPITAL SHARE TRANSACTIONS (Dollar Activity) | ||||||||
Shares sold | 42,307,972 | 29,604,234 | ||||||
Shares issued from reinvestment of distributions | 1,743,546 | 540,192 | ||||||
Shares redeemed | (6,433,008 | ) | (1,161,243 | ) | ||||
Increase in net assets derived from capital share transactions (a) | 37,618,510 | 28,983,183 | ||||||
Total increase in net assets | 44,954,916 | 22,974,063 | ||||||
NET ASSETS | ||||||||
Beginning of period | 22,974,063 | — | ||||||
End of period | $ | 67,928,979 | $ | 22,974,063 | ||||
(a) Transactions in capital stock were: | ||||||||
Shares sold | 4,786,414 | 3,106,513 | ||||||
Shares issued from reinvestment of distributions | 197,087 | 62,838 | ||||||
Shares redeemed | (717,346 | ) | (142,972 | ) | ||||
Increase in shares outstanding | 4,266,155 | 3,026,379 |
* | The Fund commenced operations on February 29, 2008. |
See accompanying notes to financial statements.
HIGH YIELD TAX FREE BOND FUND | 25 |
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for one share of beneficial interest outstanding throughout the period presented.
For the Year Ended December 31, 2009 | For the Period Ended December 31, 2008* | |||||||
Net Asset Value, Beginning of Period | $ | 7.59 | $ | 10.00 | ||||
Income from Investment Operations: | ||||||||
Net investment income | 0.55 | 1 | 0.47 | 1 | ||||
Net realized and unrealized gain (loss) on investments | 1.73 | (2.41 | ) | |||||
Total from investment operations | 2.28 | (1.94 | ) | |||||
Less Distributions: | ||||||||
Distributions from net investment income | (0.56 | ) | (0.47 | ) | ||||
Total distributions | (0.56 | ) | (0.47 | ) | ||||
Net Asset Value, End of Period | $ | 9.31 | $ | 7.59 | ||||
Total Return2 | 30.78 | % | (20.05 | %) | ||||
Ratios/Supplemental Data | ||||||||
Net assets, end of period (000) | $ | 67,929 | $ | 22,974 | ||||
Ratio of expenses to average net assets: | ||||||||
Before expense reimbursement or recapture | 1.41 | % | 1.84 | %3 | ||||
After expense reimbursement or recapture | 0.90 | % | 0.30 | %3 | ||||
Ratio of net investment income to average net assets | 6.22 | % | 6.42 | %3 | ||||
Portfolio turnover | 5.87 | % | 6.63 | %4 |
1 | Calculated based on the average number of shares outstanding during the period. |
2 | Calculation does not reflect sales load. |
3 | Calculation is annualized. |
4 | Calculation is not annualized. |
* | The Fund commenced operations on February 29, 2008. |
See accompanying notes to financial statements.
26 | SPIRIT OF AMERICA |
NOTES TO FINANCIAL STATEMENTS | DECEMBER 31, 2009
Note 1 - Significant Accounting Policies
Spirit of America High Yield Tax Free Bond Fund (the “Fund”), a series of Spirit of America Investment Fund, Inc. (the “Company”), is an open-end non-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 February 29, 2008. The Fund seeks high current income that is exempt from federal income tax, investing at least 80% of its assets in municipal bonds. 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 accounting principles generally accepted in the United States of America for investment companies.
A. Security Valuation: The offering price and net asset value (“NAV”) per share for the Fund are calculated as of the close of regular trading on the New York Stock Exchange (“NYSE”), currently 4:00 p.m., Eastern Time on each day the NYSE is open for trading. The 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 (the “Board”) 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.
B. Fair Value Measurements: Various inputs are used in determining the fair value of investments which are as follows:
• | Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Funds have the ability to access at the measurement date |
• | Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active |
• | Level 3 – Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
HIGH YIELD TAX FREE BOND FUND | 27 |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
The summary of inputs used to value the Fund’s net assets as of December 31, 2009 is as follows:
High Yield Tax Free Bond Fund
Valuation Inputs | |||
Level 1 - Quoted Prices | $ | — | |
Level 2 - Other Significant Observable Inputs * | 65,911,713 | ||
Level 3 - Significant Unobservable Inputs | — | ||
Total Market Value of Investments | $ | 65,911,713 | |
* | Security Types as defined in the Schedule of Investments |
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “Improving Disclosures about Fair Value Measurements” that requires additional disclosures regarding fair value measurements. Certain required disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management is currently evaluating the impact it will have on its financial statement disclosures.
C. 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.
D. 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.
E. Use of Estimates: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, 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.
F. Distributions to Shareholders: The Fund intends to distribute substantially all of its net investment income and capital gains to shareholders each year. Normally, income distributions will be declared daily and paid monthly. Capital gains, if any, will be distributed annually in December, but may be distributed more frequently if deemed advisable by the Board. All such distributions are taxable to the shareholders whether received in cash or reinvested in shares.
Note 2 - Purchases and Sales of Securities
Purchases and proceeds from the sales of securities for the year ended December 31, 2009, excluding short-term investments, were $38,725,484 and $2,509,022, respectively.
28 | SPIRIT OF AMERICA |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
Note 3 - Investment Management Fee and Other Transactions with Affiliates
Spirit of America Management Corp. (the “Adviser”) has been retained to act as the Company’s investment adviser pursuant to an Investment Advisory Agreement (the “Advisory Agreement”). The Adviser 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 the Adviser a monthly fee of 1/12 of 0.60% of the Fund’s average daily net assets. Investment advisory fees for the year ended December 31, 2009 were $262,825.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses so that the total operating expenses will not exceed 0.90% of the average daily net assets of the Fund through April 30, 2010. For the year ended December 31, 2009, the Adviser reimbursed the Fund $222,224.
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 limitation as stated above. The balance of recoverable expenses to the Adviser as of December 31, 2009 was $338,365. Of this balance, $116,140 will expire in 2011 and $222,225 will expire in 2012.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 (the “Plan”). The Plan permits the Fund to pay David Lerner Associates, Inc. (the “Distributor”) a monthly fee of 1/12 of 0.15% of the Funds average daily net assets for the Distributor’s services and expenses in distributing shares of the Fund and providing personal services and/or maintaining shareholder accounts. For the year ended December 31, 2009, fees paid to the Distributor under the Plan were $65,706.
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 year ended December 31, 2009, sales charges received by the Distributor were $1,984,599. A contingent deferred sales charge of 1.00% may be imposed on redemptions of $1 million or more made within one year of purchase.
Certain Officers and Directors of the Company are “affiliated persons”, as that term is defined in the 1940 Act, of the Adviser or the Distributor. Each Director of the Company, who is not an affiliated person of the Adviser or Distributor, receives a quarterly retainer of $1,500, $1,000 for each Board meeting attended, and $500 for each committee meeting attended plus reimbursement for certain travel and other out-of-pocket expenses incurred in connection with attending Board meetings. The Company does not compensate the Officers for the services they provide. There are no Directors’ fees paid to affiliated Directors of the Company. For the year ended December 31, 2009, the Fund was allocated $4,552 of the Chief Compliance Officer’s salary.
Note 4 - Concentration and Other Risks
The Fund is non-diversified such that the Fund may invest a larger percentage of its assets in a given security than a diversified fund.
The Fund’s performance could be adversely affected by interest rate risk, which is the possibility that overall bond prices will decline because of rising interest rates. Interest rate risk is expected to be high for the Fund because it invests mainly in long-term bonds, whose prices are much more sensitive to interest fluctuations than are the prices of short-term bonds.
The Fund may be affected by credit risk, which is the possibility that the issuer of a bond will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline. This risk may be greater to the extent that the Fund may invest in junk bonds.
HIGH YIELD TAX FREE BOND FUND | 29 |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
The Fund may be affected by credit risk of lower grade securities, which is the possibility that municipal securities rated below investment grade, or unrated of similar quality, (frequently called “junk bonds”), may be subject to greater price fluctuations and risks of loss of income and principal than investment-grade municipal securities. Securities that are (or that have fallen) below investment-grade have a greater risk that the issuers may not meet their debt obligations. These types of securities are generally considered speculative in relation to the issuer’s ongoing ability to make principal and interest payments. During periods of rising interest rates or economic downturn, the trading market for these securities may not be active and may reduce the Fund’s ability to sell these securities at an acceptable price. If the issuer of securities is in default in payment of interest or principal, the Fund may lose its entire investment in those securities.
Other risks include income risk, liquidity risk, municipal project specific risk, municipal lease obligation risk, zero coupon securities risk, market risk, manager risk, taxability risk, state-specific risk and exchange traded funds risk.
Note 5 – Federal Income Taxes
The tax character of distributions paid during the year ended December 31, 2009 and the period ended December 31, 2008 were as follows:
Tax Basis Distributions
Ordinary Income | Tax Exempt Income | Net Long-Term Capital Gains | Total Distributions | |||||||||
12/31/2009 | $ | 414,275 | $ | 2,311,863 | $ | 0 | $ | 2,726,138 | ||||
12/31/2008 | $ | 89,797 | $ | 702,988 | $ | 0 | $ | 792,785 |
Distribution classifications may differ from the Statement of Changes in Net Assets as a result of the treatment of short-term capital gains as ordinary income for tax purposes.
As of December 31, 2009, the components of accumulated distributable earnings for the Fund on a tax basis were as follows:
Capital Loss Carryforward | $ | (691,762 | ) | |
Deferred Post-October Losses | (48,159 | ) | ||
Unrealized appreciation | 2,067,207 | |||
Total Distributable Earnings | $ | 1,327,286 | ||
As of December 31, 2009, the Fund had net capital loss carryforwards for federal income tax purposes of $691,762, of which $121,045 and $570,717 are available to reduce future required distributions of net capital gains to shareholders through 2016 and 2017 respectively.
As of December 31, 2009, the Fund had Deferred Post-October Losses of $48,159.
Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (current and prior three tax years), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
30 | SPIRIT OF AMERICA |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
Note 6 – Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through February 25, 2010, the date the financial statements were issued, and has determined that the following subsequent event requires recognition or disclosure in the financial statements.
On February 2, 2010, The PNC Financial Services Group, Inc. (“PNC”) entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with The Bank of New York Mellon Corporation (“BNY Mellon”). Upon the terms and subject to the conditions set forth in the Stock Purchase Agreement, which has been approved by the board of directors of each company, PNC will sell to BNY Mellon (the “Stock Sale”) 100% of the issued and outstanding shares of PNC Global Investment Servicing Inc., an indirect, wholly-owned subsidiary of PNC.
The Stock Sale includes PNC Global Investment Servicing (U.S.) Inc., PFPC Trust Company and PFPC Distributors, Inc. and is expected to close in the third quarter of 2010.
Tax Information (Unaudited)
All designations are based on financial information available as of the date of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
Exempt Interest Dividends
For the period ended December 31, 2009, in accordance with the Internal Revenue Code 852 (b)(5), the Fund qualifies to designate $2,311,863 as exempt-interest dividends. Shareholders may treat these distributions as excludable from gross income per Internal Revenue Code 103(a).
HIGH YIELD TAX FREE BOND FUND | 31 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Spirit of America Investment Fund, Inc. and the Shareholders of Spirit of America High Yield Tax Free Bond Fund
Syosset, New York
We have audited the accompanying statement of assets and liabilities of Spirit of America High Yield Tax Free Bond Fund (the “Fund”), a series of shares of beneficial interest in Spirit of America Investment Fund, Inc., including the schedule of investments as of December 31, 2009, and the related statement of operations for the year then ended and the statements of changes in net assets and the financial highlights for the year then ended and the period February 29, 2008 (commencement of operations) to December 31, 2008. 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 the standards of the Public Company Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. 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 December 31, 2009 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 High Yield Tax Free Bond Fund as of December 31, 2009, the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for the year then ended and the period February 29, 2008 to December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 25, 2010
32 | SPIRIT OF AMERICA |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT | DECEMBER 31, 2009
Approval of the Investment Advisory Agreement (Unaudited)
The Investment Company Act of 1940, as amended (the “1940 Act”), requires that the continuance of a registered management investment company’s investment advisory agreement be approved annually by both the board of directors and also by a majority of its directors who are not parties to the investment advisory agreement or “interested persons” (as defined by the 1940 Act) of any such party (the “Independent Directors”). On November 11, 2009, the Board of Directors (the “Board” or “Directors”) of Spirit of America Investment Fund, Inc. (the “Company”) met in person (the “Meeting”) to, among other things, review and consider the approval of the Investment Advisory Agreement (the “Advisory Agreement”) by and between Spirit of America Management Corp. (the “Adviser”) and the Company, on behalf of Spirit of America Real Estate Income and Growth Fund, Spirit of America Large Cap Value Fund, Spirit of America High Yield Tax Free Bond Fund and Spirit of America Income Fund (collectively, the “Funds”). At the Meeting, the Board, including the Independent Directors, voting separately, approved the Advisory Agreement after determining that the Adviser’s compensation, pursuant to the terms of the Advisory Agreement, would be fair and reasonable and concluded that the approval of the Advisory Agreement would be in the best interest of the Funds’ shareholders. The Board’s approval was based on consideration and evaluation of the information and material provided to the Board and a variety of specific factors discussed at the Meeting and at prior meetings of the Board, including the factors described below.
As part of the approval process and oversight of the advisory relationship, counsel to the Independent Directors (“Independent Counsel”) sent an information request letter to the Adviser seeking certain relevant information and the Directors received, for their review in advance of the Meeting, the Adviser’s responses. In addition, the Directors were provided with the opportunity to request any additional materials. In advance of the Meeting, the Board, including the Independent Directors, requested and received materials provided by the Adviser and Independent Counsel, including, among other things, the following: (i) information on the investment performance of the Funds and relevant indices over various time periods; (ii) sales and redemption data with respect to the Funds; (iii) the general investment outlook in the markets in which the Funds invest; (iv) arrangements with respect to the distribution of the Funds’ shares; (v) the procedures employed to determine the value of each Fund’s assets; (vi) the allocation of the Funds’ brokerage, the record of compliance with the Funds’ investment policies and restrictions and with the Funds’ Code of Ethics and the structure and responsibilities of the Adviser’s compliance departments; (vii) the profitability of the Funds’ investment advisory business to the Adviser taking into account both advisory fees and any other potential direct or indirect benefits; (viii) information comparing the overall fees and specifically the fees under the Investment Advisory Agreement with the fees paid by other similar mutual funds; (ix) the Form ADV of the Adviser; and (x) information comparing the performance of the Funds with the performance of other similar mutual funds; and (xi) a memorandum from Independent Counsel regarding the responsibilities of the Board related to the approval of the Advisory Agreement.
HIGH YIELD TAX FREE BOND FUND | 33 |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
In evaluating the Advisory Agreement, the Board, including the Independent Directors, requested, reviewed and considered materials furnished by the Adviser and questioned personnel of the Adviser, including the Funds’ portfolio managers, regarding, among other things, the personnel, operations and financial condition of the Adviser. Among other information, the Board, including the Independent Directors, requested and was provided information regarding:
• | The investment performance of each Fund over various time periods both by itself and in relation to relevant indices; |
• | The fees charged by the Adviser for investment advisory services, as well as other compensation received by the Adviser and its affiliates;. |
• | The waivers of fees and reimbursements of expenses at times by the Adviser under the Operating Expenses Agreement;. |
• | The investment performance, fees and total expenses of mutual funds with similar objectives and strategies managed by other investment advisers; |
• | The investment management staffing and the experience of the investment advisory, administrative and other personnel providing services to the Funds and the historical quality of the services provided by the Adviser; and |
• | The profitability to the Adviser of managing and its affiliate distributing the Funds and the methodology in allocating expenses to the management of the Funds. |
At the Meeting, Independent Counsel referred the Directors to the “Gartenberg Memorandum” which had been distributed to each Director in advance of the Meeting, outlining the legal standards applicable to the Independent Directors under the 1940 Act with respect to the approval of the continuation of investment advisory agreements. In addition, the Independent Directors were provided with the opportunity to meet with Independent Counsel, in executive session, outside the presence of Company management and participate in a question and answer session with the Adviser.
The following is a summary of the Board’s discussion and views regarding the factors it considered in evaluating the continuation of the Investment Advisory Agreement:
1. Nature, Extent, and Quality of Services.
The Board, including the Independent Directors, considered the nature, quality and extent of advisory, administrative and shareholder services performed by the Adviser, including: regulatory filings and disclosure to shareholders, general oversight of the service providers, coordination of Fund marketing initiatives, review of Fund legal issues, assisting the Board, including the Independent Directors, in their capacity as directors and other services. The Board, including the Independent Directors, noted the increased responsibilities of the Adviser in response to an
34 | SPIRIT OF AMERICA |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
increasingly regulated industry. The Board, including the Independent Directors, concluded that the services are extensive in nature, that the Adviser delivered a high level of service to each Fund and that the Adviser is positioned to continue providing such quality of service in the future.
2. Investment Performance of the Funds and the Adviser.
The Board, including the Independent Directors, considered short-term and long-term investment performance for the Funds over various periods of time as compared to both relevant indices and the performance of such Funds’ peer groups, and concluded that each Fund was delivering reasonable performance results, especially over the long-term, consistent with the investment strategies that the Funds pursue.
3. Costs of Services and Profits Realized by the Adviser.
a. The Board, including the Independent Directors, considered the information provided by Lipper Inc. regarding each Fund’s management fee rate and overall expense ratio relative to industry averages for the Fund’s peer group category and the advisory fees charged by the Adviser to other accounts. The Board viewed favorably the current and historic willingness of the Adviser to limit the overall expense ratios of the Funds. Recognizing that the fees paid by the Funds were higher than the medians in their peer groups, the Board nonetheless noted that the fees were still close to the median and that several peer funds had higher fees.
b. Profitability and Costs of Services to the Adviser. The Board, including the Independent Directors, considered estimates of the Adviser’s profitability and costs attributable to the Funds. The Board recognized that increased fixed costs, particularly legal and audit fees in response to increasing regulations, have a greater impact on smaller fund families, such as the Funds, than on larger fund complexes. Given this, the Board recognized that the Funds’ overall expenses compare unfavorably to some funds identified as peers. The Board also considered whether the amount of the Adviser’s profit is a fair profit for the management of the Funds and noted that the Adviser has devoted a large amount of its resources into the Funds over the years. The Board, including the Independent Directors, concluded that the Adviser’s profitability was at a fair and acceptable level, particularly in light of the quality of the services being provided to the Funds, and bore a reasonable relationship to the services rendered.
4. Extent of Economies of Scale as the Funds Grow.
The Board, including the Independent Directors, considered whether there have been economies of scale with respect to the management of the Funds and whether the Funds have appropriately benefited from any economies of scale. Given the size of each Fund, the Board did not believe that significant (if any) economies of scale have been achieved.
5. Whether Fee Levels Reflect Economies of Scale.
The Board took into consideration that the Adviser does not currently offer breakpoints in its fees that would otherwise allow investors to benefit directly from economies of scale in the form of lower fees as fund assets grow. However, the Board, including the Independent Directors, did consider enhancements in personnel and services provided to the Funds by the Adviser, without an increase in fees. The Board also noted that few of the Funds’ peers offered breakpoints despite having significantly more assets under management.
HIGH YIELD TAX FREE BOND FUND | 35 |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
6. Other Relevant Considerations.
a. Personnel and Methods. The Board, including the Independent Directors, reviewed the Adviser’s Form ADV and questioned the Adviser regarding the size, education and experience of the staff of the Adviser, its fundamental research capabilities, approach to recruiting, training and retaining portfolio managers and other research and management personnel, and concluded that these enable them to provide a high level of service to the Funds. The Board also considered the history, reputation, qualifications and background of the Adviser as well as the qualifications of its personnel.
b. The Board, including the Independent Directors, also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Funds, including the benefits received by the affiliated distributor. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition or increased ability to obtain research services (although the Board noted that the Adviser currently does not use soft dollars to obtain research services), appear to be reasonable, and may in some cases benefit the Funds.
Conclusions. In considering the renewal of the Investment Advisory Agreement, the Board, including the Independent Directors, did not identify any factor as all-important or all-controlling and instead considered the above listed and other factors collectively in light of the Funds’ surrounding circumstances. Each Director gave the weight to each factor that he deemed appropriate in his own judgment. The Board considered the renewal of the Investment Advisory Agreement on a Fund-by-Fund basis and determined that the renewal of the Investment Advisory Agreement was in the best interests of the shareholders of each Fund. The Board also determined that the fees charged to each Fund for the services provided were reasonable. Therefore, the Board, including the Independent Directors, determined that continuance of the Investment Advisory Agreement was in the best interests of each Fund.
36 | SPIRIT OF AMERICA |
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.
Name, Address and (Age) Position(s) | Term of Office1 and Length of Time Served | Principal Occupation(s) | Number of Portfolios in Fund Complex Overseen by Director | Other Directorships | ||||
INTERESTED DIRECTORS | ||||||||
David Lerner2 (73) 477 Jericho Turnpike Syosset, New York 11791 Director, Chairman of the Board, President | Since 1998 | President and founder, David Lerner Associates, Inc., a registered broker-dealer; President, Spirit of America Management Corp., the Company’s investment adviser; and Chief Executive Officer and President of David Lerner Associates, Inc., the Company’s Distributor. | 4 | Director of Spirit of America Management Corp., the Company’s investment adviser; Director of David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor. | ||||
Daniel Lerner2 (48) 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | Senior Vice President, Investment Counselor with David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor, since September 2000. Previously: Broker with Prudential Securities from February 2000 to July 2000; Broker with Bear Stearns from January 1999 to May 1999. | 4 | Director of David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor. | ||||
INDEPENDENT DIRECTORS | ||||||||
Allen Kaufman (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | President and Chief Executive Officer of K.G.K. Agency, Inc., a property and casualty insurance agency, since 1963. | 4 | Director of K.G.K. Agency, Inc., a property and casualty insurance agency. | ||||
Stanley S. Thune (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | President and Chief Executive Officer, Freight Management Systems, Inc., a third party logistics management company, since 1994; private investor. | 4 | Director of Freight Management Systems, Inc. | ||||
Richard Weinberger (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 2005 | Of Counsel to Ballon Stoll Bader & Nadler, P.C., a mid-sized law firm, since January 2005; Shareholder, Ballon Stoll Bader & Nadler, P.C., January 2000 to December 2004. | 4 | None. | ||||
OFFICERS | ||||||||
David Lerner President (see biography above) | ||||||||
Alan P. Chodosh (56) 477 Jericho Turnpike Syosset, New York 11791 Treasurer and Secretary | Since 2003 (Treasurer) Since 2005 (Secretary) | Executive Vice President and Chief Financial Officer of David Lerner Associates, Inc. since June 1997. | N/A | N/A | ||||
Joseph Pickard (49) 477 Jericho Turnpike Syosset, New York 11791 Chief Compliance Officer | Since 2007 | Chief Compliance Officer of Spirit of America Investment Fund, Inc. and Spirit of America Management Corp. since July 2007; Counsel to the Interested Directors of Spirit of America Investment Fund, Inc. since July 2002; General Counsel of David Lerner Associates, Inc. since July 2002. | N/A | N/A |
1 | Each Director serves for an indefinite term, until his successor is elected. |
2 | David Lerner is an “interested” Director, as defined in the 1940 Act, by reason of his positions with the Adviser and Distributor, and Daniel Lerner is an “interested” Director by reason of his position with the Distributor. Daniel Lerner is the son of David Lerner. |
HIGH YIELD TAX FREE BOND FUND | 37 |
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Proxy Voting Information
The Company’s Statement of Additional Information (“SAI”) containing a description of the policies and procedures that the Spirit of America High Yield Tax Free Bond Fund uses to determine how to vote proxies relating to portfolio securities, along with the Company’s proxy voting record relating to portfolio securities held during the 12-month period ended December 31, 2009, are available (i) without charge, upon request, by calling (516) 390-5565; and (ii) on the SEC’s website at http://www.sec.gov.
