As filed with the Securities and Exchange Commission on January 8, 2004
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 811-6023
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
535 Madison Avenue, 30th Floor
New York, New York 10022
(212) 446-5600
R. Alan Medaugh, President
535 Madison Avenue, 30th Floor
New York, NY 10022
(212) 446-5600
Date of fiscal year end: OCTOBER 31, 2003
Date of reporting period: OCTOBER 31, 2003
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
ISI
INTERNATIONAL STRATEGY & INVESTMENT
ANNUAL REPORT
OCTOBER 31, 2003
--------------
TOTAL RETURN
US TREASURY
FUND
MANAGED MUNICIPAL
FUND
NORTH AMERICAN
GOVERNMENT BOND
FUND
ISI STRATEGY
FUND
ISI FUNDS ANNUAL REPORT - TABLE OF CONTENTS
Investment Advisor's Message...................................................1
Management Discussion and Analysis.............................................3
Performance Comparisons........................................................5
Schedules of Investments.......................................................9
Statements of Assets and Liabilities..........................................23
Statements of Operations......................................................25
Statements of Changes in Net Assets...........................................27
Financial Highlights..........................................................34
Notes to Financial Statements.................................................39
Report of the Independent Auditors............................................44
Fund Directors and Officers...................................................45
Notice to Shareholders........................................................48
INVESTMENT ADVISOR'S MESSAGE
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for the ISI
Funds, individually a `Fund' and collectively the `Funds'. This report covers
the 12-month reporting period through October 31, 2003 and includes commentary
from the Fund's portfolio managers (see Management Discussion and Analysis that
follows this letter for more details), a complete list of holdings and the
financial statements.
Stocks recorded strong positive returns for the last year but were up
slightly over the last five years. For example, the Wilshire 5000 Index was
+24.44% for the last year and averaged +1.74% for the past five years. US
Treasuries and top quality municipal indices were up modestly over the last year
but up more over the last 5 years. For example, the Lehman Treasury Index was
+2.82% for the past year and averaged +6.00% for the past five years. The Lehman
Municipal State GO Index was +5.01% for the past year and averaged +5.49% for
the past five years. The following is a summary of fund performance during the
reporting period. These figures assume the reinvestment of dividend and capital
gain distributions, and exclude the impact of any sales charges. During the year
ended October 31, 2003, Total Return US Treasury Fund, Managed Municipal Fund
and North American Government Bond Fund continued their policy of paying
dividends, at a fixed rate, which resulted in dividends consisting of net
investment income, short-term capital gains and long-term capital gains.
TOTAL RETURN US TREASURY FUND'S investment objective is to achieve a
high level of total return with relative stability of principal, and
secondarily, high current income consistent with an investment in securities
issued by the United States Treasury. For the reporting period, the Fund
produced a one-year total return of +2.30% and a five-year average annual total
return of +5.29%. From its inception on August 10, 1988 through October 31,
2003, the Fund has posted a cumulative total return of +214.46%, which
translates into an average annual total return of +7.82%. The Fund's net assets
totaled $229.0 million at the end of the reporting period.
MANAGED MUNICIPAL FUND'S investment objective is to provide a high
level of total return with relative stability of principal and, secondarily,
high current income exempt from federal income tax through investment in a
portfolio consisting primarily of tax-free municipal obligations. For the
reporting period, the Fund produced a one-year total return of +3.89% and a
five-year average annual total return of +4.61%. From its inception on February
26, 1990 through October 31, 2003, the Fund has posted a cumulative total return
of +128.11%, which translates into an average annual total return of +6.22%. The
Fund's net assets totaled $107.1 million at the end of the reporting period.
NORTH AMERICAN GOVERNMENT BOND FUND'S investment objective is to
provide a high level of current income, consistent with prudent investment risk,
by investing primarily in a portfolio consisting of fixed income securities
issued or guaranteed by the governments of the United States, Canada and Mexico.
For the reporting period, the ISI Class A Shares produced a one-year total
return of +4.14% and a five year average annual total return of +6.35%. From its
inception on January 15, 1993, through October 31, 2003, the ISI Class A Shares
have posted a cumulative total return of +93.83%, which translates into an
average annual total return of +6.32%. The Fund's net assets totaled $281.3
million at the end of the reporting period.
ISI STRATEGY FUND has an investment objective of maximizing total
return through a combination of long-term growth of capital and current income
by actively allocating the Fund's assets between common stocks of US issuers and
US Treasury securities. For the reporting period, the Fund produced a one-year
total return of +16.47% and a five-year average annual total return of +2.38%.
From its inception on September 16, 1997, through October 31, 2003, the Fund has
posted a cumulative total return of +26.26%, which translates into an average
annual total return of +3.88%. The Fund's net assets totaled $30.3 million at
the end of the reporting period.
1
INVESTMENT ADVISOR'S MESSAGE
RECENT FUND EVENTS
- ------------------
On May 16, 2003, the North American Government Bond Fund started
offering ISI Class C Shares, and the existing ISI Shares were redesignated as
ISI Class A Shares. ISI Class A Share net assets totaled $267.8 million while
ISI Class C Share net assets totaled $13.5 million comprising the Fund's $281.3
million on October 31, 2003.
We would like to welcome new investors to the ISI Funds and thank those
who have been with us for some time. We appreciate your confidence.
Sincerely,
/s/ R. ALAN MEDAUGH
R. Alan Medaugh
President
November 5, 2003
2
MANAGEMENT DISCUSSION & ANALYSIS
TOTAL RETURN US TREASURY FUND
- -----------------------------
The Total Return US Treasury Fund is a US Treasury-oriented active
maturity management fund. International Strategy & Investment, Inc.'s (`ISI')
economic outlook for key bond market factors such as inflation, growth, and
market sentiment, form the basis for the portfolio activity. This year, interest
rates on the 10-year Treasury note ranged from 3.11% to 4.60%. The emergence of
a strong economic recovery caused rates to rise, especially since mid-June.
Please see chart below. The Fund's portfolio was shifted towards short
maturities to cushion the effects of higher rates. The performance of the Fund
was influenced by these actions. The Fund's average maturity including reserves
was 9.0 years on October 31, 2003. The annual total return was +2.30%.
[EDGAR Representation of Graph Chart:
Date Yield Date Yield (cont)
31-Oct 4.295 30-Apr 3.838
30-Oct 4.344 29-Apr 3.929
29-Oct 4.297 28-Apr 3.903
28-Oct 4.179 25-Apr 3.890
27-Oct 4.261 24-Apr 3.921
24-Oct 4.232 23-Apr 3.977
23-Oct 4.318 22-Apr 3.966
22-Oct 4.253 21-Apr 3.983
21-Oct 4.344 18-Apr 3.958
20-Oct 4.384 17-Apr 3.958
17-Oct 4.390 16-Apr 3.940
16-Oct 4.461 15-Apr 3.987
15-Oct 4.399 14-Apr 4.016
14-Oct 4.346 11-Apr 3.973
13-Oct 4.253 10-Apr 3.944
10-Oct 4.271 9-Apr 3.898
9-Oct 4.293 8-Apr 3.934
8-Oct 4.238 7-Apr 3.979
7-Oct 4.259 4-Apr 3.954
6-Oct 4.171 3-Apr 3.911
3-Oct 4.201 2-Apr 3.930
2-Oct 3.995 1-Apr 3.811
1-Oct 3.934 31-Mar 3.798
30-Sep 3.939 28-Mar 3.900
29-Sep 4.077 27-Mar 3.925
26-Sep 4.002 26-Mar 3.930
25-Sep 4.083 25-Mar 3.944
24-Sep 4.135 24-Mar 3.967
23-Sep 4.207 21-Mar 4.105
22-Sep 4.218 20-Mar 3.955
19-Sep 4.162 19-Mar 3.986
18-Sep 4.164 18-Mar 3.907
17-Sep 4.180 17-Mar 3.840
16-Sep 4.277 14-Mar 3.702
15-Sep 4.269 13-Mar 3.747
12-Sep 4.253 12-Mar 3.583
11-Sep 4.316 11-Mar 3.583
10-Sep 4.273 10-Mar 3.562
9-Sep 4.357 7-Mar 3.642
8-Sep 4.428 6-Mar 3.658
5-Sep 4.349 5-Mar 3.630
4-Sep 4.505 4-Mar 3.648
3-Sep 4.595 3-Mar 3.675
2-Sep 4.601 28-Feb 3.692
1-Sep 4.460 27-Feb 3.739
29-Aug 4.466 26-Feb 3.767
28-Aug 4.416 25-Feb 3.822
27-Aug 4.537 24-Feb 3.846
26-Aug 4.475 21-Feb 3.890
25-Aug 4.527 20-Feb 3.869
22-Aug 4.475 19-Feb 3.884
21-Aug 4.477 18-Feb 3.951
20-Aug 4.438 17-Feb 3.964
19-Aug 4.363 14-Feb 3.995
18-Aug 4.459 13-Feb 3.879
15-Aug 4.530 12-Feb 3.910
14-Aug 4.491 11-Feb 3.959
13-Aug 4.562 10-Feb 3.966
12-Aug 4.428 7-Feb 3.931
11-Aug 4.355 6-Feb 3.947
8-Aug 4.271 5-Feb 3.997
7-Aug 4.219 4-Feb 3.924
6-Aug 4.269 3-Feb 3.994
5-Aug 4.392 31-Jan 3.964
4-Aug 4.285 30-Jan 3.963
1-Aug 4.385 29-Jan 4.023
31-Jul 4.408 28-Jan 3.970
30-Jul 4.309 27-Jan 3.964
29-Jul 4.440 24-Jan 3.930
28-Jul 4.282 23-Jan 3.937
25-Jul 4.177 22-Jan 3.916
24-Jul 4.167 21-Jan 3.972
23-Jul 4.110 20-Jan 4.017
22-Jul 4.124 17-Jan 4.011
21-Jul 4.212 16-Jan 4.079
18-Jul 4.001 15-Jan 4.062
17-Jul 3.922 14-Jan 4.079
16-Jul 3.920 13-Jan 4.122
15-Jul 3.983 10-Jan 4.134
14-Jul 3.726 9-Jan 4.181
11-Jul 3.628 8-Jan 4.019
10-Jul 3.657 7-Jan 4.007
9-Jul 3.682 6-Jan 4.054
8-Jul 3.716 3-Jan 4.019
7-Jul 3.733 2-Jan 4.032
4-Jul 3.649 1-Jan 3.819
3-Jul 3.663 31-Dec 3.816
2-Jul 3.538 30-Dec 3.797
1-Jul 3.549 27-Dec 3.810
30-Jun 3.515 26-Dec 3.904
27-Jun 3.543 25-Dec 3.934
26-Jun 3.543 24-Dec 3.936
25-Jun 3.405 23-Dec 3.973
24-Jun 3.251 20-Dec 3.959
23-Jun 3.313 19-Dec 3.940
20-Jun 3.367 18-Dec 4.036
19-Jun 3.339 17-Dec 4.126
18-Jun 3.363 16-Dec 4.161
17-Jun 3.262 13-Dec 4.069
16-Jun 3.173 12-Dec 4.025
13-Jun 3.114 11-Dec 4.025
12-Jun 3.165 10-Dec 4.048
11-Jun 3.212 9-Dec 4.036
10-Jun 3.192 6-Dec 4.085
9-Jun 3.278 5-Dec 4.139
6-Jun 3.353 4-Dec 4.153
5-Jun 3.344 3-Dec 4.203
4-Jun 3.295 2-Dec 4.231
3-Jun 3.331 29-Nov 4.207
2-Jun 3.410 28-Nov 4.252
30-May 3.372 27-Nov 4.260
29-May 3.337 26-Nov 4.067
28-May 3.425 25-Nov 4.176
27-May 3.412 22-Nov 4.180
26-May 3.334 21-Nov 4.154
23-May 3.337 20-Nov 4.059
22-May 3.316 19-Nov 3.979
21-May 3.398 18-Nov 3.998
20-May 3.356 15-Nov 4.031
19-May 3.487 14-Nov 4.057
16-May 3.420 13-Nov 3.841
15-May 3.532 12-Nov 3.850
14-May 3.522 11-Nov 3.841
13-May 3.604 8-Nov 3.858
12-May 3.644 7-Nov 3.894
9-May 3.681 6-Nov 4.035
8-May 3.683 5-Nov 4.071
7-May 3.677 4-Nov 4.045
6-May 3.786 1-Nov 4.006
5-May 3.886 31-Oct 3.894]
2-May 3.925
1-May 3.842
*Source: Bloomberg
MANAGED MUNICIPAL FUND
- ----------------------
The Managed Municipal Fund is a top quality (AAA & AA rated bonds)
national tax-free bond fund where active maturity management is a part of the
mandate. Of importance is the percentage of Treasury yield for top quality
municipals. In October 2003, the yields on 10-year AAA General Obligation
municipals were 87.5% of the yield of US Treasuries*. The percentage of Treasury
yield for the same municipal index for October 2002 was 98.0%*. This year's
reading is more normal but still avails most taxable investors an after tax
yield that is above US Treasuries of similar maturity. Please see the table
below for a comparison of the percentages over the last 5 years.
10-YEAR AAA GO INDEX YIELD AS A % OF US TREASURY 10-YEAR YIELD
(AS OF OCTOBER 31)*
-------------------
YEAR 2003 2002 2001 2000 1999
- ---- ---- ---- ---- ---- ----
PERCENTAGE 87.5 98.0 93.6 82.4 83.8
- ----------
*Source: Bloomberg
The Fund's portfolio is oriented towards high quality General
Obligation issues in the 5 - 10 year range when the effect of call features are
incorporated. The Fund's average maturity including reserves was 7.0 years on
October 31, 2003. The annual total return was +3.89%.
NORTH AMERICAN GOVERNMENT BOND FUND
- -----------------------------------
The North American Government Bond Fund actively manages both the Fund's
maturity and the asset allocation among the US, Canada and Mexico. The
management of the average maturity of the entire Fund is primarily accomplished
through moving the Treasury section's maturity. At the end of October 2003, the
Fund was conservatively invested with roughly 30% of the portfolio invested in
US Dollar maturities of less than 1 year. Based on ISI's research, we also
manage the mix of assets among the US, Canada and Mexico. Over the last year,
the Mexican section has represented between 11.2% and 20.4% of the portfolio,
while the Canadian section has ranged between 2.3% and 11.4%. Currently, Mexico
represents 18.3% of the Fund, while Canada is 6.6%. Overall, the Fund's average
maturity including reserves was 8.2 years on October 31, 2003. The annual total
return for Class A Shares was +4.14%.
ISI STRATEGY FUND
- -----------------
The ISI Strategy Fund's primary active management focus is the
proportion allocated to stocks, bonds and cash. During the past year, the
portfolio was invested in equities so that its average percentage weighting was
slightly under 80% of the whole portfolio. The normal policy range is 40% to 80%
equities. The high weighting in stocks helped performance because the Wilshire
5000 Index was +24.44% for the year, while the Lehman
3
MANAGEMENT DISCUSSION & ANALYSIS
Treasury Index was +2.82%. Two additional investment features are of importance
to the Fund. First, the equity section is invested to reflect the movement of
the US stock market as a whole. The benchmark index is the Wilshire 5000. Over
the last year, this broader measure of the equity market has outperformed the
somewhat narrower S&P 500, with a total return of +24.44% versus +20.80%.
Second, the fixed income section is US Treasury-based with a managed maturity
orientation similar to the Total Return US Treasury Fund. At the end of October
2003, the section's average maturity including reserves was 6.7 years. By
contrast, at fiscal year end 2002 the average maturity was 11.1 years. The
annual total return, +16.47%, was most influenced by the high weighting in
stocks, and that was a positive to performance.
