As filed with the Securities and Exchange Commission on January 8, 2007
================================================================================
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.
40 West 57th Street, 18th Floor
New York, New York 10019
(212) 466-5600
R. Alan Medaugh, President
40 West 57th Street, 18th Floor
New York, New York 10019
(212) 446-5600
Date of fiscal year end: October 31, 2006
Date of reporting period: October 31, 2006
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 100 F Street, NE,
Washington, DC 20549. The OMB has reviewed this collection of information under
the clearance requirements of 44 U.S.C. ss. 3507.
================================================================================
ITEM 1. REPORT TO STOCKHOLDERS
[LOGO] ISI
INTERNATIONAL STRATEGY & INVESTMENT
ANNUAL REPORT
OCTOBER 31, 2006
[GRAPHIC]
TOTAL RETURN US TREASURY FUND
MANAGED MUNICIPAL FUND
NORTH AMERICAN GOVERNMENT BOND FUND
ISI STRATEGY FUND
ISI FUNDS ANNUAL REPORT - TABLE OF CONTENTS
Investment Advisor's Message................................ 1
Management Discussion and Analysis.......................... 3
Performance Comparisons..................................... 5
Shareholder Expense Example................................. 10
Portfolio Profiles.......................................... 12
Schedules of Investments.................................... 13
Statements of Assets and Liabilities........................ 25
Statements of Operations.................................... 28
Statements of Changes in Net Assets......................... 30
Financial Highlights........................................ 34
Notes to Financial Statements............................... 39
Report of Independent Registered Public Accounting Firm..... 45
Fund Directors and Officers................................. 46
Notice to Shareholders...................................... 48
INVESTMENT ADVISOR'S MESSAGE
Dear Shareholder:
I am pleased to present the annual report to shareholders for the ISI Funds
(each a 'Fund' and collectively the 'Funds'). This report covers the 12-month
reporting period through October 31, 2006 and includes commentary from the
Funds' portfolio managers at International Strategy & Investment, Inc. ("ISI")
(see Management Discussion and Analysis that follows this letter for more
details), a complete list of holdings and the financial statements.
Stocks recorded positive returns for the last year and the last five years.
For example, the Dow Jones Wilshire 5000 (Full Cap) Index was +16.60% for the
last year and averaged 8.89% for the past five years. U.S. Treasuries and top
quality municipal indices increased over the last year and were up over the
last 5 years. For example, the Lehman Brothers Treasury Index was +4.43% for
the past year and averaged +3.86% for the past five years. The Lehman Brothers
Municipal GO Index was +5.41% for the past year and averaged +4.75% 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, 2006, Total Return US Treasury Fund,
Managed Municipal Fund, and North American Government Bond Fund continued their
policy of paying dividends at a fixed rate, which resulted in dividends
consisting of net investment income, short-term capital gains, long-term
capital gains and 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 reporting period, the fund produced a one-year
total return of +4.83% and a five-year average annual total return of +3.77%.
From its inception on August 10, 1988 through October 31, 2006, the Fund has
posted a cumulative total return of +250.39%, which translates into an average
annual total return of +7.12%. The Fund's net assets totaled $153.8 million at
the end of the reporting period.
MANAGED MUNICIPAL FUND'S investment objective is to provide a high level of
total return with relative stability of principal and, secondarily, high
current income exempt from federal income tax through investment in a portfolio
consisting primarily of tax-free municipal obligations. For the reporting
period, the fund produced a one-year total return of +4.68% and a five-year
average annual total return of +3.82%. From its inception on February 26, 1990
through October 31, 2006, the Fund has posted a cumulative total return of
+151.94%, which translates into an average annual total return of +5.70%. The
Fund's net assets totaled $82.9 million at the end of the reporting period.
NORTH AMERICAN GOVERNMENT BOND FUND'S investment objective is to provide a
high level of current income, consistent with prudent investment risk. The Fund
primarily invests in a portfolio consisting of fixed income securities issued
or guaranteed by the governments of the United States, Canada and Mexico. For
the reporting period, the ISI Class A Shares produced a one-year total return
of +6.04% and a five-year average annual total return of +4.48%. From its
inception on January 15, 1993, through October 31, 2006, the ISI Class A Shares
have posted a cumulative total return of +122.34%, which translates into an
average annual total return of +5.96%. For the reporting period, the ISI
Class C Shares produced a one-year total return of +5.35% and from its
inception on May 16, 2003, through October 31, 2006, have posted a cumulative
total return of 9.51%, which translates into an average annual total return of
2.66%. The Fund's net assets totaled $162.4 million at the end of the reporting
period.
ISI STRATEGY FUND has an investment objective of maximizing total return
through a combination of long-term growth of capital and current income. The
Fund actively allocates its assets between common stocks of US issuers and US
Treasury securities. For the reporting period, the Fund produced a one-year
total return of +13.01% and a five-year average annual total return of +7.43%.
From its inception on September 16, 1997, through October 31, 2006, the Fund
has posted a cumulative total return of +68.42%, which translates into an
average annual total return of +5.88%. The Fund's net assets totaled $69.4
million at the end of the reporting period.
1
INVESTMENT ADVISOR'S MESSAGE
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 29, 2006
2
MANAGEMENT DISCUSSION AND ANALYSIS
TOTAL RETURN US TREASURY FUND
Throughout the fiscal year, the Treasury market traded based on Federal
Reserve (the "Fed") policy action. At the beginning of the fiscal year, the
Federal Funds Rate ("Funds Rate") was 3.75%. The Fed's Open Market Committee
moved the Funds Rate up at each meeting by 0.25% until late June, resulting in
a 5.25% Funds Rate. The Treasury market moved rates up in sympathy with the
Fed's actions, increasing 10-year rates from roughly 4.50% to 5.25% by late
June. Since then, the Fed has maintained a 5.25% rate and Treasury 10-year
rates have retraced to a 4.50% level at fiscal year end. Throughout the fiscal
year, ISI believed the increase in the Funds Rate would work to slow the
economy and reduce inflation. As a result, the Fund's duration position was
longer than the Treasury market as a whole and because of that the Fund's total
return for the fiscal year was modestly above the index.
[CHART]
10-Year US
Treasury Yield/*/
----------------
10/31/04 4.025%
11/01/04 4.072%
11/02/04 4.048%
11/03/04 4.076%
11/04/04 4.074%
11/05/04 4.175%
11/06/04 4.175%
11/07/04 4.175%
11/08/04 4.218%
11/09/04 4.228%
11/10/04 4.241%
11/11/04 4.254%
11/12/04 4.181%
11/13/04 4.181%
11/14/04 4.181%
11/15/04 4.188%
11/16/04 4.207%
11/17/04 4.131%
11/18/04 4.115%
11/19/04 4.205%
11/20/04 4.205%
11/21/04 4.205%
11/22/04 4.180%
11/23/04 4.184%
11/24/04 4.200%
11/25/04 4.196%
11/26/04 4.248%
11/27/04 4.248%
11/28/04 4.248%
11/29/04 4.320%
11/30/04 4.351%
12/01/04 4.367%
12/02/04 4.408%
12/03/04 4.252%
12/04/04 4.252%
12/05/04 4.252%
12/06/04 4.223%
12/07/04 4.223%
12/08/04 4.120%
12/09/04 4.168%
12/10/04 4.151%
12/11/04 4.151%
12/12/04 4.151%
12/13/04 4.149%
12/14/04 4.124%
12/15/04 4.076%
12/16/04 4.186%
12/17/04 4.201%
12/18/04 4.201%
12/19/04 4.201%
12/20/04 4.185%
12/21/04 4.164%
12/22/04 4.195%
12/23/04 4.226%
12/24/04 4.216%
12/25/04 4.216%
12/26/04 4.216%
12/27/04 4.298%
12/28/04 4.293%
12/29/04 4.324%
12/30/04 4.255%
12/31/04 4.220%
01/01/05 4.220%
01/02/05 4.220%
01/03/05 4.212%
01/04/05 4.291%
01/05/05 4.283%
01/06/05 4.263%
01/07/05 4.271%
01/08/05 4.271%
01/09/05 4.271%
01/10/05 4.271%
01/11/05 4.238%
01/12/05 4.236%
01/13/05 4.165%
01/14/05 4.226%
01/15/05 4.226%
01/16/05 4.226%
01/17/05 4.210%
01/18/05 4.187%
01/19/05 4.173%
01/20/05 4.163%
01/21/05 4.142%
01/22/05 4.142%
01/23/05 4.142%
01/24/05 4.122%
01/25/05 4.194%
01/26/05 4.198%
01/27/05 4.220%
01/28/05 4.142%
01/29/05 4.142%
01/30/05 4.142%
01/31/05 4.130%
02/01/05 4.140%
02/02/05 4.142%
02/03/05 4.165%
02/04/05 4.077%
02/05/05 4.077%
02/06/05 4.077%
02/07/05 4.052%
02/08/05 4.017%
02/09/05 3.992%
02/10/05 4.091%
02/11/05 4.086%
02/12/05 4.086%
02/13/05 4.086%
02/14/05 4.071%
02/15/05 4.098%
02/16/05 4.154%
02/17/05 4.181%
02/18/05 4.267%
02/20/05 4.267%
02/21/05 4.264%
02/22/05 4.287%
02/23/05 4.264%
02/24/05 4.285%
02/25/05 4.266%
02/26/05 4.266%
02/27/05 4.266%
02/28/05 4.379%
03/01/05 4.367%
03/02/05 4.379%
03/03/05 4.379%
03/04/05 4.310%
03/05/05 4.310%
03/06/05 4.310%
03/07/05 4.310%
03/08/05 4.393%
03/09/05 4.522%
03/10/05 4.465%
03/11/05 4.544%
03/13/05 4.544%
03/14/05 4.510%
03/15/05 4.547%
03/16/05 4.508%
03/17/05 4.466%
03/18/05 4.509%
03/20/05 4.509%
03/21/05 4.520%
03/22/05 4.643%
03/23/05 4.586%
03/24/05 4.599%
03/25/05 4.595%
03/26/05 4.595%
03/27/05 4.595%
03/28/05 4.642%
03/29/05 4.575%
03/30/05 4.548%
03/31/05 4.483%
04/01/05 4.449%
04/03/05 4.449%
04/04/05 4.458%
04/05/05 4.470%
04/06/05 4.424%
04/07/05 4.482%
04/08/05 4.470%
04/09/05 4.470%
04/10/05 4.470%
04/11/05 4.430%
04/12/05 4.354%
04/13/05 4.362%
04/14/05 4.310%
04/15/05 4.243%
04/16/05 4.243%
04/17/05 4.243%
04/18/05 4.272%
04/19/05 4.213%
04/20/05 4.187%
04/21/05 4.296%
04/22/05 4.247%
04/24/05 4.247%
04/25/05 4.249%
04/26/05 4.267%
04/27/05 4.225%
