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Expires: August 31, 2011
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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 811-07292
---------------------------------------------
North American Government Bond Fund, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
40 West 57th Street, 18th Floor New York, New York 10019
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(Address of principal executive offices) (Zip code)
R. Alan Medaugh, President
ISI, Inc. 40 West 57th Street, 18th Floor New York, New York 10019
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(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 446-5600
-----------------------------
Date of fiscal year end: October 31, 2008
--------------------------
Date of reporting period: October 31, 2008
--------------------------
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, 2008
-------------------------------------
TOTAL RETURN
US TREASURY
FUND, INC.
MANAGED MUNICIPAL
FUND, INC.
NORTH AMERICAN
GOVERNMENT BOND
FUND, INC.
ISI STRATEGY
FUND, INC.
-------------------------------------
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ISI FUNDS ANNUAL REPORT -- TABLE OF CONTENTS
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Investment Advisor's Message .............................................. 1
Management Discussion of Fund Performance ................................. 3
Performance Comparisons ................................................... 7
Shareholder Expense Example ............................................... 15
Portfolio Profiles ........................................................ 17
Schedules of Investments .................................................. 18
Statements of Assets and Liabilities ...................................... 31
Statements of Operations .................................................. 34
Statements of Changes in Net Assets ....................................... 36
Financial Highlights ...................................................... 41
Notes to Financial Statements ............................................. 46
Report of Independent Registered Public Accounting Firm ................... 54
Fund Directors and Officers ............................................... 55
Notice to Shareholders .................................................... 57
Investment Advisory Agreement Approval (Unaudited) ........................ 58
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INVESTMENT ADVISOR'S MESSAGE
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Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for the ISI Funds.
This report covers the 12-month reporting period through October 31, 2008 and
includes commentary from the funds' portfolio managers at International Strategy
& Investment, Inc. ("ISI") (see Management Discussion of Fund Performance that
follows this letter), a complete list of holdings and the financial statements.
Stocks recorded a negative return for the last year and a small positive return
for the last five years. For example, the Dow Jones Wilshire 5000 Index was
- -36.43% for the last year and averaged +0.81% for the past five years. U.S.
Treasuries had a positive return the last year and were up over the last 5
years. For example, the Lehman Treasury Index was +7.76% for the past year and
averaged +4.76% for the past five years. Top quality municipal indices were
slightly down for the last year and slightly up for the last five years. For
example, the Lehman Municipal State GO Index was -0.05% for the past year and
averaged +3.18% for the past five years. The following is a summary of Fund
performance during the reporting period. These performance figures assume the
reinvestment of dividend and capital gain distributions, and exclude the impact
of any sales charges.
During the year ended October 31, 2008, Total Return US Treasury Fund and North
American Government Bond Fund continued their policy of paying distributions at
a fixed rate, which resulted in a portion of such distributions consisting of
net investment income, short-term capital gains and long-term capital gains.
North American Government Bond Fund also had return of capital.
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 fiscal year, the fund produced a one-year total return
of +4.61% and a five-year average annual total return of +4.01%. From its
inception on August 10, 1988 through October 31, 2008, the Fund has posted a
cumulative total return of +284.24%, which translates into an average annual
total return of +6.88%. The Fund's net assets totaled $119.97 million as of
October 31, 2008.
ISI 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 fiscal year, the
Fund produced a one-year total return of -1.44% and a five-year average annual
total return of +2.17%. From its inception on February 26, 1990 through October
31, 2008, the Fund has posted a cumulative total return of +154.01%, which
translates into an average annual total return of +5.12%. The Fund's net assets
totaled $75.07 million as of October 31, 2008.
ISI 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 fiscal year, the ISI Class A Shares produced a one-year total return of
+0.51% and a five year average annual total return of +4.23%. From its inception
on January 15, 1993, through October 31, 2008, the ISI Class A Shares
1
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MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
have posted a cumulative total return of +138.47%, which translates into an
average annual total return of +5.66%. For the fiscal year, the ISI Class C
Shares produced a one-year total return of -0.12% and a five year average annual
total return of +3.56%. From its inception on May 16, 2003, through October 31,
2008, the ISI Class C Shares have posted a cumulative total return of +15.98%,
which translates into an average annual total return of +2.75%. The Fund's net
assets totaled $160.96 million as of October 31, 2008.
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 -30.49% and a five-year average annual total return of +1.08%. From its
inception on September 16, 1997, through October 31, 2008, the Fund has posted a
cumulative total return of +33.22%, which translates into an average annual
total return of +2.61%. The Fund's net assets totaled $53.24 million as of
October 31, 2008.
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 18, 2008
2
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MANAGEMENT DISCUSSION OF FUND PERFORMANCE
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TOTAL RETURN US TREASURY FUND
This fiscal year, the Treasury market experience much of its movement based on
anticipation of an economic slowdown caused by the financial crisis. The
Treasury market moved 10-year rates down modestly from roughly 4.50% at the
beginning of the year to 3.95% yield at fiscal year end. The sharpest yield
change was in the short term area where Treasuries were viewed as a safe haven
in the financial storm. During the year, the yield on the 3-month Treasury bill
fell from 3.91% at the beginning of the fiscal year to 0.43% at the end of the
fiscal year. During the fiscal year, the Federal Reserve cut its benchmark
Federal Funds rate from 4.50% to 1.00%. ISI expected the economy would slow and
rates fall because of the lagged effects of high short rates and high energy
prices. The Fund maintained a longer duration than the Index for the fiscal
year, ending with a 7.5 year duration at fiscal year end. By comparison, the
Treasury Index was 5.1 years. The Fund's total return for the fiscal year was
+4.61%.
-----------------------------------------------------------
3-MONTH TREASURY-BILL YIELD
-----------------------------------------------------------
[LINE GRAPH OMITTED]
10/31/2007 3.916
11/1/2007 3.802
11/2/2007 3.604
11/5/2007 3.728
11/6/2007 3.741
11/7/2007 3.450
11/8/2007 3.409
11/9/2007 3.253
11/12/2007 3.252
11/13/2007 3.459
11/14/2007 3.399
11/15/2007 3.305
11/16/2007 3.418
11/19/2007 3.366
11/20/2007 3.285
11/21/2007 3.089
11/22/2007 3.088
11/23/2007 3.222
11/26/2007 3.108
11/27/2007 3.156
11/28/2007 3.037
11/29/2007 2.965
11/30/2007 3.150
12/3/2007 2.995
12/4/2007 3.053
12/5/2007 3.058
12/6/2007 3.078
12/7/2007 3.067
12/10/2007 3.036
12/11/2007 2.908
12/12/2007 2.862
12/13/2007 2.893
12/14/2007 2.871
12/17/2007 2.984
12/18/2007 3.043
12/19/2007 2.893
12/20/2007 2.934
12/21/2007 2.974
12/24/2007 3.283
12/25/2007 3.306
12/26/2007 3.316
12/27/2007 3.119
12/28/2007 3.150
12/31/2007 3.242
1/1/2008 3.332
1/2/2008 3.254
1/3/2008 3.223
1/4/2008 3.191
1/7/2008 3.242
1/8/2008 3.218
1/9/2008 3.233
1/10/2008 3.212
1/11/2008 3.098
1/14/2008 3.160
1/15/2008 3.156
1/16/2008 3.130
1/17/2008 2.996
1/18/2008 2.850
1/21/2008 2.850
1/22/2008 2.274
1/23/2008 2.208
1/24/2008 2.367
1/25/2008 2.254
1/28/2008 2.254
1/29/2008 2.290
1/30/2008 2.152
1/31/2008 1.946
2/1/2008 2.089
2/4/2008 2.223
2/5/2008 2.167
2/6/2008 2.090
2/7/2008 2.193
2/8/2008 2.223
2/11/2008 2.254
2/12/2008 2.290
2/13/2008 2.265
2/14/2008 2.285
2/15/2008 2.192
2/18/2008 2.192
2/19/2008 2.223
2/20/2008 2.229
2/21/2008 2.193
2/22/2008 2.192
2/25/2008 2.182
2/26/2008 2.105
2/27/2008 1.967
2/28/2008 1.905
2/29/2008 1.843
3/3/2008 1.648
3/4/2008 1.654
3/5/2008 1.495
3/6/2008 1.362
3/7/2008 1.444
3/10/2008 1.331
3/11/2008 1.480
3/12/2008 1.413
3/13/2008 1.362
3/14/2008 1.167
3/17/2008 1.004
3/18/2008 0.886
3/19/2008 0.565
3/20/2008 0.575
3/21/2008 0.575
3/24/2008 1.075
3/25/2008 1.285
3/26/2008 1.270
3/27/2008 1.270
3/28/2008 1.372
3/31/2008 1.321
4/1/2008 1.398
4/2/2008 1.372
4/3/2008 1.392
4/4/2008 1.372
4/7/2008 1.392
4/8/2008 1.377
4/9/2008 1.300
4/10/2008 1.239
4/11/2008 1.188
4/14/2008 1.075
4/15/2008 1.142
4/16/2008 1.127
4/17/2008 1.280
4/18/2008 1.351
4/21/2008 1.300
4/22/2008 1.275
4/23/2008 1.219
4/24/2008 1.249
4/25/2008 1.362
4/28/2008 1.372
4/29/2008 1.469
4/30/2008 1.382
5/1/2008 1.403
5/2/2008 1.505
5/5/2008 1.597
5/6/2008 1.633
5/7/2008 1.669
5/8/2008 1.659
5/9/2008 1.689
5/12/2008 1.792
5/13/2008 1.828
5/14/2008 1.823
5/15/2008 1.833
5/16/2008 1.843
5/19/2008 1.853
5/20/2008 1.864
5/21/2008 1.864
5/22/2008 1.864
5/23/2008 1.853
5/26/2008 1.853
5/27/2008 1.894
5/28/2008 1.885
5/29/2008 1.905
5/30/2008 1.884
6/2/2008 1.833
6/3/2008 1.849
6/4/2008 1.849
6/5/2008 1.849
6/6/2008 1.838
6/9/2008 1.889
6/10/2008 2.013
6/11/2008 1.941
6/12/2008 1.992
6/13/2008 1.971
6/16/2008 1.951
6/17/2008 1.982
6/18/2008 1.920
6/19/2008 1.910
6/20/2008 1.859
6/23/2008 1.889
6/24/2008 1.839
6/25/2008 1.798
6/26/2008 1.716
6/27/2008 1.664
6/30/2008 1.736
7/1/2008 1.869
7/2/2008 1.818
7/3/2008 1.848
7/4/2008 1.838
7/7/2008 1.817
7/8/2008 1.859
7/9/2008 1.798
7/10/2008 1.665
7/11/2008 1.583
7/14/2008 1.460
7/15/2008 1.338
7/16/2008 1.358
7/17/2008 1.399
7/18/2008 1.460
7/21/2008 1.429
7/22/2008 1.542
7/23/2008 1.552
7/24/2008 1.644
7/25/2008 1.726
7/28/2008 1.695
7/29/2008 1.716
7/30/2008 1.685
7/31/2008 1.665
8/1/2008 1.664
8/4/2008 1.695
8/5/2008 1.736
8/6/2008 1.644
8/7/2008 1.675
8/8/2008 1.695
8/11/2008 1.818
8/12/2008 1.859
8/13/2008 1.838
8/14/2008 1.859
8/15/2008 1.838
8/18/2008 1.766
8/19/2008 1.798
8/20/2008 1.685
8/21/2008 1.716
8/22/2008 1.695
8/25/2008 1.674
8/26/2008 1.706
8/27/2008 1.675
8/28/2008 1.736
8/29/2008 1.715
9/1/2008 1.715
9/2/2008 1.685
9/3/2008 1.685
9/4/2008 1.675
9/5/2008 1.777
9/8/2008 1.705
9/9/2008 1.665
9/10/2008 1.644
9/11/2008 1.613
9/12/2008 1.470
9/15/2008 0.813
9/16/2008 0.701
9/17/2008 0.061
9/18/2008 0.076
9/19/2008 0.920
9/22/2008 0.838
9/23/2008 0.721
9/24/2008 0.462
9/25/2008 0.757
9/26/2008 0.848
9/29/2008 0.350
9/30/2008 0.910
10/1/2008 0.808
10/2/2008 0.604
10/3/2008 0.472
10/6/2008 0.472
10/7/2008 0.767
10/8/2008 0.614
10/9/2008 0.523
10/10/2008 0.188
10/13/2008 0.188
10/14/2008 0.304
10/15/2008 0.218
10/16/2008 0.431
10/17/2008 0.797
10/20/2008 1.083
10/21/2008 1.073
10/22/2008 1.011
10/23/2008 0.971
10/24/2008 0.848
10/27/2008 0.757
10/28/2008 0.757
10/29/2008 0.584
10/30/2008 0.381
10/31/2008 0.438
* Source: Bloomberg
3
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MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED)
- --------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND
During the fiscal year, municipal bonds reacted more to the burgeoning financial
crisis than to the progress being made on reducing inflation. The result was 1)
that municipal yields rose in comparison to U.S. Treasury yields as the flight
to quality helped U.S. Treasuries; and 2) that lower grade municipal bonds rose
in yield versus higher grade municipals. During the fiscal year, the yield on
top quality AAA general obligation bonds moved up significantly as a percentage
of Treasuries. Please see the table below:
GENERAL OBLIGATION AAA MUNICIPALS AS A % OF
CURRENT U.S. TREASURIES (10/31/07 - 10/31/08)*
CHANGE IN
MATURITY 10/31/07 10/31/08 % OF TREASURIES
-------- -------- -------- ---------------
2 year 85.89 171.78 +85.89
5 year 84.14 124.01 +39.87
10 year 83.75 113.23 +29.48
20 year 89.90 113.14 +23.24
*Source: Bloomberg
The weakening economy hurt municipal revenue and the market has pushed the yield
on medium quality BBB general obligation bonds up versus AAA general obligation
bonds. Please see chart below.
-----------------------------------------------------------
BBB 10 YEAR GO BOND YIELD VERSUS
AAA 10 YEAR GO YIELD (10/31/07 -- 10/31/08)
-----------------------------------------------------------
[LINE GRAPH OMITTED]
10/31/2008 139
10/30/2008 137
10/29/2008 140
10/28/2008 138
10/27/2008 130
10/24/2008 124
10/23/2008 116
10/22/2008 105
10/21/2008 109
10/20/2008 103
10/17/2008 107
10/16/2008 106
10/15/2008 108
10/14/2008 110
10/13/2008 108
10/10/2008 108
10/9/2008 107
10/8/2008 108
10/7/2008 108
10/6/2008 108
10/3/2008 107
10/2/2008 115
10/1/2008 113
9/30/2008 114
9/29/2008 112
9/26/2008 108.
9/25/2008 105
9/24/2008 105
9/23/2008 99
9/22/2008 100
9/19/2008 99
9/18/2008 108
9/17/2008 108
9/16/2008 107
9/15/2008 105
9/12/2008 101
9/11/2008 101
9/10/2008 100
9/9/2008 96
9/8/2008 93
9/5/2008 91
9/4/2008 90
9/3/2008 91
9/2/2008 93
9/1/2008 89
8/29/2008 89
8/28/2008 90
8/27/2008 92
8/26/2008 92
8/25/2008 90
8/22/2008 88
8/21/2008 90
8/20/2008 91
8/19/2008 89
8/18/2008 84
8/15/2008 90
8/14/2008 92
8/13/2008 94
8/12/2008 94
8/11/2008 92
8/8/2008 91
8/7/2008 92
8/6/2008 91
8/5/2008 89
8/4/2008 89
8/1/2008 92
7/31/2008 84
7/30/2008 87
7/29/2008 88
7/28/2008 86
7/25/2008 85
7/24/2008 82
7/23/2008 79
7/22/2008 81
7/21/2008 79
7/18/2008 78
7/17/2008 73
7/16/2008 73
7/15/2008 73
7/14/2008 77
7/11/2008 80
7/10/2008 79
7/9/2008 76
7/8/2008 78
7/7/2008 77
7/4/2008 79
7/3/2008 79
7/2/2008 78
7/1/2008 87
6/30/2008 86
6/27/2008 86
6/26/2008 83
6/25/2008 85
6/24/2008 85
6/23/2008 87
6/20/2008 87
6/19/2008 89
6/18/2008 91
6/17/2008 90
6/16/2008 89
6/13/2008 91
6/12/2008 89
6/11/2008 88
6/10/2008 89
6/9/2008 87
6/6/2008 86
6/5/2008 85
6/4/2008 83
6/3/2008 83
6/2/2008 84
5/30/2008 79
5/29/2008 78
5/28/2008 80
5/27/2008 83
5/26/2008 82
5/23/2008 82
5/22/2008 81
5/21/2008 81
5/20/2008 80
5/19/2008 81
5/16/2008 79
5/15/2008 79
5/14/2008 74
5/13/2008 78
5/12/2008 81
5/9/2008 81
5/8/2008 81
5/7/2008 78
5/6/2008 77
5/5/2008 78
5/2/2008 77
5/1/2008 77
4/30/2008 81
4/29/2008 80
4/28/2008 79
4/25/2008 83
4/24/2008 82
4/23/2008 82
4/22/2008 83
4/21/2008 82
4/18/2008 80
4/17/2008 76
4/16/2008 76
4/15/2008 80
4/14/2008 79
4/11/2008 82
4/10/2008 84
4/9/2008 83
4/8/2008 84
4/7/2008 86
4/4/2008 88
4/3/2008 86
4/2/2008 88
4/1/2008 88
3/31/2008 86
3/28/2008 85
3/27/2008 81
3/26/2008 83
3/25/2008 84
3/24/2008 85
3/21/2008 84
3/20/2008 84
3/19/2008 83
3/18/2008 78
3/17/2008 79
3/14/2008 78
3/13/2008 78
3/12/2008 80
3/11/2008 80
3/10/2008 76
3/7/2008 76
3/6/2008 86
3/5/2008 96
3/4/2008 104
3/3/2008 106
2/29/2008 96
2/28/2008 98
2/27/2008 98
2/26/2008 102
2/25/2008 94
2/22/2008 96
2/21/2008 95
2/20/2008 94
2/19/2008 94
2/18/2008 94
2/15/2008 94
2/14/2008 94
2/13/2008 90
2/12/2008 90
2/11/2008 89
2/8/2008 86
2/7/2008 85
2/6/2008 84
2/5/2008 85
2/4/2008 84
2/1/2008 82
1/31/2008 82
1/30/2008 82
1/29/2008 79
1/28/2008 77
1/25/2008 74
1/24/2008 72
1/23/2008 74
1/22/2008 76
1/21/2008 76
1/18/2008 76
1/17/2008 78
1/16/2008 79
1/15/2008 78
1/14/2008 78
1/11/2008 79
1/10/2008 75
1/9/2008 72
1/8/2008 74
1/7/2008 76
1/4/2008 76
1/3/2008 79
1/2/2008 78
1/1/2008 75
12/31/2007 75
12/28/2007 75
12/27/2007 75
12/26/2007 74
12/25/2007 74
12/24/2007 74
12/21/2007 74
12/20/2007 74
12/19/2007 74
12/18/2007 74
12/17/2007 71
12/14/2007 73
12/13/2007 72
12/12/2007 74
12/11/2007 75
12/10/2007 74
12/7/2007 74
12/6/2007 74
12/5/2007 71
12/4/2007 67
12/3/2007 66
11/30/2007 64
11/29/2007 63
11/28/2007 62
11/27/2007 61
11/26/2007 58
11/23/2007 58
11/22/2007 58
11/21/2007 58
11/20/2007 58
11/19/2007 53
11/16/2007 51
11/15/2007 49
11/14/2007 46
11/13/2007 46
11/12/2007 46
11/9/2007 46
11/8/2007 48
11/7/2007 47
11/6/2007 47
11/5/2007 49
11/2/2007 48
11/1/2007 48
* Source: Bloomberg
The Fund in this fiscal year extended its duration from 5.6 to 6.7, using issues
with high quality ratings based on the municipality's underlying financial
strength rather than bond insurance or medium quality grade issues.