4
TOTAL RETURN US TREASURY FUND - ISI SHARES PERFORMANCE COMPARISON 1
Total Return US Treasury Fund - ISI Shares, Lehman Brothers Treasury Index,
Lehman Brothers Long-Term Treasury Index and Lehman Brothers Intermediate
Treasury Index: Value of a $10,000 Investment (for 10-Years ended October 31,
2003)
[EDGAR Representation of Graph Chart:
Lehman Lehman
Total Return Lehman Brothers Brothers Long-
US Treasury Brothers Intermediate Term
Fund - ISI Treasury Treasury Treasury
Date Shares Index Index Index
10/31/1993 9,700 10,000 10,000 10,000
11/30/1993 9,521 9,890 9,950 9,744
12/31/1993 9,557 9,929 9,991 9,775
1/31/1994 9,707 10,065 10,090 10,009
2/28/1994 9,475 9,849 9,949 9,598
3/31/1994 9,242 9,628 9,805 9,177
4/30/1994 9,159 9,553 9,742 9,069
5/31/1994 9,133 9,541 9,749 9,009
6/30/1994 9,088 9,520 9,752 8,923
7/31/1994 9,284 9,693 9,878 9,226
8/31/1994 9,268 9,696 9,907 9,158
9/30/1994 9,105 9,560 9,826 8,869
10/31/1994 9,098 9,554 9,828 8,839
11/30/1994 9,091 9,534 9,783 8,891
12/31/1994 9,173 9,593 9,815 9,028
1/31/1995 9,346 9,770 9,974 9,259
2/28/1995 9,550 9,979 10,165 9,522
3/31/1995 9,593 10,042 10,221 9,604
4/30/1995 9,718 10,173 10,339 9,775
5/31/1995 10,252 10,584 10,630 10,525
6/30/1995 10,337 10,668 10,701 10,648
7/31/1995 10,237 10,628 10,705 10,478
8/31/1995 10,385 10,751 10,792 10,710
9/30/1995 10,514 10,854 10,863 10,907
10/31/1995 10,737 11,022 10,985 11,212
11/30/1995 10,940 11,193 11,119 11,493
12/31/1995 11,155 11,353 11,230 11,798
1/31/1996 11,169 11,425 11,327 11,799
2/29/1996 10,801 11,191 11,205 11,228
3/31/1996 10,631 11,094 11,150 11,005
4/30/1996 10,504 11,027 11,118 10,821
5/31/1996 10,475 11,005 11,113 10,765
6/30/1996 10,632 11,145 11,223 10,994
7/31/1996 10,646 11,171 11,257 10,998
8/31/1996 10,561 11,148 11,271 10,861
9/30/1996 10,776 11,331 11,415 11,160
10/31/1996 11,105 11,580 11,602 11,599
11/30/1996 11,403 11,781 11,741 11,986
12/31/1996 11,179 11,659 11,677 11,695
1/31/1997 11,137 11,671 11,721 11,612
2/28/1997 11,129 11,685 11,738 11,617
3/31/1997 10,959 11,559 11,669 11,320
4/30/1997 11,125 11,725 11,800 11,593
5/31/1997 11,233 11,826 11,892 11,723
6/30/1997 11,401 11,958 11,992 11,950
7/31/1997 11,877 12,301 12,217 12,651
8/31/1997 11,655 12,177 12,168 12,299
9/30/1997 11,861 12,362 12,300 12,638
10/31/1997 12,105 12,577 12,445 13,064
11/30/1997 12,193 12,642 12,474 13,237
12/31/1997 12,366 12,775 12,576 13,459
1/31/1998 12,553 12,971 12,745 13,733
2/28/1998 12,495 12,933 12,728 13,634
3/31/1998 12,523 12,968 12,766 13,663
4/30/1998 12,552 13,026 12,826 13,714
5/31/1998 12,730 13,161 12,915 13,976
6/30/1998 12,934 13,313 13,002 14,300
7/31/1998 12,912 13,333 13,053 14,240
8/31/1998 13,421 13,696 13,311 14,883
9/30/1998 13,806 14,077 13,632 15,428
10/31/1998 13,619 14,032 13,659 15,195
11/30/1998 13,712 14,029 13,609 15,311
12/31/1998 13,702 14,057 13,660 15,279
1/31/1999 13,785 14,138 13,720 15,417
2/28/1999 13,310 13,777 13,520 14,659
3/31/1999 13,314 13,830 13,609 14,625
4/30/1999 13,358 13,863 13,648 14,646
5/31/1999 13,200 13,734 13,561 14,415
6/30/1999 13,109 13,705 13,585 14,263
7/31/1999 13,058 13,693 13,598 14,194
8/31/1999 13,007 13,695 13,626 14,139
9/30/1999 13,108 13,800 13,732 14,243
10/31/1999 13,098 13,815 13,749 14,252
11/30/1999 13,033 13,789 13,755 14,156
12/31/1999 12,924 13,697 13,716 13,944
1/31/2000 13,070 13,733 13,679 14,143
2/29/2000 13,345 13,940 13,786 14,570
3/31/2000 13,693 14,217 13,961 15,068
4/30/2000 13,654 14,172 13,952 14,947
5/31/2000 13,615 14,193 14,010 14,893
6/30/2000 13,838 14,433 14,212 15,216
7/31/2000 14,018 14,581 14,308 15,478
8/31/2000 14,272 14,795 14,457 15,830
9/30/2000 14,158 14,807 14,569 15,638
10/31/2000 14,342 14,951 14,665 15,883
11/30/2000 14,660 15,258 14,877 16,384
12/31/2000 14,966 15,549 15,124 16,770
1/31/2001 15,001 15,675 15,303 16,799
2/28/2001 15,218 15,865 15,444 17,086
3/31/2001 15,177 15,916 15,567 17,000
4/30/2001 14,874 15,718 15,504 16,538
5/31/2001 14,910 15,767 15,569 16,559
6/30/2001 14,961 15,852 15,625 16,701
7/31/2001 15,403 16,247 15,908 17,323
8/31/2001 15,660 16,462 16,046 17,693
9/30/2001 15,775 16,724 16,378 17,825
10/31/2001 16,288 17,187 16,626 18,701
11/30/2001 15,750 16,761 16,438 17,812
12/31/2001 15,594 16,598 16,359 17,476
1/31/2002 15,696 16,689 16,404 17,645
2/28/2002 15,798 16,860 16,539 17,908
3/31/2002 15,428 16,455 16,287 17,184
4/30/2002 15,827 16,864 16,578 17,837
5/31/2002 15,896 16,959 16,692 17,893
6/30/2002 16,164 17,198 16,895 18,214
7/31/2002 16,567 17,605 17,232 18,776
8/31/2002 17,055 17,986 17,413 19,596
9/30/2002 17,512 18,471 17,747 20,412
10/31/2002 17,229 18,267 17,715 19,826
11/30/2002 17,063 18,086 17,550 19,607
12/31/2002 17,474 18,556 17,877 20,410
1/31/2003 17,409 18,499 17,825 20,341
2/28/2003 17,721 18,817 18,018 20,957
3/31/2003 17,622 18,739 18,017 20,693
4/30/2003 17,711 18,826 18,053 20,903
5/31/2003 18,270 19,369 18,333 22,078
6/30/2003 18,151 19,251 18,304 21,742
7/31/2003 17,333 18,405 17,903 19,797
8/31/2003 17,424 18,514 17,928 20,113
9/30/2003 17,904 19,073 18,299 21,160
10/31/2003 17,624 18,782 18,120 20,571]
Cumulative Total Returns With Load Annualized Total Returns With Load
Periods Ending Since Since
October 31, 2003 1 Year 3 Years 5 Years 10 Years Inception 2 1 Year 3 Years 5 Years 10 Years Inception 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return US Treasury
Fund - ISI Shares -0.73% 19.16% 25.51% 76.24% 205.00% -0.73% 6.02% 4.65% 5.83% 7.60%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Treasury Index 3 2.82% 25.62% 33.84% 87.82% 231.62% 2.82% 7.90% 6.00% 6.51% 8.22%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Intermediate
Treasury Index 3 2.29% 23.57% 32.66% 81.20% 202.32% 2.29% 7.31% 5.82% 6.12% 7.57%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Long-Term
Treasury Index3 3.76% 29.52% 35.38% 105.71% 322.22% 3.76% 9.00% 6.25% 7.48% 9.96%
- ------------------------------------------------------------------------------------------------------------------------------------
1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. The performance
information presented in the graph and table above does not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the redemption of Fund shares. All performance assumes the reinvestment of
dividend and capital gain distributions and includes the Fund's maximum
3.00% sales charge. Distribution of the Fund's capital gains and non-US
Treasury income may be subject to state and local taxes. Management is not
aware of any single index that is truly representative of the Fund since
its active maturity management policy allows the manager to adjust the
weighted average maturity throughout each US Treasury sector. Currently the
Fund's weighted average maturity is approximately 9.0 years.
2 The Fund's inception date is August 10, 1988. Benchmark returns are for the
periods beginning August 31, 1988.
3 The Lehman Brothers Treasury Index is an unmanaged index reflecting the
performance of all public obligations and does not focus on one particular
segment of the Treasury market. The Lehman Brothers Long-Term Treasury
Index is an unmanaged index reflecting the performance of US Treasury
securities in the long-term Treasury sector. The Lehman Brothers
Intermediate Treasury Index is an unmanaged index reflecting the
performance of US Treasury securities in the intermediate-term Treasury
sector. Benchmark returns do not reflect expenses or sales charges that
have been deducted from the Fund's returns.
5
MANAGED MUNICIPAL FUND - ISI SHARES PERFORMANCE COMPARISON 1
Managed Municipal Fund - ISI Shares, Lehman Brothers Prerefunded Municipal Bond
Index, Consumer Price Index and Lehman Brothers General Obligation Index: Value
of a $10,000 Investment (for 10-Years ended October 31, 2003)
[EDGAR Representation of Graph Chart:
Lehman Lehman
Managed Brothers Brothers
Municipal General Prerefunded
Fund - ISI Obligation Municipal Consumer
Date Shares Index Bond Index Price Index
10/31/1993 9,700 10,000 10,000 10,000
11/30/1993 9,589 9,933 9,878 10,007
12/31/1993 9,773 10,139 10,065 10,007
1/31/1994 9,906 10,256 10,168 10,034
2/28/1994 9,572 9,980 9,961 10,069
3/31/1994 9,218 9,613 9,749 10,103
4/30/1994 9,250 9,717 9,776 10,117
5/31/1994 9,354 9,793 9,810 10,124
6/30/1994 9,276 9,733 9,808 10,158
7/31/1994 9,427 9,886 9,938 10,185
8/31/1994 9,450 9,928 10,004 10,226
9/30/1994 9,262 9,789 9,930 10,254
10/31/1994 9,073 9,649 9,850 10,261
11/30/1994 8,902 9,497 9,709 10,275
12/31/1994 9,159 9,665 9,858 10,275
1/31/1995 9,438 9,894 10,004 10,316
2/28/1995 9,755 10,155 10,244 10,357
3/31/1995 9,827 10,292 10,317 10,391
4/30/1995 9,793 10,300 10,371 10,426
5/31/1995 10,172 10,607 10,609 10,446
6/30/1995 10,032 10,534 10,636 10,467
7/31/1995 10,134 10,656 10,749 10,467
8/31/1995 10,227 10,792 10,821 10,494
9/30/1995 10,270 10,861 10,820 10,515
10/31/1995 10,471 10,985 10,889 10,549
11/30/1995 10,654 11,140 11,008 10,542
12/31/1995 10,787 11,228 11,075 10,535
1/31/1996 10,862 11,337 11,200 10,597
2/29/1996 10,747 11,285 11,160 10,631
3/31/1996 10,542 11,159 11,049 10,686
4/30/1996 10,497 11,120 11,055 10,727
5/31/1996 10,462 11,102 11,054 10,748
6/30/1996 10,590 11,214 11,099 10,755
7/31/1996 10,718 11,321 11,201 10,776
8/31/1996 10,671 11,320 11,198 10,796
9/30/1996 10,821 11,459 11,301 10,830
10/31/1996 10,960 11,593 11,389 10,865
11/30/1996 11,153 11,809 11,529 10,885
12/31/1996 11,080 11,762 11,502 10,885
1/31/1997 11,080 11,793 11,544 10,920
2/28/1997 11,159 11,901 11,635 10,954
3/31/1997 11,006 11,747 11,508 10,981
4/30/1997 11,096 11,839 11,546 10,995
5/31/1997 11,262 12,015 11,710 10,988
6/30/1997 11,385 12,145 11,788 11,002
7/31/1997 11,724 12,460 11,987 11,016
8/31/1997 11,557 12,349 11,931 11,036
9/30/1997 11,714 12,489 12,033 11,064
10/31/1997 11,774 12,558 12,080 11,091
11/30/1997 11,824 12,617 12,107 11,084
12/31/1997 12,011 12,796 12,212 11,071
1/31/1998 12,133 12,928 12,319 11,091
2/28/1998 12,105 12,938 12,352 11,112
3/31/1998 12,111 12,950 12,349 11,132
4/30/1998 12,038 12,881 12,311 11,153
5/31/1998 12,257 13,094 12,465 11,174
6/30/1998 12,286 13,141 12,509 11,187
7/31/1998 12,303 13,173 12,556 11,201
8/31/1998 12,525 13,381 12,691 11,215
9/30/1998 12,680 13,560 12,795 11,229
10/31/1998 12,662 13,563 12,843 11,256
11/30/1998 12,691 13,607 12,883 11,256
12/31/1998 12,738 13,651 12,905 11,249
1/31/1999 12,889 13,830 13,044 11,277
2/28/1999 12,801 13,759 13,045 11,290
3/31/1999 12,784 13,765 13,042 11,325
4/30/1999 12,825 13,804 13,080 11,407
5/31/1999 12,695 13,726 13,033 11,407
6/30/1999 12,494 13,524 12,919 11,407
7/31/1999 12,541 13,578 12,997 11,441
8/31/1999 12,410 13,498 12,997 11,469
9/30/1999 12,350 13,510 13,039 11,524
10/31/1999 12,205 13,393 13,025 11,544
11/30/1999 12,363 13,529 13,090 11,551
12/31/1999 12,253 13,444 13,054 11,551
1/31/2000 12,168 13,395 13,071 11,585
2/29/2000 12,364 13,528 13,123 11,654
3/31/2000 12,671 13,800 13,235 11,750
4/30/2000 12,548 13,730 13,227 11,757
5/31/2000 12,461 13,657 13,228 11,771
6/30/2000 12,822 14,008 13,419 11,833
7/31/2000 13,009 14,193 13,538 11,860
8/31/2000 13,184 14,396 13,658 11,860
9/30/2000 13,071 14,323 13,646 11,922
10/31/2000 13,235 14,473 13,731 11,942
11/30/2000 13,362 14,574 13,801 11,949
12/31/2000 13,757 14,919 13,994 11,942
1/31/2001 13,821 15,081 14,192 12,018
2/28/2001 13,872 15,126 14,244 12,066
3/31/2001 13,975 15,259 14,346 12,093
4/30/2001 13,768 15,101 14,280 12,141
5/31/2001 13,911 15,254 14,417 12,196
6/30/2001 14,015 15,349 14,493 12,217
7/31/2001 14,211 15,567 14,634 12,183
8/31/2001 14,434 15,819 14,812 12,183
9/30/2001 14,342 15,784 14,868 12,237
10/31/2001 14,527 15,945 15,001 12,196
11/30/2001 14,394 15,805 14,899 12,176
12/31/2001 14,301 15,678 14,835 12,128
1/31/2002 14,489 15,935 15,051 12,155
2/28/2002 14,665 16,130 15,214 12,203
3/31/2002 14,367 15,822 14,905 12,272
4/30/2002 14,612 16,148 15,190 12,340
5/31/2002 14,721 16,236 15,285 12,340
6/30/2002 14,830 16,418 15,440 12,347
7/31/2002 15,008 16,621 15,607 12,361
8/31/2002 15,215 16,811 15,741 12,402
9/30/2002 15,533 17,151 15,968 12,423
10/31/2002 15,269 16,873 15,781 12,443
11/30/2002 15,200 16,790 15,730 12,443
12/31/2002 15,549 17,120 16,055 12,416
1/31/2003 15,465 17,090 16,036 12,471
2/28/2003 15,676 17,326 16,216 12,567
3/31/2003 15,691 17,359 16,190 12,642
4/30/2003 15,804 17,472 16,273 12,615
5/31/2003 16,103 17,857 16,545 12,594
6/30/2003 15,960 17,771 16,499 12,608
7/31/2003 15,358 17,180 16,115 12,622
8/31/2003 15,531 17,341 16,210 12,670
9/30/2003 15,964 17,838 16,567 12,711
10/31/2003 15,862 17,718 16,484 12,697]
Cumulative Total Returns With Load Annualized Total Returns With Load
Periods Ending Since Since
October 31, 2003 1 Year 3 Years 5 Years 10 Years Inception 2 1 Year 3 Years 5 Years 10 Years Inception 2
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Municipal
Fund - ISI Shares 0.77% 16.29% 21.52% 58.62% 121.25% 0.77% 5.16% 3.98% 4.72% 5.98%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers
General Obligation Index 3 5.01% 22.42% 30.64% 77.18% 151.72% 5.01% 6.98% 5.49% 5.89% 6.99%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Prerefunded
Municipal Bond Index 3 4.45% 20.05% 28.35% 64.84% 127.54% 4.45% 6.28% 5.12% 5.12% 6.20%
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index 4 2.04% 6.32% 12.81% 26.97% 44.53% 2.04% 2.06% 2.44% 2.42% 2.73%
- ------------------------------------------------------------------------------------------------------------------------------------
1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. The performance
information presented in the graph and table above does not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the redemption of Fund shares. All performance assumes the reinvestment of
dividend and capital gain distributions and includes the Fund's maximum
3.00% sales charge. For certain investors, a portion of the Fund's income
may be subject to federal alternative minimum tax. Distribution of the
Fund's income and capital gains may be subject to state and local taxes.
2 The Fund's inception date is February 26, 1990. Benchmark returns are for
the periods beginning February 28, 1990.
3 The Lehman Brothers Prerefunded Municipal Bond Index, an unmanaged index,
is a subcomponent of the main Lehman Brothers Municipal Bond Index, and
contains only bonds from the main index that have been prerefunded or
escrowed to maturity. The Lehman Brothers General Obligation Index is an
unmanaged index reflecting general municipal market performance. Benchmark
returns do not reflect expenses or sales charges that have been deducted
from the Fund's returns.