Information on Form N-Q
The Company will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q within sixty days after the end of the period. The Company’s Forms N-Q will be available on the SEC’s website at http://www.sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0030. |
Investment Adviser
Spirit of America Management Corp.
477 Jericho Turnpike
P.O. Box 9006
Syosset, NY 11791-9006
Distributor
David Lerner Associates, Inc.
477 Jericho Turnpike
P.O. Box 9006
Syosset, NY 11791-9006
Shareholder Services
PNC Global Investment Servicing (U.S.) Inc.
760 Moore Road
King of Prussia, PA 19406
Custodian
PFPC Trust Company
8800 Tinicum Boulevard, 4th floor
Philadelphia, PA 19153
Independent Registered
Public Accounting Firm
Tait Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Counsel
Blank Rome LLP
405 Lexington Avenue
New York, NY 10174
For additional information about the Spirit of America High Yield Tax Free Bond Fund, call (800) 452-4892 or (610) 382-7819. This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus which includes details regarding the Fund’s objectives, policies, expenses, and other information.
©Copyright 2010 Spirit of America SOAHY-AR09
MESSAGE TO OUR SHAREHOLDERS
Dear Shareholder,
As we enter 2010, we are happy to have this opportunity to share with you, our shareholders, the Annual Report for the Spirit of America Real Estate Income and Growth Fund. This includes a review of our 2009 performance, and our thoughts on the economy, the market, and recent events.
At Spirit of America Investment Funds, our team takes a comprehensive approach to investing. Our portfolio managers use their extensive backgrounds in their respective fields to carefully scrutinize each security in the portfolio on an ongoing basis. We analyze economic trends, and evaluate industries that could benefit from those trends.
Despite the challenges the economy faces, we see opportunity to accumulate stocks at what we believe are attractive valuations. The Spirit of America Real Estate Income and Growth Fund’s investment philosophy continues to be to seek value in the bricks and mortar of America by investing in real estate investment trusts which own office buildings, shopping malls, hotels, apartments, and other properties. Our goal is to maximize total return to shareholders by benefitting from the income generated by the rental of these properties, while also participating in potential long term appreciation of property values.
We appreciate your continued support, and look forward to your future investment in the Spirit of America Real Estate Income and Growth Fund.
Sincerely,
![]() | ![]() | ![]() | ![]() | |||
David Lerner | Raymond Mathis | |||||
President | Portfolio Manager |
Any investment in equity securities is subject to risk and market values may fluctuate with economic conditions, interest rates, civil unrest, natural disasters and other factors. As with any mutual fund, an investor’s shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results.
Prospective investors should consider the investment objective, risks and charges and expenses of the Fund carefully before investing. The maximum sales charge on share purchases is 5.25% of the offering price. The Fund’s prospectus contains this and other information about the Fund and may be obtained through your broker or by calling 1-800-452-4892. The prospectus should be read carefully before investing.
REAL ESTATE INCOME AND GROWTH FUND | 1 |
MANAGEMENT DISCUSSION
Economic Summary
In our mid-2009 report to shareholders, we stated our belief that the economy was nearing a bottom, and would likely begin to recover sometime in the second half of the year. For evidence of this, we pointed to three leading economic indicators, a steep yield curve, rapid money growth, and narrowing credit market spreads.
Although unemployment remains unacceptably high, in the second half of 2009 we saw first time jobless claims begin to fall, consumer confidence recover, and consumer spending begin to rise. Also, manufacturing activity began to grow, and business inventory trends started to improve.
We believe that an economic recovery is taking hold, and are hopeful that it will accelerate as we progress into 2010. As such, we will continually reposition our investment portfolio to best take advantage of the opportunities we see in the constantly changing economic environment.
Market Summary
In 2009, the S&P 500 provided a 26.47% total return. As the credit markets began to thaw, REIT share prices rebounded strongly in 2009. For the full year, the MSCI U.S. REIT Index provided a total return of 28.61%, outperforming the S&P 500 by 214 basis points.
We believe real estate markets were directly affected by the lack of available credit, and the perceived risk that property owners would not be able to meet principal repayments. Unlike private property owners, publicly traded REITs were able to issue bonds to meet debt maturities and raise equity to shore up their financial stability in 2009. REITs have also been able to refinance mortgages, and access lines of credit through FannieMae and FreddieMac.
Fund Summary
The Spirit of America Real Estate Income and Growth Fund, SOAAX (the “Fund”), remained diversified across several property types, and many geographic areas. Entering into 2009, the fund was positioned defensively, maintaining a higher than usual cash balance, while owning shares of REITs that were supported by government guarantees or financing arrangements. As the year progressed, and we became more confident that an economic recovery was increasingly likely, the fund deployed its cash balances, becoming more fully invested in REIT shares.
In an effort to remain defensive, the Fund was underweight in Retail REITs, and to a lesser extent Industrial REITs. However, the fund increased its position in Office REITs, and other property types that we saw as trading below the net asset value of the shares. The Fund continues to seek shares of real estate companies that are attractively valued, with stronger than average balance sheets, and little to no near term debt maturities that cannot be met by existing liquidity.
Return Summary
The Spirit of America Real Estate Income and Growth Fund, SOAAX (the “Fund”), had a total return of 34.82% (no load, gross of fees) for the year ending December 31, 2009, (Source: PNC, Inc.). This compares favorably to the 28.61% returned by its benchmark, the MSCI U.S. REIT Index, for the same period, representing 621 basis points of outperformance.
2 | SPIRIT OF AMERICA |
MANAGEMENT DISCUSSION (CONT.)
As of December 31, 2009, the Fund’s annualized five year return was -4.71%, and the annualized ten year return was 8.67%, (Source: PNC, Inc.). The MSCI U.S. REIT Index returned 0.42%, and 10.42% for the respective periods. Past performance is not indicative of future results. The results above do not take the maximum front end sales charge of 5.25% or expense ratio of 1.97% into account.
Summary of Portfolio Holdings (Unaudited)
The Securities and Exchange Commission (“SEC”) has adopted a requirement that all Funds present their categories of portfolio holdings in a table, chart or graph format in their annual and semi-annual shareholder reports, whether or not a schedule of investments is utilized. The following table, which presents portfolio holdings as a percentage of total market value, is provided in compliance with such requirement.
Spirit of America Real Estate Income and Growth Fund
December 31, 2009
Office Space (REITs) | 17.45 | % | $ | 27,756,639 | ||
Apartments (REITs) | 13.94 | 22,186,778 | ||||
Diversified (REITs) | 13.25 | 21,076,353 | ||||
Regional Malls (REITs) | 11.38 | 18,101,890 | ||||
Health Care (REITs) | 10.89 | 17,321,744 | ||||
Shopping Centers (REITs) | 9.95 | 15,835,400 | ||||
Hotels (REITs) | 9.19 | 14,623,902 | ||||
Industrial (REITs) | 5.88 | 9,355,215 | ||||
Storage (REITs) | 4.63 | 7,370,434 | ||||
Net Lease (REITs) | 2.35 | 3,733,340 | ||||
Mortgage (REITs) | 1.09 | 1,735,000 | ||||
Total Investments | 100.00 | % | $ | 159,096,695 | ||
REAL ESTATE INCOME AND GROWTH FUND | 3 |
ILLUSTRATION OF INVESTMENT (UNAUDITED)
The graphs shown compare the increase in value of a $10,000 investment in the Spirit of America Real Estate Income and Growth Fund – Class A and Class B with the performance of the MSCI US REIT Index. The values and returns for the Spirit of America Real Estate Income and Growth Fund – Class A include reinvested distributions, and the impact of the maximum sales charge of 5.25% placed on purchases. The values and returns for the Spirit of America Real Estate Income and Growth Fund – Class B include reinvested distributions, 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.
Average Annual Total Returns
For the Year Ended December 31, 2009
Class A Shares | Class B Shares | |||||
1 Year (with sales charge) | 25.22 | %a | 25.26 | %b | ||
1 Year (without sales charge) | 32.20 | % | 31.01 | % | ||
5 Years (with sales charge) | (7.40 | %)a | (7.36 | %)b | ||
5 Years (without sales charge) | (6.39 | %) | (7.09 | %) | ||
10 Years (with sales charge) | 6.11 | %a | 5.92 | %b | ||
10 Years (without sales charge) | 6.68 | % | 5.92 | % |
Past performance is not indicative of future results.
a | Reflects a 5.25% front-end sales charge. |
b | Reflects a contingent deferred sales charge of 5.75%. |
Class A Shares
Growth of $10,000
(includes one-time 5.25% maximum sales charge and reinvestment of all distributions)
* | The fund commenced operations on January 9, 1998. |
Class B Shares
Growth of $10,000
(includes a contingent deferred sales charge at the time of redemption of 5.75%)
** | The fund commenced operations on March 6, 1998. |
The Morgan Stanley Capital International (“MSCI”) US REIT Index is an unmanaged index. The MSCI US REIT Index is a free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (“REITs”) that are included in the MSCI US Investable Market 2500 Index, with the exception of specialty equity REITs that do not generate a majority of their revenue and income from real estate rental and leasing operations. The index represents approximately 85% of the US REIT universe. The performance of an index assumes no transaction costs, taxes, management fees or other expenses. A direct investment in an index is not possible.
4 | SPIRIT OF AMERICA |
DISCLOSURE OF FUND EXPENSES (UNAUDITED)
FOR THE SIX MONTH PERIOD JULY 1, 2009 TO DECEMBER 31, 2009
We believe it is important for you to understand the impact of fees regarding your investment. All mutual funds have operating expenses. As a shareholder of the Fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from the Fund’s gross income, directly reduce the investment return of the Fund.
The Fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing fees (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
Spirit of America Real Estate Income and Growth Fund
Beginning Account Value 7/1/09 | Ending Account Value 12/31/09 | Expense Ratio(1) | Expenses Paid During Period(2) | |||||||||
Actual Fund Return | ||||||||||||
Class A | $ | 1,000.00 | $ | 1,484.70 | 1.97 | % | $ | 12.34 | ||||
Class B | $ | 1,000.00 | $ | 1,476.70 | 2.67 | % | $ | 16.67 | ||||
Hypothetical 5% Return | ||||||||||||
Class A | $ | 1,000.00 | $ | 1,015.27 | 1.97 | % | $ | 10.01 | ||||
Class B | $ | 1,000.00 | $ | 1,011.75 | 2.67 | % | $ | 13.54 |
This table illustrates your Fund’s costs in two ways:
Actual Fund Return: This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, the third column shows the period’s annualized expense ratio, and the last column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund at the beginning of the period. You may use the information here, together with your account value, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period.”
Hypothetical 5% Return: This section is intended to help you compare your Fund’s costs with those of other mutual funds. It assumes that the Fund had a return of 5% before expenses during the period shown, but that the expense ratio is unchanged. In this case, because the return used is not the Fund’s actual return, the results do not apply to your investment. You can assess your Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), or redemption fees.
(1) | Annualized, based on the Fund’s most recent half-year expenses. |
(2) | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the period, then divided by 365. |
REAL ESTATE INCOME AND GROWTH FUND | 5 |
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2009
Shares | Market Value | ||||
Common Stocks 99.51% | |||||
Apartments (REITs) 13.88% | |||||
American Campus Communities, Inc. | 23,000 | $ | 646,300 | ||
Apartment Investment & Management Co., Class A | 60,498 | 963,128 | |||
Associated Estates Realty Corp. | 150,000 | 1,690,500 | |||
AvalonBay Communities, Inc. | 40,000 | 3,284,400 | |||
Camden Property Trust | 41,000 | 1,737,170 | |||
Colonial Properties Trust | 30,000 | 351,900 | |||
Equity Residential | 215,000 | 7,262,700 | |||
Essex Property Trust, Inc. | 10,000 | 836,500 | |||
Mid-America Apartment Communities, Inc. | 18,500 | 893,180 | |||
UDR, Inc. | 275,000 | 4,521,000 | |||
22,186,778 | |||||
Diversified (REITs) 13.18% | |||||
Digital Realty Trust, Inc. | 61,000 | 3,067,080 | |||
DuPont Fabros Technology, Inc. | 118,448 | 2,130,880 | |||
Lexington Realty Trust | 428,903 | 2,607,730 | |||
Liberty Property Trust | 85,000 | 2,720,850 | |||
Vornado Realty Trust | 126,454 | 8,844,193 | |||
Washington Real Estate Investment Trust | 61,910 | 1,705,620 | |||
21,076,353 | |||||
Health Care (REITs) 10.83% | |||||
HCP, Inc. | 190,000 | 5,802,600 | |||
Health Care REIT, Inc. | 79,300 | 3,514,576 | |||
Healthcare Realty Trust, Inc. | 84,994 | 1,823,971 | |||
National Health Investors, Inc. | 50,200 | 1,856,898 | |||
Senior Housing Properties Trust | 25,700 | 562,059 | |||
Ventas, Inc. | 86,000 | 3,761,640 | |||
17,321,744 | |||||
Hotels (REITs) 9.15% | |||||
Ashford Hospitality Trust, Inc.* | 600,000 | 2,784,000 | |||
DiamondRock Hospitality Co. | 90,000 | 762,300 | |||
FelCor Lodging Trust, Inc.* | 964,000 | 3,470,400 | |||
Host Hotels & Resorts, Inc.* | 457,572 | 5,339,867 | |||
LaSalle Hotel Properties | 72,500 | 1,539,175 | |||
Sunstone Hotel Investors, Inc.* | 82,000 | 728,160 | |||
14,623,902 | |||||
Industrial (REITs) 5.85% | |||||
AMB Property Corp. | 150,000 | 3,832,500 | |||
First Industrial Realty Trust, Inc.* | 61,284 | 320,515 | |||
ProLogis | 380,000 | 5,202,200 | |||
9,355,215 |
See accompanying notes to financial statements.
6 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Shares | Market Value | ||||
Mortgage (REITs) 1.09% | |||||
Annaly Capital Management, Inc. | 100,000 | $ | 1,735,000 | ||
Net Lease (REITs) 2.34% | |||||
National Retail Properties, Inc. | 110,000 | 2,334,200 | |||
Realty Income Corp. | 54,000 | 1,399,140 | |||
3,733,340 | |||||
Office Space (REITs) 17.36% | |||||
Alexandria Real Estate Equities, Inc. | 41,000 | 2,635,890 | |||
BioMed Realty Trust, Inc. | 90,262 | 1,424,335 | |||
Boston Properties, Inc. | 120,000 | 8,048,400 | |||
Brandywine Realty Trust | 124,827 | 1,423,028 | |||
Highwoods Properties, Inc. | 57,880 | 1,930,298 | |||
Mack-Cali Realty Corp. | 177,090 | 6,122,001 | |||
SL Green Realty Corp. | 122,864 | 6,172,687 | |||
27,756,639 | |||||
Regional Malls (REITs) 11.32% | |||||
CBL & Associates Properties, Inc. | 106,500 | 1,029,855 | |||
Glimcher Realty Trust | 254,002 | 685,806 | |||
Macerich Co. (The) | 93,317 | 3,354,746 | |||
Pennsylvania Real Estate Investment Trust | 40,000 | 338,400 | |||
Simon Property Group, Inc. | 126,211 | 10,071,653 | |||
Taubman Centers, Inc. | 73,000 | 2,621,430 | |||
18,101,890 | |||||
Shopping Centers (REITs) 9.90% | |||||
Acadia Realty Trust | 45,000 | 759,150 | |||
Developers Diversified Realty Corp. | 113,000 | 1,046,380 | |||
Equity One, Inc. | 156,500 | 2,530,605 | |||
Federal Realty Investment Trust | 30,000 | 2,031,600 | |||
Kimco Realty Corp. | 287,478 | 3,889,577 | |||
Regency Centers Corp. | 40,000 | 1,402,400 | |||
Tanger Factory Outlet Centers, Inc. | 25,429 | 991,477 | |||
Weingarten Realty Investors | 160,900 | 3,184,211 | |||
15,835,400 | |||||
Storage (REITs) 4.61% | |||||
Public Storage | 61,801 | 5,033,692 | |||
Sovran Self Storage, Inc. | 65,400 | 2,336,742 | |||
7,370,434 | |||||
Total Investments — 99.51% | |||||
(Cost $190,985,735**) | 159,096,695 | ||||
Cash and Other Assets Net of Liabilities — 0.49% | 777,755 | ||||
NET ASSETS — 100.00% | $ | 159,874,450 | |||
REAL ESTATE INCOME AND GROWTH FUND | 7 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
REITs | - | Real Estate Investment Trusts |
* | Non-income producing security. |
** | Aggregate cost for federal income tax purposes is $191,355,449, and net unrealized depreciation consists of: |
Gross unrealized appreciation | $ | 20,206,142 | ||
Gross unrealized depreciation | (52,464,896 | ) | ||
Net unrealized depreciation | $ | (32,258,754 | ) |
8 | SPIRIT OF AMERICA |
STATEMENT OF ASSETS AND LIABILITIES | DECEMBER 31, 2009
ASSETS | ||||
Investments in securities at value (cost $190,985,735) (Note 1) | $ | 159,096,695 | ||
Dividends and interest receivable | 659,563 | |||
Receivable for investments sold | 1,917,119 | |||
Receivable for Fund shares sold | 201,540 | |||
Prepaid expenses | 21,933 | |||
TOTAL ASSETS | 161,896,850 | |||
LIABILITIES | ||||
Payable for Fund shares redeemed | 1,166,971 | |||
Bank overdraft | 533,906 | |||
Payable for investment advisory fees | 161,860 | |||
Payable for distribution fees | 42,153 | |||
Other accrued expenses | 117,510 | |||
TOTAL LIABILITIES | 2,022,400 | |||
NET ASSETS | $ | 159,874,450 | ||
Class A Shares | ||||
Net assets applicable to 22,899,978 shares outstanding, $0.001 par value (500,000,000 authorized shares) | $ | 157,212,096 | ||
Net asset value and redemption price per Class A Share ($157,212,096 ÷ 22,899,978 shares) | $ | 6.87 | ||
Maximum offering price per share ($6.87 ÷ 0.9475) | $ | 7.25 | ||
Class B Shares | ||||
Net assets applicable to 381,835 shares outstanding, $0.001 par value (500,000,000 authorized shares) | $ | 2,662,354 | ||
Net asset value and redemption price per Class B Share ($2,662,354 ÷ 381,835 shares)(a) | $ | 6.97 | ||
SOURCE OF NET ASSETS | ||||
As of December 31, 2009, net assets consisted of: | ||||
Paid-in capital | $ | 215,964,084 | ||
Accumulated net realized loss on investments | (24,200,594 | ) | ||
Net unrealized depreciation on investments | (31,889,040 | )�� | ||
NET ASSETS | $ | 159,874,450 |
(a) | Redemption price varies based on length of time held. |
See accompanying notes to financial statements.
REAL ESTATE INCOME AND GROWTH FUND | 9 |
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2009 | ||||
INVESTMENT INCOME | ||||
Dividends | $ | 5,063,953 | ||
TOTAL INVESTMENT INCOME | 5,063,953 | |||
EXPENSES | ||||
Investment Advisory fees (Note 3) | 1,160,558 | |||
Distribution fees - Class A (Note 3) | 351,274 | |||
Distribution fees - Class B (Note 3) | 25,539 | |||
Administration and Accounting fees | 113,164 | |||
Auditing fees | 19,500 | |||
Chief Compliance Officer salary (Note 3) | 12,746 | |||
Custodian fees | 21,155 | |||
Directors’ fees | 22,323 | |||
Insurance expense | 58,567 | |||
Legal fees | 84,678 | |||
Printing expense | 88,725 | |||
Registration fees | 18,294 | |||
Transfer Agent fees | 411,215 | |||
Other expenses | 7,373 | |||
TOTAL EXPENSES | 2,395,111 | |||
Fees waived and reimbursed by Adviser (Note 3) | (19,943 | ) | ||
NET EXPENSES | 2,375,168 | |||
NET INVESTMENT INCOME | 2,688,785 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND WRITTEN OPTIONS | ||||
Net realized loss from investment transactions and REITs | (7,025,011 | ) | ||
Net realized gain from written options | 8,873 | |||
Net change in unrealized appreciation/depreciation of investments | 45,600,639 | |||
Net realized and unrealized gain on investments and written options | 38,584,501 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 41,273,286 |
See accompanying notes to financial statements.
10 | SPIRIT OF AMERICA |
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31, 2009 | For the Year Ended December 31, 2008 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 2,688,785 | $ | 6,273,581 | ||||
Net realized (loss) from investment transactions, REITs and written options | (7,016,138 | ) | (15,290,210 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 45,600,639 | (97,720,992 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 41,273,286 | (106,737,621 | ) | |||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
Distributions from net investment income: | ||||||||
Class A | (2,648,170 | ) | (6,111,095 | ) | ||||
Class B | (40,615 | ) | (162,486 | ) | ||||
Total distributions from net investment income | (2,688,785 | ) | (6,273,581 | ) | ||||
Distributions from realized gains: | ||||||||
Class A | — | (1,845,096 | ) | |||||
Class B | — | (49,150 | ) | |||||
Total distributions from realized gains | — | (1,894,246 | ) | |||||
Return of capital: | ||||||||
Class A | (2,043,767 | ) | (1,635,398 | ) | ||||
Class B | (33,937 | ) | (43,564 | ) | ||||
Total distributions from return of capital to shareholders | (2,077,704 | ) | (1,678,962 | ) | ||||
Total distributions to shareholders | (4,766,489 | ) | (9,846,789 | ) | ||||
CAPITAL SHARE TRANSACTIONS (Dollar Activity) | ||||||||
Shares sold: | ||||||||
Class A | 23,974,966 | 31,547,671 | ||||||
Class B | 114,871 | 388,496 | ||||||
Shares issued from reinvestment of distributions: | ||||||||
Class A | 3,869,499 | 7,863,601 | ||||||
Class B | 58,998 | 193,619 | ||||||
Shares redeemed: | ||||||||
Class A | (17,680,842 | ) | (30,778,953 | ) | ||||
Class B | (1,121,327 | ) | (1,715,752 | ) | ||||
Increase in net assets derived from capital share transactions (a) | 9,216,165 | 7,498,682 | ||||||
Total increase (decrease) in net assets | 45,722,962 | (109,085,728 | ) | |||||
NET ASSETS | ||||||||
Beginning of period | 114,151,488 | 223,237,216 | ||||||
End of period | $ | 159,874,450 | $ | 114,151,488 |
REAL ESTATE INCOME AND GROWTH FUND | 11 |
STATEMENTS OF CHANGES IN NET ASSETS (CONT.)