04/28/05 4.146%
04/29/05 4.200%
04/30/05 4.200%
05/01/05 4.200%
05/02/05 4.188%
05/03/05 4.166%
05/04/05 4.188%
05/05/05 4.156%
05/06/05 4.260%
05/07/05 4.260%
05/08/05 4.260%
05/09/05 4.284%
05/10/05 4.202%
05/11/05 4.204%
05/12/05 4.172%
05/13/05 4.119%
05/14/05 4.119%
05/15/05 4.119%
05/16/05 4.129%
05/17/05 4.115%
05/18/05 4.090%
05/19/05 4.113%
05/20/05 4.123%
05/21/05 4.123%
05/22/05 4.123%
05/23/05 4.056%
05/24/05 4.029%
05/25/05 4.088%
05/26/05 4.081%
05/27/05 4.073%
05/28/05 4.073%
05/29/05 4.073%
05/30/05 4.071%
05/31/05 3.983%
06/01/05 3.886%
06/02/05 3.905%
06/03/05 3.975%
06/04/05 3.975%
06/05/05 3.975%
06/06/05 3.954%
06/07/05 3.903%
06/08/05 3.935%
06/09/05 3.950%
06/10/05 4.053%
06/11/05 4.053%
06/12/05 4.053%
06/13/05 4.094%
06/14/05 4.109%
06/15/05 4.101%
06/16/05 4.069%
06/17/05 4.072%
06/18/05 4.072%
06/19/05 4.072%
06/20/05 4.111%
06/21/05 4.042%
06/22/05 3.942%
06/23/05 3.953%
06/24/05 3.919%
06/25/05 3.919%
06/26/05 3.919%
06/27/05 3.904%
06/28/05 3.972%
06/29/05 3.980%
06/30/05 3.915%
07/01/05 4.051%
07/02/05 4.051%
07/03/05 4.051%
07/04/05 4.039%
07/05/05 4.107%
07/06/05 4.070%
07/07/05 4.062%
07/08/05 4.093%
07/09/05 4.093%
07/10/05 4.093%
07/11/05 4.095%
07/12/05 4.144%
07/13/05 4.158%
07/14/05 4.175%
07/15/05 4.165%
07/16/05 4.165%
07/17/05 4.165%
07/18/05 4.222%
07/19/05 4.181%
07/20/05 4.160%
07/21/05 4.278%
07/22/05 4.221%
07/23/05 4.221%
07/24/05 4.221%
07/25/05 4.246%
07/26/05 4.226%
07/27/05 4.256%
07/28/05 4.191%
07/29/05 4.278%
07/30/05 4.278%
07/31/05 4.278%
08/01/05 4.312%
08/02/05 4.336%
08/04/05 4.314%
08/05/05 4.388%
08/06/05 4.388%
08/07/05 4.388%
08/08/05 4.420%
08/09/05 4.390%
08/10/05 4.392%
08/11/05 4.322%
08/12/05 4.244%
08/13/05 4.244%
08/14/05 4.244%
08/15/05 4.283%
08/16/05 4.207%
08/17/05 4.269%
08/18/05 4.200%
08/19/05 4.207%
08/20/05 4.207%
08/21/05 4.207%
08/22/05 4.209%
08/23/05 4.180%
08/24/05 4.167%
08/25/05 4.157%
08/26/05 4.188%
08/27/05 4.188%
08/28/05 4.188%
08/29/05 4.169%
08/30/05 4.092%
08/31/05 4.016%
09/01/05 4.033%
09/02/05 4.038%
09/03/05 4.038%
09/04/05 4.038%
09/05/05 4.030%
09/06/05 4.097%
09/07/05 4.139%
09/08/05 4.147%
09/09/05 4.120%
09/10/05 4.120%
09/11/05 4.120%
09/12/05 4.172%
09/13/05 4.128%
09/14/05 4.166%
09/15/05 4.213%
09/16/05 4.273%
09/17/05 4.273%
09/18/05 4.273%
09/19/05 4.248%
09/20/05 4.244%
09/21/05 4.168%
09/22/05 4.181%
09/23/05 4.248%
09/24/05 4.248%
09/25/05 4.248%
09/26/05 4.293%
09/27/05 4.283%
09/28/05 4.255%
09/29/05 4.296%
09/30/05 4.326%
10/01/05 4.326%
10/02/05 4.326%
10/03/05 4.385%
10/04/05 4.369%
10/06/05 4.389%
10/07/05 4.374%
10/08/05 4.374%
10/09/05 4.374%
10/10/05 4.358%
10/11/05 4.393%
10/12/05 4.441%
10/13/05 4.463%
10/14/05 4.481%
10/15/05 4.481%
10/16/05 4.481%
10/17/05 4.495%
10/18/05 4.471%
10/19/05 4.461%
10/20/05 4.431%
10/21/05 4.386%
10/22/05 4.386%
10/23/05 4.386%
10/24/05 4.446%
10/25/05 4.536%
10/26/05 4.585%
10/27/05 4.548%
10/28/05 4.567%
10/29/05 4.567%
10/30/05 4.567%
10/31/05 4.553%
*Source: Bloomberg
MANAGED MUNICIPAL FUND
The Municipal market moved up in yield as the Fed reached a Funds Rate level
of 5.00% or more and seemed likely to continue raising rates. When the Fed
paused after its late June meeting, the municipal market reacted by lowering
rates. ISI expected the Fed's rate hikes would slow the economy and help lower
inflation. As a result, ISI maintained a long maturity orientation on its
purchase program. However, as rates fell after the end of June, the early call
feature on the Fund's long maturity municipals meant the duration of the whole
portfolio fell despite the purchase orientation. For the fiscal year, the
Fund's total return was modestly below the index.
[CHART]
20-Year AAA General
Obligation Yields/*/
-----------------
11/01/04 4.38%
11/02/04 4.38%
11/03/04 4.38%
11/04/04 4.38%
11/05/04 4.43%
11/06/04 4.43%
11/07/04 4.43%
11/08/04 4.43%
11/09/04 4.46%
11/10/04 4.48%
11/11/04 4.48%
11/12/04 4.46%
11/13/04 4.46%
11/14/04 4.46%
11/15/04 4.47%
11/16/04 4.45%
11/17/04 4.42%
11/18/04 4.40%
11/19/04 4.43%
11/20/04 4.43%
11/21/04 4.43%
11/22/04 4.41%
11/23/04 4.39%
11/24/04 4.39%
11/25/04 4.39%
11/26/04 4.39%
11/27/04 4.39%
11/28/04 4.39%
11/29/04 4.46%
11/30/04 4.51%
12/01/04 4.48%
12/02/04 4.49%
12/03/04 4.49%
12/04/04 4.49%
12/05/04 4.49%
12/06/04 4.44%
12/07/04 4.49%
12/08/04 4.44%
12/09/04 4.44%
12/10/04 4.43%
12/11/04 4.43%
12/12/04 4.43%
12/13/04 4.40%
12/14/04 4.40%
12/15/04 4.37%
12/16/04 4.33%
12/17/04 4.33%
12/18/04 4.33%
12/19/04 4.33%
12/20/04 4.33%
12/21/04 4.33%
12/22/04 4.33%
12/23/04 4.34%
12/24/04 4.34%
12/25/04 4.34%
12/26/04 4.34%
12/27/04 4.37%
12/28/04 4.36%
12/29/04 4.36%
12/30/04 4.34%
12/31/04 4.36%
01/01/05 4.36%
01/02/05 4.36%
01/03/05 4.36%
01/04/05 4.38%
01/05/05 4.37%
01/06/05 4.34%
01/07/05 4.32%
01/08/05 4.32%
01/09/05 4.32%
01/10/05 4.32%
01/11/05 4.30%
01/12/05 4.30%
01/13/05 4.27%
01/14/05 4.27%
01/15/05 4.27%
01/16/05 4.27%
01/17/05 4.27%
01/18/05 4.27%
01/19/05 4.28%
01/20/05 4.27%
01/21/05 4.27%
01/22/05 4.27%
01/23/05 4.27%
01/24/05 4.27%
01/25/05 4.27%
01/26/05 4.27%
01/27/05 4.27%
01/28/05 4.24%
01/29/05 4.24%
01/30/05 4.24%
01/31/05 4.25%
02/01/05 4.25%
02/02/05 4.25%
02/03/05 4.25%
02/04/05 4.22%
02/05/05 4.22%
02/06/05 4.22%
02/07/05 4.20%
02/08/05 4.18%
02/09/05 4.15%
02/10/05 4.15%
02/11/05 4.15%
02/12/05 4.15%
02/13/05 4.15%
02/14/05 4.13%
02/15/05 4.15%
02/16/05 4.19%
02/17/05 4.24%
02/18/05 4.24%
02/19/05 4.24%
02/20/05 4.24%
02/21/05 4.24%
02/22/05 4.24%
02/23/05 4.30%
02/24/05 4.34%
02/25/05 4.35%
02/26/05 4.35%
02/27/05 4.35%
02/28/05 4.35%
03/01/05 4.37%
03/02/05 4.34%
03/03/05 4.34%
03/04/05 4.34%
03/05/05 4.34%
03/06/05 4.34%
03/07/05 4.33%
03/08/05 4.33%
03/09/05 4.35%
03/10/05 4.41%
03/11/05 4.41%
03/12/05 4.41%
03/13/05 4.41%
03/14/05 4.42%
03/15/05 4.43%
03/16/05 4.43%
03/17/05 4.43%
03/18/05 4.42%
03/19/05 4.42%
03/20/05 4.42%
03/21/05 4.43%
03/22/05 4.44%
03/23/05 4.47%
03/24/05 4.47%
03/25/05 4.47%
03/26/05 4.47%
03/27/05 4.47%
03/28/05 4.47%
03/29/05 4.47%
03/30/05 4.47%
03/31/05 4.47%
04/01/05 4.47%
04/02/05 4.47%
04/03/05 4.47%
04/04/05 4.45%
04/05/05 4.45%
04/06/05 4.44%
04/07/05 4.43%
04/08/05 4.44%
04/09/05 4.44%
04/10/05 4.44%
04/11/05 4.44%
04/12/05 4.43%
04/13/05 4.42%
04/14/05 4.39%
04/15/05 4.35%
04/16/05 4.35%
04/17/05 4.35%
04/18/05 4.33%
04/19/05 4.32%
04/20/05 4.31%
04/21/05 4.31%
04/22/05 4.31%
04/23/05 4.31%
04/24/05 4.31%
04/25/05 4.31%
04/26/05 4.31%
04/27/05 4.32%
04/28/05 4.30%
04/29/05 4.28%
04/30/05 4.28%
05/01/05 4.28%
05/02/05 4.26%
05/03/05 4.26%
05/04/05 4.25%
05/05/05 4.27%
05/06/05 4.26%
05/07/05 4.26%
05/08/05 4.26%
05/09/05 4.26%
05/10/05 4.31%
05/11/05 4.31%
05/12/05 4.31%
05/13/05 4.29%
05/14/05 4.29%
05/15/05 4.29%
05/16/05 4.29%
05/17/05 4.28%
05/18/05 4.26%
05/19/05 4.24%
05/20/05 4.24%
05/21/05 4.24%
05/22/05 4.24%
05/23/05 4.23%
05/24/05 4.23%
05/25/05 4.23%
05/26/05 4.23%
05/27/05 4.24%
05/28/05 4.24%
05/29/05 4.24%
05/30/05 4.24%
05/31/05 4.22%
06/01/05 4.22%
06/02/05 4.19%
06/03/05 4.17%
06/04/05 4.17%
06/05/05 4.17%
06/06/05 4.17%
06/07/05 4.16%
06/08/05 4.16%
06/09/05 4.16%
06/10/05 4.17%
06/11/05 4.17%
06/12/05 4.17%
06/13/05 4.19%
06/14/05 4.20%
06/15/05 4.22%
06/16/05 4.23%
06/17/05 4.24%
06/18/05 4.24%
06/19/05 4.24%
06/20/05 4.25%
06/21/05 4.25%
06/22/05 4.21%
06/23/05 4.21%
06/24/05 4.19%
06/25/05 4.19%
06/26/05 4.19%
06/27/05 4.19%
06/28/05 4.19%
06/29/05 4.19%
06/30/05 4.19%
07/01/05 4.20%
07/02/05 4.20%
07/03/05 4.20%
07/04/05 4.20%
07/05/05 4.22%
07/06/05 4.25%
07/07/05 4.26%
07/08/05 4.24%
07/09/05 4.24%
07/10/05 4.24%
07/11/05 4.24%
07/12/05 4.26%
07/13/05 4.27%
07/14/05 4.29%
07/15/05 4.29%
07/16/05 4.29%
07/17/05 4.29%
07/18/05 4.30%
07/19/05 4.30%
07/20/05 4.31%
07/21/05 4.31%
07/22/05 4.36%
07/23/05 4.36%
07/24/05 4.36%
07/25/05 4.34%
07/26/05 4.32%
07/27/05 4.32%
07/28/05 4.32%
07/29/05 4.29%
07/30/05 4.29%
07/31/05 4.29%
08/01/05 4.29%
08/02/05 4.32%
08/03/05 4.33%
08/04/05 4.30%
08/05/05 4.29%
08/06/05 4.29%
08/07/05 4.29%
08/08/05 4.32%
08/09/05 4.34%
08/10/05 4.34%
08/11/05 4.34%
08/12/05 4.33%
08/13/05 4.33%
08/14/05 4.33%
08/15/05 4.31%
08/16/05 4.30%
08/17/05 4.27%
08/18/05 4.27%
08/19/05 4.27%
08/20/05 4.27%
08/21/05 4.27%
08/22/05 4.25%
08/23/05 4.25%
08/24/05 4.25%
08/25/05 4.25%
08/26/05 4.24%
08/27/05 4.24%
08/28/05 4.24%
08/29/05 4.22%
08/30/05 4.22%
08/31/05 4.22%
09/01/05 4.21%
09/02/05 4.18%
09/03/05 4.18%
09/04/05 4.18%
09/05/05 4.18%
09/06/05 4.17%
09/07/05 4.17%
09/08/05 4.19%
09/09/05 4.21%
09/10/05 4.21%
09/11/05 4.21%
09/12/05 4.21%
09/13/05 4.24%
09/14/05 4.22%
09/15/05 4.23%
09/16/05 4.27%
09/17/05 4.27%
09/18/05 4.27%
09/19/05 4.30%
09/20/05 4.31%
09/21/05 4.31%
09/22/05 4.29%
09/23/05 4.29%
09/24/05 4.29%
09/25/05 4.29%
09/26/05 4.32%
09/27/05 4.32%
09/28/05 4.33%
09/29/05 4.33%
09/30/05 4.34%
10/01/05 4.34%
10/02/05 4.34%
10/03/05 4.34%
10/04/05 4.38%
10/05/05 4.36%
10/06/05 4.36%
10/07/05 4.37%
10/08/05 4.37%
10/09/05 4.37%
10/10/05 4.37%
10/11/05 4.38%
10/12/05 4.38%
10/13/05 4.41%
10/14/05 4.40%
10/15/05 4.40%
10/16/05 4.40%
10/17/05 4.42%
10/18/05 4.44%
10/19/05 4.44%
10/20/05 4.43%
10/21/05 4.43%
10/22/05 4.43%
10/23/05 4.43%
10/24/05 4.43%
10/25/05 4.43%
10/26/05 4.40%
10/27/05 4.43%
10/28/05 4.43%
10/29/05 4.43%
10/30/05 4.43%
10/31/05 4.43%
*Source: Bloomberg
NORTH AMERICAN GOVERNMENT BOND FUND
The Fund's U.S. Treasury section followed a duration posture similar to the
Total Return U.S. Treasury Fund in that its duration was in excess of the
Treasury Market as a whole. The Fund also holds Canadian and Mexican government
bonds for the purpose of adding to total return through a combination of bond
market return and currency conversion. The Fund typically has 20% or more of
its portfolio invested in those two markets. This allocation in general helped
the performance this year. The Fund's active management lowered the Mexican
position because of a closely contested Presidential election. Since the
election, a smooth transition has meant an increase in the Mexican proportion.