4 The Consumer Price Index is a widely used measure of inflation.
6
NORTH AMERICAN GOVERNMENT BOND FUND-ISI CLASS A SHARES PERFORMANCE COMPARISON 1
North American Government Bond Fund - ISI Class A Shares, Lehman Brothers
Intermediate Treasury Index, Consumer Price Index and Lehman Brothers Emerging
Americas Index: Mexico Section: Value of a $10,000 Investment (for 10-Years
ended October 31, 2003)
[EDGAR Representation of Graph Chart:
Lehman
North Lehman Brothers
American Brothers Emerging
Government Intermediate Americas
Bond Fund - ISI Treasury Index: Mexico Consumer
Date Class A Shares Index Section Price Index
10/31/1993 9,700 10,000 10,000 10,000
11/30/1993 9,612 9,950 10,111 10,007
12/31/1993 9,710 9,991 10,582 10,007
1/31/1994 9,874 10,090 10,522 10,034
2/28/1994 9,603 9,949 9,878 10,069
3/31/1994 9,206 9,805 9,464 10,103
4/30/1994 9,216 9,742 9,245 10,117
5/31/1994 9,148 9,749 9,605 10,124
6/30/1994 9,069 9,752 9,297 10,158
7/31/1994 9,159 9,878 9,553 10,185
8/31/1994 9,318 9,907 9,804 10,226
9/30/1994 9,279 9,826 9,708 10,254
10/31/1994 9,219 9,828 9,656 10,261
11/30/1994 9,239 9,783 9,743 10,275
12/31/1994 8,481 9,815 8,590 10,275
1/31/1995 8,379 9,974 8,200 10,316
2/28/1995 8,576 10,165 7,588 10,357
3/31/1995 8,441 10,221 7,347 10,391
4/30/1995 8,725 10,339 8,315 10,426
5/31/1995 9,095 10,630 8,728 10,446
6/30/1995 9,213 10,701 9,269 10,467
7/31/1995 9,201 10,705 9,573 10,467
8/31/1995 9,342 10,792 9,679 10,494
9/30/1995 9,473 10,863 9,776 10,515
10/31/1995 9,517 10,985 9,520 10,549
11/30/1995 9,628 11,119 9,802 10,542
12/31/1995 9,807 11,230 10,333 10,535
1/31/1996 9,885 11,327 10,872 10,597
2/29/1996 9,569 11,205 10,440 10,631
3/31/1996 9,536 11,150 10,734 10,686
4/30/1996 9,514 11,118 11,125 10,727
5/31/1996 9,560 11,113 11,029 10,748
6/30/1996 9,677 11,223 11,201 10,755
7/31/1996 9,736 11,257 11,227 10,776
8/31/1996 9,758 11,271 11,621 10,796
9/30/1996 10,007 11,415 12,014 10,830
10/31/1996 10,306 11,602 12,058 10,865
11/30/1996 10,607 11,741 12,491 10,885
12/31/1996 10,414 11,677 12,604 10,885
1/31/1997 10,414 11,721 13,043 10,920
2/28/1997 10,426 11,738 13,268 10,954
3/31/1997 10,289 11,669 12,746 10,981
4/30/1997 10,427 11,800 13,067 10,995
5/31/1997 10,565 11,892 13,538 10,988
6/30/1997 10,717 11,992 13,827 11,002
7/31/1997 11,202 12,217 14,447 11,016
8/31/1997 11,023 12,168 14,323 11,036
9/30/1997 11,256 12,300 14,724 11,064
10/31/1997 11,359 12,445 14,049 11,091
11/30/1997 11,465 12,474 14,404 11,084
12/31/1997 11,663 12,576 14,705 11,071
1/31/1998 11,769 12,745 15,016 11,091
2/28/1998 11,742 12,728 15,150 11,112
3/31/1998 11,797 12,766 15,270 11,132
4/30/1998 11,851 12,826 15,313 11,153
5/31/1998 11,919 12,915 15,179 11,174
6/30/1998 12,057 13,002 15,106 11,187
7/31/1998 12,070 13,053 15,251 11,201
8/31/1998 12,279 13,311 12,853 11,215
9/30/1998 12,575 13,632 13,288 11,229
10/31/1998 12,490 13,659 13,742 11,256
11/30/1998 12,604 13,609 14,642 11,256
12/31/1998 12,647 13,660 14,600 11,249
1/31/1999 12,691 13,720 14,443 11,277
2/28/1999 12,396 13,520 14,516 11,290
3/31/1999 12,501 13,609 15,194 11,325
4/30/1999 12,605 13,648 15,669 11,407
5/31/1999 12,394 13,561 14,987 11,407
6/30/1999 12,410 13,585 15,191 11,407
7/31/1999 12,395 13,598 15,030 11,441
8/31/1999 12,379 13,626 15,185 11,469
9/30/1999 12,473 13,732 15,545 11,524
10/31/1999 12,458 13,749 15,834 11,544
11/30/1999 12,489 13,755 16,288 11,551
12/31/1999 12,441 13,716 16,713 11,551
1/31/2000 12,537 13,679 16,589 11,585
2/29/2000 12,795 13,786 17,370 11,654
3/31/2000 13,103 13,961 17,829 11,750
4/30/2000 13,037 13,952 17,585 11,757
5/31/2000 13,021 14,010 17,242 11,771
6/30/2000 13,170 14,212 17,921 11,833
7/31/2000 13,386 14,308 18,355 11,860
8/31/2000 13,605 14,457 18,815 11,860
9/30/2000 13,554 14,569 18,859 11,922
10/31/2000 13,657 14,665 18,673 11,942
11/30/2000 13,950 14,877 18,956 11,949
12/31/2000 14,193 15,124 19,237 11,942
1/31/2001 14,263 15,303 19,596 12,018
2/28/2001 14,439 15,444 19,458 12,066
3/31/2001 14,511 15,567 19,538 12,093
4/30/2001 14,403 15,504 19,653 12,141
5/31/2001 14,493 15,569 20,106 12,196
6/30/2001 14,583 15,625 20,505 12,217
7/31/2001 14,894 15,908 20,549 12,183
8/31/2001 15,115 16,046 20,968 12,183
9/30/2001 15,135 16,378 20,443 12,237
10/31/2001 15,658 16,626 21,253 12,196
11/30/2001 15,263 16,438 21,351 12,176
12/31/2001 15,167 16,359 21,641 12,128
1/31/2002 15,263 16,404 21,986 12,155
2/28/2002 15,378 16,539 22,664 12,203
3/31/2002 15,145 16,287 22,323 12,272
4/30/2002 15,360 16,578 22,833 12,340
5/31/2002 15,380 16,692 22,846 12,340
6/30/2002 15,495 16,895 22,479 12,347
7/31/2002 15,790 17,232 22,229 12,361
8/31/2002 16,207 17,413 23,165 12,402
9/30/2002 16,485 17,747 23,122 12,423
10/31/2002 16,319 17,715 23,596 12,443
11/30/2002 16,254 17,550 24,101 12,443
12/31/2002 16,513 17,877 24,749 12,416
1/31/2003 16,405 17,825 24,632 12,471
2/28/2003 16,651 18,018 25,117 12,567
3/31/2003 16,647 18,017 25,599 12,642
4/30/2003 16,938 18,053 26,495 12,615
5/31/2003 17,548 18,333 27,303 12,594
6/30/2003 17,480 18,304 27,200 12,608
7/31/2003 16,682 17,903 26,048 12,622
8/31/2003 16,678 17,928 26,346 12,670
9/30/2003 17,173 18,299 27,391 12,711
10/31/2003 16,994 18,120 27,086 12,697]
Cumulative Total Returns With Load Annualized Total Returns With Load
Periods Ending Since Since
October 31, 2003 1 Year 3 Years 5 Years 10 Years Inception 2 1 Year 3 Years 5 Years 10 Years Inception 2
- ------------------------------------------------------------------------------------------------------------------------------------
North American Government
Bond Fund - ISI Class A Shares 0.99% 20.65% 32.02% 69.94% 88.00% 0.99% 6.46% 5.71% 5.45% 6.02%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Intermediate
Treasury Index 3 2.29% 23.57% 32.66% 81.20% 92.66% 2.29% 7.31% 5.82% 6.12% 6.29%
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Emerging
Americas Index: Mexico Section 3 14.79% 45.05% 97.10% 170.86% 217.55% 14.79% 13.20% 14.53% 10.48% 11.35%
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index 4 2.04% 6.32% 12.81% 26.97% 29.73% 2.04% 2.06% 2.44% 2.42% 2.45%
- ------------------------------------------------------------------------------------------------------------------------------------
1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. The performance
information presented in the graph and table above does not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the redemption of Fund shares. All performance assumes the reinvestment of
dividend and capital gain distributions and includes the Fund's maximum
3.00% sales charge. On May 16, 2003, ISI Shares were redesignated as ISI
Class A Shares.
2 The Fund's inception date is January 15, 1993. Benchmark returns are for
the periods beginning January 31, 1993.
3 The Lehman Brothers Intermediate Treasury Index is an unmanaged index
reflecting the performance of US Treasury securities in the
intermediate-term Treasury sector. Lehman Brothers Emerging Americas Index:
Mexico Section is an unmanaged sub-index of the Lehman Brothers Emerging
Markets Index reflecting the performance of selected Mexican debt
instruments with maturities of one year or more. The performance
information in the graph and table above is quoted in US dollars. Benchmark
returns do not reflect expenses or sales charges that have been deducted
from the Fund's returns.
4 The Consumer Price Index is a widely used measure of inflation.
7
ISI STRATEGY FUND - ISI SHARES PERFORMANCE COMPARISON 1
ISI Strategy Fund - ISI Shares, Lipper Flexible Portfolio Funds Average,
Consumer Price Index and Wilshire 5000 Stock Index: Value of a $10,000
Investment (since inception 2)
[EDGAR Representation of Graph Chart:
Lipper
Flexible
ISI Strategy Portfolio
Fund - ISI Wilshire 5000 Consumer Funds
Date Shares Stock Index Price Index Average
9/16/1997 9,700 10,000 10,000 10,000
9/30/1997 9,719 10,000 10,000 10,000
10/31/1997 9,554 9,667 10,025 9,775
11/30/1997 9,767 9,983 10,019 9,928
12/31/1997 9,933 10,168 10,006 10,055
1/31/1998 10,020 10,223 10,025 10,125
2/28/1998 10,459 10,967 10,043 10,588
3/31/1998 10,810 11,516 10,062 10,940
4/30/1998 10,878 11,653 10,081 11,030
5/31/1998 10,761 11,343 10,099 10,904
6/30/1998 11,044 11,741 10,112 11,125
7/31/1998 10,887 11,483 10,124 10,989
8/31/1998 9,992 9,695 10,137 9,884
9/30/1998 10,483 10,328 10,149 10,275
10/31/1998 10,888 11,097 10,174 10,733
11/30/1998 11,337 11,796 10,174 11,146
12/31/1998 11,776 12,550 10,168 11,569
1/31/1999 12,079 13,012 10,192 11,784
2/28/1999 11,634 12,540 10,205 11,457
3/31/1999 11,937 13,024 10,236 11,766
4/30/1999 12,301 13,648 10,310 12,114
5/31/1999 12,068 13,350 10,310 11,908
6/30/1999 12,443 14,041 10,310 12,301
7/31/1999 12,148 13,590 10,341 12,112
8/31/1999 12,046 13,464 10,366 12,038
9/30/1999 11,863 13,112 10,416 11,919
10/31/1999 12,282 13,946 10,434 12,289
11/30/1999 12,496 14,413 10,440 12,549
12/31/1999 12,953 15,507 10,440 13,167
1/31/2000 12,649 14,864 10,472 12,816
2/29/2000 12,869 15,196 10,534 13,074
3/31/2000 13,498 16,099 10,620 13,653
4/30/2000 13,056 15,260 10,627 13,336
5/31/2000 12,804 14,727 10,639 13,129
6/30/2000 13,183 15,377 10,695 13,468
7/31/2000 13,098 15,063 10,720 13,350
8/31/2000 13,734 16,157 10,720 13,946
9/30/2000 13,289 15,403 10,775 13,580
10/31/2000 13,205 15,076 10,794 13,475
11/30/2000 12,491 13,576 10,800 12,905
12/31/2000 12,735 13,818 10,794 13,195
1/31/2001 13,063 14,347 10,862 13,442
2/28/2001 12,340 12,986 10,906 12,758
3/31/2001 11,865 12,112 10,931 12,226
4/30/2001 12,299 13,109 10,974 12,799
5/31/2001 12,379 13,239 11,024 12,864
6/30/2001 12,254 13,018 11,042 12,640
7/31/2001 12,259 12,803 11,011 12,587
8/31/2001 11,814 12,028 11,011 12,152
9/30/2001 11,107 10,947 11,061 11,453
10/31/2001 11,416 11,226 11,024 11,681
11/30/2001 11,874 12,084 11,005 12,163
12/31/2001 12,006 12,301 10,962 12,260
1/31/2002 11,903 12,149 10,986 12,108
2/28/2002 11,765 11,899 11,030 11,982
3/31/2002 12,087 12,420 11,092 12,285
4/30/2002 11,814 11,813 11,154 11,979
5/31/2002 11,768 11,674 11,154 11,922
6/30/2002 11,193 10,854 11,160 11,338
7/31/2002 10,618 9,978 11,173 10,741
8/31/2002 10,745 10,036 11,210 10,837
9/30/2002 10,041 9,029 11,228 10,147
10/31/2002 10,515 9,720 11,247 10,581
11/30/2002 10,885 10,306 11,247 10,957
12/31/2002 10,500 9,735 11,222 10,643
1/31/2003 10,291 9,490 11,272 10,484
2/28/2003 10,221 9,329 11,359 10,398
3/31/2003 10,326 9,435 11,427 10,433
4/30/2003 10,932 10,208 11,402 10,990
5/31/2003 11,479 10,832 11,383 11,508
6/30/2003 11,569 10,992 11,396 11,614
7/31/2003 11,592 11,257 11,408 11,671
8/31/2003 11,849 11,527 11,452 11,883
9/30/2003 11,779 11,400 11,489 11,891
10/31/2003 12,246 12,096 11,476 12,328]
Cumulative Total Returns With Load Annualized Total Returns With Load
Periods Ending Since Since
October 31, 2003 1 Year 3 Years 5 Years Inception2 1 Year 3 Years 5 Years Inception 2
- ------------------------------------------------------------------------------------------------------------------------------------
ISI Strategy Fund - ISI Shares 12.98% -10.02% 9.11% 22.46% 12.98% -3.46% 1.76% 3.36%
- ------------------------------------------------------------------------------------------------------------------------------------
Wilshire 5000 Stock Index 3 24.44% -19.76% 9.00% 20.96% 24.44% -7.08% 1.74% 3.18%
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Price Index 4 2.04% 6.32% 12.81% 14.76% 2.04% 2.06% 2.44% 2.29%
- ------------------------------------------------------------------------------------------------------------------------------------
Lipper Flexible Portfolio
Funds Average 5 16.65% -8.07% 14.93% 23.28% 16.65% -2.93% 2.68% 3.37%
- ------------------------------------------------------------------------------------------------------------------------------------
1 PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. The performance
information presented in the graph and table above does not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the redemption of Fund shares. All performance assumes the reinvestment of
dividend and capital gain distributions and includes the Fund's maximum
3.00% sales charge. Performance would have been lower during the specified
period if certain of the Fund's fees and expenses had not been waived.
2 The Fund's inception date is September 16, 1997. Benchmark returns are for
the periods beginning September 30, 1997.
3 The Wilshire 5000 Stock Index is an unmanaged index that represents the
broadest measure of the US equity market. Benchmark returns do not reflect
expenses or sales charges that have been deducted from the Fund's returns.
4 The Consumer Price Index is a widely used measure of inflation.
5 Lipper figures represent the average total returns by all the mutual funds
designated by Lipper, Inc. as falling into the category indicated.
8
TOTAL RETURN US TREASURY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
INTEREST MATURITY PAR MARKET
SECURITY RATE DATE VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
US TREASURY OBLIGATIONS - 82.77%
US Treasury Bond 10.375% 11/15/12 $ 14,250,000 $ 18,275,625
US Treasury Bond 7.500% 11/15/24 8,000,000 10,360,000
US Treasury Bond 7.625% 2/15/25 11,500,000 15,079,375
US Treasury Bond 6.000% 2/15/26 11,500,000 12,650,000
US Treasury Bond 6.375% 8/15/27 28,000,000 32,287,500
US Treasury Bond 5.250% 11/15/28 2,000,000 1,997,500
US Treasury Note 3.250% 12/31/03 56,000,000 56,201,250
US Treasury Note 3.000% 2/15/08 15,000,000 15,011,719
US Treasury Note 5.500% 5/15/09 25,000,000 27,703,125
--------------------
TOTAL US TREASURY OBLIGATIONS
(COST $195,682,322)..................................................................................... 189,566,094
--------------------
ZERO COUPON US TREASURY BONDS (STRIPS) - 3.08%
US Treasury STRIPs 1 5.410% 2 8/15/15 5,000,000 2,808,712
US Treasury STRIPs 1 5.642% 2 5/15/17 8,500,000 4,241,163
--------------------
TOTAL ZERO COUPON US TREASURY BONDS (STRIPS)
(COST $6,666,544)....................................................................................... 7,049,875
--------------------
REPURCHASE AGREEMENT - 13.12%
JP MORGAN CHASE & CO.
Dated 10/31/03, 0.880%, principal and interest in the amount of $30,057,204
due 11/3/03, collateralized by US Treasury Notes, par value of $30,180,000,
due 12/30/04 with a value of $30,659,528.............................................................. 30,055,000
--------------------
TOTAL REPURCHASE AGREEMENT
(COST $30,055,000)...................................................................................... 30,055,000
--------------------
TOTAL INVESTMENTS - 98.97%
(COST $232,403,866)..................................................................................... 226,670,969
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.03%................................................................ 2,355,643
--------------------
NET ASSETS - 100.00%......................................................................................... $ 229,026,612
====================
- ------------------------------------------------------------------------------------------------------------------------------------
1 Includes principal of underlying security only.
2 Yield as of October 31, 2003.
See Notes to Financial Statements. 9
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
RATING*
(MOODY'S/ PAR MARKET
ISSUER S&P) VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 93.57%
GENERAL OBLIGATIONS - 62.14%
Arlington County, VA
5.000%, 10/1/14................................................................ Aaa/AAA $ 2,000,000 $ 2,158,960
4.500%, 1/15/28................................................................ Aaa/AAA 4,500,000 4,338,270
Cary, NC
5.000%, 3/1/18................................................................. Aaa/AAA 2,000,000 2,130,120
Charlotte, NC
5.000%, 2/1/19................................................................. Aaa/AAA 2,300,000 2,414,586
Chesterfield County, VA
5.625%, 1/15/14................................................................ Aaa/AAA 1,350,000 1,521,531
5.000%, 1/15/20................................................................ Aaa/NR 1,000,000 1,040,720
Dupage County, IL, Jail Project
5.600%, 1/1/21................................................................. Aaa/AAA 1,600,000 1,795,904
Florida State, Board of Education, Public Education
Capital Outlay, Series A
5.125%, 6/1/21................................................................. Aa2/AA+ 1,000,000 1,036,810
Florida State, Board of Education, Public Education, Series I
4.125%, 6/1/21................................................................. Aa2/AA+ 3,000,000 2,810,430
Franklin County, OH
5.450%, 12/1/09................................................................ Aaa/AAA 1,500,000 1,535,580
Georgia State, Series B
5.000%, 7/1/19................................................................. Aaa/AAA 5,000,000 5,268,000
Georgia State, Series D
5.000%, 10/1/17................................................................ Aaa/AAA 1,850,000 1,964,903
Guilford County, NC, Series B
5.250%, 10/1/16................................................................ Aa1/AAA 3,000,000 3,286,980
King County, WA, Series G
5.000%, 12/1/17................................................................ Aa1/AA+ 2,565,000 2,680,528
Mecklenburg County, NC, Series A
4.250%, 2/1/19................................................................. Aaa/AAA 2,000,000 1,978,860
Minneapolis, MN, Series B
5.200%, 3/1/13................................................................. Aa1/AAA 3,200,000 3,410,592
Minnesota State
5.500%, 6/1/18................................................................. Aa1/AAA 2,000,000 2,215,460
Missouri State, Fourth State Building, Series A
4.125%, 10/1/19................................................................ Aaa/AAA 2,000,000 1,954,260
5.000%, 6/1/23................................................................. Aaa/AAA 2,000,000 2,027,280
Montgomery County, MD, Series A
4.000%, 5/1/21................................................................. Aaa/AAA 2,450,000 2,288,888
5.000%, 2/1/22................................................................. Aaa/AAA 2,750,000 2,860,577
10 See Notes to Financial Statements.
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
RATING*
(MOODY'S/ PAR MARKET
ISSUER S&P) VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina State, Public School Building
4.600%, 4/1/17................................................................. Aa1/AAA $ 5,000,000 $ 5,199,200
Salt Lake City, UT, School District, Series A
4.500%, 3/1/20................................................................. Aaa/NR 2,240,000 2,230,906
South Carolina State, Highway, Series B
5.000%, 4/1/19................................................................. Aaa/AAA 1,000,000 1,050,040
South Carolina State, State Institutional Series A
5.300%, 3/1/17................................................................. Aaa/AAA 1,700,000 1,855,057
Spring Branch, TX, Independent School District
5.125%, 2/1/26................................................................. Aaa/AAA 2,000,000 2,024,480
Virginia State
5.250%, 6/1/16................................................................. Aaa/AAA 1,320,000 1,442,219
Washington State, Series E
5.000%, 7/1/22................................................................. Aa1/AA+ 2,000,000 2,020,880
---------------
66,542,021
---------------
OTHER REVENUE - 10.77%
Fairfax County, VA, Water Authority Water Revenue
5.000%, 4/1/27................................................................. Aa1/AAA 3,500,000 3,555,615
Gwinnett County, GA, Water & Sewer Authority
5.300%, 8/1/20................................................................. Aaa/AAA 1,250,000 1,330,013
5.250%, 8/1/24................................................................. Aaa/AAA 1,500,000 1,568,925
Gwinnett County, GA, Water & Sewer Authority, Series B
4.750%, 8/1/21................................................................. Aaa/AAA 2,000,000 2,042,940
Texas, Water Development Board Revenue
4.750%, 7/15/20................................................................ Aaa/AAA 3,000,000 3,029,400
---------------
11,526,893
---------------
PREREFUNDED ISSUES - 20.66%
Arlington, TX, School District
5.750%, 2/15/21................................................................ Aaa/NR 3,535,000 3,742,363
Charlotte, NC, Water & Sewer System Revenue
5.250%, 6/1/24................................................................. Aa1/AAA 1,600,000 1,829,696
Chicago, IL, Metropolitan Water Reclamation District-
Greater Chicago Capital Improvement
6.300%, 12/1/09................................................................ Aaa/AA+ 1,000,000 1,103,190
Dallas, TX
5.000%, 2/15/10................................................................ Aa1/AAA 1,750,000 1,835,925
Delaware State, Series A
5.125%, 4/1/16................................................................. Aaa/AAA 2,150,000 2,332,406
5.500%, 4/1/19................................................................. Aaa/AAA 2,500,000 2,870,600
See Notes to Financial Statements. 11
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
RATING*
(MOODY'S/ PAR MARKET
ISSUER S&P) VALUE VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Florida State, Transportation, Series A
5.800%, 7/1/18................................................................. Aa2/AAA $ 2,000,000 $ 2,171,460
South Carolina State, Highway, Series B
5.650%, 7/1/21................................................................. Aaa/AAA 1,260,000 1,418,067
Tennessee State, Series A
5.500%, 3/1/09................................................................. Aa2/AA 1,535,000 1,622,756
5.550%, 3/1/10................................................................. Aa2/AA 1,000,000 1,057,830
Texas State, Series A
6.000$, 10/1/14................................................................ Aaa/AA 2,000,000 2,134,860
---------------
22,119,153
---------------
TOTAL MUNICIPAL BONDS
(COST $94,757,749)................................................................................... 100,188,067
---------------
REPURCHASE AGREEMENT - 5.61%
JP MORGAN CHASE & CO.