For the Year Ended December 31, 2009 | For the Year Ended December 31, 2008 | |||||
(a) Transactions in capital stock were: | ||||||
Shares sold: | ||||||
Class A | 4,868,801 | 3,503,493 | ||||
Class B | 25,369 | 35,341 | ||||
Shares issued from reinvestment of distributions: | ||||||
Class A | 647,853 | 1,317,200 | ||||
Class B | 9,984 | 31,463 | ||||
Shares redeemed: | ||||||
Class A | (3,271,531 | ) | (3,223,581 | ) | ||
Class B | (199,676 | ) | (183,405 | ) | ||
Increase in shares outstanding | 2,080,800 | 1,480,511 |
See accompanying notes to financial statements.
12 | SPIRIT OF AMERICA |
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FINANCIAL HIGHLIGHTS
The table below sets forth financial data for one share of beneficial interest outstanding throughout the periods presented.
Class A For the Year Ended December 31, 2009 | Class A For the Year Ended December 31, 2008 | Class A For the Two-Month Period Ended December 31, 2007* | Class A For the Year Ended October 31, 2007 | Class A For the Year Ended October 31, 2006 | Class A For the Year Ended October 31, 2005 | |||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 5.38 | $ | 11.31 | $ | 14.42 | $ | 16.22 | $ | 13.47 | $ | 12.90 | ||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||||
Net investment income | 0.12 | 1 | 0.32 | 1 | 0.08 | 0.32 | 0.23 | 0.22 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.58 | (5.77 | ) | (2.14 | ) | (0.94 | ) | 3.16 | 1.00 | |||||||||||||||
Total from investment operations | 1.70 | (5.45 | ) | (2.06 | ) | (0.62 | ) | 3.39 | 1.22 | |||||||||||||||
Less Distributions: | ||||||||||||||||||||||||
Distributions from net investment income | (0.12 | ) | (0.31 | ) | (0.08 | ) | (0.32 | ) | (0.23 | ) | (0.22 | ) | ||||||||||||
Distributions from capital gains | — | (0.09 | ) | (0.95 | ) | (0.86 | ) | (0.41 | ) | (0.35 | ) | |||||||||||||
Distributions from return of capital | (0.09 | ) | (0.08 | ) | (0.02 | ) | — | — | (0.08 | ) | ||||||||||||||
Total distributions | (0.21 | ) | (0.48 | ) | (1.05 | ) | (1.18 | ) | (0.64 | ) | (0.65 | ) | ||||||||||||
Net Asset Value, End of Period | $ | 6.87 | $ | 5.38 | $ | 11.31 | $ | 14.42 | $ | 16.22 | $ | 13.47 | ||||||||||||
Total Return2 | 32.20 | % | (48.46 | )% | (14.53 | )%3 | (4.09 | )% | 25.86 | % | 9.59 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 157,212 | $ | 111,160 | $ | 215,592 | $ | 253,674 | $ | 237,612 | $ | 192,751 | ||||||||||||
Ratio of expenses to average net assets: | ||||||||||||||||||||||||
Before expense reimbursement or recapture | 1.99 | % | 1.85 | % | 1.75 | %4 | 1.68 | % | 1.71 | % | 1.71 | % | ||||||||||||
After expense reimbursement or recapture | 1.97 | % | 1.85 | % | 1.75 | %4 | 1.68 | % | 1.71 | % | 1.71 | % | ||||||||||||
Ratio of net investment income to average net assets | 2.25 | % | 3.26 | % | 3.82 | %4 | 2.04 | % | 1.40 | % | 1.67 | % | ||||||||||||
Portfolio turnover | 17.74 | % | 80.23 | % | 0.42 | %3 | 4.20 | % | 3.10 | % | 1.02 | % |
Class B For the Year Ended December 31, 2009 | Class B For the Year Ended December 31, 2008 | Class B For the Two-Month Period Ended December 31, 2007* | Class B For the Year Ended October 31, 2007 | Class B For the Year Ended October 31, 2006 | Class B For the Year Ended October 31, 2005 | |||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 5.48 | $ | 11.54 | $ | 14.68 | $ | 16.49 | $ | 13.69 | $ | 13.11 | ||||||||||||
Income from Investment Operations: | ||||||||||||||||||||||||
Net investment income | 0.11 | 1 | 0.25 | 1 | 0.06 | 0.21 | 0.13 | 0.15 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.56 | (5.84 | ) | (2.17 | ) | (0.95 | ) | 3.21 | 1.01 | |||||||||||||||
Total from investment operations | 1.67 | (5.59 | ) | (2.11 | ) | (0.74 | ) | 3.34 | 1.16 | |||||||||||||||
Less Distributions: | ||||||||||||||||||||||||
Distributions from net investment income | (0.09 | ) | (0.29 | ) | (0.06 | ) | (0.21 | ) | (0.13 | ) | (0.15 | ) | ||||||||||||
Distributions from capital gains | — | (0.10 | ) | (0.95 | ) | (0.86 | ) | (0.41 | ) | (0.35 | ) | |||||||||||||
Distributions from return of capital | (0.09 | ) | (0.08 | ) | (0.02 | ) | — | — | (0.08 | ) | ||||||||||||||
Total distributions | (0.18 | ) | (0.47 | ) | (1.03 | ) | (1.07 | ) | (0.54 | ) | (0.58 | ) | ||||||||||||
Net Asset Value, End of Period | $ | 6.97 | $ | 5.48 | $ | 11.54 | $ | 14.68 | $ | 16.49 | $ | 13.69 | ||||||||||||
Total Return5 | 31.01 | % | (48.80 | )% | (14.64 | )%3 | (4.78 | )% | 25.02 | % | 8.83 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 2,662 | $ | 2,991 | $ | 7,645 | $ | 9,491 | $ | 12,248 | $ | 11,597 | ||||||||||||
Ratio of expenses to average net assets: | ||||||||||||||||||||||||
Before expense reimbursement or recapture | 2.70 | % | 2.54 | % | 2.45 | %4 | 2.38 | % | 2.41 | % | 2.41 | % | ||||||||||||
After expense reimbursement or recapture | 2.67 | % | 2.54 | % | 2.45 | %4 | 2.38 | % | 2.41 | % | 2.41 | % | ||||||||||||
Ratio of net investment income to average net assets | 2.09 | % | 2.46 | % | 3.12 | %4 | 1.34 | % | 0.70 | % | 0.97 | % | ||||||||||||
Portfolio turnover | 17.74 | % | 80.23 | % | 0.42 | %3 | 4.20 | % | 3.10 | % | 1.02 | % |
1 | Calculated based on the average number of shares outstanding during the period. |
2 | Calculation does not reflect sales load. |
3 | Calculation is not annualized. |
4 | Calculation is annualized. |
5 | Calculation does not reflect CDSC charges. |
* | The Fund’s fiscal year-end changed from October 31 to December 31, effective December 31, 2007. |
See accompanying notes to financial statements.
14 | SPIRIT OF AMERICA |
NOTES TO FINANCIAL STATEMENTS | DECEMBER 31, 2009
Note 1 - Significant Accounting Policies
Spirit of America Real Estate Income and Growth 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 Fund changed its fiscal year-end from October 31 to December 31, effective beginning with the period ended December 31, 2007.
The Fund seeks current income and growth of capital by investing in equity real estate investment trusts (“REITs”) and the equity securities of real estate industry companies.
The Fund offers two classes of shares (Class A Shares and Class B Shares). 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 accounting principles generally accepted in the United States of America for investment companies.
A. Security Valuation: The offering price and net asset value (“NAV”) per share of each class of the Fund are calculated as of the close of regular trading on the New York Stock Exchange (“NYSE”), currently 4:00 p.m., Eastern Time on each day the NYSE is open for trading. The 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 maturities of 60 days or less are valued at amortized cost, which the Board of Directors (the “Board”) 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.
B. Fair Value Measurements: Various inputs are used in determining the fair value of investments which are as follows:
• Level 1 – | Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Funds have the ability to access at the measurement date | |
• Level 2 – | Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active | |
• Level 3 – | Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
REAL ESTATE INCOME AND GROWTH FUND | 15 |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
The summary of inputs used to value the Fund’s net assets as of December 31, 2009 is as follows:
Real Estate Income and Growth Fund
Valuation Inputs | |||
Level 1 - Quoted Prices * | $ | 159,096,695 | |
Level 2 - Other Significant Observable Inputs | — | ||
Level 3 - Significant Unobservable Inputs | — | ||
Total Market Value of Investments | $ | 159,096,695 | |
* | Industries as defined in the Schedule of Investments |
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “Improving Disclosures about Fair Value Measurements” that requires additional disclosures regarding fair value measurements. Certain required disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management is currently evaluating the impact it will have on its financial statement disclosures.
C. 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.
D. Option Contracts: The Fund may purchase and write call options to increase or decrease its exposure to underlying securities equity risk. An option contract gives the buyer the right, but not the obligation, to buy (call) or sell (put) an underlying item at a fixed exercise price on a certain date or during a specified period. The cost of securities acquired through the exercise of a call option is increased by the premiums paid. The proceeds from securities sold through the exercise of a purchased put option are decreased by the premiums paid. Investments in options contracts requires the Fund to fair value or mark-to market the options on a daily basis, which reflects the change in the market value of the contracts at the close of each day’s trading. The cost of purchased options that expire unexercised are treated by the Fund, on expiration date, as realized losses on investments.
When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund, on the expiration date, as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or, if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option.
16 | SPIRIT OF AMERICA |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
In purchasing and writing options, the Fund bears the market risk of an unfavorable change in the price of the underlying security or the risk that the Fund may not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in the Fund purchasing a security at a price different from the current market value. The Fund may execute transactions in both listed and over-the-counter options. Listed options involve minimal counterparty risk since listed options are guaranteed against default by the exchange on which they trade. Transactions in certain over-the-counter options may expose the Fund to the risk of default by the counterparty to the transaction. In the event of default by the counterparty to the over-the-counter option transaction, the Fund’s maximum amount of loss is the premium paid (as purchaser) or the unrealized loss of the contract (as writer). The net realized gain from equity options recognized in income on the Statement of Operations for the year ended December 31, 2009 is $8,873.
Real Estate Income and Growth Fund
Number of Contracts | Premiums Received | ||||||
Options outstanding at December 31, 2008 | — | $ | — | ||||
Options written | 450 | 58,125 | |||||
Options repurchased | (150 | ) | (24,897 | ) | |||
Options expired | (150 | ) | (5,088 | ) | |||
Options exercised | (150 | ) | (28,140 | ) | |||
Options outstanding at December 31, 2009 | — | $ | — | ||||
E. 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.
F. Net Asset Value Per Share: The methodology and procedures for determining NAV are identical for each class of shares, but due to the specific distribution expenses and other costs allocable to each class of shares, the NAV 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.
G. Use of Estimates: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, 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.
H. Distributions to Shareholders: The Fund intends to distribute substantially all of its net investment income and capital gains to shareholders each year. Normally, income distributions will be paid quarterly. Capital gains, if any, will bet distributed annually in December, but may be distributed more frequently if deemed advisable by the Board. All such distributions are taxable to the shareholders whether received in cash or reinvested in shares. The Fund has made certain investments in REITs which pay distributions to their shareholders based upon available funds from operations. Each REIT reports annually the tax character of its distributions. It is quite common for these
REAL ESTATE INCOME AND GROWTH FUND | 17 |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
distributions to exceed the REIT’s taxable earnings and profits resulting in the excess portion of such distributions being designated as a return of capital or long-term capital gain. The Fund intends to include the gross distributions from such REITs in its distributions to its shareholders; accordingly, a portion of the distributions paid to the Fund and subsequently distributed to shareholders may be re-characterized. The final determination of the amount of the Fund’s return of capital distribution for the period will be made after the end of each calendar year.
Note 2 - Purchases and Sales of Securities
Purchases and proceeds from the sales of securities for the year ended December 31, 2009, excluding short-term investments, were $34,319,414 and $21,091,266, respectively.
Note 3 - Investment Management Fee and Other Transactions with Affiliates
Spirit of America Management Corp. (the “Adviser”) has been retained to act as the Company’s investment adviser pursuant to an Investment Advisory Agreement (the “Advisory Agreement”). The Adviser 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 the Adviser a monthly fee of 1/12 of 0.97% of the Fund’s average daily net assets. Investment advisory fees for the year ended December 31, 2009 were $1,160,558.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses so that the total operating expenses for 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 through April 30, 2010. For the year ended December 31, 2009, the advisory fees waived were $19,943.
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 limitation as stated above. The balance of recoverable expenses to the Adviser at December 31, 2009 was $19,943, expiring in 2012.
The Fund has adopted distribution plans for Class A Shares and Class B Shares pursuant to Rule 12b-1 (each a “Plan”). Each Plan permits the Fund to pay David Lerner Associates, Inc. (the “Distributor”), a monthly fee of 1/12 of 0.30% and 1/12 of 1.00% from the average daily net assets of Class A Shares and Class B Shares, respectively, for the Distributor’s services and expenses in distributing shares of each class and providing personal services and/or maintaining shareholder accounts. For the year ended December 31, 2009, fees paid to the Distributor under the Plan were $351,274 for Class A Shares and $25,539 for Class B Shares.
The Fund’s Class A Shares are subject to an initial sales charge imposed at the time of purchase, in accordance with the Fund’s current prospectus. For the year ended December 31, 2009, sales charges on Class A Shares paid to the Distributor were $1,176,953. A contingent deferred sales charge (“CDSC”) of 1.00% may be imposed on redemptions of $1 million or more made within one year of purchase on Class A Shares. Certain redemptions of the Fund’s Class B Shares made within seven years of purchase are subject to a CDSC, in accordance with the Fund’s current prospectus. For the year ended December 31, 2009, CDSC fees on Class B Shares paid to the Distributor were $4,973.
Certain Officers and Directors of the Company are “affiliated persons”, as that term is defined in the 1940 Act, of the Adviser or the Distributor. Each Director of the Company, who is not an affiliated person of the Adviser or Distributor, receives a quarterly retainer of $1,500, $1,000 for each Board
18 | SPIRIT OF AMERICA |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
meeting attended, and $500 for each committee meeting attended plus reimbursement for certain travel and other out-of-pocket expenses incurred in connection with attending Board meetings. The Company does not compensate the Officers for the services they provide. There are no Directors’ fees paid to affiliated Directors of the Company. For the year ended December 31, 2009, the Fund was allocated $12,746 of the Chief Compliance Officer’s salary.
Note 4 - Concentration Risk
The Fund invests primarily in real estate related securities. A fund that concentrates its investments is subject to greater risk of loss than a fund that has a more diversified portfolio of investments. 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. The main risks are those presented by 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. The stocks purchased by the Fund may not appreciate in value as the Adviser anticipates. 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, its ability to retain its tax status as a regulated investment company may be adversely affected.
Note 5 - Federal Income Taxes
The tax character of distributions paid for the years ended December 31, 2009 and 2008 were as follows:
Taxable Distributions
Ordinary Income | Net Long-Term Capital Gains | Total Taxable Distributions | Return of Capital | Total Distribution | |||||||||||
12/31/2009 | |||||||||||||||
Class A | $ | 2,648,170 | $ | 0 | $ | 2,648,170 | $ | 2,043,767 | $ | 4,691,937 | |||||
Class B | 40,615 | 0 | 40,615 | 33,937 | 74,552 | ||||||||||
$ | 2,688,785 | $ | 0 | $ | 2,688,785 | $ | 2,077,704 | $ | 4,766,489 | ||||||
12/31/2008 | |||||||||||||||
Class A | $ | 6,111,095 | $ | 1,845,096 | $ | 7,956,191 | $ | 1,635,398 | $ | 9,591,589 | |||||
Class B | 162,486 | 49,150 | 211,636 | 43,564 | 255,200 | ||||||||||
$ | 6,273,581 | $ | 1,894,246 | $ | 8,167,827 | $ | 1,678,962 | $ | 9,846,789 | ||||||
Distribution classifications may differ from the Statements of Changes in Net Assets as a result of the treatment of short-term capital gains as ordinary income for tax purposes.
As of December 31, 2009, the components of accumulated distributable earnings for the Fund on a tax basis were as follows:
Capital Loss Carryforward | $ | (23,390,137 | ) | |
Deferred Post October Losses | (440,743 | ) | ||
Unrealized depreciation | (32,258,754 | ) | ||
Total Distributable Earnings | $ | (56,089,634 | ) | |
The difference between book and tax unrealized depreciation is attributable to wash sales.
REAL ESTATE INCOME AND GROWTH FUND | 19 |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
As of December 31, 2009 The Fund had net capital loss carryforwards for federal income tax purposes of $23,390,137 which are available to reduce future required distributions of net capital gains to shareholders through 2017.
Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (current and prior four tax periods), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Note 6 - Reclassification:
Permanent differences, incurred during the year ended December 31, 2009, resulting from differences in book and tax accounting have been reclassified at year end to undistributed net investment income, accumulated realized gain (loss) and paid-in-capital as follows:
Increase (Decrease) | ||||
Paid-In-Capital | $ | (2,077,704 | ) | |
Undistributed Net Investment Income | 2,077,704 |
Note 7 - Subsequent Events:
Management has evaluated the impact of all subsequent events on the Fund through February 25, 2010, the date the financial statements were issued, and has determined that the following subsequent event requires recognition or disclosure in the financial statements.
On February 2, 2010, The PNC Financial Services Group, Inc. (“PNC”) entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with The Bank of New York Mellon Corporation (“BNY Mellon”). Upon the terms and subject to the conditions set forth in the Stock Purchase Agreement, which has been approved by the board of directors of each company, PNC will sell to BNY Mellon (the “Stock Sale”) 100% of the issued and outstanding shares of PNC Global Investment Servicing Inc., an indirect, wholly-owned subsidiary of PNC.
The Stock Sale includes PNC Global Investment Servicing (U.S.) Inc., PFPC Trust Company and PFPC Distributors, Inc. and is expected to close in the third quarter of 2010.
Tax Information (Unaudited)
All designations are based on financial information available as of the date of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
Qualified Dividend Income
For the year ended December 31, 2009, 1.53% of the distributions paid by the Fund from ordinary income qualifies for a reduced tax rate pursuant to The Jobs and Growth Tax Relief Reconciliation Act of 2003.
20 | SPIRIT OF AMERICA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 Real Estate Income and Growth Fund (the “Fund”), a series of shares of beneficial interest in Spirit of America Investment Fund, Inc., including the schedule of investments as of December 31, 2009, and 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 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 the standards of the Public Company Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. 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 December 31, 2009 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 Growth and Income Fund as of December 31, 2009, 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 periods indicated thereon, in conformity with accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 25, 2010
REAL ESTATE INCOME AND GROWTH FUND | 21 |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT | DECEMBER 31, 2009
Approval of the Investment Advisory Agreement (Unaudited)
The Investment Company Act of 1940, as amended (the “1940 Act”), requires that the continuance of a registered management investment company’s investment advisory agreement be approved annually by both the board of directors and also by a majority of its directors who are not parties to the investment advisory agreement or “interested persons” (as defined by the 1940 Act) of any such party (the “Independent Directors”). On November 11, 2009, the Board of Directors (the “Board” or “Directors”) of Spirit of America Investment Fund, Inc. (the “Company”) met in person (the “Meeting”) to, among other things, review and consider the approval of the Investment Advisory Agreement (the “Advisory Agreement”) by and between Spirit of America Management Corp. (the “Adviser”) and the Company, on behalf of Spirit of America Real Estate Income and Growth Fund, Spirit of America Large Cap Value Fund, Spirit of America High Yield Tax Free Bond Fund and Spirit of America Income Fund (collectively, the “Funds”). At the Meeting, the Board, including the Independent Directors, voting separately, approved the Advisory Agreement after determining that the Adviser’s compensation, pursuant to the terms of the Advisory Agreement, would be fair and reasonable and concluded that the approval of the Advisory Agreement would be in the best interest of the Funds’ shareholders. The Board’s approval was based on consideration and evaluation of the information and material provided to the Board and a variety of specific factors discussed at the Meeting and at prior meetings of the Board, including the factors described below.
As part of the approval process and oversight of the advisory relationship, counsel to the Independent Directors (“Independent Counsel”) sent an information request letter to the Adviser seeking certain relevant information and the Directors received, for their review in advance of the Meeting, the Adviser’s responses. In addition, the Directors were provided with the opportunity to request any additional materials. In advance of the Meeting, the Board, including the Independent Directors, requested and received materials provided by the Adviser and Independent Counsel, including, among other things, the following: (i) information on the investment performance of the Funds and relevant indices over various time periods; (ii) sales and redemption data with respect to the Funds; (iii) the general investment outlook in the markets in which the Funds invest; (iv) arrangements with respect to the distribution of the Funds’ shares; (v) the procedures employed to determine the value of each Fund’s assets; (vi) the allocation of the Funds’ brokerage, the record of compliance with the Funds’ investment policies and restrictions and with the Funds’ Code of Ethics and the structure and responsibilities of the Adviser’s compliance departments; (vii) the profitability of the Funds’ investment advisory business to the Adviser taking into account both advisory fees and any other potential direct or indirect benefits; (viii) information comparing the overall fees and specifically the fees under the Investment Advisory Agreement with the fees paid by other similar mutual funds; (ix) the Form ADV of the Adviser; and (x) information comparing the performance of the Funds with the performance of other similar mutual funds; and (xi) a memorandum from Independent Counsel regarding the responsibilities of the Board related to the approval of the Advisory Agreement.