At fiscal year end, the portion outside the U.S. is back above 20%. The Fund's
total return for the year, A shares +6.04% and C shares +5.38%, are above the
Lehman U.S. Treasury index.
3
MANAGEMENT DISCUSSION AND ANALYSIS
ISI STRATEGY FUND
During the past year, the Fund was on average 75.6% in equities. This
represents an overweighting in equities where 60% is the policy norm and has
helped the Fund's performance this year. ISI expects that equities would
benefit from a mid-cycle slowdown that allows the Fed to ease. Since the late
June Fed pause in its rate hike regime, the stock market has staged a sizable
rally moving from the roughly 12,500 on the Dow Jones Wilshire 5000 Index to
13,800 at fiscal year end. During the year, the Treasury portion of the Fund
has been invested in a similar manner to the Total Return U.S. Treasury Fund in
that its duration was longer than the Treasury Market as a whole. The average
duration of the Treasury section was 6.1 years during the year while the Lehman
Treasury Index had a 5.2 year duration. This also helped the Fund's performance.
[CHART]
Date Px Last
10/31/2005 12063.24
11/1/2005 12030.72
11/2/2005 12168.14
11/3/2005 12218.27
11/4/2005 12219.6
11/7/2005 12252.09
11/8/2005 12204.36
11/9/2005 12227.01
11/10/2005 12324.98
11/11/2005 12362.86
11/14/2005 12353.81
11/15/2005 12293.6
11/16/2005 12308.3
11/17/2005 12442.36
11/18/2005 12495.11
11/21/2005 12570.44
11/22/2005 12636.74
11/23/2005 12678.87
11/25/2005 12702.41
11/28/2005 12573.66
11/29/2005 12575.6
11/30/2005 12521.92
12/1/2005 12685.1
12/2/2005 12692.76
12/5/2005 12652.57
12/6/2005 12667.57
12/7/2005 12606.18
12/8/2005 12605.72
12/9/2005 12640.82
12/12/2005 12655.3
12/13/2005 12709.58
12/14/2005 12755.58
12/15/2005 12724.48
12/16/2005 12688.71
12/19/2005 12595.49
12/20/2005 12598.37
12/21/2005 12642.33
12/22/2005 12700.27
12/23/2005 12711.69
12/26/2005 12711.69
12/27/2005 12586.3
12/28/2005 12610.84
12/29/2005 12576.71
12/30/2005 12517.69
1/2/2006 12517.69
1/3/2006 12713.88
1/4/2006 12773.49
1/5/2006 12779.82
1/6/2006 12901.69
1/9/2006 12963
1/10/2006 12974.77
1/11/2006 13011.23
1/12/2006 12928.55
1/13/2006 12944.57
1/16/2006 12944.57
1/17/2006 12896.94
1/18/2006 12851.29
1/19/2006 12939.24
1/20/2006 12715.03
1/23/2006 12744.33
1/24/2006 12801.92
1/25/2006 12772.31
1/26/2006 12874.23
1/27/2006 12963.41
1/30/2006 12979.43
1/31/2006 12953.63
2/1/2006 12965.8
2/2/2006 12852
2/3/2006 12787.31
2/6/2006 12807.1
2/7/2006 12685.82
2/8/2006 12776.94
2/9/2006 12752.74
2/10/2006 12774.53
2/13/2006 12714.89
2/14/2006 12836.79
2/15/2006 12887.76
2/16/2006 12987.59
2/17/2006 12971.56
2/20/2006 12971.56
2/21/2006 12928.85
2/22/2006 13023
2/23/2006 12986.09
2/24/2006 13010.58
2/27/2006 13059.91
2/28/2006 12922.27
3/1/2006 13037.69
3/2/2006 13022.96
3/3/2006 13004.51
3/6/2006 12912.35
3/7/2006 12857.69
3/8/2006 12874.78
3/9/2006 12816.13
3/10/2006 12907.02
3/13/2006 12933.22
3/14/2006 13066.98
3/15/2006 13130.68
3/16/2006 13150.36
3/17/2006 13177.06
3/20/2006 13163.13
3/21/2006 13073.99
3/22/2006 13155.58
3/23/2006 13136
3/24/2006 13166.77
3/27/2006 13158.03
3/28/2006 13088.44
3/29/2006 13204.93
3/30/2006 13183.5
3/31/2006 13155.44
4/3/2006 13161.77
4/4/2006 13233.3
4/5/2006 13292.31
4/6/2006 13272.7
4/7/2006 13139.18
4/10/2006 13136.85
4/11/2006 13026.41
4/12/2006 13049.89
4/13/2006 13065.26
4/17/2006 13034.13
4/18/2006 13261.91
4/19/2006 13312.87
4/20/2006 13315.83
4/21/2006 13310.59
4/24/2006 13271.95
4/25/2006 13215.06
4/26/2006 13240.71
4/27/2006 13268.97
4/28/2006 13280.93
5/1/2006 13231.42
5/2/2006 13303.96
5/3/2006 13263.69
5/4/2006 13318.34
5/5/2006 13457.28
5/8/2006 13455.19
5/9/2006 13456.79
5/10/2006 13430.37
5/11/2006 13246.78
5/12/2006 13078.72
5/15/2006 13083.86
5/16/2006 13066.1
5/17/2006 12850.29
5/18/2006 12760.07
5/19/2006 12811.8
5/22/2006 12743.01
5/23/2006 12689.57
5/24/2006 12695.54
5/25/2006 12855.02
5/26/2006 12933.29
5/29/2006 12933.29
5/30/2006 12724.22
5/31/2006 12841.69
6/1/2006 13008.66
6/2/2006 13035.78
6/5/2006 12791.6
6/6/2006 12755.47
6/7/2006 12678.57
6/8/2006 12679.31
6/9/2006 12629.22
6/12/2006 12440.96
6/13/2006 12296.92
6/14/2006 12354.88
6/15/2006 12645.7
6/16/2006 12594.94
6/19/2006 12470.7
6/20/2006 12459.42
6/21/2006 12602.32
6/22/2006 12540.21
6/23/2006 12549.96
6/26/2006 12616.99
6/27/2006 12495.19
6/28/2006 12553.7
6/29/2006 12845.77
6/30/2006 12849.29
7/3/2006 12945.1
7/4/2006 12945.1
7/5/2006 12835.89
7/6/2006 12861.98
7/7/2006 12760.34
7/10/2006 12770.84
7/11/2006 12822.77
7/12/2006 12677.95
7/13/2006 12497.96
7/14/2006 12424.71
7/17/2006 12395.95
7/18/2006 12418.44
7/19/2006 12663.34
7/20/2006 12520.43
7/21/2006 12407.16
7/24/2006 12627.88
7/25/2006 12719.87
7/26/2006 12706.63
7/27/2006 12634.11
7/28/2006 12798.61
7/31/2006 12789.67
8/1/2006 12715.25
8/2/2006 12793.46
8/3/2006 12826.14
8/4/2006 12811.6
8/7/2006 12767.12
8/8/2006 12710.26
8/9/2006 12642.95
8/10/2006 12702.92
8/11/2006 12641.21
8/14/2006 12657.52
8/15/2006 12842.07
8/16/2006 12959.02
8/17/2006 12979.88
8/18/2006 13021.35
8/21/2006 12966.22
8/22/2006 12979.45
8/23/2006 12906.27
8/24/2006 12928.51
8/25/2006 12921.56
8/28/2006 12996.43
8/29/2006 13037.77
8/30/2006 13053.81
8/31/2006 13062.54
9/1/2006 13128.38
9/4/2006 13128.38
9/5/2006 13162.35
9/6/2006 13012.79
9/7/2006 12948.96
9/8/2006 12992.3
9/11/2006 12987.75
9/12/2006 13142.95
9/13/2006 13204.04
9/14/2006 13180.4
9/15/2006 13213.39
9/18/2006 13222.58
9/19/2006 13187.3
9/20/2006 13259.63
9/21/2006 13186.04
9/22/2006 13137.63
9/25/2006 13250.34
9/26/2006 13346.31
9/27/2006 13362.03
9/28/2006 13384.27
9/29/2006 13345.97
10/2/2006 13289.42
10/3/2006 13305.78
10/4/2006 13474.56
10/5/2006 13535.05
10/6/2006 13494.83
10/9/2006 13523.42
10/10/2006 13556.55
10/11/2006 13513.91
10/12/2006 13657.6
10/13/2006 13696.31
10/16/2006 13747.62
10/17/2006 13690.61
10/18/2006 13701.75
10/19/2006 13721.8
10/20/2006 13717.71
10/23/2006 13797.13
10/24/2006 13801.65
10/25/2006 13854.18
10/26/2006 13943.82
10/27/2006 13820.42
10/30/2006 13834.28
10/31/2006 13829.07
4
TOTAL RETURN US TREASURY FUND - ISI SHARES PERFORMANCE COMPARISON/1 /
[CHART]
Total Return US Treasury Fund - ISI Shares, Lehman Brothers Treasury Index,
Lehman Brothers Intermediate Treasury Index and Lehman Brothers Long-Term
Treasury Index:
Value of a $10,000 Investment (for 10 Years ended October 31, 2006)
Total Return Lehman Brothers
US Treasury Intermediate Lehman Brothers
Fund - Lehman Brothers Treasury Long-Term
ISI Shares Treasury Index Index Treasury Index
------------ --------------- --------------- ---------------
10/31/1996 $9,700 $10,000 $10,000 $10,000
11/30/1996 9,963 10,173 10,120 10,334
12/31/1996 9,768 10,068 10,065 10,083
1/31/1997 9,731 10,078 10,102 10,011
2/28/1997 9,724 10,091 10,117 10,016
3/31/1997 9,576 9,982 10,058 9,759
4/30/1997 9,721 10,125 10,170 9,995
5/31/1997 9,816 10,213 10,250 10,107
6/30/1997 9,962 10,327 10,336 10,302
7/31/1997 10,378 10,623 10,530 10,907
8/31/1997 10,184 10,515 10,488 10,603
9/30/1997 10,364 10,675 10,602 10,895
10/31/1997 10,577 10,861 10,727 11,263
11/30/1997 10,654 10,917 10,751 11,412
12/31/1997 10,805 11,032 10,839 11,603
1/31/1998 10,968 11,201 10,985 11,840
2/28/1998 10,918 11,168 10,970 11,754
3/31/1998 10,943 11,198 11,003 11,779
4/30/1998 10,968 11,248 11,055 11,823
5/31/1998 11,123 11,365 11,132 12,049
6/30/1998 11,301 11,496 11,207 12,329
7/31/1998 11,283 11,514 11,251 12,277
8/31/1998 11,727 11,827 11,473 12,831
9/30/1998 12,064 12,157 11,750 13,301
10/31/1998 11,900 12,118 11,773 13,100
11/30/1998 11,982 12,115 11,729 13,200
12/31/1998 11,972 12,139 11,774 13,173
1/31/1999 12,045 12,209 11,825 13,291
2/28/1999 11,630 11,898 11,653 12,638
3/31/1999 11,633 11,943 11,730 12,609
4/30/1999 11,672 11,972 11,763 12,626
5/31/1999 11,534 11,860 11,688 12,428
6/30/1999 11,454 11,835 11,709 12,296
7/31/1999 11,410 11,825 11,720 12,237
8/31/1999 11,365 11,827 11,744 12,189
9/30/1999 11,454 11,917 11,835 12,279
10/31/1999 11,445 11,930 11,851 12,287
11/30/1999 11,388 11,908 11,856 12,204
12/31/1999 11,293 11,829 11,822 12,021
1/31/2000 11,420 11,859 11,790 12,193
2/29/2000 11,661 12,038 11,882 12,561
3/31/2000 11,965 12,277 12,034 12,990
4/30/2000 11,931 12,238 12,025 12,886
5/31/2000 11,896 12,257 12,076 12,840
6/30/2000 12,091 12,463 12,250 13,118
7/31/2000 12,249 12,592 12,333 13,343
8/31/2000 12,471 12,777 12,461 13,648
9/30/2000 12,372 12,787 12,557 13,482
10/31/2000 12,532 12,911 12,640 13,693
11/30/2000 12,810 13,176 12,823 14,125
12/31/2000 13,077 13,427 13,036 14,458
1/31/2001 13,108 13,537 13,190 14,482
2/28/2001 13,298 13,700 13,312 14,730
3/31/2001 13,262 13,744 13,417 14,656
4/30/2001 12,997 13,573 13,364 14,257
5/31/2001 13,028 13,616 13,419 14,275
6/30/2001 13,073 13,689 13,467 14,398
7/31/2001 13,459 14,030 13,712 14,934
8/31/2001 13,683 14,216 13,830 15,253
9/30/2001 13,784 14,442 14,116 15,367
10/31/2001 14,232 14,842 14,331 16,122
11/30/2001 13,762 14,474 14,168 15,356
12/31/2001 13,626 14,333 14,100 15,067
1/31/2002 13,715 14,430 14,139 15,212
2/28/2002 13,804 14,560 14,256 15,439
3/31/2002 13,481 14,210 14,038 14,815
4/30/2002 13,829 14,563 14,289 15,377
5/31/2002 13,890 14,645 14,387 15,426
6/30/2002 14,124 14,851 14,562 15,703
7/31/2002 14,476 15,203 14,853 16,187
8/31/2002 14,903 15,532 15,009 16,894
9/30/2002 15,302 15,951 15,297 17,598
10/31/2002 15,054 15,774 15,269 17,092
11/30/2002 14,909 15,618 15,127 16,903
12/31/2002 15,269 16,024 15,408 17,596
1/31/2003 15,212 15,975 15,364 17,536
2/28/2003 15,485 16,250 15,530 18,067
3/31/2003 15,397 16,182 15,529 17,840
4/30/2003 15,476 16,258 15,560 18,021
5/31/2003 15,964 16,726 15,801 19,034
6/30/2003 15,861 16,624 15,776 18,744
7/31/2003 15,145 15,894 15,431 17,068