4
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED)
- --------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND
The Fund's U.S. Treasury section followed the duration management similar to the
Total Return U.S. Treasury Fund where the Fund's duration was extended as of the
fiscal year end compared with earlier periods. Both the Canadian dollar and the
Mexican peso came under pressure this fiscal year. The financial crisis, while
it helped the Treasury section of the Fund, hurt the Canadian and Mexican
currencies. Please see Canada dollar chart below. During the fiscal year, the
Fund modestly reduced its non-Treasury holdings from 23.6% of the Fund to 20.2%
of the Fund. The mix between Mexico and Canada changed significantly during the
year with Mexico representing 63% of the non-Treasury section at the beginning
of the year and ending the year representing a reduced 33% of the non-Treasury
section.
-----------------------------------------------------------
CANADIAN DOLLAR COMPARED AGAINST US DOLLAR*
-----------------------------------------------------------
[LINE GRAPH OMITTED]
10/31/2007 0.943
11/1/2007 0.951
11/2/2007 0.935
11/5/2007 0.933
11/6/2007 0.920
11/7/2007 0.931
11/8/2007 0.935
11/9/2007 0.945
11/12/2007 0.969
11/13/2007 0.959
11/14/2007 0.967
11/15/2007 0.985
11/16/2007 0.973
11/19/2007 0.984
11/20/2007 0.979
11/21/2007 0.987
11/22/2007 0.986
11/23/2007 0.988
11/26/2007 0.990
11/27/2007 0.996
11/28/2007 0.985
11/29/2007 0.998
11/30/2007 0.999
12/3/2007 0.999
12/4/2007 1.011
12/5/2007 1.012
12/6/2007 1.008
12/7/2007 1.005
12/10/2007 1.007
12/11/2007 1.015
12/12/2007 1.012
12/13/2007 1.021
12/14/2007 1.017
12/17/2007 1.005
12/18/2007 1.006
12/19/2007 1.003
12/20/2007 1.001
12/21/2007 0.992
12/24/2007 0.984
12/25/2007 0.985
12/26/2007 0.982
12/27/2007 0.980
12/28/2007 0.982
12/31/2007 0.998
1/1/2008 0.993
1/2/2008 0.994
1/3/2008 0.990
1/4/2008 1.003
1/7/2008 1.005
1/8/2008 1.006
1/9/2008 1.010
1/10/2008 1.010
1/11/2008 1.019
1/14/2008 1.017
1/15/2008 1.018
1/16/2008 1.025
1/17/2008 1.030
1/18/2008 1.027
1/21/2008 1.035
1/22/2008 1.029
1/23/2008 1.024
1/24/2008 1.004
1/25/2008 1.008
1/28/2008 1.004
1/29/2008 0.998
1/30/2008 0.993
1/31/2008 1.003
2/1/2008 0.995
2/4/2008 0.994
2/5/2008 1.008
2/6/2008 1.006
2/7/2008 1.009
2/8/2008 0.999
2/11/2008 1.002
2/12/2008 1.002
2/13/2008 0.997
2/14/2008 1.000
2/15/2008 1.007
2/18/2008 1.008
2/19/2008 1.017
2/20/2008 1.013
2/21/2008 1.011
2/22/2008 1.013
2/25/2008 0.996
2/26/2008 0.982
2/27/2008 0.980
2/28/2008 0.975
2/29/2008 0.988
3/3/2008 0.990
3/4/2008 0.994
3/5/2008 0.984
3/6/2008 0.986
3/7/2008 0.991
3/10/2008 0.996
3/11/2008 0.992
3/12/2008 0.990
3/13/2008 0.984
3/14/2008 0.989
3/17/2008 0.998
3/18/2008 0.992
3/19/2008 1.014
3/20/2008 1.024
3/21/2008 1.023
3/24/2008 1.017
3/25/2008 1.017
3/26/2008 1.018
3/27/2008 1.019
3/28/2008 1.023
3/31/2008 1.025
4/1/2008 1.021
4/2/2008 1.016
4/3/2008 1.005
4/4/2008 1.009
4/7/2008 1.014
4/8/2008 1.013
4/9/2008 1.018
4/10/2008 1.020
4/11/2008 1.024
4/14/2008 1.019
4/15/2008 1.018
4/16/2008 1.001
4/17/2008 1.011
4/18/2008 1.004
4/21/2008 1.005
4/22/2008 1.008
4/23/2008 1.017
4/24/2008 1.014
4/25/2008 1.014
4/28/2008 1.013
4/29/2008 1.013
4/30/2008 1.008
5/1/2008 1.020
5/2/2008 1.020
5/5/2008 1.013
5/6/2008 1.002
5/7/2008 1.009
5/8/2008 1.017
5/9/2008 1.005
5/12/2008 1.004
5/13/2008 1.004
5/14/2008 1.004
5/15/2008 1.000
5/16/2008 0.999
5/19/2008 0.992
5/20/2008 0.992
5/21/2008 0.984
5/22/2008 0.985
5/23/2008 0.990
5/26/2008 0.991
5/27/2008 0.994
5/28/2008 0.990
5/29/2008 0.988
5/30/2008 0.993
6/2/2008 1.001
6/3/2008 1.009
6/4/2008 1.017
6/5/2008 1.018
6/6/2008 1.020
6/9/2008 1.023
6/10/2008 1.022
6/11/2008 1.020
6/12/2008 1.024
6/13/2008 1.029
6/16/2008 1.024
6/17/2008 1.019
6/18/2008 1.017
6/19/2008 1.016
6/20/2008 1.016
6/23/2008 1.016
6/24/2008 1.011
6/25/2008 1.009
6/26/2008 1.014
6/27/2008 1.011
6/30/2008 1.022
7/1/2008 1.022
7/2/2008 1.012
7/3/2008 1.018
7/4/2008 1.020
7/7/2008 1.017
7/8/2008 1.019
7/9/2008 1.012
7/10/2008 1.009
7/11/2008 1.009
7/14/2008 1.006
7/15/2008 1.002
7/16/2008 1.002
7/17/2008 1.006
7/18/2008 1.006
7/21/2008 1.000
7/22/2008 1.008
7/23/2008 1.010
7/24/2008 1.015
7/25/2008 1.020
7/28/2008 1.023
7/29/2008 1.024
7/30/2008 1.023
7/31/2008 1.025
8/1/2008 1.027
8/4/2008 1.037
8/5/2008 1.043
8/6/2008 1.049
8/7/2008 1.053
8/8/2008 1.067
8/11/2008 1.069
8/12/2008 1.064
8/13/2008 1.063
8/14/2008 1.064
8/15/2008 1.059
8/18/2008 1.065
8/19/2008 1.061
8/20/2008 1.060
8/21/2008 1.043
8/22/2008 1.047
8/25/2008 1.051
8/26/2008 1.049
8/27/2008 1.046
8/28/2008 1.051
8/29/2008 1.064
9/1/2008 1.067
9/2/2008 1.067
9/3/2008 1.063
9/4/2008 1.070
9/5/2008 1.062
9/8/2008 1.065
9/9/2008 1.071
9/10/2008 1.071
9/11/2008 1.075
9/12/2008 1.060
9/15/2008 1.071
9/16/2008 1.068
9/17/2008 1.073
9/18/2008 1.061
9/19/2008 1.047
9/22/2008 1.036
9/23/2008 1.038
9/24/2008 1.039
9/25/2008 1.035
9/26/2008 1.034
9/29/2008 1.046
9/30/2008 1.064
10/1/2008 1.063
10/2/2008 1.079
10/3/2008 1.083
10/6/2008 1.099
10/7/2008 1.106
10/8/2008 1.128
10/9/2008 1.150
10/10/2008 1.173
10/13/2008 1.148
10/14/2008 1.162
10/15/2008 1.192
10/16/2008 1.178
10/17/2008 1.182
10/20/2008 1.191
10/21/2008 1.214
10/22/2008 1.254
10/23/2008 1.247
10/24/2008 1.278
10/27/2008 1.295
10/28/2008 1.273
10/29/2008 1.223
10/30/2008 1.200
10/31/2008 1.213
* Source: Bloomberg
5
- --------------------------------------------------------------------------------
MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED)
- --------------------------------------------------------------------------------
ISI STRATEGY FUND
During the fiscal year, the Fund's equity representation was reduced from 85% at
the beginning of the year to 80% at year end. The heavy equities weighting hurt
performance because the Dow Jones Wilshire 5000 Index was down -36.43% whereas
the Lehman Treasury Index was up +8.21%. ISI expects that the current slowdown
in the U.S. economy will extend into 2009 with modest growth returning in second
half of 2009. The equity market seems to have priced in quite a bit of bad news
and there is the possibility that the prospects of modest growth in late 2009
might be good news to the market. The equity and bond sections are actively
managed. The equity section uses the Sub-advisor's Dynamic Alpha model to select
individual investments. The bond section follows the duration management of the
ISI Total Return US Treasury Fund. The Fund's total return over the fiscal year
was -30.49%. Please see chart below showing the fall in the equity benchmark
over the fiscal year.
-----------------------------------------------------------
DOW JONES WILSHIRE 5000 INDEX*
-----------------------------------------------------------
[LINE GRAPH OMITTED]
10/31/2008 9,769
10/30/2008 9,585
10/29/2008 9,314
10/28/2008 9,341
10/27/2008 8,502
10/24/2008 8,806
10/23/2008 9,111
10/22/2008 9,081
10/21/2008 9,651
10/20/2008 9,944
10/17/2008 9,514
10/16/2008 9,549
10/15/2008 9,160
10/14/2008 10,065
10/13/2008 10,161
10/10/2008 9,121
10/9/2008 9,188
10/8/2008 9,926
10/7/2008 10,057
10/6/2008 10,669
10/3/2008 11,123
10/2/2008 11,294
10/1/2008 11,809
9/30/2008 11,875
9/29/2008 11,323
9/26/2008 12,347
9/25/2008 12,339
9/24/2008 12,133
9/23/2008 12,173
9/22/2008 12,362
9/19/2008 12,882
9/18/2008 12,350
9/17/2008 11,824
9/16/2008 12,398
9/15/2008 12,184
9/12/2008 12,765
9/11/2008 12,716
9/10/2008 12,570
9/9/2008 12,477
9/8/2008 12,923
9/5/2008 12,703
9/4/2008 12,654
9/3/2008 13,027
9/2/2008 13,064
8/29/2008 13,124
8/28/2008 13,289
8/27/2008 13,092
8/26/2008 12,978
8/25/2008 12,931
8/22/2008 13,185
8/21/2008 13,038
8/20/2008 13,021
8/19/2008 12,950
8/18/2008 13,078
8/15/2008 13,272
8/14/2008 13,228
8/13/2008 13,146
8/12/2008 13,164
8/11/2008 13,308
8/8/2008 13,197
8/7/2008 12,906
8/6/2008 13,134
8/5/2008 13,073
8/4/2008 12,738
8/1/2008 12,888
7/31/2008 12,947
7/30/2008 13,103
7/29/2008 12,900
7/28/2008 12,613
7/25/2008 12,837
7/24/2008 12,771
7/23/2008 13,087
7/22/2008 13,048
7/21/2008 12,871
7/18/2008 12,844
7/17/2008 12,851
7/16/2008 12,704
7/15/2008 12,390
7/14/2008 12,517
7/11/2008 12,635
7/10/2008 12,746
7/9/2008 12,658
7/8/2008 12,936
7/7/2008 12,704
7/3/2008 12,815
7/2/2008 12,842
7/1/2008 13,108
6/30/2008 13,074
6/27/2008 13,081
6/26/2008 13,125
6/25/2008 13,507
6/24/2008 13,421
6/23/2008 13,496
6/20/2008 13,515
6/19/2008 13,759
6/18/2008 13,709
6/17/2008 13,841
6/16/2008 13,918
6/13/2008 13,890
6/12/2008 13,678
6/11/2008 13,639
6/10/2008 13,870
6/9/2008 13,917
6/6/2008 13,925
6/5/2008 14,340
6/4/2008 14,062
6/3/2008 14,062
6/2/2008 14,125
5/30/2008 14,261
5/29/2008 14,217
5/28/2008 14,131
5/27/2008 14,059
5/23/2008 13,954
5/22/2008 14,127
5/21/2008 14,084
5/20/2008 14,310
5/19/2008 14,423
5/16/2008 14,424
5/15/2008 14,404
5/14/2008 14,256
5/13/2008 14,207
5/12/2008 14,192
5/9/2008 14,040
5/8/2008 14,121
5/7/2008 14,067
5/6/2008 14,309
5/5/2008 14,199
5/2/2008 14,251
5/1/2008 14,220
4/30/2008 13,991
4/29/2008 14,033
4/28/2008 14,088
4/25/2008 14,089
4/24/2008 13,991
4/23/2008 13,900
4/22/2008 13,863
4/21/2008 13,995
4/18/2008 14,017
4/17/2008 13,777
4/16/2008 13,787
4/15/2008 13,473
4/14/2008 13,410
4/11/2008 13,455
4/10/2008 13,732
4/9/2008 13,656
4/8/2008 13,790
4/7/2008 13,845
4/4/2008 13,824
4/3/2008 13,802
4/2/2008 13,775
4/1/2008 13,786
3/31/2008 13,332
3/28/2008 13,255
3/27/2008 13,364
3/26/2008 13,518
3/25/2008 13,624
3/24/2008 13,571
3/20/2008 13,336
3/19/2008 13,037
3/18/2008 13,355
3/17/2008 12,828
3/14/2008 12,993
3/13/2008 13,267
3/12/2008 13,179
3/11/2008 13,287
3/10/2008 12,823
3/7/2008 13,052
3/6/2008 13,165
3/5/2008 13,473
3/4/2008 13,397
3/3/2008 13,451
2/29/2008 13,456
2/28/2008 13,817
2/27/2008 13,945
2/26/2008 13,965
2/25/2008 13,866
2/22/2008 13,663
2/21/2008 13,577
2/20/2008 13,758
2/19/2008 13,646
2/15/2008 13,653
2/14/2008 13,656
2/13/2008 13,843
2/12/2008 13,648
2/11/2008 13,562
2/8/2008 13,485
2/7/2008 13,528
2/6/2008 13,418
2/5/2008 13,536
2/4/2008 13,955
2/1/2008 14,091
1/31/2008 13,897
1/30/2008 13,657
1/29/2008 13,740
1/28/2008 13,661
1/25/2008 13,424
1/24/2008 13,608
1/23/2008 13,473
1/22/2008 13,190
1/18/2008 13,308
1/17/2008 13,390
1/16/2008 13,773
1/15/2008 13,842
1/14/2008 14,186
1/11/2008 14,043
1/10/2008 14,245
1/9/2008 14,121
1/8/2008 13,963
1/7/2008 14,230
1/4/2008 14,211
1/3/2008 14,588
1/2/2008 14,614
12/31/2007 14,820
12/28/2007 14,912
12/27/2007 14,896
12/26/2007 15,126
12/24/2007 15,111
12/21/2007 14,979
12/20/2007 14,736
12/19/2007 14,645
12/18/2007 14,651
12/17/2007 14,555
12/14/2007 14,793
12/13/2007 15,000
12/12/2007 14,994
12/11/2007 14,924
12/10/2007 15,311
12/7/2007 15,195
12/6/2007 15,203
12/5/2007 14,964
12/4/2007 14,752
12/3/2007 14,849
11/30/2007 14,933
11/29/2007 14,823
11/28/2007 14,817
11/27/2007 14,400
11/26/2007 14,209
11/23/2007 14,518
11/21/2007 14,288
11/20/2007 14,505
11/19/2007 14,463
11/16/2007 14,727
11/15/2007 14,664
11/14/2007 14,851
11/13/2007 14,951
11/12/2007 14,543
11/9/2007 14,709
11/8/2007 14,922
11/7/2007 14,926
11/6/2007 15,355
11/5/2007 15,174
11/2/2007 15,269
11/1/2007 15,261
* Source: Bloomberg
6
- --------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND --
PERFORMANCE COMPARISON(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND -- ISI SHARES, BARCLAYS CAPITAL
TREASURY INDEX, BARCLAYS CAPITAL INTERMEDIATE TREASURY INDEX AND
BARCLAYS CAPITAL LONG-TERM TREASURY INDEX: VALUE OF A $10,000
INVESTMENT (FOR 10 YEARS ENDED OCTOBER 31, 2008)
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
Barclays Capital
Total Return Intermediate Barclays Capital
US Treasury Barclays Capital Treasury Long-Term
Fund Treasury Index Index Treasury Index
---------- -------------- ----- --------------
10/31/1998 $ 9,700 $ 10,000 $ 10,000 $ 10,000
10/31/1999 9,328 9,845 10,066 9,380
10/31/2000 10,213 10,655 10,736 10,453
10/31/2001 11,600 12,248 12,172 12,308
10/31/2002 12,270 13,018 12,969 13,048
10/31/2003 12,551 13,385 13,266 13,538
10/31/2004 13,133 14,050 13,699 14,830
10/31/2005 13,315 14,173 13,698 15,335
10/31/2006 13,957 14,801 14,285 16,123
10/31/2007 14,608 15,677 15,158 16,951
10/31/2008 15,281 16,893 16,426 17,857
7
- --------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND --
PERFORMANCE COMPARISON(1) (CONTINUED)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Returns (With Load) Average Annual Total Returns
------------------------------------------------ ------------------------------------------------
Periods Ended Since Since
October 31, 2008 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 1.51% 11.31% 18.06% 52.81% 272.68% 1.51% 3.64% 3.38% 4.33% 6.72%
- ------------------------------------------------------------------------------------------------------------------------------------
Barclays Capital
Treasury Index(3) ......... 7.76% 19.19% 26.21% 68.93% 318.47% 7.76% 6.03% 4.77% 5.38% 7.36%
- ------------------------------------------------------------------------------------------------------------------------------------
Barclays Capital Intermediate
Treasury Index(3) ......... 8.36% 19.91% 23.82% 64.26% 274.34% 8.36% 6.24% 4.37% 5.09% 6.76%
- ------------------------------------------------------------------------------------------------------------------------------------
Barclays Capital Long-Term
Treasury Index(3) ......... 5.35% 16.44% 31.90% 78.57% 456.95% 5.35% 5.21% 5.69% 5.97% 8.89%
- ------------------------------------------------------------------------------------------------------------------------------------
(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 dividends and capital gain distributions and includes
the Fund's maximum 3.00% sales charge. Distributions 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
11.03 years.