In evaluating the Advisory Agreement, the Board, including the Independent Directors, requested, reviewed and considered materials furnished by the Adviser and questioned personnel of the Adviser, including the Funds’
22 | SPIRIT OF AMERICA |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
portfolio managers, regarding, among other things, the personnel, operations and financial condition of the Adviser. Among other information, the Board, including the Independent Directors, requested and was provided information regarding:
• | The investment performance of each Fund over various time periods both by itself and in relation to relevant indices; |
• | The fees charged by the Adviser for investment advisory services, as well as other compensation received by the Adviser and its affiliates; |
• | The waivers of fees and reimbursements of expenses at times by the Adviser under the Operating Expenses Agreement; |
• | The investment performance, fees and total expenses of mutual funds with similar objectives and strategies managed by other investment advisers; |
• | The investment management staffing and the experience of the investment advisory, administrative and other personnel providing services to the Funds and the historical quality of the services provided by the Adviser; and |
• | The profitability to the Adviser of managing and its affiliate distributing the Funds and the methodology in allocating expenses to the management of the Funds. |
At the Meeting, Independent Counsel referred the Directors to the “Gartenberg Memorandum” which had been distributed to each Director in advance of the Meeting, outlining the legal standards applicable to the Independent Directors under the 1940 Act with respect to the approval of the continuation of investment advisory agreements. In addition, the Independent Directors were provided with the opportunity to meet with Independent Counsel, in executive session, outside the presence of Company management and participate in a question and answer session with the Adviser.
The following is a summary of the Board’s discussion and views regarding the factors it considered in evaluating the continuation of the Investment Advisory Agreement:
1. Nature, Extent, and Quality of Services.
The Board, including the Independent Directors, considered the nature, quality and extent of advisory, administrative and shareholder services performed by the Adviser, including: regulatory filings and disclosure to shareholders, general oversight of the service providers, coordination of Fund marketing initiatives, review of Fund legal issues, assisting the Board, including the Independent Directors, in their capacity as directors and other services. The Board, including the Independent Directors, noted the increased responsibilities of the Adviser in response to an
REAL ESTATE INCOME AND GROWTH FUND | 23 |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
increasingly regulated industry. The Board, including the Independent Directors, concluded that the services are extensive in nature, that the Adviser delivered a high level of service to each Fund and that the Adviser is positioned to continue providing such quality of service in the future.
2. Investment Performance of the Funds and the Adviser.
The Board, including the Independent Directors, considered short-term and long-term investment performance for the Funds over various periods of time as compared to both relevant indices and the performance of such Funds’ peer groups, and concluded that each Fund was delivering reasonable performance results, especially over the long-term, consistent with the investment strategies that the Funds pursue.
3. Costs of Services and Profits Realized by the Adviser.
a. The Board, including the Independent Directors, considered the information provided by Lipper Inc. regarding each Fund’s management fee rate and overall expense ratio relative to industry averages for the Fund’s peer group category and the advisory fees charged by the Adviser to other accounts. The Board viewed favorably the current and historic willingness of the Adviser to limit the overall expense ratios of the Funds. Recognizing that the fees paid by the Funds were higher than the medians in their peer groups, the Board nonetheless noted that the fees were still close to the median and that several peer funds had higher fees.
b. Profitability and Costs of Services to the Adviser. The Board, including the Independent Directors, considered estimates of the Adviser’s profitability and costs attributable to the Funds. The Board recognized that increased fixed costs, particularly legal and audit fees in response to increasing regulations, have a greater impact on smaller fund families, such as the Funds, than on larger fund complexes. Given this, the Board recognized that the Funds’ overall expenses compare unfavorably to some funds identified as peers. The Board also considered whether the amount of the Adviser’s profit is a fair profit for the management of the Funds and noted that the Adviser has devoted a large amount of its resources into the Funds over the years. The Board, including the Independent Directors, concluded that the Adviser’s profitability was at a fair and acceptable level, particularly in light of the quality of the services being provided to the Funds, and bore a reasonable relationship to the services rendered.
4. Extent of Economies of Scale as the Funds Grow.
The Board, including the Independent Directors, considered whether there have been economies of scale with respect to the management of the Funds and whether the Funds have appropriately benefited from any economies of scale. Given the size of each Fund, the Board did not believe that significant (if any) economies of scale have been achieved.
5. Whether Fee Levels Reflect Economies of Scale.
The Board took into consideration that the Adviser does not currently offer breakpoints in its fees that would otherwise allow investors to benefit directly from economies of scale in the form of lower fees as fund assets grow. However, the Board, including the Independent Directors, did consider enhancements in personnel and services provided to the Funds by the Adviser, without an increase in fees. The Board also noted that few of the Funds’ peers offered breakpoints despite having significantly more assets under management.
24 | SPIRIT OF AMERICA |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
6. Other Relevant Considerations.
a. Personnel and Methods. The Board, including the Independent Directors, reviewed the Adviser’s Form ADV and questioned the Adviser regarding the size, education and experience of the staff of the Adviser, its fundamental research capabilities, approach to recruiting, training and retaining portfolio managers and other research and management personnel, and concluded that these enable them to provide a high level of service to the Funds. The Board also considered the history, reputation, qualifications and background of the Adviser as well as the qualifications of its personnel.
b. The Board, including the Independent Directors, also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Funds, including the benefits received by the affiliated distributor. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition or increased ability to obtain research services (although the Board noted that the Adviser currently does not use soft dollars to obtain research services), appear to be reasonable, and may in some cases benefit the Funds.
Conclusions. In considering the renewal of the Investment Advisory Agreement, the Board, including the Independent Directors, did not identify any factor as all-important or all-controlling and instead considered the above listed and other factors collectively in light of the Funds’ surrounding circumstances. Each Director gave the weight to each factor that he deemed appropriate in his own judgment. The Board considered the renewal of the Investment Advisory Agreement on a Fund-by-Fund basis and determined that the renewal of the Investment Advisory Agreement was in the best interests of the shareholders of each Fund. The Board also determined that the fees charged to each Fund for the services provided were reasonable. Therefore, the Board, including the Independent Directors, determined that continuance of the Investment Advisory Agreement was in the best interests of each Fund.
REAL ESTATE INCOME AND GROWTH FUND | 25 |
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.
Name, Address and (Age) Position(s) with the Company | Term of Office1 | Principal Occupation(s) During Past Five Years | Number of Portfolios | Other Directorships | ||||
INTERESTED DIRECTORS | ||||||||
David Lerner2 (73) 477 Jericho Turnpike Syosset, New York 11791 Director, Chairman of the Board, President | Since 1998 | President and founder, David Lerner Associates, Inc., a registered broker-dealer; President, Spirit of America Management Corp., the Company’s investment adviser; and Chief Executive Officer and President of David Lerner Associates, Inc., the Company’s Distributor. | 4 | Director of Spirit of America Management Corp., the Company’s investment adviser; Director of David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor. | ||||
Daniel Lerner2 (48) 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | Senior Vice President, Investment Counselor with David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor, since September 2000. Previously: Broker with Prudential Securities from February 2000 to July 2000; Broker with Bear Stearns from January 1999 to May 1999. | 4 | Director of David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor. | ||||
INDEPENDENT DIRECTORS | ||||||||
Allen Kaufman (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | President and Chief Executive Officer of K.G.K. Agency, Inc., a property and casualty insurance agency, since 1963. | 4 | Director of K.G.K. Agency, Inc., a property and casualty insurance agency. | ||||
Stanley S. Thune (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | President and Chief Executive Officer, Freight Management Systems, Inc., a third party logistics management company, since 1994; private investor. | 4 | Director of Freight Management Systems, Inc. | ||||
Richard Weinberger (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 2005 | Of Counsel to Ballon Stoll Bader & Nadler, P.C., a mid-sized law firm, since January 2005; Shareholder, Ballon Stoll Bader & Nadler, P.C., January 2000 to December 2004. | 4 | None. | ||||
OFFICERS | ||||||||
David Lerner President (see biography above) | ||||||||
Alan P. Chodosh (56) 477 Jericho Turnpike Syosset, New York 11791 Treasurer and Secretary | Since 2003 (Treasurer) Since 2005 (Secretary) | Executive Vice President and Chief Financial Officer of David Lerner Associates, Inc. since June 1997. | N/A | N/A | ||||
Joseph Pickard (49) 477 Jericho Turnpike Syosset, New York 11791 Chief Compliance Officer | Since 2007 | Chief Compliance Officer of Spirit of America Investment Fund, Inc. and Spirit of America Management Corp. since July 2007; Counsel to the Interested Directors of Spirit of America Investment Fund, Inc. since July 2002; General Counsel of David Lerner Associates, Inc. since July 2002. | N/A | N/A |
1 | Each Director serves for an indefinite term, until his successor is elected. |
2 | David Lerner is an “interested” Director, as defined in the 1940 Act, by reason of his positions with the Adviser and Distributor, and Daniel Lerner is an “interested” Director by reason of his position with the Distributor. Daniel Lerner is the son of David Lerner. |
26 | SPIRIT OF AMERICA |
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Proxy Voting Information
The Company’s Statement of Additional Information (“SAI”) containing a description of the policies and procedures that the Spirit of America Real Estate Income and Growth Fund uses to determine how to vote proxies relating to portfolio securities, along with the Company’s proxy voting record relating to portfolio securities held during the 12-month period ended December 31, 2009, are available (i) without charge, upon request, by calling (516) 390-5565; and (ii) on the SEC’s website at http://www.sec.gov.
Information on Form N-Q
The Company will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q within sixty days after the end of the period. The Company’s Forms N-Q will be available on the SEC’s website at http://www.sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0030. |
Investment Adviser
Spirit of America Management Corp. 477 Jericho Turnpike P.O. Box 9006 Syosset, NY 11791-9006
Distributor
David Lerner Associates, Inc. 477 Jericho Turnpike P.O. Box 9006 Syosset, NY 11791-9006
Shareholder Services
PNC Global Investment Servicing (U.S.) Inc. 760 Moore Road King of Prussia, PA 19406
Custodian
PFPC Trust Company 8800 Tinicum Boulevard, 4th floor Philadelphia, PA 19153
Independent Registered Public Accounting Firm
Tait Weller & Baker LLP 1818 Market Street, Suite 2400 Philadelphia, PA 19103
Counsel
Blank Rome LLP 405 Lexington Avenue New York, NY 10174 |
For additional information about the Spirit of America Real Estate Income and Growth Fund, call (800) 452-4892 or (610) 382-7819. This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus which includes details regarding the Fund’s objectives, policies, expenses, and other information.
©Copyright 2010 Spirit of America SOARE-AR09
MESSAGE TO OUR SHAREHOLDERS
Dear Shareholder,
As we begin the New Year, we would like to take this opportunity to review the last half of 2009 with you, our investors. Please take a moment to read the Annual Report for the Spirit of America Large Cap Value Fund along with our thoughts on the market and recent events.
At Spirit of America, we take a comprehensive approach to investing. Our portfolio managers use their extensive backgrounds in their respective fields to carefully scrutinize each security in the portfolio on an ongoing basis. We evaluate economic trends, we analyze sectors that could benefit from those trends, and finally, invest in companies that we believe possess strong fundamentals qualities.
Despite challenges that the financial industry as a whole faces in the current market environment, we see opportunity emerging to accumulate what we believe are quality stocks at historically low valuations. We believe that investing in sound companies with reasonable share prices will help enhance the long-term returns of the Fund.
We are proud to announce that during 2009, The Spirit of America Large Cap Value Fund maintained a rating of 3 stars by Morningstar. We believe our commitment to our investment philosophy has proven accurate and allows us to be a key player amongst the highest performing mutual funds.
We appreciate your continued support and look forward to your future investment in the Spirit of America Value Fund.
Sincerely,
![]() | ![]() | ![]() | ![]() | |||
David Lerner | Alpana Sen | |||||
President | Portfolio Manager |
Any investment in equity securities is subject to risk and market values may fluctuate with economic conditions, interest rates, civil unrest and other factors, which will affect its market value. As with any mutual fund, an investor’s shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results.
* | Morningstar lists the Value Fund’s category as “Large Blend” and ranks 2,250 other funds in this category. The rating change was effective December 31, 2009. A fund’s Morningstar rating is relative to other offerings that operate within the same category and takes into consideration how the fund has balanced risk and return in the past. Past performance is no guarantee of future results. |
Prospective investors should consider the investment objective, risks and charges and expenses of the Fund carefully before investing. The maximum sales charge on share purchases is 5.25% of the offering price. The Fund’s prospectus contains this and other information about the Fund and may be obtained through your broker or by calling 1-800-452-4892. The prospectus should be read carefully before investing.
LARGE CAP VALUE FUND | 1 |
MANAGEMENT DISCUSSION
Return Summary
The Spirit of America Large Cap Value Fund, SOAVX (the “Fund”), had a total return of 20.66% year-to-date ending December 31, 2009. The Fund’s benchmark, the S&P 500 Index returned 26.47% over the same period. The five year return as of December 31, 2009 was 2.78% and outperformed the S&P 500 Index which returned 0.42%. Since the Fund’s inception in August of 2002, it has returned 6.13%, outperforming its benchmark, the S&P 500 Index, which returned 2.09% for the same period.
Past performance is not indicative of future results. The results above do not take the maximum front end sales charge of 5.25% or expense ratio of 1.97% into account.
Market Summary
In the second half of 2009, there were some indicators of an economic rebound. Employment data, at the end of 2009 suggested that the market economy is rebounding. Temporary-help, which is typically the first group to be hired in a recovery, added 44,000 jobs in October and 52,000 in November. In addition to positive employment data, earnings data generally beat expectations in the third quarter. According to Thompson Reuters, 80% of S&P 500 companies outperformed analyst’s anticipations. Particularly, gains were seen in health-care, technology and intermediary companies.
We are interested in seeking out those companies that are currently undervalued and provide a chance to own shares at low cost. The market reached its low since October 2007 during the first quarter of 2009 and we recognized this event as an opportunity.
Fund Summary
The Fund remained diversified within the 10 main sectors of the S&P 500 Index.
However, it was defensively positioned by overweighting the staples and healthcare sectors and underweighting financials and technology sectors. The Fund’s cash position was approximately 2.66% at the end of the year.
The greatest performance came from our underweighting the financials sector as we continue to believe there is more risk in that sector. The second largest contributor to the Fund’s return was the underweighting of the energy sector. Compared to the middle of 2008, oil prices have dropped significantly and have remained relatively constant during the first two quarters of 2009. We do not expect prices to spike again to those levels anytime soon since there has been weak demand accompanied by strong supply.
The biggest contributor came from the industrial sector. We have been using our cash judiciously by buying on dips and selling or trimming positions when we believe valuations have run ahead of the fundamentals.
The Fund continues to invest in companies which we believe have strong fundamentals such as low debt levels, strong cash flows, stable earnings and low or reasonable valuations.
Summary of Portfolio Holdings (Unaudited)
The Securities and Exchange Commission (“SEC”) has adopted a requirement that all Funds present their categories of portfolio holdings in a table, chart or graph format in their annual and semi-annual shareholder reports, whether or not a schedule of investments is utilized. The following table, which presents portfolio holdings as a percentage of total market value, is provided in compliance with such requirement.
2 | SPIRIT OF AMERICA |
MANAGEMENT DISCUSSION (CONT.)
Spirit of America Large Cap Value Fund
December 31, 2009
Information Technology | 22.42 | % | $ | 12,086,013 | ||
Financials | 13.15 | 7,089,447 | ||||
Health Care | 13.11 | 7,067,106 | ||||
Energy | 11.40 | 6,145,832 | ||||
Industrials | 10.88 | 5,864,390 | ||||
Consumer Staples | 9.13 | 4,921,351 | ||||
Consumer Discretionary | 8.83 | 4,759,527 | ||||
Materials | 4.18 | 2,249,843 | ||||
Utilities | 3.73 | 2,008,564 | ||||
Telecommunication Services | 3.17 | 1,709,947 | ||||
Total Investments | 100.00 | % | $ | 53,902,020 | ||
LARGE CAP VALUE FUND | 3 |
ILLUSTRATION OF INVESTMENT (UNAUDITED)
The graph below compares the increase in value of a $10,000 investment in the Spirit of America Large Cap Value Fund with the performance of the S&P 500 Index. The values and returns for the Spirit of America Large Cap Value Fund include reinvested distributions, and the impact of the maximum sales charge of 5.25% 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.
Average Annual Total Returns
For the Periods Ended December 31, 2009
Shares | |||
1 Year (with sales charge) | 12.15 | %a | |
1 Year (without sales charge) | 18.32 | % | |
5 Years (with sales charge) | (0.30 | %)a | |
5 Years (without sales charge) | 0.78 | % | |
Since Inception (with sales charge)b | 3.31 | %a | |
Since Inception (without sales charge)b | 4.06 | % |
Past performance is not indicative of future results.
a | Reflects a 5.25% front-end sales charge. |
b | Inception date: August 1, 2002. |
Growth of $10,000
(includes one-time 5.25% maximum sales charge and reinvestment of all distributions)
* | Fund commenced operations August 1, 2002. |
** | The S&P 500 Index benchmark is based on a start date of July 31, 2002. |
The S&P 500 Index is an unmanaged capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The performance of an index assumes no transaction costs, taxes, management fees or other expenses. A direct investment in an index is not possible.
4 | SPIRIT OF AMERICA |
DISCLOSURE OF FUND EXPENSES (UNAUDITED)
FOR THE SIX MONTH PERIOD JULY 1, 2009 TO DECEMBER 31, 2009
We believe it is important for you to understand the impact of fees regarding your investment. All mutual funds have operating expenses. As a shareholder of the Fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from the Fund’s gross income, directly reduce the investment return of the Fund.
The Fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing fees (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
Spirit of America Large Cap Value Fund
Beginning Account Value 7/1/09 | Ending Account Value 12/31/09 | Expense Ratio(1) | Expenses Paid During Period(2) | |||||||||
Actual Fund Return | $ | 1,000.00 | $ | 1,189.10 | 1.97 | % | $ | 10.87 | ||||
Hypothetical 5% Return | $ | 1,000.00 | $ | 1,015.27 | 1.97 | % | $ | 10.01 |
This table illustrates your Fund’s costs in two ways:
Actual Fund Return: This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, the third column shows the period’s annualized expense ratio, and the last column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund at the beginning of the period. You may use the information here, together with your account value, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period.”
Hypothetical 5% Return: This section is intended to help you compare your Fund’s costs with those of other mutual funds. It assumes that the Fund had a return of 5% before expenses during the period shown, but that the expense ratio is unchanged. In this case, because the return used is not the Fund’s actual return, the results do not apply to your investment. You can assess your Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), or redemption fees.
(1) | Annualized, based on the Fund’s most recent half-year expenses. |
(2) | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the period, then divided by 365. |
LARGE CAP VALUE FUND | 5 |
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2009
Shares | Market Value | ||||
Common Stocks 97.34% | |||||
Consumer Discretionary 8.59% | |||||
Amazon.com, Inc.* | 4,148 | $ | 557,989 | ||
American Eagle Outfitters, Inc. | 10,000 | 169,800 | |||
Bed Bath & Beyond, Inc.* | 2,469 | 95,378 | |||
Best Buy Co., Inc. | 5,003 | 197,418 | |||
Cablevision Systems Corp., Class A | 5,600 | 144,592 | |||
Expedia, Inc.* | 13,900 | 357,369 | |||
Home Depot, Inc. (The) | 19,404 | 561,358 | |||
Marriott International, Inc., Class A | 2,121 | 57,797 | |||
McDonald’s Corp. | 8,980 | 560,711 | |||
NIKE, Inc., Class B | 3,700 | 244,459 | |||
RadioShack Corp. | 11,000 | 214,500 | |||
Royal Caribbean Cruises, Ltd.* | 13,900 | 351,392 | |||
Target Corp. | 8,470 | 409,694 | |||
TJX Cos., Inc. | 3,100 | 113,305 | |||
Walt Disney Co. (The) | 16,500 | 532,125 | |||
Wyndham Worldwide Corp. | 4,000 | 80,680 | |||
Yum! Brands, Inc. | 3,173 | 110,960 | |||
4,759,527 | |||||
Consumer Staples 8.89% | |||||
Altria Group, Inc. | 25,700 | 504,491 | |||
Avon Products, Inc. | 3,700 | 116,550 | |||
Coca-Cola Co. (The) | 7,400 | 421,800 | |||
CVS Caremark Corp. | 16,500 | 531,465 | |||
Estee Lauder Cos., Inc. (The) | 10,000 | 483,600 | |||
Kimberly-Clark Corp. | 3,115 | 198,457 | |||
PepsiCo, Inc. | 6,000 | 364,800 | |||
Philip Morris International, Inc. | 17,349 | 836,048 | |||
Procter & Gamble Co. (The) | 15,400 | 933,702 | |||
Wal-Mart Stores, Inc. | 9,924 | 530,438 | |||
4,921,351 | |||||
Energy 11.10% | |||||
Apache Corp. | 2,500 | 257,925 | |||
Chevron Corp. | 11,500 | 885,385 | |||
ConocoPhillips | 17,200 | 878,404 | |||
Exxon Mobil Corp. | 15,750 | 1,073,992 | |||
Marathon Oil Corp. | 11,010 | 343,732 | |||
Noble Corp. | 17,300 | 704,110 | |||
Occidental Petroleum Corp. | 6,200 | 504,370 | |||
Pride International, Inc.* | 3,800 | 121,258 | |||
Schlumberger, Ltd. | 10,575 | 688,327 | |||
Suncor Energy, Inc. | 3,900 | 137,709 | |||
Transocean, Ltd.* | 6,650 | 550,620 | |||
6,145,832 | |||||
Financials 12.80% | |||||
American Express Co. | 18,500 | 749,620 |
See accompanying notes to financial statements.