8/31/2003 15,225 15,988 15,453 17,340
9/30/2003 15,644 16,470 15,773 18,243
10/31/2003 15,400 16,219 15,618 17,735
11/30/2003 15,434 16,239 15,614 17,821
12/31/2003 15,542 16,383 15,732 18,033
1/31/2004 15,674 16,523 15,810 18,342
2/29/2004 15,865 16,727 15,957 18,707
3/31/2004 15,990 16,884 16,069 18,991
4/30/2004 15,461 16,341 15,706 17,926
5/31/2004 15,423 16,285 15,661 17,838
6/30/2004 15,501 16,350 15,694 18,001
7/31/2004 15,612 16,506 15,801 18,306
8/31/2004 15,940 16,848 16,032 18,985
9/30/2004 15,968 16,891 16,040 19,145
10/31/2004 16,114 17,025 16,128 19,427
11/30/2004 15,890 16,796 15,962 18,995
12/31/2004 16,071 16,963 16,051 19,422
1/31/2005 16,270 17,086 16,068 19,912
2/28/2005 16,132 16,947 15,964 19,655
3/31/2005 16,079 16,892 15,930 19,524
4/30/2005 16,368 17,189 16,124 20,192
5/31/2005 16,607 17,399 16,248 20,716
6/30/2005 16,761 17,505 16,299 21,026
7/31/2005 16,482 17,268 16,148 20,475
8/31/2005 16,793 17,542 16,333 21,071
9/30/2005 16,513 17,309 16,199 20,466
10/31/2005 16,336 17,174 16,128 20,089
11/30/2005 16,405 17,257 16,199 20,214
12/31/2005 16,666 17,436 16,301 20,685
1/31/2006 16,577 17,384 16,284 20,496
2/28/2006 16,628 17,409 16,279 20,641
3/31/2006 16,325 17,222 16,223 19,937
4/30/2006 16,181 17,151 16,230 19,549
5/31/2006 16,161 17,156 16,237 19,550
6/30/2006 16,177 17,211 16,269 19,700
7/31/2006 16,463 17,424 16,440 20,077
8/31/2006 16,803 17,680 16,624 20,629
9/30/2006 17,018 17,844 16,745 20,966
10/31/2006 17,125 17,935 16,819 21,120
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Ending Since Since
October 31, 2006 1 Year 3 Years 5 Years 10 Years Inception/2/ 1 Year 3 Years 5 Years 10 Years Inception/2/
Total Return US
Treasury Fund - ISI
Shares 1.67% 7.83% 16.67% 71.25% 239.86% 1.67% 2.54% 3.13% 5.53% 6.94%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Treasury
Index/3/ 4.43% 10.58% 20.84% 79.35% 266.70% 4.43% 3.41% 3.86% 6.02% 7.41%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate
Treasury Index/3/ 4.29% 7.68% 17.36% 68.19% 225.56% 4.29% 2.50% 3.25% 5.34% 6.71%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Long-Term Treasury
Index/3/ 5.13% 19.09% 31.00% 111.20% 402.81% 5.13% 6.00% 5.55% 7.76% 9.30%
- -------------------------------------------------------------------------------------------------------------------
/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. Distribution of the Fund's capital gains and non-US
Treasury income may be subject to state and local taxes. Management is not
aware of any single index that is truly representative of the Fund since
its active maturity management policy allows the manager to adjust the
weighted average maturity throughout each US Treasury sector. Currently the
Fund's weighted average maturity is approximately 9.6 years. Performance
would have been lower during the specified period if certain of the Fund's
fees and expenses had not been waived.
/2/ The Fund's inception date is August 10, 1988. Benchmark returns are for the
periods beginning August 31, 1988.
/3/ The Lehman Brothers Treasury Index is an unmanaged index reflecting the
performance of all public Treasury obligations and does not focus on one
particular segment of the Treasury market. The Lehman Brothers Intermediate
Treasury Index is an unmanaged index reflecting the performance of US
Treasury securities in the intermediate-term Treasury sector. The Lehman
Brothers 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.
5
MANAGED MUNICIPAL FUND - ISI SHARES PERFORMANCE COMPARISON/1 /
[CHART]
Managed Municipal Fund - ISI Shares, Lehman Brothers General Obligation Index,
Lehman Brothers Prerefunded Municipal Bond Index and Consumer Price Index:
Value of a $10,000 Investment (for 10 Years ended October 31, 2006)
Lehman Brothers
Managed Lehman Brothers Prerefunded
Municipal Fund - General Municipal Bond Consumer Price
ISI Shares Obligation Index Index Index
-------------- ---------------- --------------- -------------
10/31/1996 $9,700 $10,000 $10,000 $10,000
11/30/1996 9,868 10,186 10,123 10,019
12/31/1996 9,804 10,145 10,099 10,019
1/31/1997 9,804 10,173 10,136 10,051
2/28/1997 9,874 10,265 10,216 10,082
3/31/1997 9,738 10,133 10,104 10,107
4/30/1997 9,818 10,212 10,138 10,120
5/31/1997 9,964 10,364 10,282 10,114
6/30/1997 10,073 10,476 10,350 10,126
7/31/1997 10,373 10,747 10,525 10,139
8/31/1997 10,225 10,652 10,475 10,158
9/30/1997 10,365 10,773 10,565 10,183
10/31/1997 10,418 10,832 10,607 10,208
11/30/1997 10,462 10,883 10,631 10,202
12/31/1997 10,627 11,038 10,722 10,190
1/31/1998 10,735 11,152 10,816 10,208
2/28/1998 10,710 11,160 10,846 10,227
3/31/1998 10,716 11,170 10,843 10,246
4/30/1998 10,651 11,111 10,810 10,265
5/31/1998 10,845 11,295 10,944 10,284
6/30/1998 10,870 11,335 10,983 10,297
7/31/1998 10,885 11,362 11,024 10,310
8/31/1998 11,082 11,542 11,143 10,322
9/30/1998 11,219 11,697 11,235 10,335
10/31/1998 11,203 11,699 11,277 10,360
11/30/1998 11,229 11,738 11,312 10,360
12/31/1998 11,270 11,775 11,331 10,354
1/31/1999 11,404 11,930 11,453 10,379
2/28/1999 11,327 11,869 11,454 10,392
3/31/1999 11,311 11,873 11,451 10,423
4/30/1999 11,348 11,907 11,485 10,499
5/31/1999 11,233 11,840 11,443 10,499
6/30/1999 11,054 11,666 11,344 10,499
7/31/1999 11,096 11,712 11,412 10,531
8/31/1999 10,980 11,644 11,412 10,556
9/30/1999 10,927 11,654 11,448 10,606
10/31/1999 10,799 11,553 11,436 10,625
11/30/1999 10,938 11,670 11,493 10,632
12/31/1999 10,841 11,597 11,462 10,632
1/31/2000 10,766 11,554 11,477 10,663
2/29/2000 10,939 11,669 11,522 10,726
3/31/2000 11,211 11,904 11,621 10,815
4/30/2000 11,102 11,843 11,614 10,821
5/31/2000 11,025 11,781 11,615 10,834
6/30/2000 11,344 12,083 11,782 10,891
7/31/2000 11,510 12,243 11,887 10,916
8/31/2000 11,665 12,418 11,992 10,916
9/30/2000 11,565 12,354 11,982 10,973
10/31/2000 11,711 12,484 12,056 10,992
11/30/2000 11,823 12,572 12,117 10,998
12/31/2000 12,172 12,868 12,287 10,992
1/31/2001 12,229 13,009 12,461 11,061
2/28/2001 12,274 13,048 12,506 11,105
3/31/2001 12,365 13,162 12,596 11,131
4/30/2001 12,182 13,026 12,538 11,175
5/31/2001 12,308 13,158 12,658 11,226
6/30/2001 12,400 13,239 12,725 11,244
7/31/2001 12,574 13,427 12,849 11,213
8/31/2001 12,771 13,645 13,005 11,213
9/30/2001 12,690 13,615 13,055 11,263
10/31/2001 12,853 13,754 13,171 11,226
11/30/2001 12,736 13,633 13,082 11,207
12/31/2001 12,654 13,524 13,025 11,162
1/31/2002 12,820 13,746 13,215 11,188
2/28/2002 12,975 13,913 13,358 11,232
3/31/2002 12,712 13,647 13,087 11,295
4/30/2002 12,928 13,929 13,337 11,358
5/31/2002 13,025 14,005 13,421 11,358
6/30/2002 13,121 14,162 13,557 11,364
7/31/2002 13,279 14,337 13,703 11,377
8/31/2002 13,462 14,501 13,821 11,415
9/30/2002 13,743 14,794 14,020 11,434
10/31/2002 13,510 14,555 13,857 11,453
11/30/2002 13,448 14,483 13,811 11,453
12/31/2002 13,758 14,767 14,097 11,428
1/31/2003 13,683 14,742 14,080 11,478
2/28/2003 13,870 14,945 14,238 11,567
3/31/2003 13,883 14,974 14,215 11,636
4/30/2003 13,983 15,071 14,288 11,611
5/31/2003 14,248 15,403 14,527 11,592
6/30/2003 14,121 15,329 14,486 11,605
7/31/2003 13,588 14,820 14,149 11,617
8/31/2003 13,741 14,958 14,233 11,661
9/30/2003 14,125 15,386 14,547 11,699
10/31/2003 14,035 15,283 14,473 11,687
11/30/2003 14,177 15,409 14,541 11,655
12/31/2003 14,293 15,518 14,623 11,642
1/31/2004 14,293 15,595 14,677 11,699
2/29/2004 14,548 15,840 14,857 11,762
3/31/2004 14,425 15,798 14,772 11,838
4/30/2004 14,040 15,442 14,500 11,876
5/31/2004 13,943 15,421 14,437 11,946
6/30/2004 14,003 15,481 14,477 11,984
7/31/2004 14,210 15,669 14,624 11,965
8/31/2004 14,483 15,968 14,867 11,971
9/30/2004 14,531 16,046 14,887 11,996
10/31/2004 14,633 16,172 14,966 12,059
11/30/2004 14,494 16,031 14,858 12,066
12/31/2004 14,663 16,206 14,977 12,021
1/31/2005 14,779 16,328 15,005 12,047
2/28/2005 14,709 16,264 14,946 12,116
3/31/2005 14,570 16,151 14,839 12,211
4/30/2005 14,813 16,401 15,020 12,293
5/31/2005 14,905 16,514 15,067 12,280
6/30/2005 14,999 16,603 15,149 12,287
7/31/2005 14,900 16,508 15,069 12,344
8/31/2005 15,048 16,672 15,168 12,407
9/30/2005 14,935 16,559 15,122 12,558
10/31/2005 14,808 16,455 15,057 12,584
11/30/2005 14,861 16,532 15,099 12,483
12/31/2005 15,016 16,668 15,172 12,432
1/31/2006 15,056 16,714 15,209 12,527
2/28/2006 15,151 16,810 15,236 12,552
3/31/2006 14,993 16,689 15,168 12,622
4/30/2006 14,920 16,679 15,196 12,729
5/31/2006 15,016 16,754 15,259 12,792
6/30/2006 14,900 16,693 15,199 12,817
7/31/2006 15,096 16,884 15,340 12,855
8/31/2006 15,350 17,134 15,495 12,881
9/30/2006 15,447 17,251 15,586 12,817
10/31/2006 15,501 17,346 15,649 12,748
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Since Since
Ending October 31, 2006 1 Year 3 Years 5 Years 10 Years Inception/2/ 1 Year 3 Years 5 Years 10 Years Inception/2/
Managed Municipal Fund -
ISI Shares 1.54% 7.11% 16.98% 55.01% 144.36% 1.54% 2.31% 3.19% 4.48% 5.50%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
General Obligation
Index/3/ 5.41% 13.50% 26.12% 73.46% 185.69% 5.41% 4.31% 4.75% 5.66% 6.50%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Prerefunded Municipal
Bond Index/3/ 3.93% 8.12% 18.81% 56.49% 146.02% 3.93% 2.64% 3.51% 4.58% 5.55%
- -------------------------------------------------------------------------------------------------------------------
Consumer Price Index/4/ 1.31% 9.08% 13.56% 27.48% 163.10% 1.31% 2.94% 2.58% 2.46% 3.67%
- -------------------------------------------------------------------------------------------------------------------
/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. Distribution of the Fund's income and capital gains may
be subject to state and local taxes.