(2) The Fund's inception date is August 10, 1988. Benchmark returns are for
the periods beginning August 31, 1988.
(3) The Barclays Capital Treasury Index is an unmanaged index reflecting the
performance of all public Treasury obligations and does not focus on one
particular segment of the Treasury market. The Barclays Capital
Intermediate Treasury Index is an unmanaged index reflecting the
performance of US Treasury securities in the intermediate-term Treasury
sector. The Barclays Capital Long-Term Treasury Index is an unmanaged
index reflecting the performance of US Treasury securities in the
long-term Treasury sector. Benchmark returns do not reflect expenses or
sales charges that have been deducted from the Fund's returns.
8
- --------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND --
PERFORMANCE COMPARISON(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND, BARCLAYS CAPITAL GENERAL OBLIGATION INDEX,
BARCLAYS CAPITAL PREREFUNDED MUNICIPAL BOND INDEX AND CONSUMER PRICE INDEX:
VALUE OF A $10,000 INVESTMENT (FOR 10 YEARS ENDED OCTOBER 31, 2008)
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
Barclays Barclays
Capital Capital
General Prerefunded
Managed Obligation Municipal Consumer
Municipal Fund Index Bond Index Price Index
-------------- ---------- ---------- -----------
10/31/1998 $ 9,700 $ 10,000 $ 10,000 $ 10,000
10/31/1999 9,350 9,875 10,142 10,256
10/31/2000 10,140 10,671 10,691 10,610
10/31/2001 11,129 11,756 11,680 10,835
10/31/2002 11,698 12,441 12,288 11,055
10/31/2003 12,152 13,064 12,835 11,280
10/31/2004 12,670 13,823 13,272 11,640
10/31/2005 12,821 14,065 13,352 12,146
10/31/2006 13,422 14,827 13,877 12,305
10/31/2007 13,729 15,300 14,407 12,782
10/31/2008 13,532 15,261 15,002 13,356
9
- --------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND --
PERFORMANCE COMPARISON(1) (CONTINUED)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Returns (With Load) Average Annual Total Returns
------------------------------------------------ ------------------------------------------------
Periods Ended Since Since
October 31, 2008 1 Year 3 Years 5 Years 10 Years Inception(2) 1 Year 3 Years 5 Years 10 Years Inception(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Municipal Fund -4.41% 2.38% 7.98% 35.32% 146.37% -4.41% 0.79% 1.55% 3.07% 4.95%
Barclays Capital General
Obligation Index(3) -0.25% 8.50% 16.82% 52.61% 194.03% -0.25% 2.76% 3.16% 4.32% 5.95%
Barclays Capital Prerefunded
Municipal Bond Index(3) 4.13% 12.35% 16.89% 50.02% 165.94% 4.13% 3.96% 3.17% 4.14% 5.38%
Consumer Price Index(4) 4.49% 9.96% 18.40% 33.56% 40.04% 4.49% 3.21% 3.44% 2.94% 1.82%
(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 dividends and capital gain distributions and includes
the Fund's maximum 3.00% sales charge. Distributions 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 Barclays Capital General Obligation Index is an unmanaged index
reflecting general municipal bond market performance. The Barclays Capital
Prerefunded Municipal Bond Index, an unmanaged index, is a subcomponent of
the general Barclays Capital Municipal Bond Index, and contains only bonds
from that index that have been prerefunded or escrowed to maturity.
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.
10
- --------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND --
ISI CLASS A PERFORMANCE COMPARISON(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND - ISI CLASS A SHARES, BARCLAYS
CAPITAL INTERMEDIATE TREASURY INDEX, BARCLAYS CAPITAL EMERGING
AMERICAS INDEX: MEXICO SECTION / CITIGROUP US BROAD INVESTMENT-GRADE
BOND INDEX MEXICO SECTOR AND CONSUMER PRICE INDEX: VALUE OF A
$10,000 INVESTMENT (FOR 10 YEARS ENDED OCTOBER 31, 2008)
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
Barclays Capital Emerging
Americas Index: Mexico
North American Section/Citigroup
Government Barclays Capital US Broad Investment- Consumer
Bond Fund - ISI Intermediate Grade Bond Index Price
Class A Shares Treasury Index Mexico Sector Index
-------------- -------------- ----------------- -----
10/31/1998 $ 9,700 $ 10,000 $ 10,000 $ 10,000
10/31/1999 9,678 10,066 11,522 10,256
10/31/2000 10,610 10,736 13,588 10,610
10/31/2001 12,164 12,172 15,465 10,835
10/31/2002 12,678 12,969 17,170 11,055
10/31/2003 13,202 13,266 19,710 11,280
10/31/2004 13,680 13,699 21,524 11,640
10/31/2005 14,281 13,698 22,815 12,146
10/31/2006 15,143 14,285 24,495 12,305
10/31/2007 16,160 15,158 26,351 12,782
10/31/2008 16,242 16,426 20,071 13,356
11
- --------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND --
PERFORMANCE COMPARISON(1) (CONTINUED)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Returns (With Load) Average Annual Total Returns
------------------------------------------------ ------------------------------------------------
Periods Ended Since Since
October 31, 2008 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 -2.47% 10.28% 19.33% 62.42% 131.30% -2.47% 3.31% 3.60% 4.97% 5.45%
North American Government
Bond Fund - ISI
Class C Shares -1.08% 11.57% 19.10% -- 15.98% -1.08% 3.72% 3.56% -- 2.75%
Barclays Capital Intermediate
Treasury Index(4) 8.36% 19.91% 23.82% 64.26% 138.66% 8.36% 6.24% 4.37% 5.09% 5.68%
Barclays Capital Emerging
Americas Index: Mexico
Section / Citigroup US
Broad Investment-Grade
Bond Index Mexico Sector(5) -23.83% -12.03% 1.83% 100.71% 242.85% -23.83% -4.18% 0.36% 7.22% 8.14%
Consumer Price Index(6) 4.49% 9.96% 18.40% 33.56% 57.31% 4.49% 3.21% 3.44% 2.94% 2.92%
(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 dividends and capital gain distributions and includes
sales charges, if applicable. ISI Class A shares have a maximum 3.00%
sales charge. ISI Class C Shares have a maximum 1.00% contingent deferred
sales charge in the first year, which is eliminated thereafter.
(2) ISI Class A Shares inception date is January 15, 1993. Benchmark returns
are for the periods beginning January 31, 1993.
(3) ISI Class C Shares inception date is May 16, 2003. Cumulative and
annualized returns for the Barclays Capital Intermediate Treasury Index
from May 31, 2003 through October 31, 2008 were 22.44% and 1.32%,
respectively.
(4) The Barclays Capital 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) Reflects the performance of the Barclays Capital Emerging Americas Index:
Mexico Section through October 31, 2004 and the Citigroup US Broad
Investment-Grade Bond Index Mexico Sector from that date through October
31, 2006 and the Barclays Capital Global Aggregate Index: Mexico from
October 31, 2006 through October 31, 2008. The Barclays Capital Emerging
Americas Index: Mexico Section has been discontinued. Barclays Capital
Emerging Americas Index: Mexico Section was an unmanaged sub-index of the
Barclays Capital Emerging Americas Index reflecting the performance of
selected Mexican debt instruments with maturities of one year or more. The
Citigroup US Broad Investment-Grade Bond Index Mexico Sector is an
unmanaged sub-index of the Citigroup US Broad Investment-Grade Bond Index
reflecting the performance of selected Mexican debt instruments with
maturities of one year or more. The Barclays Capital Global Aggregate
Index: Mexico Section is an unmanaged sub-index of Barclays Capital Global
Aggregate Index which provides broad-based measure of global
investment-grade fixed income markets. The Mexico Section reflects the US
dollar performance of selected Mexican government peso-denominated debt
instruments with maturities of one year or more. Benchmark returns do not
reflect expenses or sales charges that have been deducted from the Fund's
returns.
(6) The Consumer Price Index is a widely used measure of inflation.
12
- --------------------------------------------------------------------------------
ISI STRATEGY FUND --
PERFORMANCE COMPARISON(1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ISI STRATEGY FUND, DOW JONES WILSHIRE 5000 (FULL CAP)
INDEX, AND CONSUMER PRICE INDEX:
VALUE OF A $10,000 INVESTMENT (FOR 10 YEARS ENDED OCTOBER 31, 2008)
- --------------------------------------------------------------------------------
[LINE GRAPH OMITTED]
Dow Jones
Wilshire 5000
ISI Strategy (Full Cap) Consumer Price
Fund Index Index
------------ ------------- --------------
10/31/1998 $ 9,700 $ 10,000 $ 10,000
10/31/1999 10,941 13,946 10,256
10/31/2000 11,763 15,076 10,610
10/31/2001 10,171 11,226 10,835
10/31/2002 9,368 9,720 11,055
10/31/2003 10,911 12,096 11,280
10/31/2004 11,752 13,305 11,640
10/31/2005 12,879 14,738 12,146
10/31/2006 14,554 17,185 12,305
10/31/2007 16,562 19,812 12,782
10/31/2008 11,512 12,594 13,356
13
- --------------------------------------------------------------------------------
ISI STRATEGY FUND --
PERFORMANCE COMPARISON(1) (CONTINUED)
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative Total Returns (With Load) Average Annual Total Returns
------------------------------------------------ ------------------------------------------------
Periods Ended Since Since
October 31, 2008 1 Year 3 Years 5 Years 10 Years Inception(2) 1 Year 3 Years 5 Years 10 Years Inception(2)
- ------------------------------------------------------------------------------------------------------------------------------------
ISI Strategy Fund -32.58% -13.26% 2.39% 15.12% 29.21% -32.58% -4.63% 0.47% 1.42% 2.33%
Dow Jones Wilshire 5000
(Full Cap) Index(3) -36.43% -14.55% 4.12% 25.94% 100.31% -36.43% -5.10% 0.81% 2.33% 6.47%
Consumer Price Index(4) 4.49% 9.96% 18.40% 33.56% 185.55% 4.49% 3.21% 3.44% 2.94% 10.42%
Lipper Flexible Portfolio
Funds Average(5) -30.50% -8.68% 8.16% 18.36% 48.25% -30.50% -2.98% 1.58% 1.70% 3.62%
(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 dividends and capital gain distributions and includes
the Fund's maximum 3.00% sales charge.
(2) The Fund's inception date is September 16, 1997. Benchmark returns are for
the periods beginning September 30, 1997.
(3) The Dow Jones Wilshire 5000 (Full Cap) 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 mutual funds
designated by Lipper as falling into the category indicated. The Lipper
Flexible Portfolio Funds category includes funds that allocate their
investment across various asset classes, including domestic common stocks,
bonds and money market instruments with a focus on total return.
14
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSE EXAMPLES (UNAUDITED)
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of cost: (1) transaction
costs, including sales charges (loads); and (2) ongoing costs, including
management fees, Rule 12b-1 distribution/shareholder service fees and other Fund
expenses. This example is intended to help you understand your ongoing costs (in
dollars) of investing in each Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
A mutual fund's ongoing costs are expressed as a percentage of its average net
assets. This figure is known as the expense ratio. The expenses in the tables
below are based on an investment of $1,000 made at the beginning of the period
shown and held for the entire period.
ACTUAL EXPENSES - "Actual Return" in the following table provides information
about actual account values and actual expenses. You may use the information
here, together with the amount you invested, to estimate the expenses that you
paid over the period. Simply divide your account value by $1,000 (for example,
an $8,600 account value divided by $1,000 = 8.6), then multiply the result by
the number in the "Expenses Paid During Period" column to estimate the expenses
you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES - "Hypothetical Returns" in the
following table provides information about hypothetical account values and
hypothetical expenses based on each Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not the actual return of
each Fund. The hypothetical account values and expenses may not be used to
estimate the actual ending account balance or expenses you paid for the period.
You may use this information to compare the ongoing cost of investing in a Fund
and other funds. To do so, compare this 5% hypothetical example with the 5%
hypothetical examples that appear in the shareholder reports of other funds.
Expenses shown in the tables are meant to highlight your ongoing costs only and
do not reflect any transactional costs, such as sales charges (loads).
Therefore, "Hypothetical Returns" in the table are useful in comparing ongoing
costs only, and will not help you determine the relative total costs of owning
different funds. If these transactional costs were included, your costs would
have been higher.
15
- --------------------------------------------------------------------------------
SHAREHOLDER EXPENSE EXAMPLE (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED
MAY 1, 2008 OCTOBER 31, 2008 DURING PERIOD(1) EXPENSE
- ------------------------------------------------------------------------------------------------
Based on Actual Fund Return ... $1,000.00 $1,003.40 $4.03 0.80%
Based on Hypothetical 5% Return $1,000.00 $1,021.12 $4.06 0.80%
- ------------------------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED
MAY 1, 2008 OCTOBER 31, 2008 DURING PERIOD(1) EXPENSE
- ------------------------------------------------------------------------------------------------
Based on Actual Fund Return ... $1,000.00 $ 962.60 $4.79 0.97%
Based on Hypothetical 5% Return $1,000.00 $1,020.26 $4.93 0.97%
- ------------------------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND CLASS A
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED
MAY 1, 2008 OCTOBER 31, 2008 DURING PERIOD(1) EXPENSE
- ------------------------------------------------------------------------------------------------
Based on Actual Fund Return ... $1,000.00 $ 961.50 $5.29 1.07%
Based on Hypothetical 5% Return $1,000.00 $1,019.17 $5.45 1.07%
- ------------------------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND CLASS C
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED
MAY 1, 2008 OCTOBER 31, 2008 DURING PERIOD(1) EXPENSE
- ------------------------------------------------------------------------------------------------
Based on Actual Fund Return ... $1,000.00 $ 958.40 $8.40 1.71%
Based on Hypothetical 5% Return $1,000.00 $1,016.56 $8.65 1.71%
- ------------------------------------------------------------------------------------------------
ISI STRATEGY FUND
BEGINNING ENDING
ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED
MAY 1, 2008 OCTOBER 31, 2008 DURING PERIOD(1) EXPENSE
- ------------------------------------------------------------------------------------------------
Based on Actual Fund Return ... $1,000.00 $ 753.20 $4.37 0.99%
Based on Hypothetical 5% Return $1,000.00 $1,020.15 $5.04 0.99%
- ------------------------------------------------------------------------------------------------
(1) Equals the Fund's annualized expense ratio for the period, multiplied by
the average account value over the period, multiplied by the number of
days in the most recent fiscal half-year, divided by 366 to reflect the
half-year period.
16
- -------------------------------------------------------------
PORTFOLIO PROFILES (UNAUDITED)
- -------------------------------------------------------------
PORTFOLIO PROFILES (AS A % OF NET ASSETS) OCTOBER 31, 2008
TOTAL RETURN US TREASURY FUND
US Treasury Obligations 97.03%
Repurchase Agreements 1.09%
Other Assets and Liabilities 1.88%
----------
100.00%
MANAGED MUNICIPAL FUND
Aaa* 71.51%
Aa* 21.14%
US Treasury Obligations 1.77%
Repurchase Agreements 4.57%
Other Assets and Liabilities 1.01%
----------
100.00%
* Ratings are from Moody's Investors Service, Inc.
NORTH AMERICAN GOVERNMENT BOND FUND
Canadian Securities 13.47%
Mexican Securities 6.77%
US Treasury Securities 75.61%
Repurchase Agreements 3.02%
Other Assets and Liabilities 1.13%
----------
100.00%
ISI STRATEGY FUND
Consumer Discretionary 5.76%
Consumer Staples 8.02%
Energy 10.45%
Financials 14.27%
Health Care 13.22%
Industrials 9.42%
Information Technology 13.02%
Materials 1.46%
Telecommunications Services 0.92%
Utilities 3.12%
US Treasury Obligations 19.24%
Repurchase Agreements 0.83%
Other Assets and Liabilities 0.27%
----------
100.00%
17
- --------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2008
INTEREST MATURITY PRINCIPAL MARKET
SECURITY RATE DATE AMOUNT VALUE
- --------------------------------------------------------------------------------
US TREASURY OBLIGATIONS - 97.03%
US Treasury Bonds 7.625% 02/15/25 $5,000,000 $ 6,659,375
US Treasury Bonds 6.000% 02/15/26 11,500,000 13,112,702
US Treasury Bonds 6.375% 08/15/27 16,000,000 19,167,504
US Treasury Bonds 5.000% 05/15/37 5,000,000 5,508,595
US Treasury Notes 5.500% 05/15/09 11,500,000 11,765,040
US Treasury Notes 4.875% 06/30/09 1,700,000 1,740,775
US Treasury Notes 4.625% 07/31/09 9,000,000 9,217,269
US Treasury Notes 4.000% 08/31/09 1,000,000 1,021,719
US Treasury Notes 4.000% 09/30/09 5,000,000 5,117,190
US Treasury Notes 4.875% 08/15/16 1,000,000 1,065,703
US Treasury Notes 3.875% 05/15/18 2,370,000 2,366,853
US Treasury Notes 4.000% 08/15/18 37,500,000 37,561,538
US Treasury Notes 7.875% 02/15/21 1,650,000 2,112,645
------------
TOTAL US TREASURY OBLIGATIONS
(COST $118,287,982)........................................... $116,416,908
------------
REPURCHASE AGREEMENT - 1.09%
JPMORGAN CHASE, N.A.