6 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Shares | Market Value | ||||
Financials (cont.) | |||||
Bank of America Corp. | 55,270 | $ | 832,366 | ||
Goldman Sachs Group, Inc. (The) | 3,265 | 551,262 | |||
Host Hotels & Resorts, Inc. REIT* | 60,646 | 707,739 | |||
Invesco, Ltd. | 14,500 | 340,605 | |||
JPMorgan Chase & Co. | 29,797 | 1,241,641 | |||
Loews Corp. | 4,379 | 159,177 | |||
MetLife, Inc. | 9,675 | 342,011 | |||
NYSE Euronext | 6,280 | 158,884 | |||
PNC Financial Services Group, Inc. | 3,449 | 182,073 | |||
Principal Financial Group, Inc. | 11,200 | 269,248 | |||
Simon Property Group, Inc. REIT | 10,059 | 802,734 | |||
Travelers Cos., Inc. (The) | 4,850 | 241,821 | |||
Wells Fargo & Co. | 12,386 | 334,298 | |||
XL Capital, Ltd. | 9,600 | 175,968 | |||
7,089,447 | |||||
Health Care 12.76% | |||||
Alcon, Inc. | 1,330 | 218,586 | |||
Allergan, Inc. | 2,580 | 162,566 | |||
Amgen, Inc.* | 8,940 | 505,736 | |||
Centene Corp.* | 8,286 | 175,415 | |||
Community Health Systems, Inc.* | 11,828 | 421,077 | |||
Express Scripts, Inc.* | 2,400 | 207,480 | |||
Gilead Sciences, Inc.* | 5,900 | 255,352 | |||
Johnson & Johnson | 12,710 | 818,651 | |||
Medco Health Solutions, Inc.* | 22,464 | 1,435,674 | |||
Merck & Co., Inc. | 18,600 | 679,644 | |||
Mylan, Inc.* | 8,615 | 158,774 | |||
Pfizer, Inc. | 50,000 | 909,500 | |||
Quest Diagnostics, Inc. | 9,375 | 566,062 | |||
WellPoint, Inc.* | 9,480 | 552,589 | |||
7,067,106 | |||||
Industrials 10.59% | |||||
3M Co. | 15,350 | 1,268,984 | |||
Boeing Co. | 5,830 | 315,578 | |||
Caterpillar, Inc. | 14,200 | 809,258 | |||
CSX Corp. | 14,250 | 690,982 | |||
Foster Wheeler AG* | 13,650 | 401,856 | |||
General Electric Co. | 55,281 | 836,402 | |||
Tyco International, Ltd. | 18,300 | 652,944 | |||
United Parcel Service, Inc., Class B | 8,226 | 471,926 | |||
United Technologies Corp. | 6,000 | 416,460 | |||
5,864,390 | |||||
Information Technology 21.83% | |||||
Apple, Inc.* | 5,250 | 1,107,015 | |||
Applied Materials, Inc. | 10,926 | 152,308 | |||
Cisco Systems, Inc.* | 65,900 | 1,577,646 |
LARGE CAP VALUE FUND | 7 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Shares | Market Value | ||||
Information Technology (cont.) | |||||
Cognizant Technology Solutions Corp., Class A* | 3,250 | $ | 147,225 | ||
EMC Corp.* | 86,800 | 1,516,396 | |||
Google, Inc., Class A* | 1,350 | 836,973 | |||
Hewlett-Packard Co. | 15,000 | 772,650 | |||
Intel Corp. | 25,000 | 510,000 | |||
International Business Machines Corp. | 8,058 | 1,054,792 | |||
Mentor Graphics Corp.* | 23,000 | 203,090 | |||
Microsoft Corp. | 40,350 | 1,230,272 | |||
NetApp, Inc.* | 18,600 | 639,654 | |||
Oracle Corp. | 24,300 | 596,322 | |||
QUALCOMM, Inc. | 15,778 | 729,890 | |||
Texas Instruments, Inc. | 38,825 | 1,011,780 | |||
12,086,013 | |||||
Materials 4.06% | |||||
Alcoa, Inc. | 11,287 | 181,946 | |||
Dow Chemical Co. (The) | 3,650 | 100,850 | |||
Du Pont (E.I.) de Nemours & Co. | 20,000 | 673,400 | |||
Freeport-McMoRan Copper & Gold, Inc. | 3,800 | 305,102 | |||
Nalco Holding Co. | 3,000 | 76,530 | |||
Newmont Mining Corp. | 4,000 | 189,240 | |||
Nucor Corp. | 8,450 | 394,192 | |||
Packaging Corp. of America | 14,280 | 328,583 | |||
2,249,843 | |||||
Telecommunication Services 3.09% | |||||
AT&T, Inc. | 34,350 | 962,831 | |||
CenturyTel, Inc. | 2,400 | 86,904 | |||
Verizon Communications, Inc. | 17,440 | 577,787 | |||
Windstream Corp. | 7,500 | 82,425 | |||
1,709,947 | |||||
Utilities 3.63% | |||||
American Electric Power Co., Inc. | 19,000 | 661,010 | |||
Consolidated Edison, Inc. | 9,200 | 417,956 | |||
Duke Energy Corp. | 25,420 | 437,478 | |||
Progress Energy, Inc. | 12,000 | 492,120 | |||
2,008,564 | |||||
Total Investments — 97.34% | |||||
(Cost $50,458,098**) | 53,902,020 | ||||
Cash and Other Assets Net of Liabilities — 2.66% | 1,475,245 | ||||
NET ASSETS — 100.00% | $ | 55,377,265 | |||
REIT - Real Estate Investment Trust
8 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
* | Non-income producing security. |
** | Aggregate cost for federal income tax purposes is $50,720,145, and net unrealized appreciation consists of: |
Gross unrealized appreciation | $ | 6,856,348 | ||
Gross unrealized depreciation | (3,674,473 | ) | ||
Net unrealized appreciation | $ | 3,181,875 |
LARGE CAP VALUE FUND | 9 |
STATEMENT OF ASSETS AND LIABILITIES | DECEMBER 31, 2009
ASSETS | ||||
Investments in securities at value (cost $50,458,098) (Note 1) | $ | 53,902,020 | ||
Cash | 1,523,052 | |||
Dividends and interest receivable | 59,347 | |||
Receivable for Fund shares sold | 161,396 | |||
Receivable for investments sold | 106,767 | |||
Prepaid expenses | 10,799 | |||
TOTAL ASSETS | 55,763,381 | |||
LIABILITIES | ||||
Payable for investments purchased | 146,198 | |||
Payable for Fund shares redeemed | 120,956 | |||
Payable for investment advisory fees | 42,066 | |||
Payable for distribution fees (Note 3) | 13,952 | |||
Other accrued expenses | 62,944 | |||
TOTAL LIABILITIES | 386,116 | |||
NET ASSETS | $ | 55,377,265 | ||
Net assets applicable to 4,793,611 shares outstanding, $0.001 par value (500,000,000 authorized shares) | $ | 55,377,265 | ||
Net asset value and redemption price per share ($55,377,265 ÷ 4,793,611 shares) | $ | 11.55 | ||
Maximum offering price per share ($11.55 ÷ 0.9475) | $ | 12.19 | ||
SOURCE OF NET ASSETS | ||||
As of December 31, 2009, net assets consisted of: | ||||
Paid-in capital | $ | 57,812,757 | ||
Undistributed net investment income | 18,299 | |||
Accumulated net realized loss on investments and written options | (5,897,713 | ) | ||
Net unrealized appreciation on investments | 3,443,922 | |||
NET ASSETS | $ | 55,377,265 |
See accompanying notes to financial statements.
10 | SPIRIT OF AMERICA |
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2009 | ||||
INVESTMENT INCOME | ||||
Dividends (net of foreign taxes withheld of $ 1,487) | $ | 1,249,551 | ||
Interest | 183 | |||
TOTAL INVESTMENT INCOME | 1,249,734 | |||
EXPENSES | ||||
Investment Advisory fees (Note 3) | 454,424 | |||
Distribution fees (Note 3) | 140,543 | |||
Accounting and Administration fees | 74,388 | |||
Auditing fees | 15,500 | |||
Chief Compliance Officer salary (Note 3) | 5,126 | |||
Custodian fees | 15,073 | |||
Directors’ fees | 9,403 | |||
Insurance expense | 25,613 | |||
Legal fees | 30,913 | |||
Printing expense | 43,278 | |||
Registration fees | 9,491 | |||
Transfer Agent fees | 136,983 | |||
Other expenses | 5,072 | |||
TOTAL EXPENSES | 965,807 | |||
Fees waived by Adviser (Note 3) | (42,905 | ) | ||
NET EXPENSES | 922,902 | |||
NET INVESTMENT INCOME | 326,832 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND WRITTEN OPTIONS | ||||
Net realized loss from investment transactions | (1,475,140 | ) | ||
Net realized gain from written options | 12,523 | |||
Net change in unrealized appreciation/depreciation of investments | 9,610,979 | |||
Net realized and unrealized gain on investments and written options | 8,148,362 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 8,475,194 |
See accompanying notes to financial statements.
LARGE CAP VALUE FUND | 11 |
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended December 31, 2009 | For the Year Ended December 31, 2008 | |||||||
OPERATIONS | ||||||||
Net investment income | $ | 326,832 | $ | 316,096 | ||||
Net realized (loss) from investment transactions and written options | (1,462,617 | ) | (4,479,256 | ) | ||||
Net change in unrealized appreciation/depreciation of investments | 9,610,979 | (16,166,127 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 8,475,194 | (20,329,287 | ) | |||||
DISTRIBUTIONS TO SHAREHOLDERS | ||||||||
Distributions from net investment income | (310,927 | ) | (300,073 | ) | ||||
Distributions from realized gains | — | (5,577 | ) | |||||
Total distributions to shareholders | (310,927 | ) | (305,650 | ) | ||||
CAPITAL SHARE TRANSACTIONS (Dollar Activity) | ||||||||
Shares sold | 9,303,230 | 9,619,661 | ||||||
Shares issued from reinvestment of distributions | 296,580 | 291,782 | ||||||
Shares redeemed | (6,803,244 | ) | (10,971,679 | ) | ||||
Increase (decrease) in net assets derived from capital share transactions (a) | 2,796,566 | (1,060,236 | ) | |||||
Total increase (decrease) in net assets | 10,960,833 | (21,695,173 | ) | |||||
NET ASSETS | ||||||||
Beginning of period | 44,416,432 | 66,111,605 | ||||||
End of period | $ | 55,377,265 | $ | 44,416,432 | ||||
Undistributed net investment income | $ | 18,299 | $ | 46,554 | ||||
(a) Transactions in capital stock were: | ||||||||
Shares sold | 922,952 | 770,303 | ||||||
Shares issued from reinvestment of distributions | 30,644 | 25,678 | ||||||
Shares redeemed | (678,164 | ) | (904,480 | ) | ||||
Increase (decrease) in shares outstanding | 275,432 | (108,499 | ) |
See accompanying notes to financial statements.
12 | SPIRIT OF AMERICA |
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for one share of beneficial interest outstanding throughout the periods presented.
For the Year Ended 12/31/09 | For the Year Ended 12/31/08 | For the Two-Month Period Ended 12/31/07* | For the Year Ended 10/31/07 | For the Year Ended 10/31/06 | For the Year Ended 10/31/05 | |||||||||||||||||||
Net Asset Value, Beginning of Period | $ | 9.83 | $ | 14.29 | $ | 15.52 | $ | 14.23 | $ | 12.69 | $ | 11.74 | ||||||||||||
Income from Investment | ||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||
Net investment income | 0.07 | 1 | 0.07 | 1 | 0.01 | 0.03 | 0.04 | 0.09 | ||||||||||||||||
Net realized and unrealized gain (loss) on investments | 1.72 | (4.46 | ) | (0.35 | ) | 1.84 | 1.67 | 0.98 | ||||||||||||||||
Total from investment operations | 1.79 | (4.39 | ) | (0.34 | ) | 1.87 | 1.71 | 1.07 | ||||||||||||||||
Less Distributions: | ||||||||||||||||||||||||
Distributions from net investment income | (0.07 | ) | (0.07 | ) | (0.01 | ) | (0.03 | ) | (0.04 | ) | (0.09 | ) | ||||||||||||
Distributions from capital gains | (0.00 | ) | (0.00 | )2 | (0.88 | ) | (0.55 | ) | (0.13 | ) | (0.03 | ) | ||||||||||||
Total distributions | (0.07 | ) | (0.07 | ) | (0.89 | ) | (0.58 | ) | (0.17 | ) | (0.12 | ) | ||||||||||||
Net Asset Value, | ||||||||||||||||||||||||
End of Period | $ | 11.55 | $ | 9.83 | $ | 14.29 | $ | 15.52 | $ | 14.23 | $ | 12.69 | ||||||||||||
Total Return3 | 18.32 | % | (30.81 | %) | (2.30 | %)4 | 13.56 | % | 13.52 | % | 9.07 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 55,377 | $ | 44,416 | $ | 66,112 | $ | 66,487 | $ | 46,189 | $ | 40,347 | ||||||||||||
Ratio of expenses to average net assets: | ||||||||||||||||||||||||
Before expense waiver, reimbursement or recapture | 2.06 | % | 2.03 | % | 1.95 | %5 | 1.93 | % | 2.07 | % | 1.96 | % | ||||||||||||
After expense waiver, reimbursement or recapture | 1.97 | % | 1.97 | % | 1.97 | %5 | 1.97 | % | 1.97 | % | 1.97 | % | ||||||||||||
Ratio of net investment income to average net assets | 0.70 | % | 0.56 | % | 0.21 | %5 | 0.23 | % | 0.26 | % | 0.70 | % | ||||||||||||
Portfolio turnover | 50.57 | % | 44.76 | % | — | 22.14 | % | 14.37 | % | 15.37 | % |
1 | Calculated based on the average number of shares outstanding during the period. |
2 | Amount represents less than $0.01 per share. |
3 | Calculation does not reflect sales load. |
4 | Calculation is not annualized. |
5 | Calculation is annualized. |
* | The Fund’s fiscal year-end changed from October 31 to December 31, effective December 31, 2007. |
See accompanying notes to financial statements.
LARGE CAP VALUE FUND | 13 |
NOTES TO FINANCIAL STATEMENTS | DECEMBER 31, 2009
Note 1 - Significant Accounting Policies
Spirit of America Large Cap 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 Fund seeks capital appreciation with a secondary objective of current income by investing in equity securities in the large cap value segment of the U.S. equity market. The Fund offers one class of shares.
The Fund changed its fiscal year-end from October 31 to December 31, effective beginning with the period ended December 31, 2007.
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 accounting principles generally accepted in the United States of America for investment companies.
A. Security Valuation: The offering price and net asset value (“NAV”) per share for the Fund are calculated as of the close of regular trading on the New York Stock Exchange (“NYSE”), currently 4:00 p.m., Eastern Time on each day the NYSE is open for trading. The 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 (the “Board”) 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.
B. Fair Value Measurements: Various inputs are used in determining the fair value of investments which are as follows:
• Level 1 – | Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Funds have the ability to access at the measurement date | |
• Level 2 – | Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active | |
• Level 3 – | Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
14 | SPIRIT OF AMERICA |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
The summary of inputs used to value the Fund’s net assets as of December 31, 2009 is as follows:
Large Cap Value Fund
Valuation Inputs | |||
Level 1 - Quoted Prices * | $ | 53,902,020 | |
Level 2 - Other Significant Observable Inputs | — | ||
Level 3 - Significant Unobservable Inputs | — | ||
Total Market Value of Investments | $ | 53,902,020 | |
* | Industries as defined in the Schedule of Investments |
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “Improving Disclosures about Fair Value Measurements” that requires additional disclosures regarding fair value measurements. Certain required disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management is currently evaluating the impact it will have on its financial statement disclosures.
C. 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.
D. Option Contracts: The Fund may purchase and write call options to increase or decrease its exposure to underlying securities equity risk. An option contract gives the buyer the right, but not the obligation, to buy (call) or sell (put) an underlying item at a fixed exercise price on a certain date or during a specified period. The cost of securities acquired through the exercise of a call option is increased by the premiums paid. The proceeds from securities sold through the exercise of a purchased put option are decreased by the premiums paid. Investments in options contracts requires the Fund to fair value or mark-to market the options on a daily basis, which reflects the change in the market value of the contracts at the close of each day’s trading. The cost of purchased options that expire unexercised are treated by the Fund, on expiration date, as realized losses on investments.
When the Fund writes an option, an amount equal to the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Fund, on the expiration date, as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or, if the premium is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option.
LARGE CAP VALUE FUND | 15 |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
In purchasing and writing options, the Fund bears the market risk of an unfavorable change in the price of the underlying security or the risk that the Fund may not be able to enter into a closing transaction due to an illiquid market. Exercise of a written option could result in the Fund purchasing a security at a price different from the current market value. The Fund may execute transactions in both listed and over-the-counter options. Listed options involve minimal counterparty risk since listed options are guaranteed against default by the exchange on which they trade. Transactions in certain over-the-counter options may expose the Fund to the risk of default by the counterparty to the transaction. In the event of default by the counterparty to the over-the-counter option transaction, the Fund’s maximum amount of loss is the premium paid (as purchaser) or the unrealized loss of the contract (as writer). The net realized gain from equity options recognized in income on the Statement of Operations for the year ended December 31, 2009 is $12,523.
Large Cap Value Fund
Number of Contracts | Premiums Received | ||||||
Options outstanding at December 31, 2008 | — | $ | — | ||||
Options written | 255 | 15,553 | |||||
Options repurchased | (100 | ) | (8,280 | ) | |||
Options expired | (135 | ) | (4,843 | ) | |||
Options exercised | (20 | ) | (2,430 | ) | |||
Options outstanding at December 31, 2009 | — | $ | — | ||||
E. 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.
F. Use of Estimates: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, 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 distributions will be paid quarterly. Capital gains, if any, will be distributed annually in December, but may be distributed more frequently if deemed advisable by the Board. All such distributions are taxable to the shareholders whether received in cash or reinvested in shares. A portion of the distributions paid to the Fund and subsequently distributed to shareholders may be characterized as a return of capital, long-term capital gain or short-term capital gain. The Fund has made certain investments in real estate investment trusts (“REITs”) which pay distributions to their shareholders based upon available funds from operations. It is quite common for these distributions to exceed the REIT’s taxable earnings and profits resulting in the excess portion of such distributions being designated as a return of capital or long-term capital gain. The Fund intends to include the gross distributions from such REITs in its distributions to its shareholders; accordingly, a portion of the distributions paid to the Fund and subsequently distributed to shareholders may be re-characterized. The final determination of the amount of the Fund’s return of capital distribution for the period will be made after the end of each calendar year.
16 | SPIRIT OF AMERICA |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
Note 2 - Purchases and Sales of Securities
Purchases and proceeds from the sales of securities for the year ended December 31, 2009, excluding short-term investments, were $27,403,278 and $22,725,759, respectively.
Note 3 - Investment Management Fee and Other Transactions with Affiliates
Spirit of America Management Corp. (the “Adviser”) has been retained to act as the Company’s investment adviser pursuant to an Investment Advisory Agreement (the “Advisory Agreement”). The Adviser 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 the Adviser a monthly fee of 1/12 of 0.97% of the Fund’s average daily net assets. Investment advisory fees for the year ended December 31, 2009 were $454,424.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses so that the total operating expenses will not exceed 1.97% of the average daily net assets of the Fund through April 30, 2010. For the year ended December 31, 2009, the Adviser waived advisory fees of $42,905.
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 limitation as stated above. The balance of recoverable expenses to the Adviser as of December 31, 2009 was $78,249. Of this balance, $35,344 will expire in 2011 and $42,905 will expire in 2012.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 (the “Plan”). The Plan permits the Fund to pay David Lerner Associates, Inc. (the “Distributor”) a monthly fee of 1/12 of 0.30% of the Funds average daily net assets for the Distributor’s services and expenses in distributing shares of the Fund and providing personal services and/or maintaining shareholder accounts. For the year ended December 31, 2009, fees paid to the Distributor under the Plan were $140,543.
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 year ended December 31, 2009, sales charges received by the Distributor were $478,019. A contingent deferred sales charge (“CDSC”) of 1.00% may be imposed on redemptions of $1 million or more made within one year of purchase.
Certain Officers and Directors of the Company are “affiliated persons”, as that term is defined in the 1940 Act, of the Adviser or the Distributor. Each Director of the Company, who is not an affiliated person of the Adviser or Distributor, receives a quarterly retainer of $1,500, $1,000 for each Board meeting attended, and $500 for each committee meeting attended plus reimbursement for certain travel and other out-of-pocket expenses incurred in connection with attending Board meetings. The Company does not compensate the Officers for the services they provide. There are no Directors’ fees paid to affiliated Directors of the Company. For the year ended December 31, 2009, the Fund was allocated $5,126 of the Chief Compliance Officer’s salary.
LARGE CAP VALUE FUND | 17 |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
Note 4 - Federal Income Taxes
The tax character of distributions paid for the years ended December 31, 2009 and 2008 were as follows:
Taxable Distributions
Ordinary Income | Net Long-Term Capital Gains | Total Taxable Distributions | |||||||
12/31/2009 | $ | 310,927 | $ | 0 | $ | 310,927 | |||
12/31/2008 | $ | 300,081 | $ | 5,569 | $ | 305,650 |
Distribution classifications may differ from the Statements of Changes in Net Assets as a result of the treatment of short-term capital gains as ordinary income for tax purposes.
As of December 31, 2009, the components of accumulated distributable earnings for the Fund on a tax basis were as follows:
Accumulated net Investment income | $ | 18,299 | ||
Capital Loss Carryforward | (5,635,666 | ) | ||
Deferred Post-October Losses | — | |||
Unrealized appreciation | 3,181,875 | |||
Total Distributable Earnings | $ | (2,435,492 | ) | |
As of December 31, 2009, the Fund had net capital loss carryforwards for federal income tax purposes of $5,635,666, which $2,591,937 and $3,043,729 are available to reduce future required distributions of net capital gains to shareholders through 2016 and 2017, respectively.
Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (current and prior four tax periods), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
Note 5 - Reclassification:
Permanent differences, incurred during the year ended December 31, 2009, resulting from differences in book and tax accounting have been reclassified at year end to undistributed net investment income, accumulated realized gain (loss) and paid-in-capital as follows:
Increase (Decrease) | ||||
Paid-In-Capital | $ | 0 | ||
Undistributed Net Investment Income | (44,160 | ) | ||
Accumulated Net Realized (Loss) | 44,160 |
Note 6 - Subsequent Events:
Management has evaluated the impact of all subsequent events on the Fund through February 25, 2010, the date the financial statements were issued, and has determined that the following subsequent event requires recognition or disclosure in the financial statements.
On February 2, 2010, The PNC Financial Services Group, Inc. (“PNC”) entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with The Bank of New York Mellon Corporation (“BNY Mellon”). Upon the terms and subject to the conditions set forth in the Stock Purchase Agreement, which has been approved by the board of directors of each company, PNC will sell to BNY Mellon (the “Stock Sale”) 100% of the issued and outstanding shares of PNC Global Investment Servicing Inc., an indirect, wholly-owned subsidiary of PNC.
18 | SPIRIT OF AMERICA |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
The Stock Sale includes PNC Global Investment Servicing (U.S.) Inc., PFPC Trust Company and PFPC Distributors, Inc. and is expected to close in the third quarter of 2010.
Tax Information (Unaudited)
All designations are based on financial information available as of the date of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
Qualified Dividend Income
For the year ended December 31, 2009, 100% of the distributions paid by the Fund from ordinary income qualifies for a reduced tax rate pursuant to The Jobs and Growth Tax Relief Reconciliation Act of 2003.
Dividends Received Deduction
For the year ended December 31, 2009, 100% of the ordinary income distribution qualifies for the Dividends Received Deduction available to corporations.