/2/ The Fund's inception date is February 26, 1990. Benchmark returns are for
the periods beginning February 28, 1990.
/3/ The Lehman Brothers General Obligation Index is an unmanaged index
reflecting general municipal market performance. The Lehman Brothers
Prerefunded Municipal Bond Index, an unmanaged index, is a subcomponent of
the main Lehman Brothers Municipal Bond Index, and contains only bonds from
the main index that have been prerefunded or escrowed to maturity.
Benchmark returns do not reflect expenses or sales charges that have been
deducted from the Fund's returns.
/4/ The Consumer Price Index is a widely used measure of inflation.
6
NORTH AMERICAN GOVERNMENT BOND FUND - ISI CLASS A AND ISI CLASS C SHARES
PERFORMANCE COMPARISON/1 /
[CHART]
North American Government Bond Fund - ISI Class A Shares, Lehman Brothers
Intermediate Treasury Index, Lehman Brothers 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, 2006)
Lehman Brothers Emerging
Americas Index: Mexico
North American Section/Citigroup
Government Lehman Brothers US Broad Investment- Consumer
Bond Fund - ISI Intermediate Grade Bond Index Price
Class A Shares Treasury Index Mexico Sector/5/ Index
-------------- -------------- --------------------- ------------
10/31/1996 $9,700 $10,000 $10,000 $10,000
11/30/1996 9,979 10,120 10,359 10,019
12/31/1996 9,797 10,065 10,453 10,019
1/31/1997 9,797 10,102 10,817 10,051
2/28/1997 9,808 10,117 11,004 10,082
3/31/1997 9,680 10,058 10,571 10,107
4/30/1997 9,809 10,170 10,837 10,120
5/31/1997 9,939 10,250 11,228 10,114
6/30/1997 10,082 10,336 11,468 10,126
7/31/1997 10,538 10,530 11,982 10,139
8/31/1997 10,370 10,488 11,879 10,158
9/30/1997 10,589 10,602 12,211 10,183
10/31/1997 10,686 10,727 11,651 10,208
11/30/1997 10,785 10,751 11,946 10,202
12/31/1997 10,972 10,839 12,195 10,190
1/31/1998 11,072 10,985 12,454 10,208
2/28/1998 11,047 10,970 12,565 10,227
3/31/1998 11,098 11,003 12,664 10,246
4/30/1998 11,149 11,055 12,700 10,265
5/31/1998 11,213 11,132 12,588 10,284
6/30/1998 11,342 11,207 12,528 10,297
7/31/1998 11,355 11,251 12,648 10,310
8/31/1998 11,552 11,473 10,659 10,322
9/30/1998 11,830 11,750 11,021 10,335
10/31/1998 11,750 11,773 11,397 10,360
11/30/1998 11,857 11,729 12,143 10,360
12/31/1998 11,897 11,774 12,108 10,354
1/31/1999 11,939 11,825 11,978 10,379
2/28/1999 11,662 11,653 12,039 10,392
3/31/1999 11,760 11,730 12,601 10,423
4/30/1999 11,858 11,763 12,995 10,499
5/31/1999 11,660 11,688 12,429 10,499
6/30/1999 11,675 11,709 12,599 10,499
7/31/1999 11,660 11,720 12,465 10,531
8/31/1999 11,646 11,744 12,594 10,556
9/30/1999 11,734 11,835 12,892 10,606
10/31/1999 11,719 11,851 13,131 10,625
11/30/1999 11,749 11,856 13,508 10,632
12/31/1999 11,704 11,822 13,861 10,632
1/31/2000 11,795 11,790 13,758 10,663
2/29/2000 12,037 11,882 14,405 10,726
3/31/2000 12,327 12,034 14,786 10,815
4/30/2000 12,265 12,025 14,584 10,821
5/31/2000 12,249 12,076 14,300 10,834
6/30/2000 12,389 12,250 14,862 10,891
7/31/2000 12,593 12,333 15,222 10,916
8/31/2000 12,799 12,461 15,604 10,916
9/30/2000 12,751 12,557 15,641 10,973
10/31/2000 12,848 12,640 15,486 10,992
11/30/2000 13,123 12,823 15,721 10,998
12/31/2000 13,352 13,036 15,954 10,992
1/31/2001 13,418 13,190 16,252 11,061
2/28/2001 13,584 13,312 16,137 11,105
3/31/2001 13,651 13,417 16,203 11,131
4/30/2001 13,550 13,364 16,299 11,175
5/31/2001 13,634 13,419 16,674 11,226
6/30/2001 13,719 13,467 17,005 11,244
7/31/2001 14,011 13,712 17,042 11,213
8/31/2001 14,220 13,830 17,390 11,213
9/30/2001 14,238 14,116 16,954 11,263
10/31/2001 14,730 14,331 17,626 11,226
11/30/2001 14,359 14,168 17,707 11,207
12/31/2001 14,269 14,100 17,948 11,162
1/31/2002 14,359 14,139 18,234 11,188
2/28/2002 14,467 14,256 18,796 11,232
3/31/2002 14,248 14,038 18,513 11,295
4/30/2002 14,450 14,289 18,937 11,358
5/31/2002 14,469 14,387 18,947 11,358
6/30/2002 14,577 14,562 18,643 11,364
7/31/2002 14,855 14,853 18,435 11,377
8/31/2002 15,247 15,009 19,212 11,415
9/30/2002 15,508 15,297 19,176 11,434
10/31/2002 15,352 15,269 19,569 11,453
11/30/2002 15,291 15,127 19,988 11,453
12/31/2002 15,535 15,408 20,525 11,428
1/31/2003 15,433 15,364 20,428 11,478
2/28/2003 15,664 15,530 20,831 11,567
3/31/2003 15,660 15,529 21,231 11,636
4/30/2003 15,934 15,560 21,973 11,611
5/31/2003 16,508 15,801 22,644 11,592
6/30/2003 16,444 15,776 22,558 11,605
7/31/2003 15,694 15,431 21,603 11,617
8/31/2003 15,690 15,453 21,850 11,661
9/30/2003 16,155 15,773 22,717 11,699
10/31/2003 15,987 15,618 22,463 11,687
11/30/2003 15,900 15,614 22,558 11,655
12/31/2003 16,063 15,732 22,867 11,642
1/31/2004 16,229 15,810 23,106 11,699
2/29/2004 16,399 15,957 23,580 11,762
3/31/2004 16,527 16,069 24,030 11,838
4/30/2004 15,903 15,706 22,932 11,876
5/31/2004 15,795 15,661 22,791 11,946
6/30/2004 15,817 15,694 22,868 11,984
7/31/2004 16,014 15,801 23,329 11,965
8/31/2004 16,322 16,032 24,126 11,971
9/30/2004 16,410 16,040 24,195 11,996
10/31/2004 16,566 16,128 24,531 12,059
11/30/2004 16,476 15,962 24,363 12,066
12/31/2004 16,724 16,051 24,785 12,021
1/31/2005 16,859 16,068 25,185 12,047
2/28/2005 16,723 15,964 25,167 12,116
3/31/2005 16,655 15,930 24,541 12,211
4/30/2005 16,929 16,124 24,934 12,293
5/31/2005 17,297 16,248 25,701 12,280
6/30/2005 17,551 16,299 25,957 12,287
7/31/2005 17,343 16,148 25,883 12,344
8/31/2005 17,669 16,333 26,325 12,407
9/30/2005 17,505 16,199 26,309 12,558
10/31/2005 17,294 16,128 26,002 12,584
11/30/2005 17,482 16,199 26,488 12,483
12/31/2005 17,766 16,301 26,741 12,432
1/31/2006 17,766 16,284 26,783 12,527
2/28/2006 17,838 16,279 27,118 12,552
3/31/2006 17,431 16,223 26,238 12,622
4/30/2006 17,335 16,230 26,121 12,729
5/31/2006 17,310 16,237 25,727 12,792
6/30/2006 17,310 16,269 25,861 12,817
7/31/2006 17,676 16,440 26,656 12,855
8/31/2006 18,018 16,624 27,355 12,881
9/30/2006 18,165 16,745 27,539 12,817
10/31/2006 18,338 16,819 27,917 12,748
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Since Since
Ending October 31, 2006 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 2.81% 11.25% 20.74% 83.38% 115.64% 2.81% 3.62% 3.84% 6.25% 5.73%
- -------------------------------------------------------------------------------------------------------------------
North American
Government Bond Fund -
ISI Class C Shares 4.35% 12.46% - - 9.51%/3/ 4.35% 3.99% - - 2.66%/3/
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Treasury
Index/4/ 4.29% 7.68% 17.36% 68.19% 225.56% 4.29% 2.50% 3.25% 5.34% 6.71%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Emerging
Americas Index: Mexico
Section/Citigroup US
Broad Investment-Grade
Bond Index Mexico
Sector/5/ 7.36% 24.28% 58.39% 179.17% 304.04% 7.36% 7.51% 9.63% 10.81% 10.66%
- -------------------------------------------------------------------------------------------------------------------
Consumer Price Index/6/ 1.31% 9.08% 13.56% 27.48% 163.10% 1.31% 2.94% 2.58% 2.46% 3.67%
- -------------------------------------------------------------------------------------------------------------------
7
NORTH AMERICAN GOVERNMENT BOND FUND - ISI CLASS A AND ISI CLASS C SHARES
PERFORMANCE COMPARISON/1 /
/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. Performance would have been lower
during the specified period if certain of the Fund's fees and expenses had
not been waived.