Dated 10/31/03, 0.880%, prinicipal and interest in the amount of $6,012,441
due 11/3/03, collateralized by US Treasury Note, par value of $6,145,000,
due 11/15/12 with a value of $6,136,752................................................................ 6,012,000
---------------
TOTAL REPURCHASE AGREEMENT
(COST $6,012,000)..................................................................................... 6,012,000
---------------
TOTAL INVESTMENTS - 99.18%
(COST $100,769,749)................................................................................... 106,200,067
---------------
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.82%.............................................................. 877,882
---------------
NET ASSETS - 100.00%....................................................................................... $ 107,077,949
===============
- ------------------------------------------------------------------------------------------------------------------------------------
* The Moody's and Standard & Poor's ratings indicated are believed to be the
most recent ratings available as of October 31, 2003. The ratings shown are
not audited.
Moody's Municipal Bond Ratings:
Aaa Judged to be of the best quality.
Aa Judged to be of high quality by all standards. Issues are sometimes
denoted with a 1, 2 or 3, which denote a high, medium or low ranking
within the rating.
S&P Municipal Bond Ratings:
AAA Of the highest quality.
AA The second strongest capacity for payment of debt services. Those issues
determined to possess very strong safety characteristics are denoted
with a plus (+) sign.
NR Not Rated.
12 See Notes to Financial Statments.
NORTH AMERICAN GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
INTEREST MATURITY PAR/NOMINAL MARKET
SECURITY RATE DATE VALUE 1 VALUE
- ----------------------------------------------------------------------------------------------------------
CANADIAN SECURITIES - 6.58%
Canadian Government Bond 4.500% 9/1/07 C 14,800,000 $ 11,497,697
Canadian Government Bond 6.000% 6/1/11 8,500,000 7,003,523
-------------------
TOTAL CANADIAN SECURITIES
(COST $15,771,174)........................................................ 18,501,220
-------------------
MEXICAN SECURITIES - 18.26%
Mexican Bono 2 14.000% 9/2/04 P 149,125,300 14,509,986
Mexican Bono 2 14.500% 5/12/05 71,387,700 7,295,290
Mexican Bono 2 10.500% 8/24/06 52,868,200 5,311,617
Mexican Bono 2 9.000% 7/9/09 77,131,000 7,520,500
Mexican Bono 2 10.500% 7/14/11 160,487,300 16,728,101
-------------------
TOTAL MEXICAN SECURITIES
(COST $52,661,776)........................................................ 51,365,494
-------------------
US SECURITIES - 62.77%
CORPORATE OBLIGATIONS - 0.36%
General Electric Co. 5.000% 2/1/13 $ 1,000,000 1,032,158
-------------------
US TREASURY SECURITIES - 62.41%
US Treasury Bond 7.875% 2/15/21 2,750,000 3,635,156
US Treasury Bond 7.625% 2/15/25 15,100,000 19,799,875
US Treasury Bond 6.875% 8/15/25 8,750,000 10,620,313
US Treasury Bond 6.000% 2/15/26 11,500,000 12,650,000
US Treasury Bond 6.375% 8/15/27 22,100,000 25,484,063
US Treasury Note 3.250% 12/31/03 47,000,000 47,168,906
US Treasury Note 2.375% 8/15/06 2,000,000 2,006,719
US Treasury Note 3.000% 2/15/08 16,100,000 16,112,578
US Treasury Note 3.250% 8/15/08 5,500,000 5,513,750
US Treasury Note 3.125% 9/15/08 2,000,000 1,991,250
US Treasury Note 5.000% 2/15/11 19,500,000 20,886,328
US Treasury Note 4.250% 8/15/13 9,750,000 9,716,485
-------------------
175,585,423
-------------------
TOTAL US SECURITIES
(COST $185,072,509)....................................................... 176,617,581
-------------------
See Notes to Financial Statements. 13
NORTH AMERICAN GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
MARKET
SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 11.45%
JP MORGAN CHASE & CO.
Dated 10/31/03, 0.880%, principal and interest in the amount of $32,205,362
due 11/3/03, collateralized by US Treasury Notes, par value of $32,094,000,
due 11/30/04 to 11/15/12 with a value of $32,850,861......................... $ 32,203,000
-------------------
TOTAL REPURCHASE AGREEMENT
(COST $32,203,000)........................................................... 32,203,000
-------------------
TOTAL INVESTMENTS - 99.06%
(COST $285,708,459).......................................................... 278,687,295
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.94% 2,633,412
-------------------
NET ASSETS - 100.00%................................................................. $ 281,320,707
===================
- ----------------------------------------------------------------------------------------------------------
1 Par Value is shown in local currency: Canadian dollars (C), Mexican pesos
(P) and US dollars ($).
2 Bonos are fixed rate, local currency-denominated coupon bonds issued by the
Mexican government.
14 See Notes to Financial Statements.
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK - 72.05%
BASIC MATERIALS - 1.39%
Air Products & Chemicals, Inc. 250 $ 11,352
Alcoa, Inc. 712 22,478
Bowater, Inc. 100 4,083
Cleveland-Cliffs, Inc. + 450 13,500
Dow Chemical Co. 592 22,312
Du Pont (E.I.) de Nemours & Co. 3,006 121,442
Lafarge North America, Inc. 200 7,220
Monsanto Co. 282 7,064
Newmont Mining Corp. 205 8,975
NS Group, Inc. + 1,744 13,237
Nucor Corp. 100 5,483
Owens-Illinois, Inc. + 1,100 13,530
PPG Industries, Inc. 200 11,530
Praxair, Inc. 150 10,437
Quanex Corp. 846 33,882
Rohm & Haas Co. 273 10,729
Sonoco Products Co. 770 16,378
Steel Technologies, Inc. 850 13,098
Stillwater Mining Co. + 3,550 24,814
Temple-Inland, Inc. 100 5,403
United States Steel Corp. 516 12,203
Valspar Corp. 100 4,770
Vulcan Materials Co. 100 4,431
Weyerhaeuser Co. 350 21,080
-----------
419,431
-----------
BIOTECHNOLOGY - 1.23%
Amgen, Inc. + 1,850 114,256
Celgene Corp. + 2,400 100,056
Genentech, Inc. + 100 8,197
Gilead Sciences, Inc. + 481 26,253
ICOS Corp. + 900 42,048
Idec Pharmaceuticals Corp. + 550 19,321
ImClone Systems, Inc. + 800 27,800
Immunomedics, Inc. + 150 1,275
Millennium Pharmaceuticals, Inc. + 1,200 19,104
Myriad Genetics, Inc. + 1,100 13,926
-----------
372,236
-----------
BUSINESS SERVICES - 2.13%
Answerthink, Inc. + 2,850 14,877
Apollo Group, Inc. - Class A + 1,900 120,707
Automatic Data Processing, Inc. 538 20,304
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
CACI International, Inc. + 100 $ 4,953
CCC Information Services + 948 15,926
Cendant Corp. + 390 7,968
ChoicePoint, Inc. + 360 12,614
Cintas Corp. 154 6,570
Computer Sciences Corp. + 210 8,320
DiamondCluster International,
Inc. - Class A + 4,100 36,490
Digital River, Inc. + 147 4,025
DST Systems, Inc. + 100 3,782
Electro Rent Co. 680 9,962
Electronic Data Systems Corp. 1,800 38,610
First Data Corp. 1,180 42,126
Fiserv, Inc. + 190 6,711
Forrester Research, Inc. + 698 11,901
Getty Images, Inc. + 100 4,470
H&R Block, Inc. 140 6,593
Intergraph Corp. + 1,925 50,166
Interpublic Group of Companies, Inc. + 1,400 20,832
Manpower, Inc. 93 4,315
Metris Cos., Inc. 1,910 9,034
Omnicom Group 206 16,439
On Assignment, Inc. + 3,900 20,397
Opnet Technologies, Inc. + 1,551 21,776
R.H. Donnelley Corp. + 120 5,147
Sabre Holdings Corp. - Class A 1,144 25,065
ServiceMaster Co. 4,300 49,321
United Rentals, Inc. + 1,325 23,081
Weight Watchers International, Inc. + 560 20,664
-----------
643,146
-----------
CAPITAL GOODS - 5.91%
3M Co. 1,762 138,969
American Standard Companies, Inc. + 300 28,710
Avery Dennison Corp. 100 5,258
AVX Corp. 270 3,969
Boeing Co. 2,930 112,776
Caterpillar, Inc. 510 37,373
Clarcor, Inc. 100 4,065
Cooper Industries Ltd. - Class A 950 50,255
Deere & Co. 200 12,124
Dycom Industries, Inc. + 1,800 38,898
Eaton Corp. 400 40,096
Emerson Electric Co. 460 26,105
Encore Wire Corp. + 2,100 35,406
See Notes to Financial Statements. 15
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK
CAPITAL GOODS
FMC Technologies, Inc. + 5,200 $ 104,416
FuelCell Energy, Inc. + 1,155 17,625
General Dynamics Corp. 810 67,797
General Electric Co. 16,514 479,071
Harsco Corp. 97 3,716
Hillenbrand Industries, Inc. 100 5,953
Honeywell International, Inc. 1,020 31,222
Illinois Tool Works, Inc. 590 43,394
Ingersoll-Rand Co. - Class A 200 12,080
Johnson Controls, Inc. 510 54,840
Kennametal, Inc. 1,500 55,320
Lockheed Martin Corp. 200 9,272
McDermott International, Inc. + 9,000 66,600
Merix Corp. + 2,000 35,580
Northrop Grumman Corp. 163 14,572
Parker Hannifin Corp. 100 5,097
Pitney Bowes, Inc. 429 17,632
Planar Systems, Inc. + 1,000 23,140
Power-One, Inc. + 1,100 9,966
Raytheon Co. 200 5,296
Rockwell Automation, Inc. 635 19,717
Teleflex, Inc. 100 4,601
Terex Corp. + 2,600 58,656
Textron, Inc. 200 9,938
United Technologies Corp. 565 47,850
URS Corp. + 1,330 29,114
W.W. Grainger, Inc. 100 4,578
Wolverine Tube, Inc. + 3,396 17,286
-----------
1,788,333
-----------
CONSUMER CYCLICALS - 1.92%
Bally Total Fitness Holding Co. + 1,300 8,658
Black & Decker Corp. 100 4,781
Brunswick Corp. 271 8,041
Carnival Corp. 196 6,842
Centex Corp. 200 19,500
Department 56 + 1,000 14,050
Dow Jones & Co., Inc. 100 5,197
Dura Automotive Systems Co. + 1,400 13,524
General Motors Corp. 2,445 104,328
Genesis Intermedia, Inc. + * 600 -
Genuine Parts Co. 1,350 42,957
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Haggar Corp. 587 $ 9,333
Harley-Davidson, Inc. 300 14,223
Harrah's Entertainment, Inc. 200 8,700
KB Home 200 13,698
Knight-Ridder, Inc. 169 12,391
Lear Corp. + 300 17,427
Lee Enterprises, Inc. 100 4,216
Lennar Corp. - Class A 200 18,370
Marriott International, Inc. - Class A 300 12,960
Masco Corp. 210 5,775
McClatchy Co. - Class A 150 9,705
McGraw-Hill Cos., Inc. 300 20,085
Meredith Corp. 100 4,852
Midway Games, Inc. + 6,450 18,318
Mohawk Industries, Inc. + 150 11,118
Nautilus Group, Inc. 970 15,142
Nike, Inc. - Class B 350 22,365
Polaris Industries, Inc. 168 14,381
Pulte Homes, Inc. 197 17,042
Scholastic Corp. + 600 18,558
Scripps (E.W.) Co. - Class A 300 27,873
Tower Automotive, Inc. + 2,200 8,756
V.F. Corp. 200 8,490
Washington Post Co. - Class B 36 26,547
Whirlpool Corp. 200 14,094
-----------
582,297
-----------
CONSUMER STAPLES - 5.85%
Alberto-Culver Co. - Class B 100 6,340
Altria Group, Inc. 2,171 100,951
AmerisourceBergen Corp. 318 18,053
Anheuser-Busch Cos., Inc. 3,002 147,879
Avon Products, Inc. 200 13,592
Brinker International, Inc. + 250 7,957
Cablevision Systems Corp. + 3,225 65,145
Cardinal Health, Inc. 716 42,487
Clear Channel Communications, Inc. 85 3,470
Clorox Co. 268 12,140
Coca-Cola Co. 5,312 246,477
Colgate Palmolive Co. 720 38,297
ConAgra Foods, Inc.. 469 11,181
COX Communications, Inc. - Class A + 701 23,883
Dean Foods Co. + 276 8,349
Eastman Kodak Co. 670 16,368
Echostar Communications Corp. - Class A + 100 3,832
16 See Notes to Financial Statements.
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK
CONSUMER STAPLES
Entercom Communications Corp. + 260 $ 11,911
Fortune Brands, Inc. 38 2,476
Kellogg Co. 450 14,908
Kimberly-Clark Corp. 214 11,301
Kraft Foods, Inc. 715 20,806
Liberty Media Corp. - Class A + 4,880 49,239
Newell Rubbermaid, Inc. 1,952 44,506
Outback Steakhouse, Inc. 129 5,418
Patterson Dental Co. + 100 6,398
PepsiCo, Inc. 2,611 124,858
Procter & Gamble Co. 3,572 351,092
Sara Lee Corp. 300 5,979
Sysco Corp. 670 22,552
Time Warner, Inc. + 6,950 106,265
Univision Communications,
Inc. - Class A + 1,402 47,598
Viacom, Inc. - Class B 1,466 58,449
W.M. Wrigley Jr. Co. 350 19,740
Walt Disney Co. 2,285 51,732
XM Satellite Radio Holdings,
Inc. - Class A + 2,161 43,782
Yum! Brands, Inc. + 180 6,145
-----------
1,771,556
-----------
ENERGY - 3.21%
Anadarko Petroleum Corp. 82 3,577
Apache Corp. 335 23,356
B.J. Services Co. + 100 3,281
ChevronTexaco Corp. 214 15,900
ConocoPhillips 525 30,004
Consolidated Edison, Inc. 300 12,141
Cooper Cameron Corp. + 100 4,282
Devon Energy Corp. 136 6,596
Exxon Mobil Corp. 13,963 510,767
Halliburton Co. 393 9,385
Marathon Oil Corp. 4,300 127,151
Meridian Resource Corp. + 1,900 7,638
Murphy Oil Corp. 520 30,670
Nabors Industries Ltd. + 100 3,780
Patterson - UTI Energy, Inc. + 955 27,303
Pioneer Natural Resources Co. + 2,970 78,556
Schlumberger Ltd. 100 4,697
Smith International, Inc. + 200 7,446
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Sunoco, Inc. 1,413 $ 61,833
Weatherford International Ltd. + 100 3,475
-----------
971,838
-----------
FINANCE - 15.43%
Affiliated Managers Group + 400 29,000
Aflac, Inc. 560 20,429
Alliance Capital Management Holding LP 100 3,357
Allmerica Financial Corp. + 900 23,967
AMBAC Financial Group, Inc. 250 17,685
American Capital Strategies Ltd. 1,789 48,303
American Express Co. 1,725 80,954
American Financial Group, Inc. 694 15,455
American International Group, Inc. 3,789 230,485
American National Insurance Co. 300 24,921
Argonaut Group, Inc. + 3,500 56,175
Associated Banc Corp. 121 4,980
AvalonBay Communities, Inc. 100 4,567
Bank of America Corp. 5,987 453,396
Bank of Hawaii Corp. 1,755 69,147
Bank of New York Co., Inc. 670 20,897
BB&T Corp. 1,291 49,923
Bear Stearns Cos. Inc. 220 16,775
Boston Properties, Inc. 100 4,425
Capital One Financial Corp. 150 9,120
Charter One Financial, Inc. 160 5,114
Chubb Corp. 400 26,724
Cincinnati Financial Corp. 200 8,184
Citigroup, Inc. 7,302 346,115
City Bank Lynnwood WA 898 29,508
City National Corp. 100 6,021
CNA Financial Corp. + 2,185 47,152
Comerica, Inc. 250 12,870
Commerce Bancorp, Inc./NJ 770 37,222
Commerce Bancshares, Inc. 126 6,033
CompuCredit Corp. + 961 18,999
Countrywide Credit Industries, Inc. 200 21,024
Equity Office Properties Trust 344 9,635
Equity Residential 200 5,850
Fannie Mae 5,352 383,685
Fidelity National Financial, Inc. 473 14,625
Financial Federal Corp. + 812 27,243
First Tennessee National Corp. 100 4,536
FleetBoston Financial Co. 1,171 47,297
Franklin Resources, Inc. 300 14,226
See Notes to Financial Statements. 17
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK
FINANCE
Freddie Mac 960 $ 53,885
Friedman Billings Ramsey Group - Class A 1,600 31,872
Golden West Financial Corp. 300 30,129
Greenpoint Financial Corp. 225 7,009
Hartford Financial Services Group 300 16,470
Headwaters, Inc. + 360 6,746
Health Care Property Investors, Inc. 100 4,663
Host Marriott Corp. + 5,000 52,250
iStar Financial, Inc. 100 3,806
J.P. Morgan Chase & Co. 2,480 89,032
Jefferson-Pilot Corp. 225 10,741
John Hancock Financial Services, Inc. 260 9,191
KeyCorp 310 8,757
Kimco Realty Corp. 3,250 135,395
Landamerica Financial Group, Inc. 100 5,001
Legg Mason, Inc. 200 16,650
Lehman Brothers Holdings, Inc. 400 28,800
Liberty Property Trust 100 3,638
Lincoln National Corp. 100 3,993
M & T Bank Corp. 412 38,687
Marsh & McLennan Cos., Inc. 1,425 60,919
MBIA, Inc. 150 8,941
MBNA, Inc. 1,375 34,031
MCG Capital Corp. 1,650 29,007
Mellon Financial Corp. 210 6,273
Mercantile Bankshares Corp. 100 4,237
Mercury General Corp. 100 4,753
Merrill Lynch & Co., Inc. 1,020 60,384
Metlife, Inc. 648 20,347
MGIC Investment Corp. 153 7,850
Moody's Corp. 3,807 220,159
Morgan Stanley 2,381 130,645
National City Corp. 710 23,189
Nationwide Financial Services, Inc. 616 20,926
New Century Financial 2,368 87,805
North Fork Bancorp., Inc. 150 5,847
Northern Trust Corp. 300 13,935
Ocwen Financial Corp. + 2,800 13,608
Old Republic International Corp. 100 3,594
PNC Financial Services Group, Inc. 460 24,642
Popular, Inc. 100 4,500
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Presidential Life Corp. 5,850 $ 89,856