LARGE CAP VALUE FUND | 19 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Spirit of America Investment Fund, Inc. and the Shareholders of Spirit of America Large Cap Value Fund
Syosset, New York
We have audited the accompanying statement of assets and liabilities of Spirit of America Large Cap Value Fund (the “Fund”), a series of shares of beneficial interest in Spirit of America Investment Fund, Inc., including the schedule of investments as of December 31, 2009, and 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 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 the standards of the Public Company Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. 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 December 31, 2009 by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Large Cap Value Fund as of December 31, 2009, 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 the periods indicated thereon, in conformity with accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 25, 2010
20 | SPIRIT OF AMERICA |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT | DECEMBER 31, 2009
Approval of the Investment Advisory Agreement (Unaudited)
The Investment Company Act of 1940, as amended (the “1940 Act”), requires that the continuance of a registered management investment company’s investment advisory agreement be approved annually by both the board of directors and also by a majority of its directors who are not parties to the investment advisory agreement or “interested persons” (as defined by the 1940 Act) of any such party (the “Independent Directors”). On November 11, 2009, the Board of Directors (the “Board” or “Directors”) of Spirit of America Investment Fund, Inc. (the “Company”) met in person (the “Meeting”) to, among other things, review and consider the approval of the Investment Advisory Agreement (the “Advisory Agreement”) by and between Spirit of America Management Corp. (the “Adviser”) and the Company, on behalf of Spirit of America Real Estate Income and Growth Fund, Spirit of America Large Cap Value Fund, Spirit of America High Yield Tax Free Bond Fund and Spirit of America Income Fund (collectively, the “Funds”). At the Meeting, the Board, including the Independent Directors, voting separately, approved the Advisory Agreement after determining that the Adviser’s compensation, pursuant to the terms of the Advisory Agreement, would be fair and reasonable and concluded that the approval of the Advisory Agreement would be in the best interest of the Funds’ shareholders. The Board’s approval was based on consideration and evaluation of the information and material provided to the Board and a variety of specific factors discussed at the Meeting and at prior meetings of the Board, including the factors described below.
As part of the approval process and oversight of the advisory relationship, counsel to the Independent Directors (“Independent Counsel”) sent an information request letter to the Adviser seeking certain relevant information and the Directors received, for their review in advance of the Meeting, the Adviser’s responses. In addition, the Directors were provided with the opportunity to request any additional materials. In advance of the Meeting, the Board, including the Independent Directors, requested and received materials provided by the Adviser and Independent Counsel, including, among other things, the following: (i) information on the investment performance of the Funds and relevant indices over various time periods; (ii) sales and redemption data with respect to the Funds; (iii) the general investment outlook in the markets in which the Funds invest; (iv) arrangements with respect to the distribution of the Funds’ shares; (v) the procedures employed to determine the value of each Fund’s assets; (vi) the allocation of the Funds’ brokerage, the record of compliance with the Funds’ investment policies and restrictions and with the Funds’ Code of Ethics and the structure and responsibilities of the Adviser’s compliance departments; (vii) the profitability of the Funds’ investment advisory business to the Adviser taking into account both advisory fees and any other potential direct or indirect benefits; (viii) information comparing the overall fees and specifically the fees under the Investment Advisory Agreement with the fees paid by other similar mutual funds; (ix) the Form ADV of the Adviser; and (x) information comparing the performance of the Funds with the performance of other similar mutual funds; and (xi) a memorandum from Independent Counsel regarding the responsibilities of the Board related to the approval of the Advisory Agreement.
LARGE CAP VALUE FUND | 21 |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
In evaluating the Advisory Agreement, the Board, including the Independent Directors, requested, reviewed and considered materials furnished by the Adviser and questioned personnel of the Adviser, including the Funds’ portfolio managers, regarding, among other things, the personnel, operations and financial condition of the Adviser. Among other information, the Board, including the Independent Directors, requested and was provided information regarding:
• | The investment performance of each Fund over various time periods both by itself and in relation to relevant indices; |
• | The fees charged by the Adviser for investment advisory services, as well as other compensation received by the Adviser and its affiliates; |
• | The waivers of fees and reimbursements of expenses at times by the Adviser under the Operating Expenses Agreement; |
• | The investment performance, fees and total expenses of mutual funds with similar objectives and strategies managed by other investment advisers; |
• | The investment management staffing and the experience of the investment advisory, administrative and other personnel providing services to the Funds and the historical quality of the services provided by the Adviser; and |
• | The profitability to the Adviser of managing and its affiliate distributing the Funds and the methodology in allocating expenses to the management of the Funds. |
At the Meeting, Independent Counsel referred the Directors to the “Gartenberg Memorandum” which had been distributed to each Director in advance of the Meeting, outlining the legal standards applicable to the Independent Directors under the 1940 Act with respect to the approval of the continuation of investment advisory agreements. In addition, the Independent Directors were provided with the opportunity to meet with Independent Counsel, in executive session, outside the presence of Company management and participate in a question and answer session with the Adviser.
The following is a summary of the Board’s discussion and views regarding the factors it considered in evaluating the continuation of the Investment Advisory Agreement:
1. Nature, Extent, and Quality of Services.
The Board, including the Independent Directors, considered the nature, quality and extent of advisory, administrative and shareholder services performed by the Adviser, including: regulatory filings and disclosure to shareholders, general oversight of the service providers, coordination of Fund marketing initiatives, review of Fund legal issues, assisting the Board, including the Independent Directors, in their capacity as directors and other services. The Board, including the Independent Directors, noted the increased responsibilities of the Adviser in response to an
22 | SPIRIT OF AMERICA |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
increasingly regulated industry. The Board, including the Independent Directors, concluded that the services are extensive in nature, that the Adviser delivered a high level of service to each Fund and that the Adviser is positioned to continue providing such quality of service in the future.
2. Investment Performance of the Funds and the Adviser.
The Board, including the Independent Directors, considered short-term and long-term investment performance for the Funds over various periods of time as compared to both relevant indices and the performance of such Funds’ peer groups, and concluded that each Fund was delivering reasonable performance results, especially over the long-term, consistent with the investment strategies that the Funds pursue.
3. Costs of Services and Profits Realized by the Adviser.
a. The Board, including the Independent Directors, considered the information provided by Lipper Inc. regarding each Fund’s management fee rate and overall expense ratio relative to industry averages for the Fund’s peer group category and the advisory fees charged by the Adviser to other accounts. The Board viewed favorably the current and historic willingness of the Adviser to limit the overall expense ratios of the Funds. Recognizing that the fees paid by the Funds were higher than the medians in their peer groups, the Board nonetheless noted that the fees were still close to the median and that several peer funds had higher fees.
b. Profitability and Costs of Services to the Adviser. The Board, including the Independent Directors, considered estimates of the Adviser’s profitability and costs attributable to the Funds. The Board recognized that increased fixed costs, particularly legal and audit fees in response to increasing regulations, have a greater impact on smaller fund families, such as the Funds, than on larger fund complexes. Given this, the Board recognized that the Funds’ overall expenses compare unfavorably to some funds identified as peers. The Board also considered whether the amount of the Adviser’s profit is a fair profit for the management of the Funds and noted that the Adviser has devoted a large amount of its resources into the Funds over the years. The Board, including the Independent Directors, concluded that the Adviser’s profitability was at a fair and acceptable level, particularly in light of the quality of the services being provided to the Funds, and bore a reasonable relationship to the services rendered.
4. Extent of Economies of Scale as the Funds Grow.
The Board, including the Independent Directors, considered whether there have been economies of scale with respect to the management of the Funds and whether the Funds have appropriately benefited from any economies of scale. Given the size of each Fund, the Board did not believe that significant (if any) economies of scale have been achieved.
5. Whether Fee Levels Reflect Economies of Scale.
The Board took into consideration that the Adviser does not currently offer breakpoints in its fees that would otherwise allow investors to benefit directly from economies of scale in the form of lower fees as fund assets grow. However, the Board, including the Independent Directors, did consider enhancements in personnel and services provided to the Funds by the Adviser, without an increase in fees. The Board also noted that few of the Funds’ peers offered breakpoints despite having significantly more assets under management.
LARGE CAP VALUE FUND | 23 |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
6. Other Relevant Considerations.
a. Personnel and Methods. The Board, including the Independent Directors, reviewed the Adviser’s Form ADV and questioned the Adviser regarding the size, education and experience of the staff of the Adviser, its fundamental research capabilities, approach to recruiting, training and retaining portfolio managers and other research and management personnel, and concluded that these enable them to provide a high level of service to the Funds. The Board also considered the history, reputation, qualifications and background of the Adviser as well as the qualifications of its personnel.
b. The Board, including the Independent Directors, also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Funds, including the benefits received by the affiliated distributor. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition or increased ability to obtain research services (although the Board noted that the Adviser currently does not use soft dollars to obtain research services), appear to be reasonable, and may in some cases benefit the Funds.
Conclusions. In considering the renewal of the Investment Advisory Agreement, the Board, including the Independent Directors, did not identify any factor as all-important or all-controlling and instead considered the above listed and other factors collectively in light of the Funds’ surrounding circumstances. Each Director gave the weight to each factor that he deemed appropriate in his own judgment. The Board considered the renewal of the Investment Advisory Agreement on a Fund-by-Fund basis and determined that the renewal of the Investment Advisory Agreement was in the best interests of the shareholders of each Fund. The Board also determined that the fees charged to each Fund for the services provided were reasonable. Therefore, the Board, including the Independent Directors, determined that continuance of the Investment Advisory Agreement was in the best interests of each Fund.
24 | SPIRIT OF AMERICA |
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.
Name, Address and (Age) Position(s) with the Company | Term of Office1 | Principal Occupation(s) | Number of Portfolios | Other Directorships | ||||
INTERESTED DIRECTORS | ||||||||
David Lerner2 (73) 477 Jericho Turnpike Syosset, New York 11791 Director, Chairman of the Board, President | Since 1998 | President and founder, David Lerner Associates, Inc., a registered broker-dealer; President, Spirit of America Management Corp., the Company’s investment adviser; and Chief Executive Officer and President of David Lerner Associates, Inc., the Company’s Distributor. | 4 | Director of Spirit of America Management Corp., the Company’s investment adviser; Director of David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor. | ||||
Daniel Lerner2 (48) 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | Senior Vice President, Investment Counselor with David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor, since September 2000. Previously: Broker with Prudential Securities from February 2000 to July 2000; Broker with Bear Stearns from January 1999 to May 1999. | 4 | Director of David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor. | ||||
INDEPENDENT DIRECTORS | ||||||||
Allen Kaufman (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | President and Chief Executive Officer of K.G.K. Agency, Inc., a property and casualty insurance agency, since 1963. | 4 | Director of K.G.K. Agency, Inc., a property and casualty insurance agency. | ||||
Stanley S. Thune (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | President and Chief Executive Officer, Freight Management Systems, Inc., a third party logistics management company, since 1994; private investor. | 4 | Director of Freight Management Systems, Inc. | ||||
Richard Weinberger (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 2005 | Of Counsel to Ballon Stoll Bader & Nadler, P.C., a mid-sized law firm, since January 2005; Shareholder, Ballon Stoll Bader & Nadler, P.C., January 2000 to December 2004. | 4 | None. | ||||
OFFICERS | ||||||||
David Lerner President (see biography above) | ||||||||
Alan P. Chodosh (56) 477 Jericho Turnpike Syosset, New York 11791 Treasurer and Secretary | Since 2003 (Treasurer) Since 2005 (Secretary) | Executive Vice President and Chief Financial Officer of David Lerner Associates, Inc. since June 1997. | N/A | N/A | ||||
Joseph Pickard (49) 477 Jericho Turnpike Syosset, New York 11791 Chief Compliance Officer | Since 2007 | Chief Compliance Officer of Spirit of America Investment Fund, Inc. and Spirit of America Management Corp. since July 2007; Counsel to the Interested Directors of Spirit of America Investment Fund, Inc. since July 2002; General Counsel of David Lerner Associates, Inc. since July 2002. | N/A | N/A |
1 | Each Director serves for an indefinite term, until his successor is elected. |
2 | David Lerner is an “interested” Director, as defined in the 1940 Act, by reason of his positions with the Adviser and Distributor, and Daniel Lerner is an “interested” Director by reason of his position with the Distributor. Daniel Lerner is the son of David Lerner. |
LARGE CAP VALUE FUND | 25 |
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Proxy Voting Information
The Company’s Statement of Additional Information (“SAI”) containing a description of the policies and procedures that the Spirit of America Large Cap Value Fund uses to determine how to vote proxies relating to portfolio securities, along with the Company’s proxy voting record relating to portfolio securities held during the 12-month period ended December 31, 2009, are available (i) without charge, upon request, by calling (516) 390-5565; and (ii) on the SEC’s website at http://www.sec.gov.
Information on Form N-Q
The Company will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q within sixty days after the end of the period. The Company’s Forms N-Q will be available on the SEC’s website at http://www.sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0030. |
Investment Adviser
Spirit of America Management Corp. 477 Jericho Turnpike P.O. Box 9006 Syosset, NY 11791-9006
Distributor
David Lerner Associates, Inc. 477 Jericho Turnpike P.O. Box 9006 Syosset, NY 11791-9006
Shareholder Services
PNC Global Investment Servicing (U.S.) Inc. 760 Moore Road King of Prussia, PA 19406
Custodian
PFPC Trust Company 8800 Tinicum Boulevard, 4th floor Philadelphia, PA 19153
Independent Registered Public Accounting Firm
Tait Weller & Baker LLP 1818 Market Street, Suite 2400 Philadelphia, PA 19103
Counsel
Blank Rome LLP 405 Lexington Avenue New York, NY 10174 |
For additional information about the Spirit of America Large Cap Value Fund, call (800) 452-4892 or (610) 382-7819. This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus which includes details regarding the Fund’s objectives, policies, expenses, and other information.
©Copyright 2010 Spirit of America SOALC-AR09
MESSAGE TO OUR SHAREHOLDERS
Dear Shareholder,
We are pleased to send you the 1st annual report for The Spirit of America Income Fund, (the “Fund”). The Fund began operations on December 31, 2008.
We are excited, as we hope you are, to be a part of a new fund, which we anticipate will continue to grow and is designed to deliver attractive returns to our investors. 2009 has shown strong and steady growth for the Fund and we look forward to continued inflows and further development in the upcoming year.
We firmly believe that striving for the optimal balance between yield and risk will position us to achieve long term success. Our dedication to providing our investors with a fund that will merit their long term commitment and satisfaction has never been stronger. Now is an excellent time to team up with your Investment Counselor to evaluate your portfolio and make sure you are properly positioned to achieve your investment goals for the upcoming year.
We have been proud to watch the increasing number of investors in the Fund throughout the year. We appreciate your support of our fund and look forward to your continued investment in The Spirit of America Income Fund.
Sincerely,
![]() | ![]() | ![]() | ![]() | |||
David Lerner | William Mason | |||||
President | Portfolio Manager |
Any investment in debt securities is subject to risk and market values may fluctuate with economic conditions, interest rates, civil unrest and other factors, which will affect its market value. As with any mutual fund, an investor’s shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results.
Prospective investors should consider the investment objective, risks and charges and expenses of the Fund carefully before investing. The maximum sales charge on share purchases is 4.75% of the offering price. The Fund’s prospectus contains this and other information about the Fund and may be obtained through your broker or by calling 1-800-452-4892. The prospectus should be read carefully before investing.
INCOME FUND | 1 |
MANAGEMENT DISCUSSION
Introduction
The Spirit of America Income Fund, (SOAIX) (the “Fund”) is the latest addition to the Spirit of America Family of Funds. The Fund’s objective is to seek high current income. The emphasis of the Fund is focused on the high yield segment of the taxable bond market including a diversified portfolio of taxable municipal bonds, income producing convertible securities, high yield U.S. corporate bonds, preferred stocks, and collateralized mortgage obligations. We are pursuing a balance between yield and risk.
Game Plan
The Fund does not make decisions based on complicated algorithms. We are not a hedge fund. For the Spirit of America Income Fund, technology works for us; we do not work for technology. We do not receive buy signals from a computer generated model.
We invest the old fashioned way – utilizing hard work, intensive research, and intuitive decisions. Our decisions are based on experience. At the beginning of the year we felt the environment was favorable to start an income fund; our results have validated that belief.
There has been an increase in the issuance of taxable municipal bonds due to the Federal government’s new Build America Bond Program. At the end of 2009, the Fund had approximately 76% of it’s assets in taxable municipal bonds. Taxable municipal bonds typically offer yields which are substantially higher than their tax-advantaged counterparts.
Summary
The Fund continues to grow at a steady and healthy pace. The Fund has over 2,300 investor accounts with inflows of over $40,000,000 since its inception one year ago.
Our expectations are for continued growth in assets under management. We plan to proceed with the same game plan we have employed since the Fund began: pursuing a balance between yield and risk.
2 | SPIRIT OF AMERICA |
MANAGEMENT DISCUSSION (CONT.)
Summary of Portfolio Holdings
The Securities and Exchange Commission (“SEC”) has adopted a requirement that all funds present their categories of portfolio holdings in a table, chart or graph format in their annual and semi-annual shareholder reports, whether or not a schedule of investments is utilized. The following table, which presents portfolio holdings as a percentage of total market value, is provided in compliance with such requirement.
Spirit of America Income Fund
December 31, 2009
Municipal Bonds | 78.66 | % | $ | 30,587,934 | ||
Preferred Stocks | 12.59 | 4,895,746 | ||||
Corporate Bonds | 6.33 | 2,461,464 | ||||
Collateralized Mortgage Obligations | 2.42 | 940,023 | ||||
Total Investments | 100.00 | % | $ | 38,885,167 | ||
INCOME FUND | 3 |
ILLUSTRATION OF INVESTMENT (UNAUDITED)
The graph below compares the increase in value of a $10,000 investment in the Fund with the performance of the Barclays Capital U.S. Aggregate Index. The values and returns for the Fund include reinvested distributions, and the impact of the maximum sales charge of 4.75% 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.
Aggregate Total Returns
For the Periods Ended December 31, 2009
Shares | |||
1 Year (with sales charge) | 11.53 | %a | |
1 Year (without sales charge) | 17.10 | % | |
Since Inception (with sales charge)b | 11.53 | %a | |
Since Inception (without sales charge)b | 17.10 | % |
Past performance is not indicative of future results.
a | Reflects a 4.75% front-end sales charge. |
b | Inception date: December 31, 2008. |
Growth of $10,000
(includes one-time 4.75% maximum sales charge and reinvestment of all distributions)
* | Fund commenced operations December 31, 2008. |
** | The Barclays Capital U.S. Aggregate Index benchmark is based on a start date of December 31, 2008. |
The Barclays Capital U.S. Aggregate Index is an unmanaged index. The performance of an index assumes no transaction costs, taxes, management fees or other expenses. A direct investment in an index is not possible.
4 | SPIRIT OF AMERICA |
DISCLOSURE OF FUND EXPENSES (UNAUDITED)
FOR THE PERIOD JULY 1, 2009 TO DECEMBER 31, 2009
We believe it is important for you to understand the impact of fees regarding your investment. All mutual funds have operating expenses. As a shareholder of the Fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from the Fund’s gross income, directly reduce the investment return of the Fund.
The Fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing fees (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
Spirit of America Income Fund
Beginning Account Value 7/1/09 | Ending Account Value 12/31/09 | Expense Ratio(1) | Expenses Paid During Period(2) | |||||||||
Actual Fund Return | $ | 1,000.00 | $ | 1,094.80 | 1.10 | % | $ | 5.81 | ||||
Hypothetical 5% Return | $ | 1,000.00 | $ | 1,019.66 | 1.10 | % | $ | 5.60 |
This table illustrates your Fund’s costs in two ways:
Actual Fund Return: This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, the third column shows the period’s annualized expense ratio, and the last column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund at the beginning of the period. You may use the information here, together with your account value, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period.”
Hypothetical 5% Return: This section is intended to help you compare your Fund’s costs with those of other mutual funds. It assumes that the Fund had a return of 5% before expenses during the period shown, but that the expense ratio is unchanged. In this case, because the return used is not the Fund’s actual return, the results do not apply to your investment. You can assess your Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs such as sales charges (loads), or redemption fees.
(1) | Annualized, based on the Fund’s most recent half-year expenses. |
(2) | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the period, then divided by 365. |
INCOME FUND | 5 |
SCHEDULE OF INVESTMENTS | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Collateralized Mortgage Obligations 2.34% | ||||||
Banc of America Mortgage Securities, Inc., 5.50%, 08/25/33 | $ | 200,000 | $ | 146,181 | ||
Citicorp Mortgage Securities, Inc., 5.00%, 02/25/35 | 329,000 | 263,709 | ||||
Citicorp Mortgage Securities, Inc., 6.00%, 04/25/36 | 100,000 | 65,657 | ||||
Countrywide Home Loan Mortgage Pass Through Trust, A27, 5.50%, 10/25/35 | 111,000 | 49,543 | ||||
Countrywide Home Loan Mortgage Pass Through Trust, A7, 5.50%, 10/25/35 | 120,000 | 73,237 | ||||
Mastr Asset Securitization Trust, 5.50%, 10/25/33 | 159,000 | 159,687 | ||||
Wamu Mortgage Pass Through Certificates, A11, 5.50%, 11/25/33 | 111,000 | 98,464 | ||||
Wamu Mortgage Pass Through Certificates, A2, 5.50%, 11/25/33 | 94,000 | 83,545 | ||||
Total Collateralized Mortgage Obligations | 940,023 | |||||
Municipal Bonds 76.01% | ||||||
California 5.33% | ||||||
City of Stockton, Refunding Revenue Bonds, Series B, Callable 09/01/17 @ 100 (AGM), 5.80%, 09/01/37 | 80,000 | 66,884 | ||||
City of Tulare, Sewer Improvements Revenue Bonds, Callable 11/15/19 @ 100 (FSA) (OID), 8.75%, 11/15/44 | 1,000,000 | 961,040 | ||||
County of San Bernardino, Refunding Revenue Bonds (AGM), 6.02%, 08/01/23 | 200,000 | 194,142 | ||||
Oakland Redevelopment Agency, Economic Improvements Tax Allocation Bonds, Series T, (OID), 8.50%, 09/01/20 | 500,000 | 484,900 | ||||
Peralta Community College District, Refunding Revenue Bonds, 6.42%, 11/01/15 | 200,000 | 200,748 | ||||
State of California, Public Improvements, General Obligation Unlimited, 7.30%, 10/01/39 | 250,000 | 235,715 | ||||
2,143,429 | ||||||
Colorado 1.23% | ||||||
Arapahoe County Water & Wastewater Public Improvement District, Sewer Improvements, General Obligation Unlimited, Callable 12/01/19 @ 100, 6.48%, 12/01/39 | 500,000 | 493,455 | ||||
Connecticut 3.64% | ||||||
City of Bridgeport, School Improvements, General Obligation Unlimited, Callable 08/15/20 @ 100 (AGM), 6.57%, 08/15/28 | 1,000,000 | 985,260 | ||||
City of Waterbury, Pension Funding, General Obligation Unlimited, 7.09%, 12/01/38 | 500,000 | 480,360 | ||||
1,465,620 |
See accompanying notes to financial statements.