/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 Lehman Brothers Intermediate Treasury Index from
May 31, 2003 through October 31, 2006 were 6.44% and 1.84%, respectively.
/4/ The Lehman Brothers Intermediate Treasury Index is an unmanaged index
reflecting the performance of US Treasury securities in the
intermediate-term Treasury sector. Benchmark returns do not reflect
expenses or sales charges that have been deducted from the Fund's returns.
/5/ Reflects the performance of the Lehman Brothers 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. The Lehman Brothers Emerging Americas Index: Mexico
Section has been discontinued. Lehman Brothers Emerging Americas Index:
Mexico Section was an unmanaged sub-index of the Lehman Brothers 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.
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.
8
ISI STRATEGY FUND - ISI SHARES PERFORMANCE COMPARISON/1 /
[CHART]
ISI Strategy Fund - ISI Shares, Dow Jones Wilshire 5000 (Full Cap) Index,
Consumer Price Index and Lipper Flexible Portfolio Funds
Average: Value of a $10,000 Investment (since inception/2/):
Lipper Flexible
ISI Strategy Dow Jones Portfolio
Fund - Wilshire 5000 Consumer Price Funds
ISI Shares (Full Cap) Index Index Average
------------ ---------------- -------------- ---------------
9/16/1997 $9,700 $10,000 $10,000 $10,000
9/30/1997 9,719 10,000 10,000 10,000
10/31/1997 9,554 9,667 10,025 9,741
11/30/1997 9,767 9,983 10,019 9,897
12/31/1997 9,933 10,168 10,006 10,032
1/31/1998 10,020 10,223 10,025 10,082
2/28/1998 10,459 10,967 10,043 10,549
3/31/1998 10,810 11,516 10,062 10,928
4/30/1998 10,878 11,653 10,081 11,014
5/31/1998 10,761 11,343 10,099 10,873
6/30/1998 11,044 11,741 10,112 11,069
7/31/1998 10,887 11,483 10,124 10,924
8/31/1998 9,992 9,695 10,136 9,802
9/30/1998 10,483 10,328 10,149 10,178
10/31/1998 10,888 11,097 10,174 10,550
11/30/1998 11,337 11,796 10,174 10,952
12/31/1998 11,776 12,550 10,167 11,330
1/31/1999 12,079 13,012 10,192 11,557
2/28/1999 11,634 12,540 10,205 11,204
3/31/1999 11,937 13,024 10,236 11,538
4/30/1999 12,301 13,648 10,310 11,966
5/31/1999 12,068 13,350 10,310 11,754
6/30/1999 12,443 14,041 10,310 12,181
7/31/1999 12,148 13,590 10,341 11,988
8/31/1999 12,046 13,464 10,366 11,947
9/30/1999 11,863 13,112 10,416 11,818
10/31/1999 12,282 13,946 10,434 12,183
11/30/1999 12,496 14,413 10,440 12,537
12/31/1999 12,953 15,507 10,440 13,265
1/31/2000 12,649 14,864 10,471 13,026
2/29/2000 12,869 15,196 10,533 13,472
3/31/2000 13,498 16,099 10,620 13,964
4/30/2000 13,056 15,260 10,627 13,590
5/31/2000 12,804 14,727 10,639 13,416
6/30/2000 13,183 15,377 10,695 13,715
7/31/2000 13,098 15,063 10,720 13,590
8/31/2000 13,734 16,157 10,720 14,243
9/30/2000 13,289 15,403 10,775 13,920
10/31/2000 13,205 15,076 10,794 13,821
11/30/2000 12,491 13,576 10,800 13,259
12/31/2000 12,735 13,818 10,794 13,633
1/31/2001 13,063 14,347 10,862 13,832
2/28/2001 12,340 12,986 10,906 13,190
3/31/2001 11,865 12,112 10,931 12,652
4/30/2001 12,299 13,109 10,974 13,191
5/31/2001 12,379 13,239 11,024 13,328
6/30/2001 12,254 13,018 11,042 13,088
7/31/2001 12,259 12,803 11,011 13,081
8/31/2001 11,814 12,028 11,011 12,706
9/30/2001 11,107 10,947 11,061 12,055
10/31/2001 11,416 11,226 11,024 12,238
11/30/2001 11,874 12,084 11,005 12,664
12/31/2001 12,006 12,301 10,962 12,768
1/31/2002 11,903 12,149 10,986 12,639
2/28/2002 11,765 11,899 11,030 12,525
3/31/2002 12,087 12,420 11,092 12,840
4/30/2002 11,814 11,813 11,154 12,584
5/31/2002 11,768 11,674 11,154 12,535
6/30/2002 11,193 10,854 11,160 11,878
7/31/2002 10,618 9,978 11,172 11,220
8/31/2002 10,745 10,036 11,210 11,320
9/30/2002 10,041 9,029 11,228 10,620
10/31/2002 10,515 9,720 11,247 11,015
11/30/2002 10,885 10,306 11,247 11,448
12/31/2002 10,500 9,735 11,222 11,166
1/31/2003 10,291 9,490 11,272 11,026
2/28/2003 10,221 9,329 11,359 10,912
3/31/2003 10,326 9,435 11,427 10,926
4/30/2003 10,932 10,208 11,402 11,521
5/31/2003 11,479 10,832 11,383 12,128
6/30/2003 11,569 10,992 11,396 12,266
7/31/2003 11,592 11,257 11,408 12,358
8/31/2003 11,849 11,527 11,452 12,637
9/30/2003 11,779 11,400 11,489 12,662
10/31/2003 12,246 12,096 11,476 13,180
11/30/2003 12,363 12,265 11,445 13,392
12/31/2003 12,722 12,816 11,433 13,905
1/31/2004 12,956 13,101 11,489 14,134
2/29/2004 13,120 13,292 11,551 14,364
3/31/2004 13,046 13,149 11,625 14,345
4/30/2004 12,788 12,870 11,663 13,992
5/31/2004 12,847 13,047 11,731 14,074
6/30/2004 13,045 13,319 11,768 14,338
7/31/2004 12,752 12,811 11,749 13,965
8/31/2004 12,881 12,853 11,756 14,056
9/30/2004 13,084 13,082 11,780 14,344
10/31/2004 13,190 13,305 11,842 14,514
11/30/2004 13,531 13,928 11,849 15,117
12/31/2004 13,862 14,434 11,805 15,566
1/31/2005 13,602 14,049 11,830 15,337
2/28/2005 13,862 14,342 11,898 15,696
3/31/2005 13,705 14,089 11,991 15,431
4/30/2005 13,480 13,771 12,072 15,096
5/31/2005 13,895 14,308 12,060 15,512
6/30/2005 14,057 14,437 12,066 15,737
7/31/2005 14,426 15,041 12,122 16,269
8/31/2005 14,557 14,894 12,184 16,300
9/30/2005 14,694 14,999 12,333 16,601
10/31/2005 14,455 14,738 12,357 16,255
11/30/2005 14,873 15,331 12,258 16,659
12/31/2005 14,961 15,346 12,208 16,873
1/31/2006 15,451 15,895 12,301 17,591
2/28/2006 15,415 15,887 12,326 17,509
3/31/2006 15,648 16,195 12,395 17,840
4/30/2006 15,648 16,367 12,500 18,175
5/31/2006 15,240 15,856 12,562 17,712
6/30/2006 15,307 15,885 12,587 17,693
7/31/2006 15,211 15,827 12,624 17,712
8/31/2006 15,488 16,199 12,649 17,935
9/30/2006 15,829 16,570 12,587 18,113
10/31/2006 16,336 17,185 12,519 18,576
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Since Since
Ending October 31, 2006 1 Year 3 Years 5 Years Inception/2/ 1 Year 3 Years 5 Years Inception/2/
ISI Strategy Fund - ISI
Shares 9.66% 29.45% 38.78% 63.36% 9.66% 8.98% 6.77% 5.53%
- -----------------------------------------------------------------------------------------------------
Dow Jones Wilshire 5000
(Full Cap) Index/3/ 16.60% 42.07% 53.08% 71.85% 16.60% 12.42% 8.89% 6.14%
- -----------------------------------------------------------------------------------------------------
Consumer Price Index/4/ 1.31% 9.08% 13.56% 25.19% 1.31% 2.94% 2.58% 2.50%
- -----------------------------------------------------------------------------------------------------
Lipper Flexible
Portfolio Funds
Average/5/ 11.98% 35.85% 48.54% 85.76% 11.98% 10.64% 8.03% 6.70%
- -----------------------------------------------------------------------------------------------------
/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. Performance would have been lower during the specified
period if certain of the Fund's fees and expenses had not been waived.
/2/ The Fund's inception date is September 16, 1997. Benchmark returns are for
the periods beginning September 30, 1997.
/3/ The 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 the mutual funds
designated by Lipper, Inc. as falling into the category indicated. The
Lipper Flexible Portfolio Funds category includes funds that allocate their
investments across various asset classes, including domestic common stocks,
bonds and money market instruments with a focus on total return. Benchmark
returns do not reflect expenses or sales charges that have been deducted
from the Fund's returns.
9
SHAREHOLDER EXPENSE EXAMPLE (UNAUDITED)
As a shareholder of a Fund, you incur two types of costs: (1) transaction
costs for certain share classes, including sales charges (loads) on purchase
payments or other distributions; and (2) ongoing costs, including management
fees, Rule 12b-1 distribution/shareholder service fees for certain share
classes and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in a Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The following example is based on $1,000 invested on May 1, 2006 and held
for the six months through October 31, 2006.
ACTUAL EXPENSES - The "Actual Return" rows in the following table provide
information about actual account values and actual expenses. You may use the
information, 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 - The "Hypothetical Return"
rows in the following table provide 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 table are meant to highlight your ongoing costs only
and do not reflect any transactional costs, such as sales charges (loads).
Therefore, the "Hypothetical Return" rows 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.
10
SHAREHOLDER EXPENSE EXAMPLE (UNAUDITED)
BEGINNING ENDING EXPENSES PAID ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE DURING EXPENSE
MAY 1, 2006 OCTOBER 31, 2006 PERIOD/(1)/ RATIO
- -------------------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND
Actual Return $1,000.00 $1,058.37 $4.10 0.79%
Hypothetical Return $1,000.00 $1,021.22 $4.02 0.79%
MANAGED MUNICIPAL FUND
Actual Return $1,000.00 $1,038.93 $4.83 0.94%
Hypothetical Return $1,000.00 $1,020.47 $4.79 0.94%
NORTH AMERICAN GOVERNMENT BOND FUND
ISI CLASS A SHARES
Actual Return $1,000.00 $1,057.87 $5.55 1.07%
Hypothetical Return $1,000.00 $1,019.81 $5.45 1.07%
NORTH AMERICAN GOVERNMENT BOND FUND
ISI CLASS C SHARES
Actual Return $1,000.00 $1,054.49 $8.96 1.73%
Hypothetical Return $1,000.00 $1,016.48 $8.79 1.73%
ISI STRATEGY FUND
Actual Return $1,000.00 $1,043.95 $5.00 0.97%
Hypothetical Return $1,000.00 $1,020.32 $4.94 0.97%
- --------------------------------------------------------------------------------
(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
most recent fiscal half-year, divided by 365 to reflect the half-year period.
11
ISI FUNDS (UNAUDITED)
PORTFOLIO PROFILES (AS A % OF TOTAL NET ASSETS) OCTOBER 31, 2006
TOTAL RETURN US TREASURY FUND
US Treasury Obligations 96.90%
Repurchase Agreements 1.78%
Other Assets and Liabilities 1.32%
-------
100.00%
MANAGED MUNICIPAL FUND
Aaa* 69.37%
Aa* 28.13%
Repurchase Agreements 1.51%
Other Assets and Liabilities 0.99%
-------
100.00%
*Ratings are based on Moody's Investor Services, Inc.