Dated 10/31/08, 0.15%, principal and interest
in the amount of $1,303,016 due 11/3/08,
collateralized by US Treasury Bond, par value of
$1,230,000 due 2/15/37 with a value of $1,329,100
(Cost $1,303,000) .............................. $ 1,303,000 $ 1,303,000
------------
TOTAL INVESTMENTS - 98.12%
(COST $119,590,982)*........................................... $117,719,908
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.88%.................... 2,252,790
------------
NET ASSETS - 100.00%............................................. $119,972,698
============
* Cost for Federal income tax purpose is $119,590,982 and net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation .......... $ 452,125
Gross Unrealized Depreciation .......... (2,323,199)
------------
Net Unrealized Depreciation. ........... $ (1,871,074)
============
See Notes to Financial Statements.
18
- --------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2008
RATINGS
INTEREST MATURITY (MOODY'S/ PRINCIPAL MARKET
SECURITY RATE DATE S&P)(1) AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 92.65%
GENERAL OBLIGATIONS - 59.77%
Alexandria, VA, Capital Improvements ... 4.250% 06/15/21 Aaa/AAA $ 3,300,000 $ 3,117,246
Arlington County, VA,
State Aid Withholding ................ 4.500% 01/15/28 Aaa/AAA 2,000,000 1,819,740
Arlington County, VA,
State Aid Withholding ................ 5.000% 10/01/14 Aaa/AAA 1,080,000 1,092,787
Cary, NC ............................... 5.000% 03/01/18 Aaa/AAA 2,000,000 2,070,940
Dallas, TX ............................. 4.000% 02/15/16 Aa1/AA+ 2,450,000 2,442,674
Delaware State, Series A ............... 4.200% 01/01/20 Aaa/AAA 1,675,000 1,594,098
Du Page County, IL, Jail Project ....... 5.600% 01/01/21 Aaa/AAA 1,600,000 1,684,656
Florida State, Board of Education,
Public Education, Series I ........... 4.125% 06/01/21 Aa1/AAA 3,000,000 2,621,850
Georgia State, Series G ................ 4.125% 10/01/23 Aaa/AAA 2,000,000 1,781,580
Georgia State, Series B ................ 3.000% 04/01/27 Aaa/AAA 1,000,000 698,500
Gwinnett County, GA, School District, .. 5.000% 02/01/36 Aaa/AAA 1,500,000 1,435,380
Henrico County, VA,
Public Improvement ................... 4.250% 07/15/24 Aaa/AAA 2,830,000 2,549,009
Maryland State, Capital Improvements,
Series A ............................. 4.000% 02/15/20 Aaa/AAA 4,000,000 3,663,720
Mecklenburg County, NC,
Public Improvements, Series A ........ 4.000% 02/01/20 Aaa/AAA 3,000,000 2,763,300
Missouri State, Fourth State
Building, Series A ................... 4.125% 10/01/19 Aaa/AAA 2,000,000 1,919,120
Montgomery County, MD,
Public Improvements, Series A ........ 4.000% 05/01/21 Aaa/AAA 2,450,000 2,201,056
Prince Georges County, MD, Public
Improvements ......................... 4.125% 07/15/26 Aa1/AAA 2,000,000 1,636,000
Salt Lake City, UT, School District,
School Board Guaranty, Series A ...... 4.500% 03/01/20 Aaa/NR 2,240,000 2,190,653
South Carolina State,
Highway, Series B .................... 5.000% 04/01/19 Aaa/AA+ 1,000,000 1,016,580
Virginia State, Series B ............... 4.250% 06/01/26 Aaa/AAA 2,500,000 2,186,425
Washington State, Series F ............. 4.500% 07/01/27 Aa1/AA+ 2,500,000 2,199,725
Washington, MD, Suburban
Sanitation District, Water Supply .... 4.250% 06/01/26 Aaa/AAA 2,500,000 2,186,425
------------
$ 44,871,464
------------
See Notes to Financial Statements.
19
- --------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008
RATINGS
INTEREST MATURITY (MOODY'S/ PRINCIPAL MARKET
SECURITY RATE DATE S&P)(1) AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 92.65% (CONTINUED)
OTHER REVENUE - 6.97%
Fairfax County, VA, Water Authority
Water Revenue ........................ 4.500% 04/01/27 Aaa/AAA $ 2,500,000 $ 2,234,025
Texas, Water Development Board
Revenue, State Revolving Fund-Senior
Lien, Series A ....................... 4.750% 07/15/20 Aaa/AAA 3,000,000 2,999,790
------------
$ 5,233,815
------------
PREREFUNDED ISSUES - 25.91%
Charlotte, NC, Water & Sewer System
Revenue, 06/01/09 @ 101 .............. 5.250% 06/01/24 Aa1/AAA 1,600,000 1,649,616
Chesterfield County, VA, 01/15/10 @ 100 5.625% 01/15/14 Aaa/AAA 1,350,000 1,405,647
Chesterfield County, VA, 01/15/11 @ 100 5.000% 01/15/20 Aaa/AAA 1,000,000 1,050,050
Florida State, Board of Education,
Public Education Capital Outlay,
Series A, 06/01/10 @ 101 ............. 5.125% 06/01/21 Aaa/AAA 1,000,000 1,052,030
Georgia State, Series D, Refundable
Balance, 10/01/10 @ 100 .............. 5.000% 10/01/17 Aaa/AAA 390,000 409,137
Guilford County, NC, Series B,
10/01/10 @ 102 ....................... 5.250% 10/01/16 Aa1/AAA 3,000,000 3,219,150
Gwinnett County, GA, Water &
Sewer Authority, 08/01/12 @ 100 ...... 5.250% 08/01/24 Aaa/AAA 1,500,000 1,615,365
Minnesota State, 06/01/10 @ 100 ........ 5.500% 06/01/18 Aa1/AAA 2,000,000 2,098,940
North Carolina State, Public School
Building, 04/01/09 @ 102 ............. 4.600% 04/01/17 Aaa/AAA 5,000,000 5,161,600
South Carolina State, State Institutional,
Series A, 03/01/10 @ 101 ............. 5.300% 03/01/17 Aaa/AA+ 1,700,000 1,785,153
------------
$ 19,446,688
------------
TOTAL MUNICIPAL BONDS
(COST $71,393,988) ................... $ 69,551,967
------------
US TREASURY OBLIGATIONS - 1.77%
US Treasury Notes ...................... 4.625% 07/31/09 $ 500,000 $ 511,914
US Treasury Notes ...................... 4.000% 08/31/09 800,000 817,375
------------
TOTAL US TREASURY NOTES
(COST $1,328,548)..................... $ 1,329,289
------------
See Notes to Financial Statements.
20
- --------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008
MARKET
SECURITY VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 4.57%
JPMORGAN CHASE, N.A.
Dated 10/31/08, 0.15%, principal and interest
in the amount of $3,435,043 due 11/3/08,
collateralized by US Treasury Bond, par value
of $3,245,000 due 2/15/37 with a value of
$3,506,446 (Cost $3,435,000) ................... $ 3,435,000 $ 3,435,000
-----------
TOTAL INVESTMENTS - 98.99%
(COST $76,157,536)*............................... $74,316,256
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.01%....... 755,703
-----------
NET ASSETS - 100.00%................................ $75,071,959
===========
- --------------------------------------------------------------------------------
(1) 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 determinded to posses very strong safety characteristics
are denoted with a plus (+) sign.
NR Bond is not rated by this Agency.
Prerefunded: Bonds which are prerefunded are collateralized by US Treasury
securities which are held in escrow and are used to pay principal and
interest on tax-exempt issues and to retire the bonds in full at the
earliest refunding date.
* Cost for Federal income tax purpose is $76,157,536 and net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation .......... $ 1,610,123
Gross Unrealized Depreciation .......... (3,451,403)
------------
Net Unrealized Depreciation. ........... $ (1,841,280)
============
See Notes to Financial Statements.
21
- --------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2008
INTEREST MATURITY PRINCIPAL MARKET
SECURITY RATE DATE AMOUNT(1) VALUE
- -------------------------------------------------------------------------------------
CANADIAN SECURITIES - 13.47%
Canadian Government Bonds 3.750% 06/01/10 CAD 2,300,000 $ 1,959,181
Canadian Government Bonds 3.750% 06/01/12 7,500,000 6,457,794
Canadian Government Bonds 3.500% 06/01/13 3,100,000 2,649,718
Canadian Government Bonds 4.000% 06/01/17 12,500,000 10,620,954
------------
TOTAL CANADIAN SECURITIES
(COST $25,175,003) .................................................. $ 21,687,647
------------
MEXICAN SECURITIES - 6.77%
Mexican Bono(2) 9.000% 12/22/11 MXP 40,322,900 $ 3,217,889
Mexican Bono(2) 9.000% 12/20/12 31,782,400 2,522,867
Mexican Bono(2) 8.000% 12/17/15 49,017,000 3,656,043
Mexican Bono(2) 7.250% 12/15/16 21,000,000 1,496,549
------------
TOTAL MEXICAN SECURITIES
(COST $13,160,156) .................................................. $ 10,893,348
------------
US TREASURY OBLIGATIONS - 75.61%
US Treasury Bonds 7.625% 02/15/25 $10,100,000 $ 13,451,937
US Treasury Bonds 6.000% 02/15/26 2,000,000 2,280,470
US Treasury Bonds 6.375% 08/15/27 9,600,000 11,500,502
US Treasury Bonds 6.250% 05/15/30 7,200,000 8,705,254
US Treasury Notes 4.875% 05/15/09 12,500,000 12,746,100
US Treasury Notes 4.875% 06/30/09 6,000,000 6,143,910
US Treasury Notes 4.625% 07/31/09 600,000 614,485
US Treasury Notes 4.000% 08/31/09 4,000,000 4,086,876
US Treasury Notes 4.000% 09/30/09 9,000,000 9,210,942
US Treasury Notes 4.875% 08/15/16 10,600,000 11,296,452
US Treasury Notes 3.875% 05/15/18 2,500,000 2,496,680
US Treasury Notes 4.000% 08/15/18 37,000,000 37,060,717
US Treasury Notes 7.875% 02/15/21 1,650,000 2,112,645
------------
TOTAL US TREASURY OBLIGATIONS
(COST $123,342,789)................................................. $121,706,970
------------
See Notes to Financial Statements.
22
- --------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2008
MARKET
SECURITY VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 3.02%
JPMORGAN CHASE, N.A.
Dated 10/31/08, 0.15%, principal and interest
in the amount of $4,852,061 due 11/3/08,
collateralized by US Treasury Bond, par value
of $4,585,000 due 2/15/37 with a value of
$4,954,408 (Cost $4,852,000) ................... $ 4,852,000 $ 4,852,000
------------
TOTAL INVESTMENTS - 98.87%
(COST $166,529,948)* ............................ $159,139,965
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.13%...... 1,822,376
------------
NET ASSETS - 100.00%............................... $160,962,341
============
- --------------------------------------------------------------------------------
CAD Canadian dollar
MXP Mexican peso
(1) Principal Amount is shown in US dollars unless otherwise noted.
(2) Bonos are fixed rate, local currency-denominated coupon bonds issued by
the Mexican government.
* Cost for Federal income tax purpose is $166,529,948 and net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation .......... $ 173,778
Gross Unrealized Depreciation .......... (7,563,761)
------------
Net Unrealized Depreciation. ........... $ (7,389,983)
============
See Notes to Financial Statements.
23
- --------------------------------------------------------------------------------
ISI STRATEGY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2008
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK - 79.66%
AEROSPACE & DEFENSE - 2.08%
Goodrich Corp. 1,100 $ 40,216
Honeywell International, Inc. 3,500 106,575
L-3 Communications Holdings, Inc. 4,000 324,680
Northrop Grumman Corp. 10,000 468,900
United Technologies Corp. 3,000 164,880
------------
1,105,251
------------
AIR FREIGHT & LOGISTICS - 0.61%
FedEx Corp. 5,000 326,850
------------
AIRLINES - 0.88%
Southwest Airlines Co. 40,000 471,200
------------
AUTO COMPONENTS - 0.32%
Cooper Tire & Rubber Co. 5,000 38,150
Johnson Controls, Inc. 7,560 134,039
------------
172,189
------------
AUTOMOBILES - 0.01%
Fleetwood Enterprises, Inc.* 13,500 6,075
------------
BEVERAGES - 0.55%
Coca-Cola Co. 5,000 220,300
Pepsico, Inc. 1,284 73,201
------------
293,501
------------
BIOTECHNOLOGY - 2.86%
Amgen, Inc.* 7,300 437,197
Biogen Idec, Inc.* 4,000 170,200
Genentech, Inc.* 6,324 524,513
Genzyme Corp.* 5,000 364,400
Savient Pharmaceuticals, Inc.* 5,300 25,228
------------
1,521,538
------------
CAPITAL MARKETS - 2.73%
BGC Partners, Inc. 1,544 6,315
Bank of New York Mellon Corp. (The) 842 27,449
Blackrock, Inc. Class A 2,240 294,202
Calamos Asset Management, Inc. - Class A 5,000 41,050
Charles Schwab Corp. 14,100 269,592
E*TRADE Financial Corp.* 5,600 10,192
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
CAPITAL MARKETS - 2.73% (CONTINUED)
FCStone Group, Inc.* 9,700 $ 57,715
Goldman Sachs Group, Inc. 1,000 92,500
Knight Capital Group, Inc. - Class A* 5,000 72,300
Merrill Lynch & Co. 6,120 113,771
Penson Worldwide, Inc.* 5,000 35,700
SEI Investments Co. 6,400 113,152
SWS Group, Inc. 5,000 92,800
State Street Corp. 5,300 229,755
------------
1,456,493
------------
CHEMICALS - 1.12%
Ashland, Inc. 5,000 112,950
FMC Corp. 2,700 117,558
International Flavors & Fragrance, Inc. 11,500 366,620
------------
597,128
------------
COMMERCIAL BANKS - 3.47%
Associated Banc-Corp 5,000 110,300
Boston Private Financial Holdings, Inc. 4,000 35,360
Colonial BancGroup, Inc. (The) 5,800 23,722
Columbia Banking System, Inc. 4,400 70,048
Cullen/Frost Bankers, Inc. 5,000 279,850
F.N.B. Corp. 5,100 66,810
First Commonwealth Financial Corp. 9,400 103,964
First Financial Bancorp. 4,000 53,800
Frontier Financial Corp. 10,000 66,600
Glacier Bancorp, Inc. 5,000 100,850
Hancock Holding Co. 5,000 220,800
Prosperity Bancshares, Inc. 5,000 166,050
Provident Bankshares Corp. 4,000 42,680
Regions Financial Corp. 546 6,055
Sterling Financial Corp. 4,000 33,960
Susquehanna Bancshares, Inc. 5,000 77,450
UCBH Holdings, Inc. 4,000 21,120
UMB Financial Corp. 5,000 226,650
US Bancorp 2,473 73,720
United Community Banks, Inc. 4,800 62,976
Zions Bancorp. 100 3,811
------------
1,846,576
------------
See Notes to Financial Statements.
24
- --------------------------------------------------------------------------------
ISI STRATEGY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK - 79.66% (CONTINUED)
COMMERCIAL SERVICES & SUPPLIES - 0.53%
Copart, Inc.* 5,000 $ 174,500
Herman Miller, Inc. 5,000 110,000
------------
284,500
------------
COMMUNICATIONS EQUIPMENT - 1.43%
Cisco Systems, Inc.* 40,857 726,029
Juniper Networks, Inc.* 1,795 33,638
------------
759,667
------------
COMPUTERS & PERIPHERALS - 4.70%
Apple, Inc.* 5,848 629,186
Hewlett-Packard Co. 10,000 382,800
International Business Machines Corp. 13,422 1,247,843
NCR Corp.* 5,000 91,400
Teradata Corp.* 10,000 153,900
------------
2,505,129
------------
CONSTRUCTION & ENGINEERING - 0.25%
Layne Christensen Co.* 5,000 131,400
------------
CONSUMER FINANCE - 0.50%
AmeriCredit Corp.* 9,000 52,740
Discover Financial Services, LLC 6,240 76,440
First Cash Financial Services, Inc.* 5,000 76,850
SLM Corp.* 5,600 59,752
------------
265,782
------------
DISTRIBUTORS - 0.11%
Genuine Parts Co. 1,450 57,058
------------
DIVERSIFIED CONSUMER SERVICES - 0.40%
Career Education Corp.* 4,000 63,240
Corinthian Colleges, Inc.* 4,000 57,120
Jackson Hewitt Tax Service, Inc. 4,000 55,120
Sotheby's 4,000 37,240
------------
212,720
------------
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 1.77%
CIT Group, Inc. 4,100 $ 16,974
CME Group, Inc. 800 225,720
Citigroup, Inc. 12,702 173,382
Financial Federal Corp. 15,000 347,250
Moody's Corp. 6,974 178,534
------------
941,860
------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.68%
AT&T, Inc. 11,039 295,514
Fairpoint Communications, Inc. 771 3,069
Globalstar, Inc.* 13,500 7,425
PAETEC Holding Corp.* 9,300 8,370
Qwest Communications International, Inc. 9,900 28,314
Verizon Communications, Inc. 688 20,413
------------
363,105
------------
ELECTRIC UTILITIES - 2.05%
Alleghany Energy, Inc. 7,200 217,080
DPL, Inc. 31,100 709,391
PPL Corp. 5,000 164,100
------------
1,090,571
------------
ELECTRICAL EQUIPMENT - 0.25%
Advanced Battery Technologies, Inc.* 14,300 40,755
Rockwell Automation, Inc. 3,439 95,157
------------
135,912
------------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.21%
Agilent Technologies, Inc.* 5,105 113,280
------------
ENERGY EQUIPMENT & SERVICES - 1.34%
Halliburton Co. 5,000 98,950
National Oilwell Varco, Inc.* 5,000 149,450
Superior Energy Services, Inc.* 3,500 74,620
Transocean, Inc.* 4,757 391,644
------------
714,664
------------
FOOD & STAPLES RETAILING - 2.04%
Costco Wholesale Corp. 2,860 163,049
Wal-Mart Stores, Inc. 14,266 796,185
Walgreen Co. 5,000 127,300
------------
1,086,534
------------
See Notes to Financial Statements.