Progressive Corp. 810 59,778
Prudential Financial, Inc. 1,350 52,164
Public Storage, Inc. 186 7,440
Radian Group, Inc. 200 10,580
Regions Financial Corp. 200 7,350
Rouse Co. 100 4,300
SEI Investments, Co. 1,000 29,120
Simon Property Group, Inc. 100 4,508
SLM Corp. 1,150 45,034
St. Paul Cos., Inc. 100 3,813
State Street Corp. 300 15,708
Student Loan Corp. 610 79,007
SunTrust Banks, Inc. 502 33,669
T. Rowe Price Group, Inc. 100 4,115
TCF Financial Corp. 100 5,218
Torchmark Corp. 200 8,776
Transatlantic Holdings, Inc. 720 55,224
Travelers Property Casualty Corp. - Class B 412 6,744
Union Planters Corp. 300 9,981
UnionBanCal Corp. 200 10,834
UnumProvident Corp. 1,438 23,540
US Bancorp. 2,373 64,593
Valley National Bancorp 434 12,694
Wachovia Corp. 1,767 81,052
Washington Mutual, Inc. 984 43,050
Wells Fargo & Co. 3,086 173,804
Westamerica Bancorp. 100 5,006
White Mountains Insurance Group Ltd. 25 10,600
Whitney Holding Corp. 150 5,695
Wilmington Trust Corp. 200 6,736
WSFS Financial Corp. 2,250 95,962
Zions Bancorp. 100 6,129
-----------
4,670,411
-----------
HEALTH CARE - 10.05%
Abbott Laboratories 4,135 176,234
Adolor Corp. + 3,100 56,637
Allergan, Inc. 210 15,880
American Medical Service Group, Inc. + 2,200 50,204
Bausch & Lomb, Inc. 100 4,816
Baxter International, Inc. 500 13,290
Beckman Coulter, Inc. 100 4,965
Becton Dickinson & Co. 200 7,312
18 See Notes to Financial Statements.
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK
HEALTH CARE
Biomet, Inc. 275 $ 9,861
Boston Scientific Corp. + 720 48,758
Bristol-Myers Squibb Co. 3,605 91,459
C.R. Bard, Inc. 210 16,811
Caremark Rx, Inc. + 4,877 122,169
Cigna Corp. 1,200 68,460
Dentsply International, Inc. 150 6,629
Diagnostic Products Corp. 100 4,082
Edwards Lifesciences Corp. + 680 19,720
Eli Lilly & Co. 2,296 152,960
Endo Pharmaceuticals Holdings + 1,650 26,994
Express Scripts, Inc. + 400 21,968
Forest Laboratories, Inc. + 1,496 74,815
Guidant Corp. 1,055 53,816
HCA, Inc. 2,460 94,095
Health Net, Inc. + 1,720 54,335
Henry Schein, Inc. + 150 9,308
Humana, Inc. + 1,700 34,493
Invision Technologies, Inc. + 1,170 31,789
Johnson & Johnson 5,706 287,183
Manor Care, Inc. 460 15,309
Medcath Corp. + 3,500 37,030
Medco Health Solutions, Inc. + 680 22,576
Medtronic, Inc. 1,770 80,659
Merck & Co., Inc. 5,643 249,703
Mid Atlantic Medical Services + 134 7,826
Mylan Laboratories, Inc. 262 6,327
Nabi Biopharmaceuticals + 616 6,794
Nektar Therapeutics Co. + 1,300 17,082
Oxford Health Plans, Inc. 1,080 43,740
Pfizer, Inc. 12,763 403,311
PolyMedica Corp. 200 5,900
Quest Diagnostics, Inc. 510 34,501
Renal Care Group, Inc. + 100 3,751
Respironics, Inc. + 100 4,169
Schering-Plough Corp. 4,900 74,823
St. Jude Medical, Inc. + 720 41,875
Stryker Corp. 300 24,333
Telik, Inc. + 1,400 28,448
Tularik, Inc. + 2,200 27,654
UnitedHealth Group, Inc. 1,390 70,723
Vivus, Inc. + 4,850 18,090
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Watson Pharmaceuticals, Inc. + 100 $ 3,927
WellChoice, Inc. + 800 26,000
Wellpoint Health Networks, Inc. + 970 86,233
Wyeth 2,930 129,330
Zimmer Holdings, Inc. + 211 13,464
-----------
3,042,621
-----------
INFORMATION SERVICES - 1.62%
Alltel Corp. 377 17,821
AT&T Wireless Services, Inc. + 3,651 26,470
BellSouth Corp. 780 20,522
Metro One Telecommunications, Inc. + 4,750 12,540
Nextel Communications, Inc. - Class A + 430 10,406
Nextel Partners, Inc. - Class A + 2,900 34,858
SBC Communications, Inc. 4,147 99,445
Sprint Corp. - FON Group 400 6,400
Talk America Holdings, Inc. + 4,817 60,116
Time Warner Telecom, Inc. - Class A + 1,200 12,420
Verizon Communications, Inc. 5,588 187,757
-----------
488,755
-----------
INTERNET - 1.43%
Amazon.Com, Inc. + 142 7,728
Centillium Communications, Inc. + 1,350 7,236
Cisco Systems, Inc. + 9,957 208,898
eBay, Inc. + 820 45,871
Intercept, Inc. + 426 4,183
Intuit, Inc. + 317 15,844
ITXC Corp. + 10,350 35,604
Level 3 Communications, Inc. + 4,500 24,255
Netbank, Inc. 1,059 14,519
Sun Microsystems, Inc. + 2,765 10,949
Yahoo!, Inc. + 1,318 57,597
-----------
432,684
-----------
RETAIL - 7.33%
Albertson's, Inc. 9,076 184,152
American Eagle Outfitters + 400 6,396
Autonation, Inc. + 234 4,376
Autozone, Inc. + 100 9,610
Bebe Stores, Inc. + 1,400 39,060
Bed Bath & Beyond, Inc. + 300 12,672
Best Buy Co., Inc. 304 17,726
BJ's Wholesale Club, Inc. + 2,175 55,876
CDW Corp. 1,283 77,044
Costco Wholesale Corp. + 3,160 111,769
See Notes to Financial Statements. 19
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK
RETAIL
CVS Corp. 272 $ 9,569
Dollar General Corp. 2,700 60,669
Dollar Tree Stores, Inc. + 175 6,682
Family Dollar Stores, Inc. 100 4,361
Fastenal Co. 60 2,668
Footstar, Inc. + 3,900 24,375
Gap, Inc. 2,312 44,113
Group 1 Automotive, Inc. + 200 7,086
Home Depot, Inc. 1,420 52,639
Ingram Micro, Inc. + 2,600 38,480
Kohl's Corp. + 510 28,596
Kroger Co. + 9,010 157,585
Limited Brands 674 11,862
Lowe's Companies, Inc. 1,034 60,934
May Department Stores Co. 255 7,130
Michaels Stores, Inc. 353 16,757
Office Depot, Inc. + 2,600 38,818
RadioShack Corp. 2,100 62,979
Restoration Hardware, Inc. + 5,700 45,372
Ross Stores, Inc. 441 22,054
Saks, Inc. + 380 5,282
Sears Roebuck & Co. 4,610 242,624
Target Corp. 1,098 43,635
Tech Data Corp. + 500 16,460
TJX Cos., Inc. 200 4,198
Tweeter Home Entertainment Group,
Inc. + 1,874 15,648
United Auto Group, Inc. 1,500 38,955
Valuevision Media, Inc. - Class A + 400 6,500
Walgreen Co. 1,425 49,619
Wal-Mart Stores, Inc. 9,166 540,336
Whole Foods Market, Inc. + 190 11,256
Williams-Sonoma, Inc. + 375 13,249
Winn-Dixie Stores, Inc. 965 7,807
-----------
2,216,979
-----------
TECHNOLOGY - 11.09%
Adtran, Inc. 242 16,463
Affiliated Computer Services,
Inc. - Class A + 560 27,401
Agile Software Corp. + 906 9,939
Agilent Technologies, Inc. + 205 5,109
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Alliance Semiconductors Corp. + 1,700 $ 13,090
Analog Devices, Inc. + 200 8,866
Andrew Corp. + 1,149 15,029
Applera Corp. - Celera Genomics Group + 1,340 17,916
Applied Materials, Inc. + 3,430 80,159
Asyst Technologies, Inc. + 200 3,730
Avaya, Inc. + 1,000 12,940
Axcelis Technologies, Inc. + 6,400 67,712
Broadcom Corp. - Class A + 996 31,822
Brocade Communications Systems, Inc. + 3,500 22,925
Cabot Microelectronics Corp. + 147 8,379
Catapult Communications Corp. + 647 8,819
Corning, Inc. + 1,645 18,062
Credence Systems Corp. + 2,100 34,251
Cypress Semiconductor Corp. + 1,850 39,701
Dell, Inc. + 4,491 162,215
Electronic Arts, Inc. + 960 95,078
EMC Corp. + 1,715 23,736
ESS Technology, Inc. + 1,009 14,005
Fairchild Semiconductor - Class A + 1,321 29,855
Flir Systems, Inc. + 200 6,252
GSI Commerce, Inc. + 4,950 48,312
Harmonic, Inc. + 1,350 10,476
Helix Technology Corp. 1,850 33,208
Hewlett-Packard Co. 4,872 108,694
IBM 3,222 288,305
IKON Office Solutions, Inc. 609 5,116
InFocus Corp. + 2,000 13,180
Integrated Circuit Systems, Inc. + 210 7,050
Integrated Device Technology, Inc. + 1,450 22,765
Intel Corp. 10,374 342,861
Interdigital Communications Co. + 2,300 39,077
Inverness Medical Innovations + 1,000 26,800
Iron Mountain, Inc. + 229 8,757
KLA-Tencor Corp. + 200 11,466
Kopin Corp. + 1,650 12,095
Lexmark International, Inc. + 200 14,722
Linear Technology Corp. 1,261 53,731
Lucent Technologies, Inc. + 6,108 19,546
Macrovision Corp. + 1,258 27,638
McData Corp. - Class A + 370 3,822
MEMC Electronic Materials, Inc. + 547 6,126
Mentor Graphics Corp. + 1,000 16,750
Mercury Interactive Corp. + 667 30,975
20 See Notes to Financial Statements.
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK
TECHNOLOGY
Microchip Technology, Inc. 297 $ 9,715
Micron Technology, Inc. + 2,750 39,435
Microsoft Corp. 19,946 521,588
Motorola, Inc. 4,770 64,538
National Semiconductor Corp. + 460 18,690
NETIQ Corp. + 1,200 14,568
Oracle Corp. + 9,781 116,981
PalmOne, Inc. + 900 12,897
PalmSource, Inc. + 279 10,652
Photronics, Inc. + 100 2,154
Pixar, Inc. + 1,075 73,971
Pixelworks, Inc. + 1,163 14,049
Polycom, Inc. + 1,200 24,036
QLogic Corp. + 352 19,730
Qualcomm, Inc. 2,244 106,590
SafeNet, Inc. + 400 13,340
Silicon Laboratories, Inc. + 300 16,194
Silicon Storage Technology, Inc. + 2,400 26,832
Skyworks Solutions, Inc. + 1,332 11,429
SoftBrands, Inc. + 44 35
Tektronix, Inc. 200 5,134
Tellabs, Inc. + 4,500 33,885
Terayon Communication Systems, Inc. + 1,100 7,557
Texas Instruments, Inc. 5,315 153,710
Utstarcom, Inc. + 100 3,150
Veritas Software Corp. + 893 32,282
Wind River Systems + 4,850 32,495
Xerox Corp. + 1,745 18,323
Xilinx, Inc. + 900 28,530
-----------
3,357,416
-----------
TRANSPORTATION - 1.83%
AMR Corp. + 2,600 34,528
Atlantic Coast Airlines Holdings, Inc. + 2,200 24,354
Burlington Northern Santa Fe Corp. 870 25,178
C. H. Robinson Worldwide 1,048 41,061
Continental Airlines, Inc. - Class B + 800 15,280
Covenant Transportation, Inc. - Class A + 600 11,442
Delta Airlines, Inc. + 3,200 41,664
ExpressJet Holdings, Inc. - Class A + 1,500 22,950
General Maritime Corp. + 6,500 82,225
Roadway Corp. 500 25,625
Ryder Systems, Inc. 1,800 54,000
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
Southwest Airlines Co. 1,350 26,190
Swift Transportation Co., Inc.+ 1,658 37,189
Union Pacific Corp. 510 31,926
United Parcel Service, Inc. - Class B 1,100 79,772
-----------
553,384
-----------
UTILITIES - 1.63%
Allegheny Energy, Inc. + 11,515 121,829
American Electric Power Co., Inc. 3,350 94,437
Avista Corp. 525 8,925
Cinergy Corp. 200 7,262
Constellation Energy Group, Inc. 100 3,637
DTE Energy Co. 200 7,376
EL Paso Corp. 6,000 44,040
Entergy Corp. 300 16,170
Exelon Corp. 422 26,776
FirstEnergy Corp. 200 6,878
FPL Group, Inc. 300 19,122
KeySpan Corp. 188 6,574
NiSource, Inc. 2,700 55,917
Piedmont Natural Gas Co. 95 3,774
PPL Corp. 93 3,713
Progress Energy, Inc. 100 4,310
Public Service Enterprise Group, Inc. 293 11,975
Southern Co. 770 22,946
Westar Energy, Inc. 187 3,736
World Fuel Services Corp. 800 22,928
-----------
492,325
-----------
TOTAL COMMON STOCK
(COST $18,474,849) 21,803,412
-----------
RIGHTS - 0.00%
Seagate* (Cost $0) 300 -
-----------
WARRANTS - 0.00%
Golden State Bancorp., Inc. 100 106
MasoTech* 200 -
Seabulk International, Inc. 1 -
Tokheim Corp. 500 -
TOTAL WARRANTS
-----------
(COST $8,690) 106
-----------
See Notes to Financial Statements. 21
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
INTEREST MATURITY PAR MARKET
RATE DATE VALUE VALUE
- --------------------------------------------------------------------------------
US TREASURY SECURITIES - 13.63%
US Treasury Bond 9.250% 2/15/16 $ 500,000 714,531
US Treasury Bond 8.750% 5/15/17 500,000 696,875
US Treasury Bond 7.250% 8/15/22 1,150,000 1,439,836
US Treasury Note 5.500% 5/15/09 250,000 277,031
US Treasury Note 4.250% 8/15/13 1,000,000 996,563
-----------
TOTAL US TREASURY SECURITIES
(COST $3,974,757)............................................ 4,124,836
-----------
REPURCHASE AGREEMENT - 14.02%
JP MORGAN CHASE & CO.
Dated 10/31/03, 0.880%, principal and interest in
the amount of $4,243,311 due 11/3/03, collateralized
by US Treasury Notes, par value of $4,265,000,
due 11/30/04 with a value of $4,332,766....................... 4,243,000
-----------
TOTAL REPURCHASE AGREEMENT
(COST $4,243,000)............................................ 4,243,000
-----------
TOTAL INVESTMENTS IN SECURITIES - 99.70%
(COST $26,701,296)........................................... 30,171,354
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.30%....................... 90,170
-----------
NET ASSETS - 100.00%................................................ $30,261,524
===========
- --------------------------------------------------------------------------------
+ Non-income producing security.
* Security fair valued in good faith under procedures established by and under
the general supevision of the Fund's Board of Directors.