NORTH AMERICAN GOVERNMENT BOND FUND
Canadian Securities 8.42%
Mexican Securities 12.19%
US Treasury Securities 76.30%
Repurchase Agreements 2.28%
Other Assets and Liabilities 0.81%
-------
100.00%
ISI STRATEGY FUND
Basic Materials 2.26%
Biotechnology 2.42%
Business Services 1.87%
Capital Goods 7.71%
Consumer Cyclicals 0.80%
Consumer Staples 10.31%
Energy 7.33%
Finance 18.78%
Health Care 5.40%
Information Services 2.00%
Internet 3.82%
Retail 2.78%
Technology 6.59%
Transportation 2.91%
Utilities 1.74%
US Treasury Securities 22.64%
Repurchase Agreements 0.38%
Other Assets and Liabilities 0.26%
-------
100.00%
12
TOTAL RETURN US TREASURY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
INTEREST MATURITY PAR MARKET
SECURITY RATE DATE VALUE VALUE
-----------------------------------------------------------------------------------------------------
US TREASURY OBLIGATIONS - 96.90%
US Treasury Bond 10.375% 11/15/12 $ 14,250,000 $ 15,040,430
US Treasury Bond 7.625% 2/15/25 11,500,000 15,397,422
US Treasury Bond 6.000% 2/15/26 11,500,000 13,201,641
US Treasury Bond 6.375% 8/15/27 28,000,000 33,744,375
US Treasury Bond 4.500% 2/15/36 10,000,000 9,654,687
US Treasury Note 5.500% 5/15/09 25,000,000 25,523,437
US Treasury Note 4.000% 2/15/15 5,100,000 4,892,016
US Treasury Note 3.375% 2/28/07 5,800,000 5,767,375
US Treasury Note 4.125% 8/15/10 6,000,000 5,907,188
US Treasury Note 4.125% 5/15/15 10,000,000 9,670,312
US Treasury Note 4.875% 8/15/16 10,000,000 10,210,937
-------------
TOTAL US TREASURY OBLIGATIONS
(COST $153,141,168)..................................................... 149,009,820
-------------
REPURCHASE AGREEMENT - 1.78%
JPMORGAN CHASE BANK, N.A.
Dated 10/31/06, 4.780%, principal and interest in the amount of $2,745,364
due 11/1/06, collaterized by US Treasury Strips, par value of $2,745,000,
due 8/15/28 with a value of $2,800,091 (Cost $2,745,000)................ 2,745,000
-------------
TOTAL INVESTMENTS - 98.68%
(COST $155,886,168)*......................................................... 151,754,820
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.32%....................................... 2,029,404
-------------
NET ASSETS - 100.00%................................................................ $ 153,784,224
=============
- --------------------------------------------------------------------------------
*Cost for Federal income tax purposes is $155,886,168 and net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation $ 381,975
Gross Unrealized Depreciation (4,513,323)
------------
Net Unrealized Depreciation.. ($ 4,131,348)
============
See Notes to Financial Statements.
13
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
RATING/1/
INTEREST MATURITY (MOODY'S/ PAR MARKET
SECURITY RATE DATE S&P) VALUE VALUE
- ---------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 97.50%
GENERAL OBLIGATIONS - 66.13%
Alexandria, VA, Capital Improvement................. 4.250% 6/15/21 Aaa/AAA $ 3,300,000 $ 3,361,215
Arlington County, VA, State Aid Withholding......... 4.500% 1/15/28 Aaa/AAA 4,500,000 4,556,880
Arlington County, VA, State Aid Withholding......... 5.000% 10/1/14 Aaa/AAA 1,080,000 1,117,411
Cary, NC............................................ 5.000% 3/1/18 Aaa/AAA 2,000,000 2,140,160
Chesterfield County, VA, State Aid Withholding...... 5.000% 1/15/20 Aaa/NR 1,000,000 1,051,540
Dallas, TX.......................................... 4.000% 2/15/16 Aa1/AA+ 2,450,000 2,477,023
Dallas, TX.......................................... 4.500% 2/15/23 Aa1/AA+ 3,500,000 3,545,010
Delaware State, Series A............................ 4.200% 1/1/20 Aaa/AAA 1,675,000 1,698,618
Du Page County, IL, Jail Project.................... 5.600% 1/1/21 Aaa/AAA 1,600,000 1,831,344
Florida State, Board of Education, Public Education,
Series I.......................................... 4.125% 6/1/21 Aa1/AAA 3,000,000 3,009,600
Georgia State, Series G............................. 4.125% 10/1/23 Aaa/AAA 2,000,000 1,997,520
Henrico County, VA, Public Improvement.............. 4.250% 7/15/24 Aaa/AAA 2,830,000 2,845,197
Maryland State, Capital Improvement, Series A....... 4.000% 2/15/20 Aaa/AAA 4,000,000 4,032,720
Mecklenburg County, NC, Public Improvement,
Series A.......................................... 4.250% 2/1/19 Aaa/AAA 2,000,000 2,042,180
Mecklenburg County, NC, Public Improvement,
Series A.......................................... 4.000% 2/1/20 Aaa/AAA 3,000,000 3,021,480
Minnesota State..................................... 5.500% 6/1/18 Aa1/AAA 2,000,000 2,129,040
Missouri State, Fourth State Building, Series A..... 4.125% 10/1/19 Aaa/AAA 2,000,000 2,030,700
Montgomery County, MD, Public Improvement,
Series A.......................................... 4.000% 5/1/21 Aaa/AAA 2,450,000 2,460,461
Salt Lake City, UT, School District, School Board
Guaranty, Series A................................ 4.500% 3/1/20 Aaa/NR 2,240,000 2,303,907
South Carolina State, Highway, Series B............. 5.000% 4/1/19 Aaa/AA+ 1,000,000 1,062,470
Virginia State, Series A............................ 4.500% 6/1/27 Aaa/AAA 1,550,000 1,573,669
Washington, MD, Suburban Sanitation District........ 4.250% 6/1/26 Aaa/AAA 2,500,000 2,506,775
Washington State, Series E.......................... 5.000% 7/1/22 Aa1/AA 2,000,000 2,014,620
------------
54,809,540
------------
OTHER REVENUE - 6.19%
Gwinnett County, GA, Water & Sewer Authority,
Series B.......................................... 4.750% 8/1/21 Aaa/AAA 2,000,000 2,092,060
Texas, Water Development Board Revenue, State
Revolving Fund - SR Lien, Series A................ 4.750% 7/15/20 Aaa/AAA 3,000,000 3,039,780
------------
5,131,840
------------
See Notes to Financial Statements.
14
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
RATING/1/
INTEREST MATURITY (MOODY'S/ PAR MARKET
SECURITY RATE DATE S&P) VALUE VALUE
- -------------------------------------------------------------------------------------------------------
PREREFUNDED ISSUES - 25.18%
Arlington County, VA, 10/1/08 @ 101, State Aid
Withholding....................................... 5.000% 10/1/14 Aaa/AAA $ 920,000 $ 954,206
Charlotte, NC, Water & Sewer System Revenue,
6/1/09 @ 101...................................... 5.250% 6/1/24 Aa1/AAA 1,600,000 1,682,560
Chesterfield Country, VA, 1/15/10 @ 100............. 5.625% 1/15/14 Aaa/AAA 1,350,000 1,436,913
Florida State, Board of Education, Public Education
Capital Outlay, Series A, 6/1/10 @ 101............ 5.125% 6/1/21 Aaa/AAA 1,000,000 1,061,620
Georgia State, Series D, Unrefunded Balance,
10/1/10 @ 100..................................... 5.000% 10/1/17 Aaa/AAA 390,000 411,887
Guilford County, NC, Series B, 10/1/10 @ 102........ 5.250% 10/1/16 Aa1/AAA 3,000,000 3,241,170
Gwinnett County, GA, Water & Sewer Authority,
8/1/12 @ 100...................................... 5.250% 8/1/24 Aaa/AAA 1,500,000 1,630,035
Missouri State, Fourth State Building, Series A,
6/1/08 @ 100...................................... 5.000% 6/1/23 Aaa/AAA 2,000,000 2,045,920
North Carolina State, Public School Building,
4/1/09 @ 102...................................... 4.600% 4/1/17 Aa1/AAA 5,000,000 5,216,450
South Carolina State, State Institutional, Series A,
3/1/10 @ 101, State Aid Withholding............... 5.300% 3/1/17 Aaa/AA+ 1,700,000 1,809,157
Virginia State, 6/1/09 @ 100........................ 5.250% 6/1/16 Aaa/AAA 1,320,000 1,377,037
-----------
20,866,955
-----------
TOTAL MUNICIPAL BONDS
(COST $77,537,640)............................................................. 80,808,335
-----------
REPURCHASE AGREEMENTS - 1.51%
JPMORGAN CHASE BANK, N.A.
Dated 10/31/06, 4.780%, principal and interest in the amount of $1,255,167
due 11/1/06, collateralized by US Treasury Strips, par value of $1,255,000
due 11/15/25 with a value of $1,280,680 (Cost $1,255,000)...................... 1,255,000
-----------
TOTAL INVESTMENTS - 99.01%
(COST $78,792,640)*................................................................. 82,063,335
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.99%.............................................. 816,967
-----------
NET ASSETS - 100.00%....................................................................... $82,880,302
===========
See Notes to Financial Statements.
15
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
- --------------------------------------------------------------------------------
/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
determined to possess very strong safety characteristics are denoted
with a plus (+) sign.
NR Not rated.
*Cost for Federal income tax purposes is $78,792,640 and net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation $3,270,695
Gross Unrealized Depreciation -
----------
Net Unrealized Appreciation.. $3,270,695
==========
See Notes to Financial Statements.
16
NORTH AMERICAN GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
INTEREST MATURITY PAR/NOMINAL MARKET
SECURITY RATE DATE VALUE/1/ VALUE
------------------------------------------------------------------------
CANADIAN SECURITIES - 8.42%
Canadian Government Bond 4.000% 6/1/16 C 15,383,000 $ 13,679,486
-------------
TOTAL CANADIAN SECURITIES
(COST $13,827,197)............................ 13,679,486
-------------
MEXICAN SECURITIES - 12.19%
Mexican Bono/2/ 8.000% 12/24/08 P 466,000 4,380,181
Mexican Bono/2/ 9.000% 12/22/11 803,229 7,825,289
Mexican Bono/2/ 9.000% 12/20/12 317,824 3,113,987
Mexican Bono/2/ 8.000% 12/17/15 481,170 4,484,649
-------------
TOTAL MEXICAN SECURITIES
(COST $19,222,530)............................ 19,804,106
-------------
US SECURITIES - 76.30%
US Treasury Bond 7.625% 2/15/25 $ 10,100,000 13,522,954
US Treasury Bond 6.000% 2/15/26 2,000,000 2,295,938
US Treasury Bond 6.375% 8/15/27 22,100,000 26,633,953
US Treasury Bond 6.250% 8/15/23 5,400,000 6,285,937
US Treasury Bond 4.500% 2/15/36 9,000,000 8,689,219
US Treasury Note 3.000% 2/15/08 9,100,000 8,895,250
US Treasury Note 3.250% 8/15/08 5,500,000 5,363,359
US Treasury Note 3.125% 9/15/08 2,000,000 1,944,375
US Treasury Note 5.000% 2/15/11 19,500,000 19,853,438
US Treasury Note 5.000% 8/15/11 6,500,000 6,632,031
US Treasury Note 4.250% 8/15/13 4,250,000 4,168,320
US Treasury Note 4.000% 2/15/15 8,900,000 8,537,047
US Treasury Note 4.125% 5/15/15 11,500,000 11,120,859
-------------
TOTAL US SECURITIES
(COST $128,087,505)........................... 123,942,680
-------------
See Notes to Financial Statements.
17
NORTH AMERICAN GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
MARKET
SECURITY VALUE
-------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 2.28%
JPMORGAN CHASE BANK, N.A.
Dated 10/31/06, 4.780%, principal and interest in the amount of $3,696,491
due 11/1/06, collaterized by US Treasury Strips, par value of $3,696,000,
due 11/15/25 and 08/15/28 with a value of $3,770,830 (Cost $3,696,000).. $ 3,696,000
------------
TOTAL INVESTMENTS - 99.19%
(COST $164,833,232)*......................................................... 161,122,272
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.81%....................................... 1,311,015
------------
NET ASSETS - 100.00%................................................................ $162,433,287
============
- --------------------------------------------------------------------------------
/1/Par Value is shown in local currency: Canadian dollars (C), Mexican pesos
(P) and US dollars ($).