25
- --------------------------------------------------------------------------------
ISI STRATEGY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK - 79.66% (CONTINUED)
FOOD PRODUCTS - 1.83%
General Mills, Inc. 5,000 $ 338,700
Hershey Co. (The) 5,000 186,200
Hormel Foods Corp. 10,000 282,600
McCormick & Co. - Non-Voting Shares 5,000 168,300
------------
975,800
------------
GAS UTILITIES - 0.79%
Energen Corp. 7,100 238,347
National Fuel Gas Co. 5,000 180,950
------------
419,297
------------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.53%
AngioDynamics, Inc.* 5,000 63,000
Baxter International, Inc. 500 30,245
Beckman Coulter, Inc. 100 4,992
DENTSPLY International, Inc. 4,000 121,520
IDEXX Laboratories, Inc.* 5,000 175,950
Immucor, Inc.* 4,000 106,200
Medtronic, Inc. 2,670 107,681
Meridian Bioscience, Inc. 5,000 122,900
Sirona Dental Systems, Inc.* 5,000 79,850
------------
812,338
------------
HEALTH CARE PROVIDERS & SERVICES - 2.51%
Aetna, Inc. 5,400 134,298
AmerisourceBergen Corp. 10,000 312,700
CIGNA Corp. 8,046 131,150
Express Scripts, Inc.* 5,000 303,050
Health Net, Inc.* 10,000 128,800
McKesson Corp. 4,700 172,913
Unitedhealth Group, Inc. 6,548 155,384
------------
1,338,295
------------
HOTELS, RESTAURANTS & LEISURE - 1.28%
Burger King Holdings, Inc. 5,000 99,400
McDonald's Corp. 10,000 579,300
------------
678,700
------------
HOUSEHOLD DURABLES - 0.02%
Harman International Industries, Inc. 600 11,022
------------
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 1.29%
Procter & Gamble Co. 10,644 $ 686,964
------------
INDUSTRIAL CONGLOMERATES - 1.23%
3M Co. 2,400 154,320
General Electric Co. 20,834 406,471
Textron, Inc. 5,400 95,580
------------
656,371
------------
INSURANCE - 3.06%
Aon Corp. 6,800 287,640
eHealth, Inc.* 4,600 58,512
LandAmerica Financial Group, Inc. 9,000 88,650
Loews Corp. 13,000 431,730
MBIA, Inc. 6,200 60,946
Marsh & McLennan Cos., Inc. 5,363 157,243
MetLife, Inc. 10,000 332,200
Prudential Financial, Inc. 5,000 150,000
Torchmark Corp. 200 8,354
Travelers Cos., Inc. (The) 100 4,255
XL Capital Ltd. - Class A 5,000 48,500
------------
1,628,030
------------
INTERNET & CATALOG RETAIL - 0.37%
Amazon.com, Inc.* 1,000 57,240
drugstore.com, Inc.* 5,000 8,900
Expedia, Inc.* 2,543 24,184
NutriSystem, Inc. 4,000 56,600
Stamps.com, Inc.* 5,000 48,800
------------
195,724
------------
INTERNET SOFTWARE & SERVICES - 1.82%
Akamai Technologies, Inc.* 5,000 71,900
eBay, Inc.* 2,840 43,367
Google, Inc. - Class A* 2,200 790,592
Yahoo!, Inc.* 5,000 64,100
------------
969,959
------------
See Notes to Financial Statements.
26
- --------------------------------------------------------------------------------
ISI STRATEGY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK - 79.66% (CONTINUED)
IT SERVICES - 0.27%
Fidelity National Information Services, Inc. 279 $ 4,210
Heartland Payment Systems, Inc. 3,000 52,230
Hewitt Associates, Inc. - A* 2,940 81,997
Lender Processing Services, Inc. 139 3,207
------------
141,644
------------
LIFE SCIENCES TOOLS & SERVICES - 1.09%
Affymetrix, Inc.* 4,000 14,760
Covance, Inc.* 5,000 250,000
Invitrogen Corp.* 10,000 287,900
PerkinElmer, Inc. 1,000 17,940
Pharmanet Development Group, Inc.* 5,000 8,000
------------
578,600
------------
MACHINERY - 0.70%
Flow International Corp.* 5,000 19,200
Illinois Tool Works, Inc. 1,138 37,998
Joy Global, Inc. 5,000 144,900
Manitowoc Company, Inc. 14,000 137,760
Mueller Water Products, Inc. - Class B 4,000 26,320
Timken Co. 300 4,764
------------
370,942
------------
MEDIA - 1.29%
DIRECTV Group, Inc. (The)* 10,000 218,900
DreamWorks Animation SKG* 3,439 96,636
Interpublic Group of Companies, Inc.* 1,900 9,861
Marvel Entertainment, Inc.* 5,000 160,950
McGraw-Hill Companies, Inc. 600 16,104
New York Times Co. - Class A 5,000 50,000
News Corp. - Class A 604 6,427
Walt Disney Co. (The) 5,000 129,500
------------
688,378
------------
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
METALS & MINING - 0.34%
Newmont Mining Corp. 5,000 $ 131,700
Titanium Metals Corp. 5,000 46,550
------------
178,250
------------
MULTILINE RETAIL - 0.22%
Sears Holdings Corp.* 1,200 69,288
Target Corp. 1,198 48,064
------------
117,352
------------
MULTI-UTILITIES - 0.28%
MDU Resources Group, Inc. 5,000 91,050
TECO Energy, Inc. 5,000 57,700
------------
148,750
------------
OIL, GAS & CONSUMABLE FUELS - 9.11%
Chevron Corp. 9,328 695,869
ConocoPhillips 8,650 449,973
Denbury Resources, Inc.* 5,000 63,550
EXCO Resources, Inc.* 5,200 47,788
Exxon Mobil Corp. 26,424 1,958,547
Hess Corp. 3,439 207,062
Kinder Morgan Management, LLC* 5,384 268,947
Marathon Oil Corp. 9,000 261,900
Mariner Energy, Inc.* 94 1,353
Newfield Exploration Co.* 5,000 114,900
Plains Exploration & Production Co.* 10,000 282,000
Quicksilver Resources, Inc.* 15,000 157,050
Williams Companies, Inc. 7,600 159,372
XTO Energy, Inc. 5,000 179,750
------------
4,848,061
------------
PERSONAL PRODUCTS - 0.23%
Avon Products, Inc. 5,000 124,150
------------
PHARMACEUTICALS - 5.24%
Abbott Laboratories 4,335 239,075
Allergan, Inc. 420 16,661
Bristol-Myers Squibb Co. 2,247 46,176
Cypress Bioscience, Inc.* 4,800 26,112
Eli Lilly & Co. 2,396 81,033
Forest Laboratories, Inc.* 10,000 232,300
Johnson & Johnson 12,606 773,252
See Notes to Financial Statements.
27
- --------------------------------------------------------------------------------
ISI STRATEGY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK - 79.66% (CONTINUED)
PHARMACEUTICALS - 5.24% (CONTINUED)
King Pharmaceuticals, Inc.* 7,400 $ 65,046
Pfizer, Inc. 56,763 1,005,273
Salix Pharmaceuticals, Ltd.* 6,300 57,960
Schering-Plough Corp. 4,500 65,205
ViroPharma, Inc.* 5,000 62,700
Wyeth 3,630 116,813
------------
2,787,606
------------
REAL ESTATE INVESTMENT TRUSTS - 1.60%
Boston Properties, Inc. 5,100 361,488
ProLogis 5,000 70,000
Public Storage, Inc. 5,186 422,659
------------
854,147
------------
REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.14%
Forestar Real Estate Group, Inc.* 7,900 69,125
Meruelo Maddux Properties, Inc.* 4,000 3,920
------------
73,045
------------
ROAD & RAIL - 2.88%
Burlington Northern Santa Fe Corp. 5,000 445,300
CSX Corp. 5,000 228,600
Kansas City Southern* 5,000 154,350
Ryder Systems, Inc. 1,000 39,620
Union Pacific Corp. 10,000 667,700
------------
1,535,570
------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT - 1.61%
Broadcom Corp.- Class A* 6,950 118,706
Entegris, Inc.* 1,444 3,884
Integrated Device Technology, Inc.* 1,400 8,904
Intel Corp. 3,674 58,784
International Rectifier Corp.* 1,000 15,440
LSI Logic Corp.* 15,000 57,750
Linear Technology Corp. 5,600 127,008
Marvell Technology Group Ltd.* 7,400 51,504
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT - 1.61% (CONTINUED)
MEMC Electronic Materials, Inc.* 5,000 $ 91,900
Micron Technology, Inc.* 5,000 23,550
NVIDIA Corp.* 5,000 43,800
Skyworks Solutions, Inc.* 800 5,704
Teradyne, Inc.* 5,000 25,500
Texas Instruments, Inc. 10,000 195,600
Volterra Semiconductor Corp.* 3,000 28,320
------------
856,354
------------
SOFTWARE - 2.98%
Adobe Systems, Inc.* 5,000 133,200
ANSYS, Inc.* 5,000 143,150
Electronic Arts, Inc* 10,000 227,800
Macrovision Solutions Corp.* 1,631 18,072
Microsoft Corp. 30,146 673,160
Oracle Corp.* 13,100 239,599
Sonic Solutions* 5,000 10,200
Symantec Corp.* 5,600 70,448
Symyx Technologies, Inc.* 5,000 22,050
Synchronoss Technologies, Inc.* 5,000 38,850
Synopsys, Inc.* 630 11,516
------------
1,588,045
------------
SPECIALTY RETAIL - 1.85%
Aaron Rents, Inc. 4,000 99,160
American Eagle Outfitters, Inc. 6,700 74,504
Bed Bath & Beyond, Inc.* 5,300 136,581
Best Buy Co., Inc. 456 12,225
Borders Group, Inc. 5,100 17,289
Cato Corp. (The) - Class A 5,500 85,360
Christopher & Banks Corp. 5,000 26,100
Eddie Bauer Holdings, Inc.* 4,000 13,720
Foot Locker, Inc. 5,300 77,486
Home Depot, Inc. 5,000 117,950
Hot Topic, Inc.* 5,000 32,400
Office Depot, Inc.* 100 360
O'Reilly Automotive, Inc.* 4,000 108,440
See Notes to Financial Statements.
28
- --------------------------------------------------------------------------------
ISI STRATEGY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK - 79.66% (CONTINUED)
SPECIALTY RETAIL - 1.85% (CONTINUED)
Pacific Sunwear of California, Inc.* 7,700 $ 26,334
Stage Stores, Inc. 5,600 43,176
Systemax, Inc. 4,000 56,640
Tween Brands, Inc.* 6,500 55,380
------------
983,105
------------
THRIFTS & MORTGAGE FINANCE - 1.00%
Bank Mutual Corp. 5,200 59,956
Brookline Bancorp, Inc. 5,000 58,500
CORUS Bankshares, Inc. 17,100 37,620
First Niagara Financial Group, Inc. 5,000 78,850
Flagstar Bancorp, Inc. 6,700 12,730
MGIC Investment, Inc. 6,300 24,444
PMI Group, Inc. (The) 1,200 2,988
Provident Financial Services, Inc. 5,000 73,300
TrustCo Bank Corp. 15,000 182,550
------------
530,938
------------
TOBACCO - 1.97%
Altria Group, Inc. 12,171 233,561
Philip Morris International, Inc. 6,871 298,682
Reynolds America, Inc. 5,000 244,800
UST, Inc. 4,000 270,360
------------
1,047,403
------------
WIRELESS TELECOMMUNICATIONS SERVICES - 0.24%
American Tower Corp.- Class A* 4,000 129,240
------------
TOTAL COMMON STOCK
(COST $50,702,590) $ 42,413,063
------------
See Notes to Financial Statements.
29
- --------------------------------------------------------------------------------
ISI STRATEGY FUND
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008
INTEREST MATURITY PRINCIPAL MARKET
SECURITY RATE DATE AMOUNT VALUE
- -----------------------------------------------------------------------------------
US TREASURY OBLIGATIONS - 19.24%
US Treasury Bonds 6.000% 02/15/26 $1,000,000 $ 1,140,235
US Treasury Bonds 6.750% 08/15/26 3,050,000 3,758,887
US Treasury Bonds 6.375% 08/15/27 200,000 239,594
US Treasury Bonds 5.000% 05/15/37 500,000 550,859
US Treasury Notes 4.875% 05/15/09 1,300,000 1,325,594
US Treasury Notes 4.625% 07/31/09 600,000 614,485
US Treasury Notes 3.875% 10/31/12 1,000,000 1,066,954
US Treasury Notes 3.875% 05/15/18 550,000 549,270
US Treasury Notes 4.000% 08/15/18 1,000,000 1,001,641
-----------
TOTAL US TREASURY OBLIGATIONS
(COST $9,965,326)................................................... $10,247,519
-----------
REPURCHASE AGREEMENT - 0.83%
JPMORGAN CHASE, N.A.
Dated 10/31/08, 0.15%, principal and interest
in the amount of $441,006 due 11/3/08,
collateralized by US Treasury Bond, par value
of $420,000 due 2/15/37 with a value of
$453,839 (Cost $441,000) ............................ $ 441,000 $ 441,000
-----------
TOTAL INVESTMENTS - 99.73%
(COST $61,108,916)**................................................ $53,101,582
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.27%......................... 143,235
-----------
NET ASSETS - 100.00%.................................................. $53,244,817
===========
* Non-income producing
** Cost for Federal income tax purpose is $61,188,435 and net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation .......... $ 4,312,907
Gross Unrealized Depreciation .......... (12,396,070)
------------
Net Unrealized Depreciation. ........... $ (8,086,853)
============
See Notes to Financial Statements.
30
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2008
TOTAL RETURN MANAGED
US TREASURY MUNICIPAL
FUND FUND
- ----------------------------------------------------------------------------------------
ASSETS
Investments in securities:
At cost .......................................... $ 119,590,982 $ 76,157,536
============= =============
At value (Note 1) ................................ $ 117,719,908 $ 74,316,256
Cash ............................................... -- 892
Interest receivable ................................ 1,406,866 866,181
Receivable for capital shares sold ................. 1,028,503 108,392
Other assets ....................................... 25,343 21,812
------------- -------------
TOTAL ASSETS ..................................... 120,180,620 75,313,533
------------- -------------
LIABILITIES
Bank overdraft ..................................... 329 --
Distributions payable .............................. 95,152 165,076
Payable for capital shares redeemed ................ 18,788 --
Accrued investment advisory fees (Note 2) .......... 26,523 24,770
Accrued distribution expenses (Note 2) ............. 25,597 15,481
Accrued administration fees (Note 2) ............... 12,500 7,500
Accrued transfer agent fees (Note 2) ............... 2,800 1,000
Other accrued expenses ............................. 26,233 27,747
------------- -------------
TOTAL LIABILITIES ................................ 207,922 241,574
------------- -------------
NET ASSETS ............................................ $ 119,972,698 $ 75,071,959
============= =============
NET ASSETS CONSIST OF:
Paid-in capital .................................... $ 121,938,924 $ 76,788,963
Distributions in excess of net investment income. .. (95,152) --
Accumulated net realized gains
from security transactions ....................... -- 124,276
Net unrealized depreciation on investments ......... (1,871,074) (1,841,280)
------------- -------------
Net assets ............................................ $ 119,972,698 $ 75,071,959
============= =============
Shares of capital stock outstanding of $0.001 par value
ISI Shares (115,000,000 and 55,000,000 shares
authorized, respectively) .......................... 12,510,639 7,533,774
============= =============
Net asset value and redemption price per share ........ $ 9.59 $ 9.96
============= =============
Maximum offering price value per share
(100/97) x Net asset value per share ............... $ 9.89 $ 10.27
============= =============
See Notes to Financial Statements.
31
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2008
NORTH AMERICAN ISI
GOVERNMENT BOND STRATEGY
FUND FUND
- -------------------------------------------------------------------------------------
ASSETS
Investments in securities:
At cost ....................................... $ 166,529,948 $ 61,108,916
------------- -------------
At value (Note 1) ............................. $ 159,139,965 $ 53,101,582
Cash ............................................ 241 851
Dividends and interest receivable, at value ..... 2,121,731 157,115
Receivable for capital shares sold .............. 497,365 18,388
Other assets .................................... 34,751 24,517
------------- -------------
TOTAL ASSETS .................................. 161,794,053 53,302,453
------------- -------------
LIABILITIES
Distributions payable ........................... 292,278 --
Payable for capital shares redeemed ............. 353,535 2,409
Accrued investment advisory fees (Note 2) ....... 55,123 18,361
Accrued distribution expenses (Note 2) .......... 61,220 11,476
Accrued shareholder servicing fees (Note 2) ..... 4,355 --
Accrued administration fees (Note 2) ............ 16,800 5,600
Accrued transfer agent fees (Note 2) ............ 5,300 2,100
Other accrued expenses .......................... 43,101 17,690
------------- -------------
TOTAL LIABILITIES ............................. 831,712 57,636
------------- -------------
NET ASSETS ......................................... $ 160,962,341 $ 53,244,817
============= =============
NET ASSETS CONSIST OF:
Paid-in capital ................................. $ 168,751,243 $ 62,296,402
Undistributed (distributions in excess of) net
investment income ............................. (292,278) 34,455
Accumulated net realized gains (losses)
from security and foreign currency transactions -- (1,078,706)
Net unrealized depreciation
on investments and foreign currencies ......... (7,496,624) (8,007,334)
------------- -------------
Net assets ......................................... $ 160,962,341 $ 53,244,817
============= =============
See Notes to Financial Statements.
32
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) OCTOBER 31, 2008
NORTH AMERICAN ISI
GOVERNMENT BOND STRATEGY
FUND FUND
- -------------------------------------------------------------------------------------------
SHARES OF CAPITAL STOCK
OUTSTANDING OF $0.001 PAR VALUE
ISI Class A Shares (50,000,000 shares authorized) ...... 19,438,474 --
============= =============
ISI Class C Shares (5,000,000 shares authorized) ....... 2,862,727 --
============= =============
ISI Shares (25,000,000 shares authorized) .............. -- 5,527,708
============= =============
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
ISI Class A Shares (based on net assets of $140,326,116) $ 7.22 $ --
============= =============
ISI Class C Shares (based on net assets of $20,636,225)* $ 7.21 $ --
============= =============
ISI Shares ............................................. $ -- $ 9.63
============= =============
MAXIMUM OFFERING PRICE VALUE PER SHARE
(100/97) X NET ASSET VALUE PER SHARE
ISI Class A Shares ..................................... $ 7.44 $ --
============= =============
ISI Shares ............................................. $ -- $ 9.93
============= =============
* Contingent deferred sales charge of 1.00% is imposed on the sale of shares
if redeemed within the first year of purchase.
See Notes to Financial Statements.