22 See Notes to Financial Statements.
ISI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2003
TOTAL RETURN US MANAGED
TREASURY FUND MUNICIPAL FUND
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments:
In securities, at market value
(cost $202,348,866 and $94,757,749, respectively)................................ $ 196,615,969 $ 100,188,067
Repurchase agreement
(cost $30,055,000 and $6,012,000, respectively).................................. 30,055,000 6,012,000
Cash.................................................................................. 159 491
Receivables:
Capital shares sold.............................................................. 302,493 -
Interest......................................................................... 3,063,671 1,175,346
Prepaid expenses...................................................................... 9,704 8,916
------------------- --------------------
Total assets.......................................................................... 230,046,996 107,384,820
------------------- --------------------
LIABILITIES:
Payables:
Capital shares redeemed.......................................................... 479,542 8,000
Dividends........................................................................ 380,489 190,767
Accrued Liabilities:
Investment advisory fees......................................................... 45,204 36,359
Distribution fees................................................................ 48,938 22,724
Administration fees.............................................................. 9,788 4,545
Accrued expenses and other....................................................... 56,423 44,476
------------------- --------------------
Total liabilities..................................................................... 1,020,384 306,871
------------------- --------------------
Net assets............................................................................... $ 229,026,612 $ 107,077,949
=================== ====================
COMPONENTS OF NET ASSETS:
Paid in capital....................................................................... $ 228,461,670 $ 102,041,901
Distributions in excess of net investment income...................................... (982,794) (394,270
Accumulated net realized gain from investment transactions............................ 7,280,633 -
Net unrealized appreciation/depreciation on investments............................... (5,732,897) 5,430,318
------------------- --------------------
Net assets............................................................................... $ 229,026,612 $ 107,077,949
=================== ====================
SHARES OF BENEFICIAL INTEREST OUTSTANDING:
ISI Shares (115,000,000 and 55,000,000 shares authorized, respectively)............... 23,097,157 9,829,586
------------------- --------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE:
ISI Shares (net assets / shares of beneficial interest outstanding)................... $ 9.92 $ 10.89
------------------- --------------------
MAXIMUM OFFERING PRICE PER SHARE:
ISI Shares ($9.92 / 0.97 and $10.89 / 0.97, respectively)............................. $ 10.23 $ 11.23
------------------- --------------------
See Notes to Financial Statements. 23
ISI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2003
NORTH AMERICAN
GOVERNMENT ISI
BOND FUND STRATEGY FUND
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments:
In securities, at market value (cost $253,505,459 and $22,458,296, respectively) $ 246,484,295 $ 25,928,354
Repurchase agreement (cost $32,203,000 and $4,243,000, respectively)............ 32,203,000 4,243,000
Cash.............................................................................. 484 897
Receivables:
Capital shares sold............................................................. 822,095 91,729
Interest and dividends.......................................................... 3,541,643 85,789
Expense reimbursement by advisor................................................ 4,999 5,952
Prepaid expenses.................................................................. 22,020 8,713
------------------- -------------------
Total assets...................................................................... 283,078,536 30,364,434
------------------- -------------------
LIABILITIES:
Payables:
Capital shares redeemed......................................................... 657,035 49,635
Dividends....................................................................... 832,659 -
Accrued Liabilities:
Investment advisory fees........................................................ 95,125 -
Distribution fees............................................................... 98,735 6,285
Shareholder servicing fees...................................................... 2,579 -
Administration fees............................................................. 11,891 3,260
Accrued expenses and other...................................................... 59,805 43,730
------------------- -------------------
Total liabilities................................................................. 1,757,829 102,910
------------------- -------------------
Net assets........................................................................... $ 281,320,707 $ 30,261,524
=================== ===================
COMPONENTS OF NET ASSETS:
Paid in capital................................................................... $ 287,201,581 $ 30,744,063
Undistributed (distributions in excess of) net investment income.................. (1,732,674) 14,752
Accumulated net realized gain (loss) from investment transactions................. 2,884,276 (3,967,349)
Net unrealized appreciation/depreciation on investments and
foreign currencies.............................................................. (7,032,476) 3,470,058
------------------- -------------------
Net assets........................................................................... $ 281,320,707 $ 30,261,524
=================== ===================
SHARES OF BENEFICIAL INTEREST OUTSTANDING:
ISI Class A Shares (50,000,000 shares authorized)............................... 34,639,451 -
------------------- -------------------
ISI Class C Shares (5,000,000 shares authorized)................................ 1,756,779 -
------------------- -------------------
ISI Shares (25,000,000 shares authorized)....................................... - 2,883,401
------------------- -------------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE:
(net assets / shares of beneficial interest outstanding)
ISI Class A Shares (based on net assets of $267,755,963)........................ $ 7.73 $ -
------------------- -------------------
ISI Class C Shares (based on net assets of $13,564,744)......................... $ 7.72 $ -
------------------- -------------------
ISI Shares (based on net assets of $30,261,524)................................. $ - $ 10.50
------------------- -------------------
MAXIMUM OFFERING PRICE PER SHARE:
ISI Class A Shares ($7.73 / 0.97)............................................... $ 7.97 $ -
------------------- -------------------
ISI Shares ($10.50 / 0.97)...................................................... $ - $ 10.82
------------------- -------------------
24 See Notes to Financial Statements.
ISI FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2003
TOTAL RETURN US MANAGED
TREASURY FUND MUNICIPAL FUND
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest........................................................................ $ 7,952,279 $ 4,826,426
--------------------- ---------------------
EXPENSES:
Investment advisory fees........................................................ 579,444 424,766
Distribution fees............................................................... 625,517 265,478
Administration fees............................................................. 125,107 53,097
Transfer agent fees............................................................. 95,472 36,699
Custody fees.................................................................... 7,808 4,714
Professional fees............................................................... 107,791 54,786
Accounting fees................................................................. 56,011 52,536
Printing and shareholder reports................................................ 18,472 9,571
Registration fees............................................................... 26,037 23,599
Directors' fees................................................................. 19,334 8,371
Miscellaneous................................................................... 27,443 11,124
--------------------- ---------------------
Total expenses.............................................................. 1,688,436 944,741
--------------------- ---------------------
Net investment income........................................................... 6,263,843 3,881,685
--------------------- ---------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions.................................. 13,569,304 458,899
Net change in unrealized appreciation/depreciation on investments............... (13,632,522) (439,966)
--------------------- ---------------------
Net realized and unrealized gain (loss) on investments.......................... (63,218) 18,933
--------------------- ---------------------
INCREASE IN NET ASSETS FROM OPERATIONS: $ 6,200,625 $ 3,900,618
===================== =====================
See Notes to Financial Statements. 25
ISI FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2003
NORTH AMERICAN
GOVERNMENT
BOND FUND (A) ISI STRATEGY FUND
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest....................................................................... $ 11,331,121 $ 188,843
Dividend....................................................................... - 283,390
--------------------- ---------------------
Total income................................................................ 11,331,121 472,233
--------------------- ---------------------
EXPENSES:
Investment advisory fees....................................................... 1,097,239 91,174
Distribution fees:
ISI Class A Shares......................................................... 1,082,987 -
ISI Class C Shares......................................................... 26,722 -
ISI Shares................................................................. - 56,984
Administration fees............................................................ 137,159 36,118
Transfer agent fees:
ISI Class A Shares......................................................... 161,782 -
ISI Class C Shares......................................................... 7,405 -
ISI Shares................................................................. - 25,100
Custody fees................................................................... 90,979 46,776
Professional fees.............................................................. 163,823 55,155
Accounting fees................................................................ 75,809 50,600
Shareholder servicing fees:
ISI Class C Shares......................................................... 8,908 -
Printing and shareholder reports............................................... 54,586 5,205
Registration fees.............................................................. 60,703 6,319
Directors' fees................................................................ 28,055 2,101
Miscellaneous.................................................................. 24,423 33,413
--------------------- ---------------------
Total expenses............................................................. 3,020,580 408,945
Less: fee waiver and/or expense reimbursements................................. (9,693) (112,624)
--------------------- ---------------------
Net expenses............................................................... 3,010,887 296,321
--------------------- ---------------------
Net investment income.......................................................... 8,320,234 175,912
--------------------- ---------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss) from:
Investment transactions.................................................... 14,494,894 (75,683)
Foreign currency transactions.............................................. (134,546) -
Net change in unrealized appreciation/depreciation on investments and
foreign currencies........................................................... (11,632,023) 3,392,601
--------------------- ---------------------
Net realized and unrealized gain on investments and
foreign currencies........................................................... 2,728,325 3,316,918
--------------------- ---------------------
INCREASE IN NET ASSETS FROM OPERATIONS:............................................ $ 11,048,559 $ 3,492,830
===================== =====================
- ------------------------------------------------------------------------------------------------------------------------------------
(a) On May 16, 2003 the Fund commenced the offering of ISI Class C Shares and ISI Shares were redesignated as ISI Class A Shares.
26 See Notes to Financial Statements.
TOTAL RETURN US TREASURY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
-------------------------------------------------
2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................ $ 6,263,843 $ 9,005,811
Net realized gain on investment transactions................................. 13,569,304 6,049,948
Net change in unrealized appreciation/depreciation on investments............ (13,632,522) (1,512,881)
-------------------------- -------------------
Increase in net assets from operations....................................... 6,200,625 13,542,878
-------------------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM: (A)
Net investment income and net realized short-term gains:
ISI Shares................................................................ (12,426,417) (11,311,635)
Class A Shares............................................................ - (2,326,894)
Net realized long-term capital gains:
ISI Shares................................................................ - (854,348)
-------------------------- -------------------
Total distributions.......................................................... (12,426,417) (14,492,877)
-------------------------- -------------------
CAPITAL SHARE TRANSACTIONS: (A)
Proceeds from sale of shares:
ISI Shares................................................................ 19,262,461 34,572,482
Class A Shares............................................................ - 4,895,334
Contributions from share class merger:
ISI Shares................................................................ - 102,172,420
Dividend reinvestments:
ISI Shares................................................................ 7,616,844 7,591,702
Class A Shares............................................................ - 1,060,736
Cost of shares redeemed:
ISI Shares................................................................ (54,554,409) (35,772,474)
Class A Shares............................................................ - (12,474,587)
Redemptions from share class merger:
Class A Shares............................................................ - (102,172,420)
-------------------------- -------------------
Decrease in net assets from capital share transactions....................... (27,675,104) (126,807)
-------------------------- -------------------
Total decrease in net assets................................................. (33,900,896) (1,076,806)
NET ASSETS:
Beginning of year............................................................ 262,927,508 264,004,314
-------------------------- -------------------
End of year (including distributions in excess of net investment
income of $982,794 and $1,108,891, respectively).......................... $ 229,026,612 $ 262,927,508
========================== ===================
See Notes to Financial Statements. 27
TOTAL RETURN US TREASURY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
-------------------------------------------------
2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS: (A)
Shares sold:
ISI Shares................................................................ 1,898,497 3,496,625
Class A Shares............................................................ - 500,532
Shares issued in connection with share class merger:
ISI Shares................................................................ - 10,551,813
Shares issued to shareholders on reinvestment of dividends:
ISI Shares................................................................ 750,559 774,546
Class A Shares............................................................ - 109,242
Shares redeemed:
ISI Shares................................................................ (5,382,976) (3,661,239)
Class A Shares............................................................ - (1,278,524)
Shares redeemed in connection with share class merger:
Class A Shares............................................................ - (10,551,813)
-------------------------- -------------------
Decrease in shares from capital share transactions........................... (2,733,920) (58,818)
========================== ===================
- ------------------------------------------------------------------------------------------------------------------------------------
(a) On February 28, 2002, Class A Shares merged into ISI Shares.
28 See Notes to Financial Statements.
MANAGED MUNICIPAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
-------------------------------------------------
2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................ $ 3,881,685 $ 3,895,074
Net realized gain on investment transactions................................. 458,899 257,404
Net change in unrealized appreciation/depreciation on investments............ (439,966) 853,535
-------------------------- -------------------
Increase in net assets from operations....................................... 3,900,618 5,006,013
-------------------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM: (A)
Net investment income and net realized short-term gains:
ISI Shares................................................................ (4,545,840) (3,625,097)
Class A Shares............................................................ - (478,023)
Net realized long-term capital gains:
ISI Shares................................................................ (458,899) (575,789)
Class A Shares............................................................ - (150,753)
-------------------------- -------------------
Total distributions.......................................................... (5,004,739) (4,829,662)
-------------------------- -------------------
CAPITAL SHARE TRANSACTIONS: (A)
Proceeds from sale of shares
ISI Shares................................................................ 18,611,488 18,934,042
Class A Shares............................................................ - 534,152
Contributions from share class merger
ISI Shares................................................................ - 31,732,581
Dividend reinvestments
ISI Shares................................................................ 2,602,438 1,895,264
Class A Shares............................................................ - 296,034
Cost of shares redeemed
ISI Shares................................................................ (16,229,802) (15,996,773)
Class A Shares............................................................ - (2,191,497)
Redemptions from share class merger
Class A Shares............................................................ - (31,732,581)
-------------------------- -------------------
Increase in net assets from capital share transactions....................... 4,984,124 3,471,222
-------------------------- -------------------
Total increase in net assets................................................. 3,880,003 3,647,573
NET ASSETS:
Beginning of year............................................................ 103,197,946 99,550,373
-------------------------- -------------------
End of year (including distributions in excess of net investment
income of $394,270 and $1,804, respectively).............................. $ 107,077,949 $ 103,197,946
========================== ===================
See Notes to Financial Statements. 29
MANAGED MUNICIPAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
-------------------------------------------------
2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
SHARE TRANSACTIONS: (A)
Shares sold:
ISI Shares................................................................ 1,688,868 1,738,501
Class A Shares............................................................ - 49,939
Shares issued in connection with share class merger:
ISI Shares................................................................ - 2,917,173
Shares issued to shareholders on reinvestment of dividends:
ISI Shares................................................................ 236,891 174,818
Class A Shares............................................................ - 27,402
Shares redeemed:
ISI Shares................................................................ (1,476,733) (1,467,447)
Class A Shares............................................................ - (204,623)
Shares redeemed in connection with share class merger:
Class A Shares............................................................ - (2,917,173)
-------------------------- -------------------
Increase in shares from capital share transactions........................... 449,026 318,590
========================== ===================
- ------------------------------------------------------------------------------------------------------------------------------------
(a) On February 28, 2002, Class A Shares merged into ISI Shares.
30 See Notes to Financial Statements.
NORTH AMERICAN GOVERNMENT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED APRIL 1, 2002 FOR THE YEAR ENDED
OCTOBER 31, THROUGH MARCH 31,
2003 OCTOBER 31, 2002 (a) 2002
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 8,320,234 $ 5,387,935 $ 7,637,648
Net realized gain on investment
and foreign currency transactions......................... 14,360,348 1,781,470 5,267,104
Net change in unrealized appreciation/
depreciation on investments
and foreign currencies.................................... (11,632,023) 10,487,725 (7,138,087)
---------------------- ------------------ ----------------
Increase in net assets from operations...................... 11,048,559 17,657,130 5,766,665
---------------------- ------------------ ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM: (B)
Net investment income and net realized
short-term capital gains:
ISI Class A Shares........................................ (20,717,901) (6,543,691) (11,728,591)
ISI Class C Shares........................................ (274,098) - -
Distribution in excess of net
investment income:
ISI Class A Shares........................................ - - (12,671)
ISI Class C Shares........................................ - - -
Net realized long-term capital gains:
ISI Class A Shares........................................ (486,266) (632,453) (1,176,161)
ISI Class C Shares........................................ (6,433) - -
Tax return of capital:
ISI Class A Shares........................................ - (3,573,142) (1,611,215)
ISI Class C Shares........................................ - - -
---------------------- ------------------ ----------------
Total distributions......................................... (21,484,698) (10,749,286) (14,528,638)
---------------------- ------------------ ----------------
CAPITAL SHARE TRANSACTIONS: (B)
Proceeds from sale of shares:
ISI Class A Shares........................................ 66,866,368 49,986,841 121,835,448
ISI Class C Shares........................................ 14,038,549 - -
Dividend reinvestments:
ISI Class A Shares........................................ 11,214,133 5,738,371 7,703,881
ISI Class C Shares........................................ 155,876 - -
Cost of shares redeemed:
ISI Class A Shares........................................ (57,844,825) (25,767,420) (17,593,303)
ISI Class C Shares........................................ (168,139) - -
---------------------- ------------------ ----------------
Increase in net assets from
capital share transactions................................ 34,261,962 29,957,792 111,946,026
---------------------- ------------------ ----------------
Total increase in net assets................................ 23,825,823 36,865,636 103,184,053
See Notes to Financial Statements. 31
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED APRIL 1, 2002 FOR THE YEAR ENDED
OCTOBER 31, THROUGH MARCH 31,
2003 OCTOBER 31, 2002 (a) 2002
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Beginning of period......................................... $ 257,494,884 $ 220,629,248 $ 117,445,195
---------------------- ------------------ ----------------
End of period (including distributions in
excess of net investment income of
$1,732,674, $24,872 and $18,133,
respectively)............................................. $ 281,320,707 $ 257,494,884 $ 220,629,248
====================== ================== ================
SHARE TRANSACTIONS:
Shares sold:
ISI Class A Shares........................................ 8,402,353 6,302,362 15,153,019
ISI Class C Shares........................................ 1,758,597 - -
Shares issued to shareholders on
reinvestment of dividends:
ISI Class A Shares........................................ 1,416,957 728,793 959,827
ISI Class C Shares........................................ 19,950 - -
Shares redeemed:
ISI Class A Shares........................................ (7,262,057) (3,246,075) (2,189,379)
ISI Class C Shares........................................ (21,768) - -
---------------------- ------------------ ----------------
Increase in shares from
capital share transactions:
ISI Class A Shares........................................ 2,557,253 3,785,080 13,923,467
====================== ================== ================
ISI Class C Shares........................................ 1,756,779 - -
====================== ================== ================
- ------------------------------------------------------------------------------------------------------------------------------------
(a) The Fund changed its fiscal year end from March 31 to October 31.
(b) On May 16, 2003, the Fund commenced the offering of ISI Class C Shares and ISI Shares were redesignated as ISI Class A Shares.
32 See Notes to Financial Statements.
ISI STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED JUNE 1, 2002 FOR THE YEAR ENDED
OCTOBER 31, THROUGH MAY 31,
2003 OCTOBER 31, 2002 (a) 2002
- ---------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................ $ 175,912 $ 103,547 $ 296,642
Net realized loss on investment transactions......... (75,683) (814,078) (1,526,739)
Net change in unrealized appreciation/
depreciation on investments........................ 3,392,601 (1,878,640) (105,118)
---------------------- --------------------- -------------------
Increase (decrease) in net assets
from operations.................................... 3,492,830 (2,589,171) (1,335,215)
---------------------- --------------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................ (174,119) (136,525) (307,863)
---------------------- --------------------- -------------------
Total distributions.................................. (174,119) (136,525) (307,863)
---------------------- --------------------- -------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares......................... 10,757,570 647,734 4,461,904
Dividend reinvestments............................... 151,755 122,740 276,748
Cost of shares redeemed.............................. (3,890,270) (2,518,850) (5,748,944)
---------------------- --------------------- -------------------
Increase (decrease) in net assets from
capital share transactions......................... 7,019,055 (1,748,376) (1,010,292)
---------------------- --------------------- -------------------
Total increase (decrease) in net assets.............. 10,337,766 (4,474,072) (2,653,370)
NET ASSETS:
Beginning of period.................................. 19,923,758 24,397,830 27,051,200
---------------------- --------------------- -------------------
End of period (including undistributed
net investment income of $14,752,
$12,959 and $45,937, respectively)................. $ 30,261,524 $ 19,923,758 $ 24,397,830
====================== ===================== ===================
SHARE TRANSACTIONS:
Shares sold.......................................... 1,088,564 70,518 426,058
Shares issued to shareholders on
reinvestment of dividends.......................... 16,233 13,501 26,909
Shares redeemed...................................... (415,768) (274,011) (553,271)
---------------------- --------------------- -------------------
Increase (decrease) in shares from capital share
transactions....................................... 689,029 (189,992) (100,304)
====================== ===================== ===================
- ---------------------------------------------------------------------------------------------------------------------------------
(a) The Fund changed its fiscal year end from May 31 to October 31.