6 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
District of Columbia 1.24% | ||||||
Washington Metropolitan Area Transit Authority, Transit Improvements Revenue Bonds, Series B, Callable 07/01/19 @ 100 (OID), 7.00%, 07/01/34 | $ | 500,000 | $ | 498,820 | ||
Florida 8.29% | ||||||
City of Miami, Refunding Revenue Bonds (OID), 6.75%, 12/01/18 | 1,000,000 | 993,290 | ||||
City of Miami, Refunding Revenue Bonds, Callable 12/01/19 @ 100, 7.55%, 12/01/25 | 465,000 | 452,831 | ||||
City of Orlando, Refunding Revenue Bonds, Series C, Callable 10/01/19 @ 100, 6.85%, 10/01/29 | 250,000 | 249,160 | ||||
City of Orlando, Refunding Revenue Bonds, Series C, Callable 10/01/19 @ 100, 7.10%, 10/01/39 | 415,000 | 415,515 | ||||
County of Miami-Dade, Recreational Facilities Improvements Revenue Bonds, Series D (Assured Guaranty), 7.08%, 10/01/29 | 250,000 | 242,305 | ||||
County of Miami-Dade, Transit Improvements Revenue Bonds, Series B, Callable 07/01/19 @ 100, 6.91%, 07/01/39 | 1,000,000 | 985,140 | ||||
3,338,241 | ||||||
Illinois 1.96% | ||||||
Chicago Transit Authority, Pension Funding Revenue Bonds, Series A, 6.90%, 12/01/40 | 350,000 | 371,623 | ||||
State of Illinois, Pension Funding General Obligation Unlimited, 5.10%, 06/01/33 | 500,000 | 416,950 | ||||
788,573 | ||||||
Kentucky 0.61% | ||||||
Princeton Electric Plant Board, Electric Light & Power Improvements Revenue Bonds, Series B, Callable 11/01/19 @ 100, (Assured Guaranty) (OID), 7.00%, 11/01/42 | 250,000 | 245,865 | ||||
Louisiana 1.39% | ||||||
Tangipahoa Parish Hospital Service District No. 1, Hospital Improvements Revenue Bonds, Callable 02/01/20 @ 100 (Assured Guaranty), 7.20%, 02/01/42 | 570,000 | 558,782 | ||||
Massachusetts 0.63% | ||||||
City of Worcester, Pension Funding, General Obligation Limited, (AGM) (OID), 6.25%, 01/01/28 | 250,000 | 252,302 | ||||
INCOME FUND | 7 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Michigan 7.98% | ||||||
County of Oakland, Pension Funding, Certificate of Participation, Callable 04/01/14 @ 100 (OID), 6.25%, 04/01/26 | $ | 1,000,000 | $ | 971,130 | ||
Eastern Michigan University, University & College Improvements Revenue Bonds, Callable 02/15/19 @ 100, 7.21%, 02/15/38 | 250,000 | 248,187 | ||||
Michigan Tobacco Settlement Finance Authority, Miscellaneous Purposes Revenue Bonds, Series A (OID), 7.31%, 06/01/34 | 1,980,000 | 1,584,535 | ||||
Milan Area Schools, School Improvements, General Obligation Unlimited, Callable 05/01/19 @ 100 (Q-SBLF) (OID), 7.10%, 05/01/34 | 400,000 | 409,236 | ||||
3,213,088 | ||||||
Mississippi 1.26% | ||||||
Mississippi Development Bank Special Obligation, Highway Improvements Revenue Bonds, Series B, 6.59%, 01/01/35 | 500,000 | 505,655 | ||||
Missouri 2.41% | ||||||
Missouri Joint Municipal Electric Utility Commission, Electric Light & Power Improvements Revenue Bonds,, 7.73%, 01/01/39 | 975,000 | 970,437 | ||||
Nevada 1.78% | ||||||
City of Las Vegas, Public Improvements Certificate of Participation, Callable 09/01/19 @ 100 (OID), 7.80%, 09/01/39 | 200,000 | 198,142 | ||||
County of Clark, Public Improvements, General Obligation Limited, Series B, Callable 11/01/19 @ 100, 7.25%, 11/01/38 | 500,000 | 518,760 | ||||
716,902 | ||||||
New Jersey 4.06% | ||||||
Hoboken Municipal Hospital Authority, Refunding Revenue Bonds (FSA) (OID), 7.62%, 01/01/29 | 500,000 | 501,925 | ||||
New Jersey Economic Development Authority, Housing Revenue Bonds, Series A2, (XLCA), 6.31%, 07/01/26 | 750,000 | 641,670 | ||||
South Jersey Transportation Authority, Highway Improvements Revenue Bonds, Series A (OID), 7.00%, 11/01/38 | 500,000 | 490,080 | ||||
1,633,675 | ||||||
New York 10.23% | ||||||
Battery Park City Authority, Public Improvements Revenue Bonds, Callable 11/01/19 @ 100, 6.38%, 11/01/39 | 250,000 | 246,610 |
8 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
New York (cont.) | ||||||
City of New York, Public Improvements General Obligation Unlimited, Callable 12/01/19 @ 100, 6.39%, 12/01/29 | $ | 1,000,000 | $ | 983,900 | ||
Metropolitan Transportation Authority, Transit Improvements Revenue Bonds, 7.34%, 11/15/39 | 425,000 | 473,981 | ||||
New York City Housing Development Corp., State Multi-Family Housing Revenue Bonds, Series I, Callable 05/01/19 @ 100, 6.42%, 11/01/39 | 2,000,000 | 1,920,420 | ||||
New York Municipal Bond Bank Agency, Public Improvements Revenue Bonds, Callable 12/15/19 @ 100 (GO OF BOND BANK), 6.88%, 12/15/34 | 500,000 | 491,145 | ||||
4,116,056 | ||||||
Ohio 1.81% | ||||||
American Municipal Power-Ohio Inc., Refunding Revenue Bonds, Callable 02/15/20 @ 100, 5.96%, 02/15/24 | 500,000 | 481,250 | ||||
State of Ohio, Public Improvements Revenue Bonds, Callable 10/01/19 @ 100, 6.52%, 10/01/28 | 250,000 | 246,515 | ||||
727,765 | ||||||
Oklahoma 1.19% | ||||||
Bryan County Independent School District No. 72 Durant, School Improvements, Certificate of Participation, Callable 12/01/19 @ 102 (OID), 6.80%, 12/01/33 | 500,000 | 479,170 | ||||
Pennsylvania 3.17% | ||||||
Mount Union Area School District, School Improvements, General Obligation Limited, Callable 08/01/19 @ 100, (State Aid Withholding) (OID), 6.88%, 02/01/36 | 1,000,000 | 986,220 | ||||
Pittsburgh Water & Sewer Authority, Refunding Revenue Bonds, Series A, (AGM), 6.61%, 09/01/24 | 300,000 | 289,017 | ||||
1,275,237 | ||||||
Texas 5.96% | ||||||
City of Houston, Refunding Notes, General Obligation Unlimited, Series B, Callable 03/01/19 @ 100, 6.09%, 03/01/29 | 250,000 | 244,943 | ||||
County of Bexar, Public Improvements, General Obligation Limited, Series C, Callable 06/15/19 @ 100, 6.63%, 06/15/39 | 500,000 | 505,140 | ||||
County of Galveston, Public Improvements, General Obligation Unlimited, Series A, Callable 02/01/19 @ 100, 6.21%, 02/01/29 | 700,000 | 683,543 |
INCOME FUND | 9 |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Texas (cont.) | ||||||
Dallas Convention Center Hotel Development Corp., Public Improvements Revenue Bonds, 7.09%, 01/01/42 | $ | 1,000,000 | $ | 966,690 | ||
2,400,316 | ||||||
Utah 1.25% | ||||||
Central Weber Sewer Improvement District, Sewer Improvements Revenue Bonds, Series B, Callable 03/01/19 @ 100, (Assured Guaranty) (OID), 6.38%, 03/01/34 | 500,000 | 502,010 | ||||
Virginia 7.84% | ||||||
Tobacco Settlement Financing Corp., Refunding Revenue Bonds, Series A-1, Callable 06/01/12 @ 100 (OID), 6.71%, 06/01/46 | 4,365,000 | 3,154,280 | ||||
West Virginia 0.82% | ||||||
Tobacco Settlement Finance Authority of West Virginia, Miscellaneous Purposes Revenue Bonds, Series A, 7.47%, 06/01/47 | 415,000 | 332,004 | ||||
Wisconsin 1.93% | ||||||
City of Cudahy, Public Improvements, General Obligation Unlimited, Series A, Callable 10/01/18 @ 100, 5.40%, 10/01/23 | 135,000 | 128,450 | ||||
City of Cudahy, Public Improvements, General Obligation Unlimited, Series A, Callable 10/01/18 @ 100, 5.50%, 10/01/24 | 145,000 | 137,686 | ||||
City of Cudahy, Public Improvements, General Obligation Unlimited, Series A, Callable 10/01/18 @ 100, 5.60%, 10/01/25 | 145,000 | 137,857 | ||||
City of Cudahy, Public Improvements, General Obligation Unlimited, Series A, Callable 10/01/18 @ 100, 5.70%, 10/01/26 | 140,000 | 133,599 | ||||
City of Cudahy, Public Improvements, General Obligation Unlimited, Series A, Callable 10/01/18 @ 100, 5.80%, 10/01/27 | 130,000 | 124,036 | ||||
City of Cudahy, Public Improvements, General Obligation Unlimited, Series A, Callable 10/01/18 @ 100, 5.90%, 10/01/28 | 120,000 | 114,624 | ||||
776,252 | ||||||
Total Municipal Bonds | ||||||
(Cost $30,258,034) | 30,587,934 |
10 | SPIRIT OF AMERICA |
SCHEDULE OF INVESTMENTS (CONT.) | DECEMBER 31, 2009
Principal Amount | Market Value | |||||
Corporate Bonds 6.12% | ||||||
Alcoa, Inc., 5.55%, 02/01/17 | $ | 250,000 | $ | 248,936 | ||
Alcoa, Inc., 6.75%, 07/15/18 | 500,000 | 510,856 | ||||
Altria Group, Inc., 9.25%, 08/06/19 | 250,000 | 305,165 | ||||
General Electric Capital Corp., 6.15%, 08/07/37 | 150,000 | 142,103 | ||||
International Paper Co., 9.38%, 05/15/19 | 500,000 | 615,592 | ||||
Liberty Property L.P., 6.63%, 10/01/17 | 355,000 | 344,775 | ||||
Simon Property Group L.P. REIT, 10.35%, 04/01/19 | 150,000 | 188,708 | ||||
UDR, Inc., 5.25%, 01/15/15 | 110,000 | 105,329 | ||||
Total Corporate Bonds | ||||||
(Cost $2,061,855) | 2,461,464 | |||||
Shares | ||||||
Preferred Stocks 12.16% | ||||||
Financials 12.16% | ||||||
Equity Residential REIT Series N 6.48% | 11,200 | $ | 252,224 | |||
Kimco Realty Corp. REIT Series F 6.65% | 12,000 | 265,200 | ||||
Kimco Realty Corp. REIT Series G 7.75% | 17,900 | 439,445 | ||||
Public Storage REIT Series C 6.60% | 5,825 | 131,703 | ||||
Public Storage REIT Series H 6.95% | 10,000 | 238,000 | ||||
Public Storage REIT Series M 6.63% | 9,424 | 219,485 | ||||
Regency Centers Corp. REIT Series C 7.45% | 45,200 | 1,058,132 | ||||
Regency Centers Corp. REIT Series D 7.25% | 6,496 | 149,473 | ||||
Regency Centers Corp. REIT Series E 6.70% | 15,000 | 326,550 | ||||
Vornado Realty Trust REIT Series E 7.00% | 2,371 | 55,268 | ||||
Vornado Realty Trust REIT Series F 6.75% | 14,300 | 313,027 | ||||
Vornado Realty Trust REIT Series G 6.63% | 62,775 | 1,359,079 | ||||
Vornado Realty Trust REIT Series I 6.63% | 4,000 | 88,160 | ||||
Total Preferred Stocks | ||||||
(Cost $4,189,882) | 4,895,746 | |||||
Total Investments — 96.63% | ||||||
(Cost $37,332,626*) | 38,885,167 | |||||
Cash and Other Assets Net of Liabilities — 3.37% | 1,356,810 | |||||
NET ASSETS — 100.00% | $ | 40,241,977 | ||||
AGM | - | Assured Guaranty Municipal | ||
FSA | - | Financial Security Assurance | ||
GO | - | General Obligation | ||
OID | - | Original Issue Discount | ||
Q-SBLF | - | Qualified School Bond Loan Fund | ||
REIT | - | Real Estate Investment Trust | ||
XLCA | - | Insured by XL Capital Assurance |
* | The aggregate cost for federal income tax purposes is $37,332,626, and net unrealized appreciation consists of: |
Gross unrealized appreciation | $ | 2,021,409 | ||
Gross unrealized depreciation | (468,868 | ) | ||
Net unrealized appreciation | $ | 1,552,541 |
INCOME FUND | 11 |
STATEMENT OF ASSETS AND LIABILITIES | DECEMBER 31, 2009
ASSETS | |||
Investments in securities at value (cost $37,332,626) (Note 1) | $ | 38,885,167 | |
Cash | 349,616 | ||
Receivable for Fund shares sold | 604,669 | ||
Dividends and interest receivable | 587,260 | ||
Prepaid expenses | 11,716 | ||
TOTAL ASSETS | 40,438,428 | ||
LIABILITIES | |||
Payable for Fund shares redeemed | 82,723 | ||
Payable for investment advisory fees | 8,002 | ||
Payable for audit fees | 15,500 | ||
Payable for distributions to shareholders | 47,593 | ||
Payable for distribution fees (Note 3) | 8,119 | ||
Other accrued expenses | 34,514 | ||
TOTAL LIABILITIES | 196,451 | ||
NET ASSETS | $ | 40,241,977 | |
Net assets applicable to 3,777,421 shares outstanding, $0.001 par value (500,000,000 authorized shares) | $ | 40,241,977 | |
Net asset value and redemption price per share ($40,241,977 ÷ 3,777,421 shares) | $ | 10.65 | |
Maximum offering price per share ($10.65 ÷ 0.9525) | $ | 11.18 | |
SOURCE OF NET ASSETS | |||
As of December 31, 2009, net assets consisted of: Paid-in capital | $ | 38,688,200 | |
Undistributed net investment income | 1,236 | ||
Net unrealized appreciation on investments | 1,552,541 | ||
NET ASSETS | $ | 40,241,977 |
See accompanying notes to financial statements.
12 | SPIRIT OF AMERICA |
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2009* | ||||
INVESTMENT INCOME | ||||
Dividends | $ | 208,737 | ||
Interest | 1,295,377 | |||
TOTAL INVESTMENT INCOME | 1,504,114 | |||
EXPENSES | ||||
Investment Advisory fees (Note 3) | 103,750 | |||
Distribution fees (Note 3) | 43,229 | |||
Accounting and Administration fees | 65,136 | |||
Auditing fees | 15,500 | |||
Chief Compliance Officer salary (Note 3) | 1,576 | |||
Custodian fees | 9,167 | |||
Directors’ fees | 2,246 | |||
Insurance expense | 914 | |||
Legal fees | 10,947 | |||
Printing expense | 19,561 | |||
Registration fees | 2,734 | |||
Transfer Agent fees | 39,788 | |||
Other expenses | 677 | |||
TOTAL EXPENSES | 315,225 | |||
Fees waived and reimbursed by Adviser (Note 3) | (140,957 | ) | ||
NET EXPENSES | 174,268 | |||
NET INVESTMENT INCOME | 1,329,846 | |||
REALIZED AND UNREALIZED GAIN ON INVESTMENTS | ||||
Net realized gain from investment transactions | 321,047 | |||
Net change in unrealized appreciation of investments | 1,552,541 | |||
Net realized and unrealized gain on investments | 1,873,588 | |||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 3,203,434 |
* | The Fund commenced operations on December 31, 2008. |
See accompanying notes to financial statements.
INCOME FUND | 13 |
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended December 31, 2009* | ||||
OPERATIONS | ||||
Net investment income | $ | 1,329,846 | ||
Net realized gain from investment transactions | 321,047 | |||
Net change in unrealized appreciation of investments | 1,552,541 | |||
Net increase in net assets resulting from operations | 3,203,434 | |||
DISTRIBUTIONS TO SHAREHOLDERS | ||||
Distributions from net investment income | (1,348,803 | ) | ||
Distributions from realized gains | (300,854 | ) | ||
Total distributions to shareholders | (1,649,657 | ) | ||
CAPITAL SHARE TRANSACTIONS (Dollar Activity) | ||||
Shares sold | 39,569,102 | |||
Shares issued from reinvestment of distributions | 1,025,284 | |||
Shares redeemed | (1,906,186 | ) | ||
Increase in net assets derived from capital share transactions (a) | 38,688,200 | |||
Total increase in net assets | 40,241,977 | |||
NET ASSETS | ||||
Beginning of period | — | |||
End of period | $ | 40,241,977 | ||
Undistributed net investment income | $ | 1,236 | ||
(a) Transactions in capital stock were: | ||||
Shares sold | 3,857,982 | |||
Shares issued from reinvestment of distributions | 97,334 | |||
Shares redeemed | (177,895 | ) | ||
Increase in shares outstanding | 3,777,421 |
* | The Fund commenced operations on December 31, 2008. |
See accompanying notes to financial statements.
14 | SPIRIT OF AMERICA |
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for one share of beneficial interest outstanding throughout the period presented.
For the Year Ended December 31, 2009* | ||||
Net Asset Value, Beginning of Period | $ | 10.00 | ||
Income from Investment Operations: | ||||
Net investment income | 0.81 | 1 | ||
Net realized and unrealized gain on investments | 0.80 | |||
Total from investment operations | 1.61 | |||
Less Distributions: | ||||
Distributions from net investment income | (0.88 | ) | ||
Distributions from capital gains | (0.08 | ) | ||
Total distributions | (0.96 | ) | ||
Net Asset Value, End of Period | $ | 10.65 | ||
Total Return2 | 17.10 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period (000) | $ | 40,242 | ||
Ratio of expenses to average net assets: | ||||
Before expense reimbursement or recapture | 1.82 | % | ||
After expense reimbursement or recapture | 1.01 | % | ||
Ratio of net investment income to average net assets | 7.69 | % | ||
Portfolio turnover | 29.21 | % |
1 | Calculated based on the average number of shares outstanding during the period. |
2 | Calculation does not reflect sales load. |
* | The Fund commenced operations on December 31, 2008. |
See accompanying notes to financial statements.
INCOME FUND | 15 |
NOTES TO FINANCIAL STATEMENTS | DECEMBER 31, 2009
Note 1 – Significant Accounting Policies
Spirit of America Income Fund (the “Fund”), a series of Spirit of America Investment Fund, Inc. (the “Company”), is an open-end non-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 December 31, 2008. The Fund seeks high current income, investing at least 80% of its assets in a portfolio of taxable municipal bonds, income producing convertible securities, preferred stocks, high yield U.S. corporate bonds (frequently called “junk” bonds), and collateralized mortgage obligations (“CMOs”). 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 accounting principles generally accepted in the United States of America for investment companies.
A. Security Valuation: The offering price and net asset value (“NAV”) per share for the Fund are calculated as of the close of regular trading on the New York Stock Exchange (“NYSE”), currently 4:00 p.m., Eastern Time on each day the NYSE is open for trading. The 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. Unlisted securities traded in the over-the-counter market are valued using an evaluated quote provided by the independent pricing service, or, if an evaluated quote is unavailable, such securities are valued using prices received from dealers, provided that if the dealer supplies both bid and ask prices, the price to be used is the mean of the bid and asked prices. The independent pricing service derives an evaluated quote by obtaining dealer quotes, analyzing the listed markets, reviewing trade execution data and employing sensitivity analysis. Evaluated quotes may also reflect appropriate factors such as individual characteristics of the issue, communications with broker-dealers, and other market data. Short-term investments having a maturity of 60 days or less are valued at amortized cost, which the Board of Directors (the “Board”) 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.
B. Fair Value Measurements: Various are used in determining the fair value of investments which are as follows:
• | Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Funds have the ability to access at the measurement date |
• | Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active |
• | Level 3 – Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments) |
16 | SPIRIT OF AMERICA |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
The summary of inputs used to value the Fund’s net assets as of December 31, 2009 is as follows:
Income Fund
Valuation Inputs | Level 1 | Level 2 | Level 3 | Total | ||||||||
Investments in Securities: | ||||||||||||
Preferred Stock | $ | 4,895,746 | $ | — | $ | — | $ | 4,895,746 | ||||
Corporate debt securities | — | 2,461,464 | — | 2,461,464 | ||||||||
Debt securities issued by States of the United States and political subdivisions of states | — | 30,587,934 | — | 30,587,934 | ||||||||
Collateralized debt obligations | — | 940,023 | — | 940,023 | ||||||||
Total | $ | 4,895,746 | $ | 33,989,421 | $ | — | $ | 38,885,167 | ||||
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update “Improving Disclosures about Fair Value Measurements” that requires additional disclosures regarding fair value measurements. Certain required disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management is currently evaluating the impact it will have on its financial statement disclosures.
C. 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.
D. 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.
E. Use of Estimates: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, 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.
F. Distributions to Shareholders: The Fund intends to distribute substantially all of its net investment income and capital gains to shareholders each year. Normally, income distributions will be declared daily and paid monthly. Capital gains, if any, will be distributed annually in December, but may be distributed more frequently if deemed advisable by the Board. All such distributions are taxable to the shareholders whether received in cash or reinvested in shares.
INCOME FUND | 17 |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
Note 2 – Purchases and Sales of Securities
Purchases and proceeds from the sales of securities for the year ended December 31, 2009, excluding short-term investments, were $41,776,307 and $4,995,734, respectively.
Note 3 – Investment Management Fee and Other Transactions with Affiliates
Spirit of America Management Corp. (the “Adviser”) has been retained to act as the Company’s investment adviser pursuant to an Investment Advisory Agreement (the “Advisory Agreement”). The Adviser 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 the Adviser a monthly fee of 1/12 of 0.60% of the Fund’s average daily net assets. Investment advisory fees for the year ended December 31, 2009 were $103,750.
The Adviser has contractually agreed to waive advisory fees and/or reimburse expenses so that the total operating expenses will not exceed 1.10% of the average daily net assets of the Fund through April 30, 2010. The Adviser voluntarily agreed to waive .60% of advisory fees through June 30, 2009. For the year ended December 31, 2009, the Adviser reimbursed the Fund $140,957.
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 limitation as stated above. The balance of recoverable expenses to the Adviser as of December 31, 2009 was $125,017, expiring in 2012.
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 (the “Plan”). The Plan permits the Fund to pay David Lerner Associates, Inc. (the “Distributor”) a monthly fee of 1/12 of 0.25% of the Funds average daily net assets for the Distributor’s services and expenses in distributing shares of the Fund and providing personal services and/or maintaining shareholder accounts. For the year ended December 31, 2009, fees paid to the Distributor under the Plan were $43,229.