33
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2008
TOTAL RETURN MANAGED
US TREASURY MUNICIPAL
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest ..................................... $ 4,478,777 $ 3,313,834
------------ ------------
EXPENSES
Investment advisory fees (Note 2) ............ 309,096 298,782
Distribution fees (Note 2) ................... 307,331 186,738
Administration fees (Note 2) ................. 143,909 87,454
Professional fees ............................ 71,271 37,784
Transfer agent fees (Note 2) ................. 35,396 12,035
Registration fees ............................ 21,880 22,724
Compliance consulting fees (Note 2) .......... 23,704 13,594
Custodian fees ............................... 22,291 11,726
Directors' fees and expenses ................. 19,430 13,570
Other expenses ............................... 16,143 34,723
------------ ------------
TOTAL EXPENSES ............................. 970,451 719,130
------------ ------------
NET INVESTMENT INCOME ........................... 3,508,326 2,594,704
------------ ------------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVESTMENTS
Net realized gains from:
Security transactions ...................... 1,336,175 124,614
Net change in unrealized appreciation/
depreciation on investments ................ 713,946 (3,752,876)
------------ ------------
NET REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVESTMENTS ................ 2,050,121 (3,628,262)
------------ ------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM OPERATIONS ................... $ 5,558,447 $ (1,033,558)
============ ============
See Notes to Financial Statements.
34
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2008
NORTH AMERICAN ISI
GOVERNMENT BOND STRATEGY
FUND FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends .................................... $ -- $ 944,439
Interest ..................................... 6,393,051 508,865
------------ ------------
TOTAL INVESTMENT INCOME .................. 6,393,051 1,453,304
------------ ------------
EXPENSES
Investment advisory fees (Note 2) ............ 627,088 290,246
Distribution fees:
ISI Class A Shares ......................... 550,191
ISI Class C Shares ......................... 144,182
ISI Shares ................................. 181,404
Administration fees (Note 2) ................. 183,715 84,823
Transfer agent fees:
ISI Class A Shares ......................... 54,808
ISI Class C Shares ......................... 7,965
ISI Shares ................................. 26,705
Professional fees ............................ 74,356 43,246
Shareholder servicing fees:
ISI Class C Shares ......................... 48,061 --
Registration fees ............................ 33,548 26,929
Custodian fees ............................... 26,492 13,166
Directors' fees and expenses ................. 24,213 12,850
Compliance consulting fees (Note 2) .......... 29,256 11,033
Other expenses ............................... 53,552 26,678
------------ ------------
TOTAL EXPENSES ............................. 1,857,427 717,080
------------ ------------
NET INVESTMENT INCOME ........................... 4,535,624 736,224
------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS AND FOREIGN CURRENCIES (NOTE 3)
Net realized gains (losses) from:
Security transactions ...................... 2,005,283 (971,359)
Foreign currency transactions .............. 91,663 --
Net change in unrealized appreciation/
depreciation on:
Investments ................................ (6,318,663) (23,945,840)
Foreign currency translation ............... (128,543) --
------------ ------------
NET REALIZED AND UNREALIZED LOSSES ON
INVESTMENTS AND FOREIGN CURRENCIES ........... (4,350,260) (24,917,199)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS .............................. $ 185,364 $(24,180,975)
============ ============
See Notes to Financial Statements.
35
- --------------------------------------------------------------------------------
ISI TOTAL RETURN US TREASURY FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
2008 2007
- -------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income ................................. $ 3,508,326 $ 4,947,388
Net realized gains (losses) on security transactions .. 1,336,175 (533,469)
Net change in unrealized appreciation/
depreciation on investments ......................... 713,946 1,546,328
------------- -------------
Net increase in net assets from operations ............... 5,558,447 5,960,247
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............................ (3,593,392) (4,897,087)
From net realized gains from security transactions .... (802,706) (12,992)
From return of capital ................................ -- (104,188)
------------- -------------
Net decrease in net assets from
distributions to shareholders ......................... (4,396,098) (5,014,267)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............................. 9,736,141 6,319,187
Net asset value of shares issued in reinvestment
of distributions to shareholders .................... 3,006,912 3,348,275
Payments for shares redeemed .......................... (18,700,781) (39,629,589)
------------- -------------
Net decrease in net assets from capital share transactions (5,957,728) (29,962,127)
------------- -------------
TOTAL DECREASE IN NET ASSETS ............................. (4,795,379) (29,016,147)
NET ASSETS
Beginning of year ..................................... 124,768,077 153,784,224
------------- -------------
End of year ........................................... $ 119,972,698 $ 124,768,077
============= =============
DISTRIBUTIONS IN EXCESS OF
NET INVESTMENT INCOME ................................. $ (95,152) $ (117,726)
============= =============
CAPITAL SHARE ACTIVITY
Sold .................................................. 994,698 675,464
Reinvested ............................................ 309,350 356,856
Redeemed .............................................. (1,921,166) (4,234,096)
------------- -------------
Net decrease in shares outstanding .................... (617,118) (3,201,776)
Shares outstanding, beginning of year ................. 13,127,757 16,329,533
------------- -------------
Shares outstanding, end of year ....................... 12,510,639 13,127,757
============= =============
See Notes to Financial Statements.
36
- --------------------------------------------------------------------------------
ISI MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
2008 2007
- -------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income ................................. $ 2,594,704 $ 2,768,327
Net realized gains on security transactions ........... 124,614 302,012
Net change in unrealized appreciation/
depreciation on investments ......................... (3,752,876) (1,359,099)
------------- -------------
Net increase (decrease) in net assets from operations .... (1,033,558) 1,711,240
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............................ (3,320,777) (2,444,322)
From net realized gains from security transactions .... (302,252) (720,919)
------------- -------------
Net decrease in net assets from
distributions to shareholders ......................... (3,623,029) (3,165,241)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............................. 14,259,928 3,715,876
Net asset value of shares issued in reinvestment
of distributions to shareholders .................... 1,901,352 1,836,701
Payments for shares redeemed .......................... (9,470,677) (13,940,935)
------------- -------------
Net increase (decrease) in net assets from
capital share transactions ........................... 6,690,603 (8,388,358)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .................. 2,034,016 (9,842,359)
NET ASSETS
Beginning of year ..................................... 73,037,943 82,880,302
------------- -------------
End of year ........................................... $ 75,071,959 $ 73,037,943
============= =============
UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF)
NET INVESTMENT INCOME ................................. $ -- $ 726,011
============= =============
CAPITAL SHARE ACTIVITY
Sold .................................................. 1,370,154 350,339
Reinvested ............................................ 181,645 172,566
Redeemed .............................................. (903,279) (1,310,969)
------------- -------------
Net increase (decrease) in shares outstanding ......... 648,520 (788,064)
Shares outstanding, beginning of year ................. 6,885,254 7,673,318
------------- -------------
Shares outstanding, end of year ....................... 7,533,774 6,885,254
============= =============
See Notes to Financial Statements.
37
- --------------------------------------------------------------------------------
ISI NORTH AMERICAN GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
2008 2007
- -------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income ................................. $ 4,535,624 $ 5,210,288
Net realized gains on security and
foreign currency transactions ....................... 2,096,946 1,593,508
Net change in unrealized appreciation/depreciation
on investments and foreign currencies ............... (6,447,206) 2,654,081
------------- -------------
Net increase in net assets from operations ............... 185,364 9,457,877
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income
ISI Class A Shares .................................. (3,389,286) (6,373,815)
ISI Class C Shares .................................. (348,008) (652,731)
From net realized gains from security transaction
ISI Class A Shares .................................. (2,557,037) --
ISI Class C Shares .................................. (357,527) --
From return of capital
ISI Class A Shares .................................. (569,757) (156,882)
ISI Class C Shares .................................. (79,664) (16,066)
------------- -------------
NET DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS ......................... (7,301,279) (7,199,494)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold
ISI Class A Shares .................................. 43,826,856 17,184,282
ISI Class C Shares .................................. 8,998,180 3,349,326
Net asset value of shares issued in reinvestment
of distributions to shareholders
ISI Class A Shares .................................. 3,405,028 3,218,998
ISI Class C Shares .................................. 531,357 397,242
Payments for shares redeemed
ISI Class A Shares .................................. (32,470,695) (37,507,806)
ISI Class C Shares .................................. (4,808,955) (2,737,227)
------------- -------------
Net increase (decrease) in net assets from
capital share transactions ............................ 19,481,771 (16,095,185)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .................. 12,365,856 (13,836,802)
NET ASSETS
Beginning of year ..................................... 148,596,485 162,433,287
------------- -------------
End of year ........................................... $ 160,962,341 $ 148,596,485
============= =============
DISTRIBUTIONS IN EXCESS OF
NET INVESTMENT INCOME ................................. $ (292,278) $ (272,991)
============= =============
See Notes to Financial Statements.
38
- --------------------------------------------------------------------------------
ISI NORTH AMERICAN GOVERNMENT BOND FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
2008 2007
- -------------------------------------------------------------------------------------------
CAPITAL SHARE ACTIVITY
Sold
ISI Class A Shares .................................. 5,760,050 2,336,309
ISI Class C Shares .................................. 1,176,213 454,890
Reinvested
ISI Class A Shares .................................. 447,131 437,899
ISI Class C Shares .................................. 69,882 54,106
Redeemed
ISI Class A Shares .................................. (4,273,002) (5,097,813)
ISI Class C Shares .................................. (624,903) (374,116)
Net increase (decrease) in shares outstanding
ISI Class A Shares .................................. 1,934,179 (2,323,605)
ISI Class C Shares .................................. 621,192 134,880
Shares outstanding, beginning of year
ISI Class A Shares .................................. 17,504,295 19,827,900
ISI Class C Shares .................................. 2,241,535 2,106,655
Shares outstanding, end of year
ISI Class A Shares .................................. 19,438,474 17,504,295
ISI Class C Shares .................................. 2,862,727 2,241,535
See Notes to Financial Statements.
39
- --------------------------------------------------------------------------------
ISI STRATEGY FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
OCTOBER 31, OCTOBER 31,
2008 2007
- -------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income ................................. $ 736,224 $ 913,806
Net realized gains (losses) on security transactions .. (971,359) 4,355,339
Net change in unrealized appreciation/
depreciation on investments ......................... (23,945,840) 4,419,629
------------- -------------
Net increase (decrease) in net assets from operations .... (24,180,975) 9,688,774
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income ............................ (738,026) (913,710)
From net realized gains from security transactions .... (4,289,022) (1,880,666)
------------- -------------
Net decrease in net assets from
distributions to shareholders ......................... (5,027,048) (2,794,376)
------------- -------------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold ............................. 11,373,856 11,950,032
Net asset value of shares issued in reinvestment
of distributions to shareholders .................... 4,465,374 2,410,919
Payments for shares redeemed .......................... (13,921,636) (10,158,032)
------------- -------------
Net increase in net assets from capital share transactions 1,917,594 4,202,919
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .................. (27,290,429) 11,097,317
NET ASSETS
Beginning of year ..................................... 80,535,246 69,437,929
------------- -------------
End of year ........................................... $ 53,244,817 $ 80,535,246
============= =============
UNDISTRIBUTED NET INVESTMENT INCOME ...................... $ 34,455 $ 36,257
============= =============
CAPITAL SHARE ACTIVITY
Sold .................................................. 882,661 850,502
Reinvested ............................................ 334,700 175,991
Redeemed .............................................. (1,122,582) (723,124)
------------- -------------
Net increase in shares outstanding .................... 94,779 303,369
Shares outstanding, beginning of year ................. 5,432,929 5,129,560
------------- -------------
Shares outstanding, end of year ....................... 5,527,708 5,432,929
============= =============
See Notes to Financial Statements.
40
- --------------------------------------------------------------------------------
ISI TOTAL RETURN US TREASURY FUND FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31,
------------------------------------------------------------------
2008 2007 2006 2005 2004
- ---------------------------------------------------------------------------------------------------------------
Net asset value at
beginning of year .................... $ 9.50 $ 9.42 $ 9.33 $ 9.57 $ 9.92
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income(a) ............. 0.28 0.35 0.32 0.29 0.24
Net realized and unrealized gains
(losses) on investments ........... 0.16 0.08 0.12 (0.16) 0.19
---------- ---------- ---------- ---------- ----------
Total from investment operations ........ 0.44 0.43 0.44 0.13 0.43
---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends from net
investment income ................. (0.28) (0.34) (0.35) (0.25) (0.23)
Distributions from net
realized gains .................... (0.07) (0.00)* -- (0.03) (0.33)
Distributions from
return of capital ................. -- (0.01) -- (0.09) (0.22)
---------- ---------- ---------- ---------- ----------
Total distributions ..................... (0.35) (0.35) (0.35) (0.37) (0.78)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year .......... 9.59 9.50 9.42 9.33 9.57
========== ========== ========== ========== ==========
Total return(b) ......................... 4.61% 4.66% 4.83% 1.38% 4.64%
========== ========== ========== ========== ==========
Net assets at end of year (000's) ....... $ 119,973 $ 124,768 $ 153,784 $ 165,974 $ 194,790
========== ========== ========== ========== ==========
Ratio of expenses to
average net assets ................... 0.79% 0.79% 0.76%(c) 0.70% 0.69%
Ratio of net investment income to
average net assets ................... 2.86% 3.68% 3.44%(c) 3.01% 2.56%
Portfolio turnover rate ................. 70% 29% 51% 16% 31%
- ---------------------------------------------------------------------------------------------------------------
(a) Calculated using the average shares outstanding for the year.
(b) Total return is a measure of the change in value of an investment in the
Fund over the period covered, which assumes any dividends or capital gains
distributions are reinvested in shares of the Fund. Returns do not reflect
the deduction of taxes a shareholder would pay on Fund distributions or
the redemption of Fund shares.
(c) The October 31, 2006 ratios of expenses and net investment income to
average net assets were unaffected by the waiver of distribution fees
during the year.
* Amount less than $0.005 per share.
See Notes to Financial Statements.
41
- --------------------------------------------------------------------------------
ISI MANAGED MUNICIPAL FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31,
------------------------------------------------------------------
2008 2007 2006 2005 2004
- ---------------------------------------------------------------------------------------------------------------
Net asset value at
beginning of year .................... $ 10.61 $ 10.80 $ 10.68 $ 10.91 $ 10.89
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income(a) ............. 0.36 0.38 0.39 0.40 0.38
Net realized and unrealized gains
(losses) on investments ........... (0.50) (0.14) 0.10 (0.27) 0.08
---------- ---------- ---------- ---------- ----------
Total from investment operations ........ (0.14) 0.24 0.49 0.13 0.46
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment income ................. (0.47) (0.34) (0.34) (0.36) (0.44)
Distributions from net
realized gains .................... (0.04) (0.09) (0.03) -- --
---------- ---------- ---------- ---------- ----------
Total distributions ..................... (0.51) (0.43) (0.37) (0.36) (0.44)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year .......... $ 9.96 $ 10.61 $ 10.80 $ 10.68 $ 10.91
========== ========== ========== ========== ==========
TOTAL RETURN(b) ......................... (1.44%) 2.29% 4.68% 1.19% 4.26%
========== ========== ========== ========== ==========
Net assets at end of year (000's) ....... $ 75,072 $ 73,038 $ 82,880 $ 94,027 $ 113,844
========== ========== ========== ========== ==========
Ratio of expenses to
average net assets ................... 0.96% 0.94% 0.91% 0.86% 0.88%
Ratio of net investment income
to average net assets ................ 3.48% 3.57% 3.63% 3.64% 3.53%
Portfolio turnover rate ................. 7% 5% 7% 7% 17%
- ---------------------------------------------------------------------------------------------------------------
(a) Calculated using the average shares outstanding for the year.
(b) Total return is a measure of the change in value of an investment in the
Fund over the period covered, which assumes any dividends or capital gains
distributions are reinvested in shares of the Fund. Returns do not reflect
the deduction of taxes a shareholder would pay on Fund distributions or
the redemption of Fund shares.
See Notes to Financial Statements.
42
- --------------------------------------------------------------------------------
ISI NORTH AMERICAN GOVERNMENT BOND FUND - CLASS A
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31,
------------------------------------------------------------------
2008 2007 2006 2005 2004
- ---------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year .... $ 7.53 $ 7.41 $ 7.34 $ 7.41 $ 7.73
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income(a) .............. 0.23 0.26 0.25 0.26 0.24
Net realized and unrealized
gains (losses) on investments
and foreign currencies .............. (0.18) 0.22 0.18 0.06 0.03
---------- ---------- ---------- ---------- ----------
Total from investment operations ........ 0.05 0.48 0.43 0.32 0.27
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment income ................... (0.19) (0.35) (0.30) (0.31) (0.16)
Distributions from
net realized gains .................. (0.14) -- (0.01) (0.03) (0.08)
Distributions from
return of capital ................... (0.03) (0.01) (0.05) (0.05) (0.35)
---------- ---------- ---------- ---------- ----------
Total distributions ..................... (0.36) (0.36) (0.36) (0.39) (0.59)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year .......... $ 7.22 $ 7.53 $ 7.41 $ 7.34 $ 7.41
========== ========== ========== ========== ==========
TOTAL RETURN(b) ......................... 0.51% 6.71% 6.04% 4.39% 3.62%
========== ========== ========== ========== ==========
Net assets at end of year (000's) ....... $ 140,326 $ 131,748 $ 146,854 $ 177,101 $ 204,266
========== ========== ========== ========== ==========
Ratio of expenses to
average net assets .................... 1.11% 1.11% 1.06%(c) 1.04% 1.05%
Ratio of net investment income
to average net assets ................ 2.97% 3.54% 3.47%(c) 3.55% 3.22%
Portfolio turnover rate ................. 108% 49% 53% 66% 47%
- ---------------------------------------------------------------------------------------------------------------
(a) Calculated using the average shares outstanding for the year.
(b) Total return is a measure of the change in value of an investment in the
Fund over the period covered, which assumes any dividends or capital gains
distributions are reinvested in shares of the Fund. Returns do not reflect
the deduction of taxes a shareholder would pay on Fund distributions or
the redemption of Fund shares.
(c) The October 31, 2006 ratios of expenses and net investment income to
average net assets were unaffected by the waiver of distribution fees
during the year.
See Notes to Financial Statements.
43
- --------------------------------------------------------------------------------
ISI NORTH AMERICAN GOVERNMENT BOND FUND - CLASS C
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31,
------------------------------------------------------------------
2008 2007 2006 2005 2004
- ---------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year .... $ 7.52 $ 7.40 $ 7.33 $ 7.40 $ 7.72
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income (a) ............ 0.18 0.21 0.21 0.21 0.19
Net realized and unrealized
gains (losses) on investments
and foreign currencies............... (0.18) 0.22 0.17 0.06 0.02
---------- ---------- ---------- ---------- ----------
Total from investment operations ........ 0.00 0.43 0.38 0.27 0.21
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment income ................... (0.14) (0.30) (0.25) (0.26) (0.14)
Distributions from
net realized gains .................. (0.14) -- (0.01) (0.03) (0.08)
Distributions from
return of capital ................... (0.03) (0.01) (0.05) (0.05) (0.31)
---------- ---------- ---------- ---------- ----------
Total distributions ..................... (0.31) (0.31) (0.31) (0.34) (0.53)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year .......... $ 7.21 $ 7.52 $ 7.40 $ 7.33 $ 7.40
========== ========== ========== ========== ==========
TOTAL RETURN(b) ......................... (0.12%) 6.03% 5.35% 3.73% 2.91%
========== ========== ========== ========== ==========
Net assets at end of year (000's) ....... $ 20,636 $ 16,848 $ 15,579 $ 15,944 $ 18,616
========== ========== ========== ========== ==========
Ratio of expenses to
average net assets .................... 1.73% 1.74% 1.72% 1.69% 1.77%
Ratio of net investment income
to average net assets ................ 2.34% 2.93% 2.81% 2.89% 2.50%
Portfolio turnover rate ................. 108% 49% 53% 66% 47%
- ---------------------------------------------------------------------------------------------------------------
(a) Calculated using the average shares outstanding for the year.