See Notes to Financial Statements. 33
TOTAL RETURN US TREASURY FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
ISI SHARES
FOR THE YEARS ENDED OCTOBER 31,
--------------------------------------------------------------------
2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year.......... $ 10.18 $ 10.20 $ 9.57 $ 9.35 $ 10.62
-------------- ---------- ----------- ---------- -----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income....................... 0.23 0.35 0.45 0.50 0.64
Net realized and unrealized gain (loss)
on investments........................... 0.01 0.20 0.82 0.38 (1.03)
-------------- ---------- ----------- ---------- -----------
Total from investment operations............ 0.24 0.55 1.27 0.88 (0.39)
-------------- ---------- ----------- ---------- -----------
LESS DISTRIBUTIONS:
Net investment income and
short-term capital gains................. (0.50) (0.53) (0.45) (0.50) (0.71)
Net realized long-term capital gains........ - (0.04) - - (0.17)
Tax return of capital....................... - - (0.19) (0.16) -
-------------- ---------- ----------- ---------- -----------
Total distributions......................... (0.50) (0.57) (0.64) (0.66) (0.88)
-------------- ---------- ----------- ---------- -----------
Net asset value, end of year................ $ 9.92 $ 10.18 $ 10.20 $ 9.57 $ 9.35
============== ========== =========== ========== ===========
TOTAL RETURN 1................................... 2.30% 5.78% 13.57% 9.49% (3.82)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)............ $ 229,027 $ 262,928 $ 149,588 $ 136,728 $ 151,532
Ratios to average daily net assets:
Net investment income.................... 2.50% 3.64% 4.51% 5.10% 4.68%
Expenses................................. 0.67% 0.74% 0.78% 0.82% 0.81%
Portfolio turnover rate..................... 125% 129% 61% 15% 77%
- ----------------------------------------------------------------------------------------------------------------------
1 Total return excludes the effect of sales charges.
34 See Notes to Financial Statements.
MANAGED MUNICIPAL FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE YEAR)
ISI SHARES
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------------------------
2003 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year........... $ 11.00 $ 10.99 $ 10.47 $ 10.12 $ 11.01
------------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income........................ 0.40 0.45 0.45 0.47 0.45
Net realized and unrealized gain (loss)
on investments............................ 0.01 0.09 0.55 0.36 (0.83)
------------- ---------- ---------- ---------- ----------
Total from investment operations............. 0.41 0.54 1.00 0.83 (0.38)
------------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Net investment income and
short-term capital gains.................. (0.47) (0.45) (0.47) (0.48) (0.47)
Net realized long-term capital gains......... (0.05) (0.08) (0.01) - (0.04)
------------- ---------- ---------- ---------- ----------
Total distributions.......................... (0.52) (0.53) (0.48) (0.48) (0.51)
------------- ---------- ---------- ---------- ----------
Net asset value, end of year................. $ 10.89 $ 11.00 $ 10.99 $ 10.47 $ 10.12
============= ========== ========== ========== ==========
TOTAL RETURN 1................................... 3.89% 5.11% 9.76% 8.44% (3.61)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (000s)............... $ 107,078 $ 103,198 $ 66,105 $ 65,233 $ 70,609
Ratios to average daily net assets:
Net investment income..................... 3.66% 3.92% 4.18% 4.60% 4.23%
Expenses after waivers and/or
reimbursements......................... 0.89% 0.94% 0.93% 0.90% 0.90%
Expenses before waivers and/or
reimbursements......................... 0.89% 0.96% 0.99% 1.01% 1.10%
Portfolio turnover rate...................... 11% 11% 21% 22% 8%
- --------------------------------------------------------------------------------------------------------------------
1 Total return excludes the effect of sales charges.
See Notes to Financial Statements. 35
NORTH AMERICAN GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI CLASS A SHARES 1 FOR THE APRIL 1, 2002
YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31, FOR THE YEARS ENDED MARCH 31,
-------------------------------------------
2003 2002 2 2002 2001 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......... $ 8.03 $ 7.80 $ 8.17 $ 8.07 $ 8.42 $ 8.74
------------ ------------ ---------- --------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income........................ 0.25 0.18 0.38 0.44 0.49 0.60
Net realized and unrealized gain (loss) on
investments and foreign
currency transactions...................... 0.07 0.41 (0.03) 0.38 (0.12) (0.09)
------------ ------------ ---------- --------- -------- --------
Total from investment operations............. 0.32 0.59 0.35 0.82 0.37 0.51
------------ ------------ ---------- --------- -------- --------
LESS DISTRIBUTIONS:
Net investment income and
short-term capital gains................... (0.61) (0.22) (0.58) (0.53) (0.49) (0.60)
In excess of net investment income........... - - - 3 (0.01) - -
Net realized long-term capital gains......... (0.01) (0.02) (0.06) (0.06) - (0.23)
Tax return of capital........................ - (0.12) (0.08) (0.12) (0.23) -
------------ ------------ ---------- --------- -------- --------
Total distributions.......................... (0.62) (0.36) (0.72) (0.72) (0.72) (0.83)
------------ ------------ ---------- --------- -------- --------
Net asset value, end of period............... $ 7.73 $ 8.03 $ 7.80 $ 8.17 $ 8.07 $ 8.42
============ ============ ========== ========= ======== ========
TOTAL RETURN 4................................... 4.14% 7.75% 5 4.38% 10.74% 4.82% 5.96%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)............. $ 267,756 $ 257,495 $ 220,629 $117,445 $61,697 $55,891
Ratios to average daily net assets:
Net investment income...................... 3.03% 3.84% 6 4.60% 5.62% 5.59% 5.79%
Expenses after waivers and/or
reimbursements.......................... 1.09% 1.01% 6 1.13% 1.24% 1.25% 1.25%
Expenses before waivers and/or
reimbursements.......................... 1.09% 1.01% 6 1.13% 1.24% 1.41% 1.42%
Portfolio turnover rate...................... 152% 95% 5 136% 89% 32% 173%
- --------------------------------------------------------------------------------------------------------------------------
1 On May 16, 2003, ISI Shares were designated ISI Class A Shares.
2 The fund changed its fiscal year end from March 31 to October 31.
3 Less than $0.01 per share.
4 Total return excludes the effect of sales charges.
5 Not annualized.
6 Annualized.
36 See Notes to Financial Statements.
NORTH AMERICAN GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI CLASS C SHARES
MAY 16, 2003 1
THROUGH
OCTOBER 31, 2003
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......... $ 8.20
-------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income........................ 0.17
Net realized and unrealized gain (loss) on
investments and foreign
currency transactions.................... (0.38)
-------------------------
Total from investment operations............. (0.21)
-------------------------
LESS DISTRIBUTIONS:
Net investment income and
short-term capital gains................. (0.26)
Net realized long-term capital gains......... (0.01)
-------------------------
Total distributions.......................... (0.27)
-------------------------
Net asset value, end of period............... $ 7.72
=========================
TOTAL RETURN 2.................................... (2.62)% 3
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)............. $ 13,565
Ratios to average daily net assets:
Net investment income.................... 3.32% 4
Expenses after waivers and/or
reimbursements....................... 1.85% 4
Expenses before waivers and/or
reimbursements....................... 2.12% 4
Portfolio turnover rate...................... 152%
- --------------------------------------------------------------------------------
1 Commencement of operations.
2 Total return excludes the effect of sales charges.
3 Not annualized.
3 Annualized.
See Notes to Financial Statements. 37
ISI STRATEGY FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI SHARES FOR THE JUNE 1, 2002
YEAR ENDED THROUGH
OCTOBER 31, OCTOBER 31, FOR THE YEARS ENDED MAY 31,
-----------------------------------------
2003 2002 1 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period......... $ 9.08 $ 10.23 $ 10.89 $ 12.15 $ 11.91 $ 11.00
----------- ----------- -------- -------- -------- ---------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income........................ 0.08 0.05 0.12 0.25 0.26 0.21
Net realized and unrealized gain (loss)
on investments............................. 1.42 (1.14) (0.66) (0.62) 0.46 1.10
----------- ----------- -------- -------- -------- ---------
Total from investment operations............. 1.50 (1.09) (0.54) (0.37) 0.72 1.31
----------- ----------- -------- -------- -------- ---------
LESS DISTRIBUTIONS:
Net investment income and
short-term capital gains................... (0.08) (0.06) (0.12) (0.27) (0.24) (0.21)
Net realized long-term capital gains......... - - - (0.62) (0.24) (0.19)
----------- ----------- -------- -------- -------- ---------
Total distributions.......................... (0.08) (0.06) (0.12) (0.89) (0.48) (0.40)
----------- ----------- -------- -------- -------- ---------
Net asset value, end of period............... $ 10.50 $ 9.08 $ 10.23 $ 10.89 $ 12.15 $ 11.91
=========== =========== ======== ======== ======== =========
TOTAL RETURN 2................................... 16.47% (10.65)% 3 (4.93)% (3.32)% 6.09% 12.15%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)............. $ 30,262 $ 19,924 $24,398 $27,051 $36,544 $ 35,734
Ratios to average daily net assets:
Net investment income........................ 0.77% 1.18% 4 1.14% 2.09% 2.10% 1.81%
Expenses after waivers and/or
reimbursements............................ 1.30% 1.30% 4 1.19% 1.00% 1.00% 1.00%
Expenses before waivers and/or
reimbursements............................ 1.79% 1.99% 4 1.42% 1.38% 1.31% 1.68%
Portfolio turnover rate...................... 60% 12% 3 72% 57% 59% 32%
- -----------------------------------------------------------------------------------------------------------------------
1 The fund changed its fiscal year end from May 31 to October 31.
2 Total return excludes the effect of sales charges.
3 Not annualized.
4 Annualized.
38 See Notes to Financial Statements.
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING
POLICIES
A. ORGANIZATION
Total Return US Treasury Fund, Inc. ('Total Return'), Managed Municipal
Fund, Inc. ('Managed Municipal'), North American Government Bond Fund, Inc.
('North American') and ISI Strategy Fund, Inc. ('Strategy'), (each a 'Fund' and
collectively, the 'Funds') are registered under the Investment Company Act of
1940, as amended, as open-end management investment companies. The Funds are
organized as corporations under the laws of the State of Maryland.
Total Return's investment objective is to achieve a high level of total
return with relative stability of principal, and secondarily, high current
income consistent with an investment in securities issued by the United States
Treasury. Managed Municipal's investment objective is to provide a high level of
total return with relative stability of principal and, secondarily, high current
income exempt from federal income tax through investment in a portfolio
consisting primarily of tax-free municipal obligations. North American's
investment objective is designed to provide a high level of current income,
consistent with prudent investment risk. Strategy's investment objective is to
maximize total return through a combination of long-term growth of capital and
current income.
Total Return, Managed Municipal and Strategy currently offer ISI Shares to
investors. North American offers ISI North American Government Bond Fund Class A
Shares ('ISI Class A Shares'), formerly ISI Shares; and effective May 16, 2003,
ISI North American Government Bond Fund Class C Shares ('ISI Class C Shares').
ISI Shares and North American ISI Class A Shares are subject to a maximum
front-end sales charge of 3.00%. A sales charge of 1.00% is imposed on the sale
of shares of North American's ISI Class C Shares if redeemed within the first
year of purchase.
Total Return, Managed Municipal and Strategy are each authorized to issue
115,000,000, 55,000,000 and 25,000,000 shares, respectively, of ISI Shares at
$0.001 par value. North American is authorized to issue 50,000,000 and 5,000,000
of ISI Class A Shares and ISI Class C Shares, respectively, at $0.001 par value.
B. VALUATION OF SECURITIES
Exchange traded securities for which market quotations are readily
available are valued using the last reported sales price provided by independent
pricing services as of the close of trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern time), on each Fund business day. In the absence of
a sale, such securities are valued at the mean of the last bid and the last
asked prices. Non-exchange traded securities for which over-the-counter
quotations are available are generally valued at the mean between the closing
bid and asked prices. Money Market instruments that mature in 60 days or less
may be valued at amortized cost unless the Fund's investment advisor believes
another valuation is more appropriate.
When valuing securities for which market quotations are not readily
available or for which the market quotations that are available are considered
unreliable, the Funds determine a fair value in good faith under procedures
established by and under the general supervision of the Funds' Boards of
Directors. The Funds may use these procedures to establish the fair value of
securities when, for example, a significant event occurs between the time the
market closes and the time the Funds value their investments. After
consideration of various factors, the Funds may value the securities at their
last reported price or at fair value. On October 31, 2003, Strategy had fair
valued securities, which are footnoted accordingly in the Fund's schedule of
investments.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on trade date. Realized gains and
losses are determined by comparing the proceeds of a sale or the cost of a
purchase with a specific offsetting transaction. Dividend income is recorded on
the ex-dividend date. Interest income, including amortization
39
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
of premiums and accretion of discounts, is accrued daily. Estimated expenses are
also accrued daily. Income, gains (losses) and common expenses are allocated to
each class based on its respective net assets. Class specific expenses are
charged directly to each class.
D. DISTRIBUTIONS
Total Return declares a dividend daily, and Managed Municipal and North
American declare monthly dividends at rates approved by the Funds' Board of
Directors. To the extent that their net investment income and short-term capital
gains are less than the approved rate, the Funds may pay some of their dividends
from long-term capital gains or as a return of shareholder capital. Strategy
declares dividends quarterly from its net investment income. An additional
distribution of net realized short-term and long-term capital gains earned by
the Funds, if any, may be made annually to the extent they exceed capital loss
carryforwards. The Funds record dividends and distributions on the ex-dividend
date.
E. FEDERAL INCOME TAXES
Each Fund has a policy to qualify as a regulated investment company under
the Internal Revenue Code and to distribute substantially all of its taxable
income to shareholders. Accordingly, no federal income taxes have been accrued.
The Funds may periodically make reclassifications among certain capital
accounts as a result of differences in the characterization and allocation of
certain income and capital gain distributions determined annually in accordance
with federal tax regulations, which may differ from accounting principles
generally accepted in the United States. These book/tax differences are either
temporary or permanent in nature. To the extent these differences are permanent,
they are charged or credited to paid-in-capital or accumulated net realized gain
as appropriate, in the period that the differences arose. As of October 31,
2003, the following reclassifications were made to the statements of assets and
liabilities:
- ----------------------------------------------------------------------------
Accumulated Undistributed
Paid-in Net Realized Net Investment
Capital Gain Income
- ----------------------------------------------------------------------------
Total Return $ - $(6,288,671) $ 6,288,671
Managed
Municipal (271,689) - 271,689
North
American 19,410 (10,983,373) 10,963,963
- ----------------------------------------------------------------------------
F. FOREIGN CURRENCY TRANSLATION
The Funds maintain their accounting records in US dollars. North American
determines the US dollar value of foreign currency-denominated assets,
liabilities and transactions by using prevailing exchange rates. In valuing
assets and liabilities, North American uses the prevailing exchange rate on
valuation date. In valuing security transactions, the receipt of income and the
payment of expenses, North American uses the prevailing exchange rate on the
transaction date.
Net realized gains and losses on foreign currency transactions shown on
North American's financial statements result from the sale of foreign bonds,
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of interest recorded on its books and the US dollar equivalent of the
amounts actually received or paid.
G. FORWARD FOREIGN CURRENCY CONTRACTS
North American may use forward foreign currency contracts to manage foreign
exchange rate risk. The Fund may use these contracts to fix the US dollar value
of securities transactions for the period between the date of the transaction
and the date the security is received or delivered or to hedge the US dollar
value of securities that it already owns. The use of forward foreign currency
contracts does not eliminate fluctuations in the prices of the underlying
securities, but does establish a rate of exchange that can be achieved in the
future.
40
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
The Fund determines the net US dollar value of forward foreign currency
contracts using prevailing exchange rates. On October 31, 2003, there were no
open forward currency contracts.
H. REPURCHASE AGREEMENTS
The Funds may make short-term investments in repurchase agreements that are
fully collateralized by US government securities. Under the terms of a
repurchase agreement, a financial institution sells fixed-income securities to
the Funds and agrees to buy them back on a specified day in return for the
principal amount of the original sale plus accrued interest. The custodial bank
holds the collateral in a separate account until the agreement matures. If the
value of the securities falls below the principal amount of the repurchase
agreement plus accrued interest, the financial institution deposits additional
collateral by the following business day. If the financial institution either
fails to deposit the required additional collateral or fails to repurchase the
securities as agreed, the Funds have the right to sell the securities and
recover any resulting loss from the financial institution. If the financial
institution enters into bankruptcy, the Funds' claims on the collateral may be
subject to legal proceedings.
I. ESTIMATES
In preparing its financial statements in conformity with accounting
principles generally accepted in the United States, management makes estimates
and assumptions. Actual results may be different.
NOTE 2 - FEES AND TRANSACTIONS WITH AFFILIATES
International Strategy & Investment, Inc. ('ISI') is the Funds' Advisor. As
compensation for its advisory services, Total Return pays ISI an annual fee
based on the Fund's average daily net assets, which is calculated daily and paid
monthly at the following annual rates: 0.20% of the first $100 million, 0.18% of
the next $100 million, 0.16% of the next $100 million, 0.14% of the next $200
million and 0.12% of the amount over $500 million. In addition, Total Return
pays ISI 1.50% of the Fund's gross interest income. Managed Municipal, North
American and Strategy pay ISI an annual fee based on each Fund's average daily
net assets, which is calculated daily and paid monthly at the annual rate of
0.40%.
ISI has contractually agreed to waive its fees and/or reimburse expenses of
Managed Municipal through February 29, 2004, to the extent necessary, to limit
all expenses to 0.95% of its average daily net assets. ISI has contractually
agreed to waive its fees and/or reimburse expenses of North American through
February 29, 2004, to the extent necessary, to limit all expenses to 1.25% and
1.85% of the average daily net assets of ISI Class A Shares and ISI Class C
Shares, respectively. ISI has contractually agreed to waive its fees and/or
reimburse expenses of Strategy through February 29, 2004, to the extent
necessary, to limit all expenses to 1.30% of its average daily net assets.
Los Angeles Capital Management and Equity Research, Inc. is Strategy's
Sub-Advisor and is responsible for managing the common stocks in the Fund's
portfolio. The Sub-Advisor is paid by ISI.
Forum Administrative Services, LLC ('FAdS') is the Funds' Administrator.
FAdS receives, for its services, a minimum monthly fee or an annual fee based on
each Fund's average daily net assets which is calculated daily and paid monthly.
Forum Shareholder Services, LLC ('FSS') is the Funds' Transfer Agent. FSS
receives for its services a monthly fee and a monthly per account fee, all of
which are calculated daily and paid monthly.
Forum Accounting Services, LLC (`FAcS') is the Funds' Accountant. FAcS
receives for its services a monthly fee plus an annual fee based on the each
Fund's average daily net assets, all of which are calculated daily and paid
monthly.
Certain officers and directors of the Funds are also officers or directors
of ISI or FAcS. These persons are not paid by the Funds for serving in these
capacities.
41
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
The Northern Trust Company is the Funds' Custodian.
ISI Group, Inc. (`ISI Group'), an affiliate of ISI, is the Distributor for
the Funds. Total Return, Managed Municipal and Strategy each pay ISI Group an
annual fee, pursuant to Rule 12b-1, that is calculated daily and paid monthly at
the annual rate of 0.25% of their average daily net assets. North American ISI
Class A Shares and ISI Class C Shares pay ISI Group an annual fee, pursuant to
Rule 12b-1, that is calculated daily and paid monthly at the annual rate of
0.40% and 0.75% of their average daily net assets, respectively. ISI Group also
acts as the Shareholder Servicing Agent for the North American ISI Class C
Shares. North American ISI Class C Shares pays ISI Group an annual fee, pursuant
to an agreement, that is calculated daily and paid monthly at the annual rate of
0.25% of its average daily net assets.