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 year ended December 31, 2009, sales charges received by the Distributor. were $1,912,407. A contingent deferred sales charge of 1.00% may be imposed on redemptions of $1 million or more made within one year of purchase.
Certain Officers and Directors of the Company are “affiliated persons”, as that term is defined in the 1940 Act, of the Adviser or the Distributor. Each Director of the Company, who is not an affiliated person of the Adviser or Distributor, receives a quarterly retainer of $1,500, $1,000 for each Board meeting attended, and $500 for each committee meeting attended plus reimbursement for certain travel and other out-of-pocket expenses incurred in connection with attending Board meetings. The Company does not compensate the Officers for the services they provide. There are no Directors’ fees paid to affiliated Directors of the Company. For the year ended December 31, 2009, the Fund was allocated $1,576 of the Chief Compliance Officer’s salary.
Note 4 – Concentration and Other Risks
The Fund is non-diversified such that the Fund may invest a larger percentage of its assets in a given security than a diversified fund.
The Fund’s performance could be adversely affected by interest rate risk, which is the possibility that overall bond prices will decline because of rising interest rates. Interest rate risk is expected to be high for the Fund because it invests mainly in long-term bonds, whose prices are much more sensitive to interest fluctuations than are the prices of short-term bonds.
18 | SPIRIT OF AMERICA |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
The Fund may be affected by credit risk, which is the possibility that the issuer of a bond will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline. This risk may be greater to the extent that the Fund may invest in junk bonds.
The Fund may be affected by credit risk of lower grade securities, which is the possibility that municipal securities rated below investment grade, or unrated of similar quality, (frequently called “junk bonds”), may be subject to greater price fluctuations and risks of loss of income and principal than investment-grade municipal securities. Securities that are (or that have fallen) below investment-grade have a greater risk that the issuers may not meet their debt obligations. These types of securities are generally considered speculative in relation to the issuer’s ongoing ability to make principal and interest payments. During periods of rising interest rates or economic downturn, the trading market for these securities may not be active and may reduce the Fund’s ability to sell these securities at an acceptable price. If the issuer of securities is in default in payment of interest or principal, the Fund may lose its entire investment in those securities.
Other risks include income risk, liquidity risk, prepayment risk on collateralized mortgage obligations, municipal project specific risk, municipal lease obligation risk, zero coupon securities risk, market risk, manager risk, taxability risk, state-specific risk and exchange traded funds risk.
Note 5 – Federal Income Taxes
The tax character of distributions paid during the year ended December 31, 2009 was as follows:
Tax Basis Distributions
Ordinary Income | Tax Exempt Income | Net Long-Term Capital Gains | Total Distributions | |||||||||
12/31/2009 | $ | 1,630,700 | $ | 0 | $ | 18,957 | $ | 1,649,657 |
Distribution classifications may differ from the Statement of Changes in Net Assets as a result of the treatment of short-term capital gains as ordinary income for tax purposes.
As of December 31, 2009, the components of accumulated distributable earnings for the Fund on a tax basis were as follows:
Accumulated Net Investment Income | $ | 1,236 | |
Capital Loss Carryforward | — | ||
Deferred Post-October Losses | — | ||
Unrealized appreciation | 1,552,541 | ||
Total Distributable Earnings | $ | 1,553,777 | |
Management has analyzed the Fund’s tax positions taken on federal income tax returns for all open tax years (current year), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. The Fund’s federal and state income and federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue.
INCOME FUND | 19 |
NOTES TO FINANCIAL STATEMENTS (CONT.) | DECEMBER 31, 2009
Note 6 – Reclassification
Permanent differences, incurred during the year ended December 31, 2009, resulting from differences in book and tax accounting have been reclassified at year end to undistributed net investment income, accumulated realized gain (loss) and paid-in-capital as follows:
Increase (Decrease) | ||||
Paid-In-Capital | $ | 0 | ||
Undistributed Net Investment Income | 20,193 | |||
Accumulated Net Realized (Loss) | (20,193 | ) |
Note 7 – Subsequent Events
Management has evaluated the impact of all subsequent events on the Fund through February 25, 2010, the date the financial statements were issued, and has determined that the following subsequent event requires recognition or disclosure in the financial statements.
On February 2, 2010, The PNC Financial Services Group, Inc. (“PNC”) entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with The Bank of New York Mellon Corporation (“BNY Mellon”). Upon the terms and subject to the conditions set forth in the Stock Purchase Agreement, which has been approved by the board of directors of each company, PNC will sell to BNY Mellon (the “Stock Sale”) 100% of the issued and outstanding shares of PNC Global Investment Servicing Inc., an indirect, wholly-owned subsidiary of PNC.
The Stock Sale includes PNC Global Investment Servicing (U.S.) Inc., PFPC Trust Company and PFPC Distributors, Inc. and is expected to close in the third quarter of 2010.
Tax Information (Unaudited)
All designations are based on financial information available as of the date of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
Long-Term Capital Gain Dividends
The fund designates $18,957 as long-term capital gain distributions pursuant to section 852(b)(3) of the Internal Revenue Code for the year ended December 31, 2009.
20 | SPIRIT OF AMERICA |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Spirit of America Investment Fund, Inc. and the Shareholders of
Spirit of America Income Fund
Syosset, New York
We have audited the accompanying statement of assets and liabilities of Spirit of America Income Fund (the “Fund”), a series of shares of beneficial interest in Spirit of America Investment Fund, Inc., including the schedule of investments as of December 31, 2009, and the related statement of operations, the statement of changes in net assets and the financial highlights for the year 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. 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 December 31, 2009 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 audit provides 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 Income Fund as of December 31, 2009, the results of its operations, the changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
Philadelphia, Pennsylvania
February 25, 2010
INCOME FUND | 21 |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT | DECEMBER 31, 2009
Approval of the Investment Advisory Agreement (Unaudited)
The Investment Company Act of 1940, as amended (the “1940 Act”), requires that the continuance of a registered management investment company’s investment advisory agreement be approved annually by both the board of directors and also by a majority of its directors who are not parties to the investment advisory agreement or “interested persons” (as defined by the 1940 Act) of any such party (the “Independent Directors”). On November 11, 2009, the Board of Directors (the “Board” or “Directors”) of Spirit of America Investment Fund, Inc. (the “Company”) met in person (the “Meeting”) to, among other things, review and consider the approval of the Investment Advisory Agreement (the “Advisory Agreement”) by and between Spirit of America Management Corp. (the “Adviser”) and the Company, on behalf of Spirit of America Real Estate Income and Growth Fund, Spirit of America Large Cap Value Fund, Spirit of America High Yield Tax Free Bond Fund and Spirit of America Income Fund (collectively, the “Funds”). At the Meeting, the Board, including the Independent Directors, voting separately, approved the Advisory Agreement after determining that the Adviser’s compensation, pursuant to the terms of the Advisory Agreement, would be fair and reasonable and concluded that the approval of the Advisory Agreement would be in the best interest of the Funds’ shareholders. The Board’s approval was based on consideration and evaluation of the information and material provided to the Board and a variety of specific factors discussed at the Meeting and at prior meetings of the Board, including the factors described below.
As part of the approval process and oversight of the advisory relationship, counsel to the Independent Directors (“Independent Counsel”) sent an information request letter to the Adviser seeking certain relevant information and the Directors received, for their review in advance of the Meeting, the Adviser’s responses. In addition, the Directors were provided with the opportunity to request any additional materials. In advance of the Meeting, the Board, including the Independent Directors, requested and received materials provided by the Adviser and Independent Counsel, including, among other things, the following: (i) information on the investment performance of the Funds and relevant indices over various time periods; (ii) sales and redemption data with respect to the Funds; (iii) the general investment outlook in the markets in which the Funds invest; (iv) arrangements with respect to the distribution of the Funds’ shares; (v) the procedures employed to determine the value of each Fund’s assets; (vi) the allocation of the Funds’ brokerage, the record of compliance with the Funds’ investment policies and restrictions and with the Funds’ Code of Ethics and the structure and responsibilities of the Adviser’s compliance departments; (vii) the profitability of the Funds’ investment advisory business to the Adviser taking into account both advisory fees and any other potential direct or indirect benefits; (viii) information comparing the overall fees and specifically the fees under the Investment Advisory Agreement with the fees paid by other similar mutual funds; (ix) the Form ADV of the Adviser; and (x) information comparing the performance of the Funds with the performance of other similar mutual funds; and (xi) a memorandum from Independent Counsel regarding the responsibilities of the Board related to the approval of the Advisory Agreement.
22 | SPIRIT OF AMERICA |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
In evaluating the Advisory Agreement, the Board, including the Independent Directors, requested, reviewed and considered materials furnished by the Adviser and questioned personnel of the Adviser, including the Funds’ portfolio managers, regarding, among other things, the personnel, operations and financial condition of the Adviser. Among other information, the Board, including the Independent Directors, requested and was provided information regarding:
• | The investment performance of each Fund over various time periods both by itself and in relation to relevant indices; |
• | The fees charged by the Adviser for investment advisory services, as well as other compensation received by the Adviser and its affiliates; |
• | The waivers of fees and reimbursements of expenses at times by the Adviser under the Operating Expenses Agreement; |
• | The investment performance, fees and total expenses of mutual funds with similar objectives and strategies managed by other investment advisers; |
• | The investment management staffing and the experience of the investment advisory, administrative and other personnel providing services to the Funds and the historical quality of the services provided by the Adviser; and |
• | The profitability to the Adviser of managing and its affiliate distributing the Funds and the methodology in allocating expenses to the management of the Funds. |
At the Meeting, Independent Counsel referred the Directors to the “Gartenberg Memorandum” which had been distributed to each Director in advance of the Meeting, outlining the legal standards applicable to the Independent Directors under the 1940 Act with respect to the approval of the continuation of investment advisory agreements. In addition, the Independent Directors were provided with the opportunity to meet with Independent Counsel, in executive session, outside the presence of Company management and participate in a question and answer session with the Adviser.
The following is a summary of the Board’s discussion and views regarding the factors it considered in evaluating the continuation of the Investment Advisory Agreement:
1. Nature, Extent, and Quality of Services.
The Board, including the Independent Directors, considered the nature, quality and extent of advisory, administrative and shareholder services performed by the Adviser, including: regulatory filings and disclosure to shareholders, general oversight of the service providers, coordination of Fund marketing initiatives, review of Fund legal issues, assisting the Board, including the Independent Directors, in their capacity as directors and other services. The Board, including the Independent Directors, noted the increased responsibilities of the Adviser in response to an increasingly regulated industry. The Board, including the Independent Directors, concluded that the services are extensive in nature, that the Adviser delivered a high level of service to each Fund and that the Adviser is positioned to continue providing such quality of service in the future.
INCOME FUND | 23 |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
2. Investment Performance of the Funds and the Adviser.
The Board, including the Independent Directors, considered short-term and long-term investment performance for the Funds over various periods of time as compared to both relevant indices and the performance of such Funds’ peer groups, and concluded that each Fund was delivering reasonable performance results, especially over the long-term, consistent with the investment strategies that the Funds pursue.
3. Costs of Services and Profits Realized by the Adviser.
a. The Board, including the Independent Directors, considered the information provided by Lipper Inc. regarding each Fund’s management fee rate and overall expense ratio relative to industry averages for the Fund’s peer group category and the advisory fees charged by the Adviser to other accounts. The Board viewed favorably the current and historic willingness of the Adviser to limit the overall expense ratios of the Funds. Recognizing that the fees paid by the Funds were higher than the medians in their peer groups, the Board nonetheless noted that the fees were still close to the median and that several peer funds had higher fees.
b. Profitability and Costs of Services to the Adviser. The Board, including the Independent Directors, considered estimates of the Adviser’s profitability and costs attributable to the Funds. The Board recognized that increased fixed costs, particularly legal and audit fees in response to increasing regulations, have a greater impact on smaller fund families, such as the Funds, than on larger fund complexes. Given this, the Board recognized that the Funds’ overall expenses compare unfavorably to some funds identified as peers. The Board also considered whether the amount of the Adviser’s profit is a fair profit for the management of the Funds and noted that the Adviser has devoted a large amount of its resources into the Funds over the years. The Board, including the Independent Directors, concluded that the Adviser’s profitability was at a fair and acceptable level, particularly in light of the quality of the services being provided to the Funds, and bore a reasonable relationship to the services rendered.
4. Extent of Economies of Scale as the Funds Grow.
The Board, including the Independent Directors, considered whether there have been economies of scale with respect to the management of the Funds and whether the Funds have appropriately benefited from any economies of scale. Given the size of each Fund, the Board did not believe that significant (if any) economies of scale have been achieved.
5. Whether Fee Levels Reflect Economies of Scale.
The Board took into consideration that the Adviser does not currently offer breakpoints in its fees that would otherwise allow investors to benefit directly from economies of scale in the form of lower fees as fund assets grow. However, the Board, including the Independent Directors, did consider enhancements in personnel and services provided to the Funds by the Adviser, without an increase in fees. The Board also noted that few of the Funds’ peers offered breakpoints despite having significantly more assets under management.
24 | SPIRIT OF AMERICA |
APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT (CONT.) | DECEMBER 31, 2009
6. Other Relevant Considerations.
a. Personnel and Methods. The Board, including the Independent Directors, reviewed the Adviser’s Form ADV and questioned the Adviser regarding the size, education and experience of the staff of the Adviser, its fundamental research capabilities, approach to recruiting, training and retaining portfolio managers and other research and management personnel, and concluded that these enable them to provide a high level of service to the Funds. The Board also considered the history, reputation, qualifications and background of the Adviser as well as the qualifications of its personnel.
b. The Board, including the Independent Directors, also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Funds, including the benefits received by the affiliated distributor. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition or increased ability to obtain research services (although the Board noted that the Adviser currently does not use soft dollars to obtain research services), appear to be reasonable, and may in some cases benefit the Funds.
Conclusions. In considering the renewal of the Investment Advisory Agreement, the Board, including the Independent Directors, did not identify any factor as all-important or all-controlling and instead considered the above listed and other factors collectively in light of the Funds’ surrounding circumstances. Each Director gave the weight to each factor that he deemed appropriate in his own judgment. The Board considered the renewal of the Investment Advisory Agreement on a Fund-by-Fund basis and determined that the renewal of the Investment Advisory Agreement was in the best interests of the shareholders of each Fund. The Board also determined that the fees charged to each Fund for the services provided were reasonable. Therefore, the Board, including the Independent Directors, determined that continuance of the Investment Advisory Agreement was in the best interests of each Fund.
INCOME FUND | 25 |
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.
Name, Address and (Age) Position(s) with the Company | Term of Office1 | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen by Director | Other Directorships Held by Director | ||||
INTERESTED DIRECTORS | ||||||||
David Lerner2 (73) 477 Jericho Turnpike Syosset, New York 11791 Director, Chairman of the Board, President | Since 1998 | President and founder, David Lerner Associates, Inc., a registered broker-dealer; President, Spirit of America Management Corp., the Company’s investment adviser; and Chief Executive Officer and President of David Lerner Associates, Inc., the Company’s Distributor. | 4 | Director of Spirit of America Management Corp., the Company’s investment adviser; Director of David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor. | ||||
Daniel Lerner2 (48) 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | Senior Vice President, Investment Counselor with David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor, since September 2000. Previously: Broker with Prudential Securities from February 2000 to July 2000; Broker with Bear Stearns from January 1999 to May 1999. | 4 | Director of David Lerner Associates, Inc., a registered broker-dealer and the Company’s Distributor. | ||||
INDEPENDENT DIRECTORS | ||||||||
Allen Kaufman (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | President and Chief Executive Officer of K.G.K. Agency, Inc., a property and casualty insurance agency, since 1963. | 4 | Director of K.G.K. Agency, Inc., a property and casualty insurance agency. | ||||
Stanley S. Thune (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 1998 | President and Chief Executive Officer, Freight Management Systems, Inc., a third party logistics management company, since 1994; private investor. | 4 | Director of Freight Management Systems, Inc. | ||||
Richard Weinberger (73) c/o 477 Jericho Turnpike Syosset, New York 11791 Director | Since 2005 | Of Counsel to Ballon Stoll Bader & Nadler, P.C., a mid-sized law firm, since January 2005; Shareholder, Ballon Stoll Bader & Nadler, P.C., January 2000 to December 2004. | 4 | None. | ||||
OFFICERS | ||||||||
David Lerner President (see biography above) | ||||||||
Alan P. Chodosh (56) 477 Jericho Turnpike Syosset, New York 11791 Treasurer and Secretary | Since 2003 (Treasurer) Since 2005 (Secretary) | Executive Vice President and Chief Financial Officer of David Lerner Associates, Inc. since June 1997. | N/A | N/A | ||||
Joseph Pickard (49) 477 Jericho Turnpike Syosset, New York 11791 Chief Compliance Officer | Since 2007 | Chief Compliance Officer of Spirit of America Investment Fund, Inc. and Spirit of America Management Corp. since July 2007; Counsel to the Interested Directors of Spirit of America Investment Fund, Inc. since July 2002; General Counsel of David Lerner Associates, Inc. since July 2002. | N/A | N/A |
1 | Each Director serves for an indefinite term, until his successor is elected. |
2 | David Lerner is an “interested” Director, as defined in the 1940 Act, by reason of his positions with the Adviser and Distributor, and Daniel Lerner is an “interested” Director by reason of his position with the Distributor. Daniel Lerner is the son of David Lerner. |
26 | SPIRIT OF AMERICA |
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Proxy Voting Information
The Company’s Statement of Additional Information (“SAI”) containing a description of the policies and procedures that the Spirit of America Income Fund uses to determine how to vote proxies relating to portfolio securities, along with the Company’s proxy voting record relating to portfolio securities held during the 12-month period ended December 31, 2009, are available (i) without charge, upon request, by calling (516) 390-5565; and (ii) on the SEC’s website at http://www.sec.gov.
Information on Form N-Q
The Company will file its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q within sixty days after the end of the period. The Company’s Forms N-Q will be available on the SEC’s website at http://www.sec.gov, and may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0030. |
Investment Adviser
Spirit of America Management Corp. 477 Jericho Turnpike P.O. Box 9006 Syosset, NY 11791-9006
Distributor
David Lerner Associates, Inc. 477 Jericho Turnpike P.O. Box 9006 Syosset, NY 11791-9006
Shareholder Services
PNC Global Investment Servicing (U.S.) Inc. 760 Moore Road King of Prussia, PA 19406
Custodian
PFPC Trust Company 8800 Tinicum Boulevard, 4th floor Philadelphia, PA 19153
Independent Registered Public Accounting Firm
Tait Weller & Baker LLP 1818 Market Street, Suite 2400 Philadelphia, PA 19103
Counsel
Blank Rome LLP 405 Lexington Avenue New York, NY 10174 |
For additional information about the Spirit of America Income Fund, call (800) 452-4892 or (610) 382-7819. This report is submitted for the general information of the shareholders of the Fund. It is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective Prospectus which includes details regarding the Fund’s objectives, policies, expenses, and other information.
©Copyright 2010 Spirit of America SOAIF-AR09
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) | Not applicable. |
(c) | 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. |
(d) | 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. |
(e) | Not applicable. |
(f) | The registrant’s code of ethics - filed herewith as an exhibit under 12(a)(1). |
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. |
Audit Fees
(a) | The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services |
that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal years ended December 31, 2008 and December 31, 2009 are $47,700 and $66,000, respectively. |
Audit-Related Fees
(b) | The aggregate fees billed for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item for fiscal years ended December 31, 2008 and December 31, 2009 are $0 and $0, respectively. |
Tax Fees
(c) | The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning for fiscal years ended December 31, 2008 and December 31, 2009 are $0 and $0, respectively. |
All Other Fees
(d) | The aggregate fees billed for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item for fiscal years ended December 31, 2008 and December 31, 2009 are $0 and $0, respectively. |
(e)(1) | Disclose the audit committee’s pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. |
Pre-Approval of Audit and Permitted Non-Audit Services Provided to the Company
Pre-Approval Requirements. The Committee shall pre-approve all auditing services and permissible non-audit services (e.g., tax services) to be provided to the Company by the Auditor, including the fees therefor. The Committee may delegate to one or more of its members the authority to grant pre-approvals. In connection with such delegation, the Committee shall establish pre-approval policies and procedures, including the requirement that the decisions of any member to whom authority is delegated under this section (B) shall be presented to the full Committee at each of its scheduled meetings.
De Minimis Exception to Pre-Approval: Pre-approval for a permitted non-audit service shall not be required if:
a. | the aggregate amount of all such non-audit services is not more than 5% of the total revenues paid by the Company to the Auditor in the fiscal year in which the non-audit services are provided; |
b. | such services were not recognized by the Company at the time of the engagement to be non-audit services; and |
c. | such services are promptly brought to the attention of the Committee and approved prior to the completion of the audit by the Committee or by one or more members of the Committee to whom authority to grant such approvals has been delegated by the Committee. |
Additionally, the Committee shall pre-approve the Auditor’s engagements for non-audit services with the Adviser and any affiliate of the Adviser that provides ongoing services to the Company in accordance with the foregoing, if the engagement relates directly to the operations and financial reporting of the Company, unless the aggregate amount of all services provided constitutes no more than 5% of the total amount of revenues paid to the Auditor by the Company, the Adviser and any affiliate of the Adviser that provides ongoing services to the Company during the fiscal year in which the services are provided that would have to be pre-approved by the Committee pursuant to this paragraph (without regard to this exception).
(e)(2) | The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows: |
(b) N/A
(c) N/A
(d) N/A
(f) | The percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was 0%. |
(g) | The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for fiscal years ended December 31, 2008 and December 31, 2009 are $0 and $0, respectively. |
(h) | The registrant’s audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence. |
Item 5. | Audit Committee of Listed registrants. |
Not applicable.
Item 6. | Investments. |
(a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
(b) | Not applicable. |
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable.
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable.
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c)(2)(iv) of Regulation S-K (17 CFR 229.407) (as required by Item 22(b)(15) of Schedule 14A (17 CFR 240.14a-101)), or this Item.
Item 11. | 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 Securities Exchange Act of 1934, as amended (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 second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. | Exhibits. |
(a)(1) | Financial Officer Code of Ethics. | |
(a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. | |
(a)(3) | Not applicable. | |
(b) | Certifications pursuant to Rule 30a-2(b) under the 1940 Act and 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, Principal Executive Officer (principal executive officer) | ||||
Date 2/23/10 |
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, Principal Executive Officer (principal executive officer) | ||||
Date 2/23/10 | ||||
By (Signature and Title)* | /s/ ALAN P. CHODOSH | |||
Alan P. Chodosh, Principal Financial Officer (principal financial officer) | ||||
Date 2/23/10 |
* | Print the name and title of each signing officer under his or her signature. |