(b) Total return is a measure of the change in value of an investment in the
Fund over the period covered, which assumes any dividends or capital gains
distributions are reinvested in shares of the Fund. Returns do not reflect
the deduction of taxes a shareholder would pay on Fund distributions or
the redemption of Fund shares.
See Notes to Financial Statements.
44
- --------------------------------------------------------------------------------
ISI STRATEGY FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31,
------------------------------------------------------------------
2008 2007 2006 2005 2004
- ---------------------------------------------------------------------------------------------------------------
Net asset value at
beginning of year ..................... $ 14.82 $ 13.54 $ 12.12 $ 11.21 $ 10.50
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income(a) ............. 0.13 0.17 0.15 0.16 0.10
Net realized and unrealized
gains (losses) on investments
and foreign currencies .............. (4.39) 1.65 1.42 0.91 0.70
---------- ---------- ---------- ---------- ----------
Total from investment operations ........ (4.26) 1.82 1.57 1.07 0.80
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS:
Dividends from net
investment income ................... (0.13) (0.17) (0.15) (0.16) (0.09)
Distributions from
net realized gains .................. (0.80) (0.37) -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions ..................... (0.93) (0.54) (0.15) (0.16) (0.09)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year .......... $ 9.63 $ 14.82 $ 13.54 $ 12.12 $ 11.21
========== ========== ========== ========== ==========
TOTAL RETURN(b) ......................... (30.49%) 13.79% 13.01% 9.59% 7.71%
========== ========== ========== ========== ==========
Net assets at end of year (000's) ....... $ 53,245 $ 80,535 $ 69,438 $ 60,205 $ 44,920
========== ========== ========== ========== ==========
Ratio of net expenses
to average net assets ................. 0.99% 0.96% 0.95% 0.94% 1.12%
Ratio of net investment income
to average net assets ................ 1.02% 1.21% 1.17% 1.33% 0.92%
Portfolio turnover rate ................. 42% 62% 41% 30% 66%
- ---------------------------------------------------------------------------------------------------------------
(a) Calculated using the average shares outstanding for the year.
(b) Total return is a measure of the change in value of an investment in the
Fund over the period covered, which assumes any dividends or capital gains
distributions are reinvested in shares of the Fund. Returns do not reflect
the deduction of taxes a shareholder would pay on Fund distributions or
the redemption of Fund shares.
See Notes to Financial Statements.
45
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2008
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 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 each currently offer a single
class of shares (ISI Shares) to investors. North American offers two classes of
shares - ISI Class A Shares and ISI Class C Shares. ISI Shares and ISI Class A
Shares are subject to a maximum front-end sales charge equal to 3.00%. A
contingent deferred sales charge of 1.00% is imposed on the sale of ISI Class C
Shares if redeemed within the first year after purchase.
Total Return, Managed Municipal and Strategy are 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 ISI Class A
Shares and 5,000,000 ISI Class C Shares at $0.001 par value.
B. VALUATION OF SECURITIES
Exchange traded securities and over-the-counter securities listed on the
NASDAQ National Market System for which market quotations are readily available
are valued each Fund business day using the last reported sales price or the
NASDAQ Official Closing Price ("NOCP") provided by independent pricing services
as of the close of trading on the New York Stock Exchange (normally 4:00 p.m.
Eastern time). In the absence of a sale price or NOCP, such securities are
valued at the mean of the last bid and the last asked prices. Non-exchange
traded securities for which quotations are readily available are generally
valued at the mean between the last bid and the last 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.
46
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
When valuing securities for which market quotations are not readily
available or for which the market quotations that are readily 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 "Board"). 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 calculation of the net asset value per share,
and the event is likely to affect the Fund's net asset value per share. Fair
valuation may also be used for securities that are subject to legal or
contractual restrictions on resale, securities for which no or limited trading
activity has occurred for a period of time, or securities that are otherwise
deemed to be illiquid (i.e., securities that cannot be disposed of within seven
days at approximately the price at which the security is currently priced by the
Funds).
If a fair value is required, the investment advisor, or the sub-advisor in
the case of Strategy, determines the value of the security until the Board meets
to establish the fair value of the security.
As of October 31, 2008, there were no fair valued securities.
The Financial Accounting Standards Boards ("FASB") Statement on Financial
Accounting Standards No. 157, "Fair Value Measurements" establishes a single
authoritative definition of fair value, sets out a framework for measuring fair
value and requires additional disclosures about fair value measurements.
Various inputs are used in determining the value of the Fund's investments.
These inputs are summarized in the three broad levels listed below:
Level 1 - quoted prices in active markets for identical securities
Level 2 - other significant observable inputs
Level 3 - significant unobservable inputs
The inputs or methodology used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities.
The Funds' adopted Financial Accounting Standards No. 157 early.
The following is a summary of the inputs used to value the Funds' net
assets as of October 31, 2008:
MANAGED NORTH
TOTAL RETURN MUNICIPAL AMERICAN STRATEGY
- ---------------------------------------------------------------------------------------
Level 1 - Quoted prices $ 1,303,000 $ 3,435,000 $ 4,852,000 $ 42,854,063
Level 2 - Other significant
observable inputs 116,416,908 70,881,256 154,287,965 10,247,519
------------ ------------ ------------ ------------
Total $117,719,908 $ 74,316,256 $159,139,965 $ 53,101,582
------------ ------------ ------------ ------------
47
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 of premiums and
accretion of discounts, is accrued daily. Estimated expenses are also accrued
daily. With respect to North American, 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 distributions daily, and North American declares
monthly distributions at fixed rates approved by the Board. These distributions
are paid monthly. To the extent that a Fund's net investment income is less than
an approved fixed rate, some of its distributions be designated as a return of
capital. Managed Municipal declares and pays dividends monthly from its net
investment income. Strategy declares and pays dividends quarterly from its net
investment income. Net realized capital gains, if any, are distributed at least
annually. 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
subchapter M of the Internal Revenue Code. As provided therein in any fiscal
year in which a fund so qualifies and distributes at least 90% of all of its net
taxable income, the Fund (but not its shareholders) will be relieved of Federal
income tax on the income distributed. In addition, by distributing in each
calendar year substantially all of its net investment income and net realized
capital gains, a Fund will not be subject to Federal excise taxes. Accordingly,
no Federal income or excise taxes have been accrued.
F. FOREIGN CURRENCY TRANSLATION
The Funds maintain their accounting records in U.S. dollars. North
American determines the U.S. dollar value of foreign currency-denominated
assets, liabilities and transactions by using prevailing exchange rates. 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
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions, and from the difference between the amounts of
interest recorded on North American's books and the U.S. dollar equivalent of
the amounts actually received or paid. That portion of realized gains (losses)
from security transactions that results from fluctuation in foreign currency
exchange rates relating to the sale of foreign securities is not separately
disclosed but is included in net realized gains (losses) from security
transactions. That portion of unrealized gains and losses on investments that
results from
48
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
fluctuations in foreign currency exchange rates is not separately disclosed but
is included in the net change in unrealized appreciation/depreciation on
investments.
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 U.S.
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
U.S. 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.
North American determines the net U.S. dollar value of the forward foreign
currency contracts using prevailing exchange rates. As of October 31, 2008,
there were no open forward currency contracts.
H. REPURCHASE AGREEMENTS
Each Fund may make short-term investments in repurchase agreements that
are fully collateralized by U.S. government securities. Under the terms of a
repurchase agreement, a financial institution sells U.S. government securities
to a Fund 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, a Fund has the right to sell the securities and recover
any resulting loss from the financial institution. If the financial institution
enters into bankruptcy, a Fund's claim on the collateral may be subject to legal
proceedings.
I. ESTIMATES
In preparing its financial statements in conformity with U.S. generally
accepted accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
may be different.
NOTE 2 - FEES AND TRANSACTIONS WITH AFFILIATES
International Strategy & Investment, Inc. ("ISI") is the Funds' investment
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
49
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
interest income. Managed Municipal, North American and Strategy each pay ISI a
fee, which is calculated daily and paid monthly, at the annual rate of 0.40% of
such Fund's average daily net assets.
ISI has contractually agreed to waive its advisory fees and/or reimburse
expenses of North American through February 28, 2009 to the extent necessary to
limit the annual ordinary operating expenses of ISI Class C Shares to 1.85% of
the average daily net assets attributable to such shares. During the year ended
October 31, 2008, ISI was not required to waive any advisory fees.
Los Angeles Capital Management and Equity Research, Inc. is Strategy's
Sub-Advisor and is responsible for managing the common stocks in Strategy's
portfolio. The Sub-Advisor is paid by ISI, not Strategy.
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 a
distribution/shareholder service fee, pursuant to Rule 12b-1, that is calculated
daily and paid monthly at the annual rate up to 0.25% of their average daily net
assets. North American's ISI Class A Shares and ISI Class C Shares pay ISI Group
a distribution/shareholder service fee, pursuant to Rule 12b-1, that is
calculated daily and paid monthly at the annual rate up to 0.40% and 1.00%
(which may include up to 0.25% for shareholder servicing fees for each class) of
their average daily net assets, respectively. During the year ended October 31,
2008, North American Class A shares did not pay any shareholder servicing fees.
During the year ended October 31, 2008, ISI Group earned commissions on
sales of ISI Shares of Total Return, Managed Municipal, and Strategy of $7,076,
$10,000 and $14,583, respectively, and $25,682 on sales of ISI Class A Shares of
North American. ISI Group retained $17,946 contingent deferred sales charges on
the sale of ISI Class C Shares of North American.
Ultimus Fund Solutions, LLC ("Ultimus") is the administrator and fund
accountant for the Funds pursuant to the terms of a Mutual Fund Services
Agreement. Ultimus supplies non-investment related statistical and research
data, internal regulatory compliance services and executive and administrative
services. Ultimus supervises the preparation of tax returns, reports to
shareholders of the Funds, reports to and filings with the SEC and state
securities commissions, and materials for meetings of the Board of Directors.
Ultimus also calculates the net asset value per share of each Fund and provides
information necessary to prepare the Funds' financial statements and tax
returns. For the performance of these services, the Funds pay Ultimus a fee at
the annual rate of 0.10% of the combined average value of their daily net assets
up to $500 million, 0.075% of such assets from $500 million to $1 billion, and
0.06% of such assets in excess of $1 billion, subject to an annual minimum fee
of $500,000.
Ultimus also maintains the records of each shareholder's account, answers
shareholders' inquiries concerning their accounts, processes purchases and
redemptions of each Fund's shares, acts as dividend and distribution disbursing
agent and performs
50
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
other shareholder service functions. For these services, Ultimus receives a
monthly fee from each Fund at an annual rate of $20 for each direct account and
$15 for certain accounts established through financial intermediaries; provided,
however, that the minimum monthly fee is $1,000. In addition, the Funds
reimburse Ultimus for its out-of-pocket expenses including, but not limited to,
postage and supplies.
EJV Financial Services, LLC provides certain compliance services to the
Funds. Edward J. Veilleux, Vice President and Chief Compliance Officer of the
Funds, is also a principal of EJV Financial Services, LLC.
NOTE 3 - FEDERAL INCOME TAX AND INVESTMENT TRANSACTIONS
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 U.S. generally accepted
accounting principles. These book/tax differences may be either temporary or
permanent in nature. To the extent they are permanent, they are charged or
credited to paid-in-capital, undistributed net investment income or accumulated
net realized gains, as appropriate, in the period that the differences arose.
The reclassifications have no impact on the net assets or net asset value per
share of the Funds.
The Funds determine their net investment income and capital gain
distributions in accordance with income tax regulations, which may differ from
U.S. generally accepted accounting principles.
During the year ended October 31, 2008, Total Return reclassified $107,640
from undistributed income to paid-in capital. Managed Municipal reclassified $92
from undistributed capital gains to undistributed income of $62 and paid-in
capital of $30. North American reclassified $1,097,761 from undistributed
capital gains to ordinary income of $817,617 and paid-in capital of $280,144.
During the years ended October 31, 2008 and October 31, 2007, the
components of distributions on a tax basis were as follows:
ORDINARY TAX-EXEMPT LONG-TERM RETURN OF
INCOME INCOME CAPITAL GAINS CAPITAL
------------------------ ------------------------ ------------------------ ------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2008 2007 2008 2007 2008 2007 2008 2007
Total Return $3,921,060 $4,910,079 $ -- $ -- $ 475,038 $ -- $ -- $ 104,188
Managed Municipal 94,841 72,962 3,241,083 2,371,360 287,105 720,919 -- --
North American 5,382,558 7,026,546 -- -- 1,269,300 -- 649,421 172,948
Strategy 809,371 913,710 -- -- 4,217,677 1,880,666 -- --
FASB's Interpretation No. 48 ("FIN 48") "Accounting for Uncertainty in
Income Taxes" provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken in the course of preparing
each Fund's tax returns to
51
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be booked as a tax benefit or expense in
the current year. As required by FIN 48, management has concluded that no
provision for income tax is required in these financial statements. The statute
of limitations on each Fund's tax returns remains open for the years ended
October 31, 2006 and October 31, 2007.
As of October 31, 2008, the components of distributable earnings
(accumulated losses) on a tax basis were as follows:
CAPITAL
UNDISTRIBUTED UNREALIZED
UNDISTRIBUTED LONG-TERM CAPITAL LOSS APPRECIATION OTHER BOOK/TAX
ORDINARY INCOME GAINS CARRYFORWARD (DEPRECIATION) DIFFERENCES TOTAL
- --------------------------------------------------------------------------------------------------------------
Total Return $ (95,152) $ -- $ -- $(1,871,074) $ -- $(1,966,226)
Managed Municipal -- 124,276 -- (1,841,280) -- (1,717,004)
North American -- -- -- (7,496,624) (292,278) (7,788,902)
Strategy 24,815 -- (989,548) (8,086,852) -- (9,051,585)
As of October 31, 2008, Strategy had capital loss carryforwards available
to offset future realized gains. The losses for Strategy expire in 2016.
Total Return and North American utilized capital loss carryforwards of
$533,469 and $280,143, respectively, during the year ended October 31, 2008.
The difference between book and tax basis unrealized appreciation
(depreciation) for Strategy was primarily due to wash sales.
The aggregate cost of purchases and proceeds from sales of investments,
other than short-term obligations, for the year ended October 31, 2008, were as
follows:
NON-US GOVERNMENT OBLIGATIONS US GOVERNMENT OBLIGATIONS
----------------------------- -------------------------
PURCHASES SALES PURCHASES SALES
- --------------------------------------------------------------------------------
Total Return $ -- $ -- $62,194,269 $ 71,675,789
Managed Municipal 7,420,300 4,969,200 -- --
North American 15,577,472 2,968,986 93,384,538 104,529,152
Strategy 24,678,053 25,992,226 3,078,686 1,679,556
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 U.S. government securities. An investment in Canada or Mexico
may be affected by developments unique to those countries. These developments
may not affect the U.S. economy or the prices of U.S. government securities in
the same manner. In addition, the value of bonds issued by non-U.S. governments
may be affected by adverse international political and economic developments
that may not impact the value of U.S. government securities.
52
- --------------------------------------------------------------------------------
ISI FUNDS
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - CONTRACTUAL OBLIGATIONS
In the ordinary course of business, the Funds enter into contracts that
contain a variety of indemnifications. Each Fund's maximum exposure under these
arrangements is unknown. However, the Funds have not had prior claims or losses
pursuant to these indemnification provisions and believe the risk of loss
thereunder to be remote.
NOTE 6 - OTHER INFORMATION
On October 31, 2008, 1 shareholder account held approximately 10% of North
American. This shareholder is an omnibus account, which is held on behalf of
several individual shareholders.
53
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF TOTAL RETURN U.S. TREASURY FUND, INC.,
MANAGED MUNICIPAL FUND, INC., NORTH AMERICAN GOVERNMENT BOND FUND, INC.,
AND ISI STRATEGY FUND, INC.
We have audited the accompanying statements of assets and liabilities of the
Total Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., North
American Government Bond Fund, Inc., and ISI Strategy Fund, Inc., including the
schedules of investments, as of October 31, 2008, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the three years in the period then ended. 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 for each of
the two years or periods ended October 31, 2005 were audited by other auditors
whose report dated December 23, 2005 expressed an unqualified opinion on such
financial highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 2008 by correspondence with
the 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 the
Total Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., North
American Government Bond Fund, Inc., and ISI Strategy Fund, Inc., as of October
31, 2008, the results of their operations for the year then ended, the changes
in their net assets for each of the two years in the period then ended, and
their financial highlights for each of the three years in the period then ended,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ BRIGGS, BUNTING & DOUGHERTY, LLP
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
December 23, 2008
54
- --------------------------------------------------------------------------------
FUND DIRECTORS AND OFFICERS (UNAUDITED)
- --------------------------------------------------------------------------------
OTHER
LENGTH BUSINESS DIRECTORSHIPS
OF TIME EXPERIENCE DURING HELD BY
NAME AND AGE SERVED THE PAST FIVE YEARS DIRECTOR
- --------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- --------------------------------------------------------------------------------
W. Murray Jacques since 2002 President, WMJ None
(age 72) Consulting, LLC
(real estate
investment
management company)
(1999 to present).
- --------------------------------------------------------------------------------
Louis E. Levy since 1994 Retired Partner, None
(age 76) KPMG Peat Marwick
(retired 1990);
Formerly a Director
of Kimberly-Clark
Corp. (personal
consumer products)
(retired 2001),
Household
International, Inc.
(consumer finance)
(retired 2004), and
Scudder Group of
Mutual Funds
(retired 2005).
- --------------------------------------------------------------------------------
Edward A. Kuczmarski since 2007 Certified Public Director or Trustee
(age 59) Accountant and of 12 funds in the
Partner of Hays & Reich & Tang Fund
Company LLP Complex; Trustee of
(accounting firm). Empire Builder Tax
Free Bond Fund.