For the fiscal year ended October 31, 2003, ISI Group earned commissions on
sales of ISI Shares of Total Return, Managed Municipal, North American and
Strategy of $25,988, $23,125 and $8,113, respectively and $123,961 on sales of
North American ISI Class A Shares.
NOTE 3 - FEDERAL INCOME TAX AND INVESTMENT TRANSACTIONS
The Funds' determine their net investment income and capital gain
distributions in accordance with income tax regulations, which may differ from
accounting principles generally accepted in the United States. Distributions
during the fiscal years ended as noted were characterized for tax purposes as
follows:
- --------------------------------------------------------------------------------------------------------------------------------
Long-Term Long-Term
Ordinary Income Tax-Exempt Income Capital Gains 20% Capital Gains 15% Return of Capital
- --------------------------------------------------------------------------------------------------------------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
----------- ----------- ----------- ----------- -----------
2003 2002 2003 2002 2003 2002 2003 2002 2003 2002
Total
Return $12,426,417 $13,037,519 $ - $ - $ - $854,348 $ - $ - $ - $601,010
Managed
Municipal 353,407 301,256 4,192,433 3,801,864 169,373 726,542 289,526 - - -
North
American 20,991,999 6,543,691 - - 492,699 632,453 - - - 3,573,142
Strategy 174,119 136,525 - - - - - - - -
- --------------------------------------------------------------------------------------------------------------------------------
The aggregate cost of purchases and proceeds from sales of investments,
other than short-term obligations, for the year ended October 31, 2003 were as
follows:
- ------------------------------------------------------------------------------------------
Non-US Government Obligations US Government Obligations
- ------------------------------------------------------------------------------------------
Purchases Sales Purchases Sales
- ------------------------------------------------------------------------------------------
Total Return $ - $ - $194,385,627 $ 223,308,317
Managed Municipal 16,102,133 10,369,350 - -
North American 67,089,988 27,326,975 250,105,474 249,955,072
Strategy 14,683,547 10,969,921 1,923,578 1,505,469
- ------------------------------------------------------------------------------------------
42
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
For federal income tax purposes, cost basis of investments, aggregate gross
unrealized appreciation and depreciation for all investments held at October 31,
2003 were as follows:
- --------------------------------------------------------------------------------
Net
Appreciation
Cost Basis Appreciation Depreciation (Depreciation)
- --------------------------------------------------------------------------------
Total Return $232,403,866 $1,790,528 $(7,523,425) $(5,732,897)
Managed Municipal 100,769,749 5,917,229 (486,911) 5,430,318
North American 285,708,459 1,497,666 (8,518,830) (7,021,164)
Strategy 27,066,628 3,812,914 (708,188) 3,104,726
- --------------------------------------------------------------------------------
At October 31, 2003, the components of distributable earnings on a tax
basis were as follows:
- ----------------------------------------------------------------------------------------------------------------------------
Undistributed Undistributed Unrealized
Undistributed Long-Term Long-Term Capital Loss Appreciation
Ordinary Income Capital Gains 20% Capital Gains 15% Carryforward (Depreciation) Total
- ----------------------------------------------------------------------------------------------------------------------------
Total Return $4,361,525 $1,651,190 $1,267,918 $ - $(5,732,897) $1,547,736
Managed Municipal - - - - 5,430,318 5,430,318
North American - 2,884,276 - - (7,021,164) (4,136,888)
Strategy 14,753 - - (3,602,018) 3,104,726 (482,539)
- ----------------------------------------------------------------------------------------------------------------------------
The difference between components of distributable earnings on a tax basis
and the amounts reflected in the statement of assets and liabilities for
Strategy are primarily due to Wash Sales.
Strategy's capital loss carryforwards of $1,726,951 and $1,875,067 expire
in 2009 and 2010, respectively.
NOTE 4 - MARKET AND CREDIT RISK
North American invests in Canadian and Mexican government securities.
Investing in Canadian and Mexican government securities may have different risks
than investing in US government securities. An investment in Canada or Mexico
may be affected by developments unique to those countries. These developments
may not affect the US economy or the prices of US government securities in the
same manner. In addition, the value of bonds issued by non-US governments may be
affected by adverse international political and economic developments that may
not impact the value of US government securities.
43
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
Total Return U.S. Treasury Fund, Inc.
Managed Municipal Fund, Inc.
North American Government Bond Fund, Inc.
ISI Strategy Fund, Inc.
We have audited the accompanying statements of assets and liabilities of
Total Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., North
American Government Bond Fund, Inc. and ISI Strategy Fund, Inc. (the "Funds"),
including the schedules of investments, as of October 31, 2003, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the periods presented therein, the financial highlights
for each of the three years in the period then ended with respect to Total
Return U.S. Treasury Fund, Inc. and Managed Municipal Fund, Inc., the financial
highlights for each of the periods presented from April 1, 2001 through October
31, 2003 with respect to North American Government Bond Fund, Inc., and the
financial highlights for each of the periods presented from June 1, 2001 through
October 31, 2003 with respect to ISI Strategy Fund, Inc. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights of Total Return U.S. Treasury Fund, Inc. for the years presented
through October 31, 2000 were audited by other auditors whose report dated
December 8, 2000 expressed an unqualified opinion on those financial highlights.
The financial highlights of Managed Municipal Fund, Inc. for the years presented
through October 31, 2000 were audited by other auditors whose reports dated
December 8, 2000 and December 14, 1999, respectively, expressed unqualified
opinions on those financial highlights. The financial highlights of North
American Government Bond Fund, Inc. for the years presented through March 31,
2001 were audited by other auditors whose reports dated April 27, 2001 and April
30, 1999, respectively, expressed unqualified opinions on those financial
highlights. The financial highlights of ISI Strategy Fund, Inc. for the years
presented through May 31, 2001 were audited by other auditors whose report dated
June 29, 2001, expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the 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. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of October 31, 2003, by correspondence with
the Funds' custodian and brokers. 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
each of the above listed Funds at October 31, 2003, the results of their
operations for the year then ended, the changes in their net assets for each of
the periods presented therein, the financial highlights for each of the three
years in the period then ended with respect to Total Return U.S. Treasury Fund,
Inc. and Managed Municipal Fund, Inc., the financial highlights for each of the
periods presented from April 1, 2001 through October 31, 2003 with respect to
North American Government Bond Fund, Inc., and the financial highlights for each
of the periods presented from June 1, 2001 through October 31, 2003 with respect
to ISI Strategy Fund, Inc., in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 10, 2003
44
FUND DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------
NAME, BIRTH DATE AND BUSINESS EXPERIENCE AND DIRECTORSHIPS
POSITION WITH THE FUND 1 DURING THE PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- -----------------------------------------------------------------------------------------------------------
Joseph R. Hardiman Private Equity Investor (1997 to present); Director, Soundview
5/27/37 Technology Group, Inc. (investment banking) (July 1998 to
Director since 1998. present), Corvis Corporation (optical networks) (July 2000 to
present), The Nevis Fund (registered investment company) (July
1999 to present), Brown Investment Advisory & Trust Company
(February 2001 to present), and certain funds in the Scudder Funds
(formerly the Deutsche Asset Management Family of Funds)
(registered investment companies) (March 1998 to present).
Formerly, Director, Circon Corp. (medical instruments) (November
1998 to January 1999); President and Chief Executive Officer, The
National Association of Securities Dealers, Inc. and The NASDAQ
Stock Market, Inc. (1987 to 1997); Director, Flag Investors
Emerging Growth Fund, Inc. and Flag Investors Short-Intermediate
Income Fund, Inc. (registered investment companies) (resigned
2000).
- -----------------------------------------------------------------------------------------------------------
W. Murray Jacques President, WMJ Consulting, LLC (real estate investment management
3/28/36 company) (1999 to present), Chairman, Saint David's School (2002
Director since 2002. to present). Formerly, Chairman and Chief Executive Officer, VIB
Management, Inc. (asset management company) (1994 to 1999), VIB
N.V. (1994 to 1995) (real estate investment company), Trustee,
Fifth Avenue Presbyterian Church (1991 to 1995); Jacques &
Kurdziel, Inc. (real estate investment management company) (1983
to 1994).
- -----------------------------------------------------------------------------------------------------------
Louis E. Levy Director, Household International (banking and finance) (1992 to
11/16/32 present) and certain funds in the Scudder Funds (formerly Deutsche
Director since 1994. Asset Management Family of Funds) (registered investment
companies) (1993 to present). Formerly, Chairman of the Quality
Control Inquiry Committee, American Institute of Certified Public
Accountants (1992 to 1998); Director, Kimberly-Clark Corporation,
(personal consumer products) (retired 2000) and Partner, KPMG Peat
Marwick, (retired 1990).
- -----------------------------------------------------------------------------------------------------------
FUND DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------
Carl W. Vogt, Esq.* Of Counsel, Fulbright & Jaworski, LLP, (law) (2002 to present);
4/20/36 Director, Yellow Corporation (trucking) (1996 to present),
Director since 1998. American Science & Engineering (x-ray detection equipment) (1997
to present) and certain funds in the Scudder Funds (formerly, the
Deutsche Asset Management Family of Funds) (registered investment
companies) (2000 to present). Formerly, Chairman and Member,
National Railroad Passenger Corporation (Amtrak) (1991 to 1992);
Member, Aviation System Capacity Advisory Committee (Federal
Aviation Administration); President (interim) of Williams College
(1999 to 2000); President, certain funds in Deutsche Asset
Management Family of Funds (formerly, Flag Investors Family of
Funds) (registered investment companies) (1999 to 2000).
- -----------------------------------------------------------------------------------------------------------
45
FUND DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------
NAME, BIRTH DATE AND BUSINESS EXPERIENCE AND DIRECTORSHIPS
POSITION WITH THE FUND 1 DURING THE PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------
FUND DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------
Edward S. Hyman* Chairman, International Strategy & Investment, Inc. (registered
4/8/45 investment advisor) (April 1991 to present); Chairman and
Director since 1991. President, International Strategy & Investment Group, Inc.
(registered investment advisor and broker-dealer) (1991 to
present).
- -----------------------------------------------------------------------------------------------------------
R. Alan Medaugh President, International Strategy & Investment, Inc. (registered
8/20/43 investment advisor) (1991 to present). Formerly, Director,
President since 1991. International Strategy & Investment Group, Inc. (1991 to 1999).
- -----------------------------------------------------------------------------------------------------------
Nancy Lazar Executive Vice President, Assistant Treasurer and Secretary of
8/1/57 International Strategy & Investment, Inc. (registered investment
Vice President since 1997. advisor) and Executive Vice President, Assistant Treasurer and
Secretary of ISI Group, Inc.
- -----------------------------------------------------------------------------------------------------------
Thomas D. Stevens 2 Chief Executive Officer and President, Los Angeles Capital
5/27/49 Management and Equity Research, Inc. (registered investment
Vice President since 1997. advisor) (March 1999 to present). Formerly, Senior Vice President
and Principal, Wilshire Associates Incorporated (registered
investment advisor) (1980-1999); Chief Investment Officer,
Wilshire Asset Management (registered investment advisor) (1980 to
1999).
- -----------------------------------------------------------------------------------------------------------
Carrie L. Butler Managing Director, International Strategy & Investment, Inc.
5/1/67 (registered investment advisor) (2000 to present). Formerly,
Vice President since 1991. Assistant Vice President, International Strategy & Investment,
Inc. (registered investment advisor) (1991 to 2000).
- -----------------------------------------------------------------------------------------------------------
Edward J. Veilleux President, EJV Financial Services, LLC.; Vice-President, Swiss
8/26/43 Helvetia Fund, Inc. (1987 to present). Formerly, Trustee Devcap
Vice President since 1992. Trust (registered investment company) (2000 to 2003). Director,
Deutsche Asset Management (formerly B.T. Alex Brown, Inc.)
(October 1965 to May 2002); Executive Vice President, Investment
Company Capital Corp. (April 2000 to May 2002).
- -----------------------------------------------------------------------------------------------------------
Stephen V. Killorin Executive Managing Director and Chief Financial Officer,
6/27/53 International Strategy and Investment Inc. (registered investment
Vice President since 2002. advisor) (December 2000 to present). Formerly, Controller, Sanford
C. Bernstein & Co., Inc. (registered investment advisor) (November
1999 to December 2000) and Managing Director, Deutsche Bank (May
1994 to November 1999).
- -----------------------------------------------------------------------------------------------------------
Margaret M. Beeler Associate Managing Director, International Strategy & Investment,
3/1/67 Inc. (registered investment advisor) (2000 to present). Formerly,
Assistant Vice President since Assistant Vice President, International Strategy & Investment,
1996. Inc. (registered investment advisor) (1996 to 2000); Marketing
Representative, US Healthcare, Inc. (1995 to 1996); Sales Manager,
Donna Maione, Inc. (1994 to 1995) and Deborah Wiley California
(1989 to 1994).
46
FUND DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------
NAME, BIRTH DATE AND BUSINESS EXPERIENCE AND DIRECTORSHIPS
POSITION WITH THE FUND 1 DURING THE PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------
FUND DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------
Keith C. Reilly Managing Director, International Strategy & Investment, Inc.
6/2/66 (registered investment advisor) (2000 to present). Formerly,
Assistant Vice President since Assistant Vice President, International Strategy & Investment,
1996. Inc. (registered investment advisor) (1996 to 2000); Select
Private Banking Officer, Assistant Manager, Chemical Bank (1995 to
1996); Financial Consultant, Dreyfus Corporation (1989 to 1995).
- -----------------------------------------------------------------------------------------------------------
Stacey E. Hong Director, Forum Accounting Services, LLC (April 1992 to present).
5/10/66 Formerly, Auditor, Ernst & Young LLP (August 1988 to April 1992).
Treasurer since 2002. Officer of various registered investment companies for which Forum
Financial Group, LLC or its affiliates serves as a fund
accountant, administrator and/or distributor.
- -----------------------------------------------------------------------------------------------------------
Thomas G. Sheehan Director of Business Development, Forum Financial Group, LLC (2001
7/15/54 to Present). Formerly Managing Director and Counsel, Forum
Secretary since 2002. Financial Group, LLC from 1993 to 2001. Officer of various
registered investment companies for which Forum Financial Group,
LLC or its affiliates, serves as fund accountant, administrator
and/or distributor.
- -----------------------------------------------------------------------------------------------------------
Dana A. Lukens General Counsel, Forum Administrative Services, LLC (fund
4/23/62 administrator) (2001 to present). Formerly, General Counsel,
Assistant Secretary since 2003. Clareon Corporation (money transmitter) (2000 to 2001); Associate,
Drummond Woodsum & MacMahon (law firm) (1998 to 2000). Officer of
various registered investment companies for which Forum Financial
Group or its affiliates serve as fund accountant, administrator
and/or distributor.
- -----------------------------------------------------------------------------------------------------------
* A Director who is an "interested person" as defined in the Investment
Company Act.
1 The mailing address of each Director and Executive Officer with respect to
Fund operations is 535 Madison Avenue, 30th Floor, New York, New York
10022.
2 Thomas D. Stevens is an officer only for the ISI Strategy Fund, Inc.
Except for Mr. Stevens, each of the above named persons serves in the capacity
noted above for each fund in the Fund Complex.
The Funds' Statements of Additional Information include additional information
about the Funds' directors and officers. To receive your free copy of the
Statements of Additional Information, call toll-free: 1-800-955-7175.
47
NOTICE TO SHAREHOLDERS
ISI FUNDS TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED OCTOBER 31, 2003:
The amounts may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
- ----------------------------------------------------------------------------------------------------------------------------------
% of Ordinary Income
Distributions that % of Oridinary Income
Distributions from 20% Long-Term 15% Long-Term Qualify for the Distributions that
Tax-Exempt Capital Gain Capital Gain Corporate Dividends Qualify as Qualified
Income Distributions Distributions Received Deduction Dividend Income
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return $ - $ - - - -
Managed Municipal 3,807,502 169,373 289,526 - -
North American - 492,699 - - -
Strategy - - - 99.59% 100.00%
- ----------------------------------------------------------------------------------------------------------------------------------
48
- --------------------------------------------------------------------------------
ISI
INTERNATIONAL STRATEGY & INVESTMENT
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
EDWARD S. HYMAN THOMAS D. STEVENS*
CHAIRMAN VICE PRESIDENT
R. ALAN MEDAUGH STEVEN V. KILLORIN
PRESIDENT VICE PRESIDENT
JOSEPH R. HARDIMAN MARGARET M. BEELER
DIRECTOR ASSISTANT VICE PRESIDENT
W. MURRAY JACQUES KEITH C. REILLY
DIRECTOR ASSISTANT VICE PRESIDENT
LOUIS E. LEVY STACEY E. HONG
DIRECTOR TREASURER
CARL W. VOGT, ESQ. THOMAS G. SHEEHAN
DIRECTOR SECRETARY
NANCY R. LAZAR DANA A. LUKENS
VICE PRESIDENT ASSISTANT SECRETARY
CARRIE L. BUTLER *Thomas D. Stevens is only an
VICE PRESIDENT officer for the ISI Strategy Fund.
EDWARD J. VEILLEUX
VICE PRESIDENT
INVESTMENT ADVISOR
ISI, INC.
535 MADISON AVENUE, 30TH FLOOR
NEW YORK, NY 10022
(800) 955-7175
SHAREHOLDER SERVICING AGENT
FORUM SHAREHOLDER SERVICES, LLC
TWO PORTLAND SQUARE
PORTLAND, ME 04101
(800) 882-8585
DISTRIBUTOR
ISI GROUP, INC.
535 MADISON AVENUE, 30TH FLOOR
NEW YORK, NY 10022
(800) 955-7175
- --------------------------------------------------------------------------------
ITEM 2. CODE OF ETHICS
As of the end of the period, October 31, 2003, North American Government Bond
Fund, Inc. has adopted a code of ethics, as defined in Item 2 of Form N-CSR,
that applies to its President and Treasurer. A copy of the code of ethics is
filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board has determined that Louis E. Levy is an "audit committee
financial expert" and that Mr. Levy is "independent" for purposes of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. [RESERVED]
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule
30a-3(c) under the Act) are effective in design and operation and are
sufficient to form the basis of the certifications required by Rule 30a-(2)
under the Act, based on their evaluation of these disclosure controls and
procedures within 90 days of the filing date of this report on Form N-CSR.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act), or the internal
control over financial reporting of its service providers during the last
fiscal half year (the registrant's second half year in the case of an
annual report) that have materially affected, or are reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
ITEM 10. EXHIBITS.
(a)(1) A Copy of the Code of Ethics (Exhibit filed herewith).
(a)(2) Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith)
(b) Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith)
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 NORTH AMERICAN GOVERNMENT BOND FUND, INC.
BY /S/ STACEY E. HONG, TREASURER
DATE DECEMBER 18, 2003
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 /S/ R. ALAN MEDAUGH, PRESIDENT
DATE DECEMBER 18, 2003
BY /S/ STACEY E. HONG, TREASURER
DATE DECEMBER 18, 2003