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
R. Alan Medaugh since 1991 President, None
(age 65) International
President and Strategy &
Director since 2007 Investment, Inc.
(registered
investment advisor)
(1991 to present).
Director,
International
Strategy &
Investment Group,
Inc. (registered
broker-dealer) (1991
to present).
- --------------------------------------------------------------------------------
Nancy Lazar since 1997 Executive Vice None
(age 51) President, Assistant
Vice President Treasurer, and
Secretary of
International
Strategy &
Investment, Inc.
(registered
investment advisor)
(1991 to present);
Executive Vice
President, Assistant
Treasurer and
Secretary of
International
Strategy &
Investment Group,
Inc. (registered
broker-dealer) (1991
to present).
- --------------------------------------------------------------------------------
55
- --------------------------------------------------------------------------------
FUND DIRECTORS AND OFFICERS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
LENGTH BUSINESS
OF TIME EXPERIENCE DURING
NAME AND AGE SERVED THE PAST FIVE YEARS
- --------------------------------------------------------------------------------
INTERESTED DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED)
- --------------------------------------------------------------------------------
Thomas D. Stevens* since 1997 Chairman and President, Los
(age 59) Angeles Capital Management and
Vice President Equity Research, Inc. (registered
investment advisor) (March 2002 to
present).
- --------------------------------------------------------------------------------
Carrie L. Butler since 1991 Managing Director, International
(age 41) Strategy & Investment, Inc.
Vice President (registered investment advisor)
(2000 to present).
- --------------------------------------------------------------------------------
Edward J. Veilleux since 1992 President, EJV Financial Services,
(age 65) LLC (2002 to present); Officer of
Vice President and various investment companies for
Chief Compliance which EJV Financial Services
Officer provides consulting and compliance
services.
- --------------------------------------------------------------------------------
Stephen V. Killorin since 2002 Executive Managing Director and
(age 55) Chief Financial Officer,
Vice President International Strategy &
Investment, Inc. (registered
investment advisor) (December 2000
to present); Executive Managing
Director and Chief Financial
Officer, International Strategy &
Investment Group, Inc. (registered
broker-dealer) (December 2000 to
present).
- --------------------------------------------------------------------------------
Margaret M. Beeler since 1996 Managing Director, International
(age 41) (Secretary since Strategy & Investment, Inc.
Vice President and 2004) (registered investment advisor)
Secretary (July 2004 to present). Formerly,
Associate Managing Director (2000
- July 2004) of International
Strategy & Investment, Inc.
(registered investment advisor).
- --------------------------------------------------------------------------------
Mark J. Seger since 2008 Managing Director, Ultimus Fund
(age 46) Solutions, LLC and Ultimus Fund
Treasurer Distributions, LLC.
- --------------------------------------------------------------------------------
Heena Dhruv since 2005 Managing Director, International
(age 32) Strategy & Investment, Inc.
Assistant Vice (registered investment advisor)
President (July 2005 to present), Associate
Managing Director, International
Strategy & Investment, Inc.
(January 2003 to July 2005).
- --------------------------------------------------------------------------------
* Thomas D. Stevens is an officer for only the ISI Strategy Fund.
56
- --------------------------------------------------------------------------------
NOTICE TO SHAREHOLDERS (UNAUDITED)
- --------------------------------------------------------------------------------
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that Strategy uses to determine how
to vote proxies relating to securities held in Strategy's portfolio is
available, without charge and upon request, by calling (800) 955-7175.
Information regarding how Strategy voted proxies relating to portfolio
securities during the most recent twelve-month period ended June 30 is
available, without charge, upon request, by calling (800) 955-7175 or on the
Security and Exchange Commission's ("SEC") website at http://www.sec.gov.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULE
The Funds file their complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. Each Fund's Form
N-Q is available on the SEC's website at http://www.sec.gov or may be reviewed
and copied at the SEC's Public Reference Room in Washington, DC. Information on
the operation of the Public Reference Room may be obtained by calling
800-SEC-0330.
ISI INTERNATIONAL STRATEGY AND INVESTMENT
PRIVACY NOTICE FOR ISI MUTUAL FUNDS
PRIVACY POLICY
The mutual funds in the ISI Fund Complex ("the Funds") believe that your privacy
is extremely important. We are firmly committed to protecting any personal or
financial information you provide to us as well as information about your
transactions with us, such as transaction amounts, account balance and account
holdings ("Personal Information"). We use Personal Information only to develop
and deliver products and services that you request and to fulfill any applicable
legal and regulatory requirements. We do not disclose Personal Information about
you or our former customers except to our affiliates and service providers. We
require our employees, affiliates and service providers to maintain appropriate
safeguards to ensure the security of your non-public information.
LIMITS OF USE OF PERSONAL INFORMATION
We limit the use, collection and retention of customer information to what is
necessary to provide personal financial services and related products. We have
security practices and procedures in place to ensure the confidentiality and
security of your Personal Information.
ACCURACY OF PERSONAL INFORMATION
We strive to keep your personal and financial information accurate. If our
records are incorrect or out-of-date, please notify us immediately by contacting
the Service Center listed on your account statement.
CHANGE TO OUR POLICIES
If you have any privacy or security questions, please contact us at
800-882-8585. We may, at our discretion, change this Privacy Policy at any time.
If we make material changes to the policy, we will provide you with notice of
these changes.
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INVESTMENT ADVISORY AGREEMENT APPROVAL (UNAUDITED)
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At a Board meeting held on September 10, 2008, the Board, including the
Independent Directors, unanimously approved the continuance of the Investment
Advisory Agreement between ISI and each of the Funds as well as the Sub-Advisory
Agreement between ISI and the Sub-Advisor with respect to Strategy. In
evaluating the Investment Advisory Agreements and the Sub-Advisory Agreement,
the Board reviewed materials furnished by ISI and the Sub-Advisor. Specifically,
the Board considered: (1) the nature, extent and quality of the services
provided to the Funds by ISI and the Sub-Advisor, including information on the
investment performance of the Funds; (2) the total expense ratio of each Fund
compared to its relevant peer group; (3) the investment advisory fee schedule
for each Fund; (4) the cost of the services provided and profitability to ISI
with respect to its relationship with the Funds; (5) the extent to which
economies of scale would be realized as each Fund grows and whether the advisory
fees reflect these economies of scale for the benefit of shareholders of each
Fund; and (6) other benefits received by ISI and the Sub-Advisor from their
relationship with the Funds. In their deliberations, the Board did not identify
any particular information that was all-important or controlling, and the Board
attributed different weights to the various factors. In particular, the Board
focused on the factors discussed below.
NATURE, EXTENT AND QUALITY OF SERVICES. The Directors reviewed information
provided by ISI which included statistics on each Fund's performance as compared
to other funds in its peer group. The Board noted that it receives detailed
reports at each quarterly Board meeting from senior management of ISI that
provides information about ISI's management approach with respect to each Fund
as well as ISI's general economic outlook. With respect to Strategy, the Board
noted that, under the Sub-Advisory Agreement, the Sub-Advisor manages the Fund's
equity portfolio and that the Sub-Advisor provides the Board with detailed
information about its operations and investment process. The Board also
considered the background and quality of the investment management team of ISI
and the Sub-Advisor.
o TOTAL RETURN. The Board reviewed information comparing the Fund's
performance to the returns of relevant indices for selected periods
ended July 31, 2008. The Board was advised by ISI that the Fund
generally maintained a longer duration than such indices during the
most recent year and as a result lagged the returns of the indices.
The Board also compared the Fund's performance with the performance
of its peer group and found that the Fund placed within the top
quartile of its Morningstar peer group for the 1, 5 and 10 year
periods.
o MANAGED MUNICIPAL. The Board reviewed the Fund's performance for
selected periods ended July 31, 2008 against the returns of relevant
indices and the averages of its Lipper, Morningstar and CDA/Thomson
peer groups. The Board was advised by ISI that the indices and peer
groups do not provide a precise comparison since they include
investment grade bonds of varying credit quality, while the Fund had
87% of its assets invested in AAA rated municipal securities at the
end of the period. The Board was mindful of the emphasis placed by
ISI on selecting high quality, liquid issues and was advised that
none of the Fund's securities have been assigned a higher rating by
virtue of being insured by a third party. The Board was further
advised that the Fund has recently benefited from the lack of
insured issues
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INVESTMENT ADIVSORY AGREEMENT APPROVAL (UNAUDITED)
(CONTINUED)
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in its portfolio and from the narrowing spread between AAA and BBB
issues. The Board noted that the Fund placed roughly in the top
quartile of its Morningstar and CDA/Thompson category averages and
slightly above its Lipper average for periods ended July 31, 2008.
o NORTH AMERICAN. The Board reviewed the Fund's performance for
selected periods ended July 31, 2008 and found that it trailed the
blended North American benchmark during the 1 and 3 year periods,
but was ahead of its Lipper, Morningstar and CDA/Thomson peer group
averages during those periods. The Board was advised of the
positioning of the currency and maturity mix in the Fund's portfolio
and noted that the combination of long bond duration in the U.S. and
a 25% weighting outside of the U.S. had produced good relative
results. The Board was advised that the Fund had a five-star rating
from Morningstar as of July 31, 2008.
o STRATEGY. The Board was reminded that the balance between the Fund's
equity and bond holdings is actively managed based on ISI's analysis
of economic growth, interest rate trends and corporate earnings
outlook. The Board was advised that the Fund had approximately an
80% weighting in equities and a 20% weighting in bonds as of July
31, 2008. The Board reviewed separately the performance of both the
equity section and the bond section of the Fund's portfolio for
selected periods ended July 31, 2008. The Board found that although
the heavy equity weighting hurt performance over the past year, it
was the major contributor towards the Fund's relative outperformance
of the Wilshire 5000 Index and the S&P 500 Index during all of the
reporting periods. The Board reviewed the Fund's performance
relative to a blended benchmark consisting of the Wilshire 5000 and
the Lehman Treasury Index and found that the Fund placed ahead of
its benchmark for all reporting periods. The Board also reviewed
information comparing the Fund's relative performance against its
peer groups for periods ended July 31, 2008. It found that the Fund
placed in the top quartile of the Morningstar stock fund universe
for the one and three year periods and placed in the 44th percentile
of the CDA/Thomson universe for the one year period and in the top
quartile for the three year period.
Based on the above information, the Board concluded that the quality and range
of services provided by ISI and the Sub-Advisor have benefited, and should
continue to benefit, each Fund and its shareholders.
INVESTMENT ADVISORY FEE SCHEDULES FOR EACH FUND. The Board considered the
investment advisory fees paid by each Fund to ISI. The Board noted that the
sub-advisory fee for Strategy is paid by ISI and not the Fund. The Board
concluded that the fee schedules under the Investment Advisory Agreements
provide fair compensation to ISI in light of the nature, extent and quality of
the services being provided to the Funds and the performance of the Funds.
59
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INVESTMENT ADIVSORY AGREEMENT APPROVAL (UNAUDITED)
(CONTINUED)
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COSTS OF SERVICES PROVIDED AND PROFITABILITY. The Board reviewed the costs
associated with ISI's portfolio management, research and corporate governance
and considered the profitability of ISI from the advisory and other services
provided to the Funds. The Board was advised by ISI of the methodology it used
to assign its costs associated with the portfolio management, research and
corporate governance services provided to the Funds. The Board was also provided
with a report from the Sub-Advisor showing its profitability with respect to its
management of Strategy and the methodology used by the Sub-Advisor to prepare
its profitability analysis. The Board also was advised that although ISI's
revenues for advisory services rendered to the Funds were down slightly over the
past year, expenses were down also, which resulted in ISI maintaining
approximately the same profit margin as last year.
EXPENSE RATIOS AND ECONOMIES OF SCALE. The Board discussed economy of scale
considerations and the expense ratios of the Funds. The Board noted that the
investment advisory fees for Managed Municipal, North American and Strategy do
not contain breakpoints and contemplated the extent to which economies of scale
would be realized as the Funds grow. The Board concluded that due to the
declining asset levels in all Funds except North American, economy of scale
considerations were not relevant at this time. The Board also reviewed
information which compared each Fund's expense ratio as of July 31, 2008 with
the average of comparably managed funds and made the following determinations:
o TOTAL RETURN. The Board found that Total Return's 0.80% expense
ratio was below the 0.96% average of comparably managed funds.
o MANAGED MUNICIPAL. The Board found that Managed Municipal's expense
ratio (0.97%) was slightly above the average (0.95%) of comparably
managed funds, partly because the average municipal bond fund has
roughly two times the assets of the Fund.
o NORTH AMERICAN. The Board found that the 1.12% expense ratio for
North American's Class A shares is slightly above the 1.09% average
for other government bond funds. The Board noted, however, that
there are no other mutual funds that invest exclusively in North
American bonds that can be used for comparative purposes at this
time.
o STRATEGY. The Board found that Strategy's expense ratio as of July
31, 2008 was 1.00%, which is below the 1.17% average for comparably
managed funds.
OTHER BENEFITS REVIEWED. The Board considered the fact that ISI Group, an
affiliate of ISI, serves as the distributor of the Funds. The Board reviewed the
costs and profitability of ISI Group in rendering distribution services to each
of the Funds and noted that ISI Group operates at a loss with respect to
distribution services provided to the Funds. The Board also considered other
benefits received by ISI from its relationship with the Funds. It noted that ISI
benefits from the shared costs of its two primary lines of business, but that
ISI's profit margins are higher for its institutional line of business than from
its mutual fund business.
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ISI International
Strategy &
Investment
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LOUIS E. LEVY EDWARD J. VEILLEUX
CHAIRMAN VICE PRESIDENT
CHIEF COMPLIANCE OFFICER
W. MURRAY JACQUES
DIRECTOR THOMAS P. STEVENS*
VICE PRESIDENT
EDWARD A. KUCZMARSKI
DIRECTOR STEPHEN V. KILLORIN
VICE PRESIDENT
R. ALAN MEDAUGH
PRESIDENT MARGARET M. BEELER
DIRECTOR VICE PRESIDENT
SECRETARY
NANCY LAZAR
VICE PRESIDENT MARK J. SEGER
TREASURER
CARRIE L. BUTLER
VICE PRESIDENT EDWARD S. HYMAN
SENIOR ECONOMIC ADVISOR
* Thomas D. Stevens is an officer for
only the ISI Strategy Fund.
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INVESTMENT ADVISOR
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ISI, INC.
40 WEST 57TH STREET, 18TH FLOOR
NEW YORK, NY 10019
(800) 955-7175
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SHAREHOLDER SERVICING AGENT
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ULTIMUS FUND SOLUTIONS, LLC
P.O. BOX 460707
CINCINNATI, OH 45246-0707
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DISTRIBUTOR
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ISI GROUP, INC.
40 WEST 57TH STREET, 18TH FLOOR
NEW YORK, NY 10019
(800) 955-7175
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ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions, regardless of whether these individuals
are employed by the registrant or a third party. Pursuant to Item 12(a)(1), a
copy of registrant's code of ethics is filed as an exhibit to this Form N-CSR.
During the period covered by this report, the code of ethics has not been
amended, and the registrant has not granted any waivers, including implicit
waivers, from the provisions of the code of ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's board of directors has determined that the registrant has at
least one audit committee financial expert serving on its audit committee. The
name of the audit committee financial expert is Louis E. Levy. Mr. Levy is
"independent" for purposes of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES. The aggregate fees billed for professional services
rendered by the principal accountant for the audit of the
registrant's annual financial statements or for services that are
normally provided by the accountant in connection with statutory and
regulatory filings or engagements were $19,500 and $18,500 with
respect to the registrant's fiscal years ended October 31, 2008 and
2007, respectively.
(b) AUDIT-RELATED FEES. No fees were billed in either of the last two
fiscal years for assurance and related services by the principal
accountant that are reasonably related to the performance of the
audit of the registrant's financial statements and are not reported
under paragraph (a) of this Item.
(c) TAX FEES. The aggregate fees billed for professional services
rendered by the principal accountant for tax compliance, tax advice,
and tax planning were $2,000 and $2,000 with respect to the
registrant's fiscal years ended October 31, 2008 and 2007,
respectively. The services comprising these fees are the preparation
of the registrant's federal income and excise tax returns.
(d) ALL OTHER FEES. No fees were billed in either of the last two fiscal
years for products and services provided by the principal
accountant, other than the services reported in paragraphs (a)
through (c) of this Item.
(e)(1) The audit committee has not adopted pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X.
(e)(2) None of the services described in paragraph (b) through (d) of this
Item were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50% of hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the
most recent fiscal year were attributed to work performed by persons
other than the principal accountant's full-time, permanent
employees.
(g) During the fiscal years ended October 31, 2008 and 2007, aggregate
non-audit fees of $2,000 and $2,000, respectively, were billed by
the registrant's accountant for services rendered to the registrant.
No non-audit fees were billed in either of the last two fiscal years
by the registrant's accountant for services rendered to the
registrant's investment adviser (not including any sub-adviser whose
role is primarily portfolio management and is subcontracted with or
overseen by another investment adviser), and any entity controlling,
controlled by, or under common control with the adviser that
provides ongoing services to the registrant.
(h) The principal accountant has not provided any non-audit services
that were not previously approved to the registrant's investment
adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by
another investment adviser), and any entity controlling, controlled
by, or under common control with the investment adviser that
provides ongoing services to the registrant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable [schedule filed with Item 1]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant has not adopted procedures by which shareholders may recommend
nominees to the registrant's board of directors.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of
1940) as of a date within 90 days of the filing date of this report, the
registrant's principal executive officer and principal financial officer have
concluded that such disclosure controls and procedures are reasonably designed
and are operating effectively to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to them
by others within those entities, particularly during the period in which this
report is being prepared, and that the information required in filings on Form
N-CSR is recorded, processed, summarized, and reported on a timely basis.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940)
that occurred during the second fiscal quarter of the period covered by this
report that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Attached hereto
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the Act (17 CFR 270.30a-2(a)): Attached hereto
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the Act (17 CFR 270.23c-1) sent or given during the period covered by the report
by or on behalf of the registrant to 10 or more persons: Not applicable
(b) Certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)): Attached hereto
Exhibit 99.CODE ETH Code of Ethics
Exhibit 99.CERT Certifications required by Rule 30a-2(a) under the Act
Exhibit 99.906CERT Certifications required by Rule 30a-2(b) under the Act
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.
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By (Signature and Title)* /s/ R. Alan Medaugh
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R. Alan Meduagh, President
Date December 31, 2008
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ R. Alan Medaugh
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R. Alan Medaugh, President
Date December 31, 2008
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By (Signature and Title)* /s/ Mark J. Seger
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Mark J. Seger, Treasurer
Date December 31, 2008
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* Print the name and title of each signing officer under his or her signature.