/2/Bonos are fixed rate, local currency-denominated coupon bonds issued by the
Mexican government.
*Cost for Federal income tax purposes is $164,833,232 and net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation $ 862,397
Gross Unrealized Depreciation (4,573,357)
-----------
Net Unrealized Depreciation.. $(3,710,960)
===========
See Notes to Financial Statements.
18
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
MARKET
SECURITY SHARES VALUE
------------------------------------------------------------
COMMON STOCK - 76.72%
BASIC MATERIALS - 2.26%
Corn Products International, Inc. 4,200 $ 151,999
Dow Chemical Co. 3,200 130,528
FMC Corp. 2,100 143,955
International Flavors & Fragrances, Inc. 11,500 488,520
OfficeMax, Inc. 7,600 361,608
Owens-Illinois, Inc.+ 4,500 74,700
Temple-Inland, Inc. 200 7,888
Wausau Paper Corp. 12,100 164,076
Weyerhaeuser Co. 350 22,256
Worthington Industries, Inc. 1,250 21,600
------------
1,567,130
------------
BIOTECHNOLOGY - 2.42%
Abraxis BioScience, Inc.+ 4,954 130,786
Albany Molecular Research, Inc.+ 404 4,812
Amgen, Inc.+ 7,300 554,143
Biogen Idec, Inc.+ 1,000 47,600
Caremark Rx, Inc. 1,631 80,294
Genentech, Inc.+ 6,324 526,789
Genzyme Corp.+ 5,000 337,550
------------
1,681,974
------------
BUSINESS SERVICES - 1.87%
Alderwoods Group, Inc.+ 1,004 19,970
Checkfree Corp.+ 1,800 71,064
Computer Sciences Corp.+ 5,000 264,250
Expedia, Inc.+ 2,543 41,324
First Data Corp. 5,000 121,250
IMS Health, Inc. 5,000 139,250
Interpublic Group of Cos., Inc.+ 1,900 20,729
Laidlaw International, Inc. 5,000 145,050
Landauer, Inc. 700 38,339
Regis Corp. 4,211 158,123
Rent-A-Center, Inc.+ 6,000 172,560
RH Donnelley Corp. 1,400 84,308
ServiceMaster Co. 1,100 12,463
United Rentals, Inc.+ 123 2,914
Weight Watchers International, Inc. 160 6,976
------------
1,298,570
------------
CAPITAL GOODS - 7.71%
3M Co. 2,400 189,216
AGCO Corp.+ 5,800 155,150
Alcoa, Inc. 1,242 35,906
American Standard Cos., Inc. 2,900 128,441
MARKET
SECURITY SHARES VALUE
Boeing Co. 2,730 $ 218,018
Caterpillar, Inc. 3,220 195,486
Clarcor, Inc. 200 6,516
Cree, Inc.+ 105 2,309
CTS Corp. 6,700 94,604
Deere & Co. 200 17,026
Dycom Industries, Inc.+ 1,500 34,965
Emerson Electric Co. 2,460 207,624
General Electric Co. 25,234 885,966
Goodrich Corp. 1,100 48,499
Griffon Corp.+ 1,500 36,885
Harsco Corp. 97 7,918
Honeywell International, Inc. 3,500 147,420
Illinois Tool Works, Inc. 5,380 257,863
Ingersoll-Rand Co., Ltd. - Class A 2,900 106,459
Johnson Controls, Inc. 3,120 254,405
Kennametal, Inc. 1,600 98,736
Littelfuse, Inc.+ 2,400 81,264
Manitowoc Co., Inc. 7,000 384,160
Mueller Industries, Inc. 1,000 36,670
Navistar International Corp.+ 900 24,957
Pall Corp. 1,200 38,280
PerkinElmer, Inc. 1,000 21,360
Pitney Bowes, Inc. 4,329 202,208
Raytheon Co. 200 9,990
Reliance Steel & Aluminum Co. 4,000 137,400
RTI International Metals, Inc.+ 2,000 122,640
Schnitzer Steel Industries, Inc. 2,800 97,888
Solectron Corp.+ 11,500 38,410
Spectrum Brands, Inc.+ 2,400 23,328
Symbol Technologies, Inc. 1,800 26,874
Textron, Inc. 4,800 436,464
Thermo Electron Corp.+ 400 17,148
Titanium Metals Corp.+ 2,700 79,596
Tredegar Corp. 5,500 95,920
United Stationers, Inc.+ 600 28,650
United Technologies Corp. 3,000 197,160
URS Corp.+ 1,430 57,786
Vishay Intertechnology, Inc.+ 5,000 67,450
------------
5,355,015
------------
CONSUMER CYCLICALS - 0.80%
Centex Corp. 400 20,920
DR Horton, Inc. 1,166 27,319
EW Scripps Co. - Class A 100 4,946
Ford Motor Co. 10,800 89,424
See Notes to Financial Statements.
19
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
MARKET
SECURITY SHARES VALUE
----------------------------------------------------------
COMMON STOCK
CONSUMER CYCLICALS (CONTINUED)
General Motors Corp. 2,545 $ 88,871
Genuine Parts Co. 1,450 66,004
Harley-Davidson, Inc. 300 20,589
Liz Claiborne, Inc. 1,600 67,472
McGraw-Hill Cos., Inc. 600 38,502
News Corp. - Class A 604 12,593
Viacom, Inc. - Class B+ 933 36,312
Whirlpool Corp. 600 52,158
Wyndham Worldwide Corp.+ 1,038 30,621
------------
555,731
------------
CONSUMER STAPLES - 10.31%
Altria Group, Inc. 2,171 176,567
American Tower Corp. - Class A+ 3,321 119,622
AmerisourceBergen Corp. 10,000 472,000
Anheuser-Busch Cos., Inc. 6,202 294,099
Aramark Corp. - Class B 5,637 188,445
Avis Budget Group, Inc. 519 10,271
Avon Products, Inc. 9,106 276,913
Brinker International, Inc. 590 27,394
Bunge Ltd. 4,276 274,134
Cablevision Systems Corp. 7,000 194,530
Cardinal Health, Inc. 5,815 380,592
CBS Corp. - Class B 933 27,001
Coca-Cola Co. 8,612 402,353
ConAgra Foods, Inc. 469 12,264
Dean Foods Co.+ 5,000 209,450
Eastman Kodak Co. 5,570 135,908
EchoStar Communications Corp. -
Class A+ 5,000 177,600
Fortune Brands, Inc. 38 2,924
Hanesbrands, Inc.+ 37 873
Hewitt Associates, Inc.+ 2,940 73,588
IAC/InterActiveCorp.+ 2,543 78,782
Jarden Corp.+ 3,100 111,538
Kimberly-Clark Corp. 2,514 167,231
Liberty Global, Inc. - Class A+ 6,533 171,426
Liberty Media Corp.-Interactive -
Class A+ 1,895 41,823
Liberty Media Holding Corp. - Class A+ 379 33,754
McDonald's Corp. 10,000 419,200
McKesson Corp. 4,700 235,423
Molson Coors Brewing Co. 3,000 213,540
PepsiCo, Inc. 6,728 426,824
MARKET
SECURITY SHARES VALUE
Procter & Gamble Co. 10,644 $ 674,723
Reynolds American, Inc. 200 12,632
Sara Lee Corp. 300 5,130
Sirius Satellite Radio, Inc.+ 1,900 7,277
Supervalu, Inc. 5,000 167,000
The Hershey Co. 583 30,847
Time Warner, Inc. 38,844 777,268
Williams Scotsman International, Inc.+ 4,892 115,109
Yum! Brands, Inc. 180 10,703
------------
7,156,758
------------
ENERGY - 7.33%
Chesapeake Energy Corp. 5,200 168,688
Chevron Corp. 11,128 747,802
ConocoPhillips 8,650 521,076
Denbury Resources, Inc.+ 4,000 114,960
Devon Energy Corp. 4,624 309,068
Exxon Mobil Corp. 21,424 1,530,102
Forest Oil Corp.+ 500 16,320
Marathon Oil Corp. 4,500 388,800
Mariner Energy, Inc.+ 2,094 41,503
Noble Corp. 3,000 210,300
Peoples Energy Corp. 7,258 317,102
Pioneer Natural Resources Co. 4,540 184,914
Reliant Energy, Inc.+ 4,417 56,008
Sunoco, Inc. 3,026 200,109
Valero Energy Corp. 2,050 107,277
Williams Cos., Inc. 3,100 75,733
XTO Energy, Inc 2,200 102,652
------------
5,092,414
------------
FINANCE - 18.78%
AMBAC Financial Group, Inc. 250 20,873
American Express Co. 1,825 105,503
American International Group, Inc. 10,500 705,285
Anworth Mortgage Asset Corp. 11,020 100,062
Associated Banc-Corp. 181 5,944
Assurant, Inc. 2,100 110,586
Bank of America Corp. 4,722 254,374
Bank of New York Co., Inc. 670 23,028
BB&T Corp. 6,391 278,136
Bear Stearns Cos., Inc. 220 33,297
BlackRock, Inc., Class A 2,240 337,882
Boston Properties, Inc. 5,100 544,833
Brown & Brown, Inc. 2,300 67,298
Charles Schwab Corp. 14,100 256,902
See Notes to Financial Statements.
20
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
MARKET
SECURITY SHARES VALUE
---------------------------------------------------------
COMMON STOCK
FINANCE (CONTINUED)
Chicago Mercantile Exchange Holdings,
Inc. 800 $ 400,800
Citigroup, Inc. 12,702 637,132
City National Corp. 100 6,656
Colonial BancGroup, Inc. 5,000 119,200
Comerica, Inc. 250 14,548
Commerce Bancorp, Inc. 4,540 158,537
Commerce Bancshares, Inc. 144 7,129
Compass Bancshares, Inc. 5,000 281,300
Conseco, Inc.+ 1,700 34,578
Eaton Vance Corp. 3,700 114,848
Equity Office Properties Trust 344 14,620
Equity Residential 200 10,922
eSpeed, Inc.+ 3,400 33,524
Fannie Mae 2,652 157,158
Federated Investors, Inc. - Class B 1,000 34,290
Fidelity National Financial, Inc. 520 11,596
Fidelity National Title Group, Inc. -
Class A 636 13,994
First American Corp. 2,500 102,075
First Horizon National Corp. 100 3,932
Franklin Resources, Inc. 1,300 148,148
Genworth Financial, Inc. 7,200 240,768
Goldman Sachs Group, Inc. 5,000 948,950
Health Care Property Investors, Inc. 200 6,280
Host Hotels & Resorts, Inc. 5,200 119,912
Irwin Financial Corp. 3,645 80,810
iStar Financial, Inc. 100 4,633
JPMorgan Chase & Co. 3,580 169,835
Kimco Realty Corp. 2,900 128,847
Legg Mason, Inc. 2,300 207,046
Lehman Brothers Holdings, Inc. 10,800 840,672
Liberty Property Trust 100 4,820
Loews Corp. - Carolina Group 3,500 202,370
M & T Bank Corp. 2,512 305,987
Marsh & McLennan Cos., Inc. 10,363 305,087
MBIA, Inc. 150 9,303
Mellon Financial Corp. 210 8,148
Mercantile Bankshares Corp. 150 6,762
Merrill Lynch & Co., Inc. 6,120 535,010
Moody's Corp. 6,974 462,376
Morgan Stanley 2,481 189,623
National City Corp. 2,700 100,575
North Fork Bancorp., Inc. 579 16,548
MARKET
SECURITY SHARES VALUE
Northern Trust Corp. 300 $ 17,616
Old Republic International Corp. 187 4,213
PMI Group, Inc. 2,900 123,685
PNC Financial Services Group, Inc. 460 32,214
Progressive Corp. 6,400 154,688
Prologis 5,000 316,350
Public Storage, Inc. 186 16,686
Radian Group, Inc. 200 10,660
Realogy Corp.+ 1,297 33,437
Regions Financial Corp. 546 20,721
SEI Investments Co. 3,200 180,096
Simon Property Group, Inc. 100 9,710
SLM Corp. 1,250 60,850
South Financial Group, Inc. 5,000 132,650
St. Paul Travelers Cos., Inc. 100 5,113
State Street Corp. 300 19,269
Stewart Information Services Corp. 341 12,637
Student Loan Corp. 810 167,670
SunTrust Banks, Inc. 2,602 205,532
T. Rowe Price Group, Inc. 200 9,462
TCF Financial Corp. 200 5,206
TD Banknorth, Inc. 7,400 218,892
Torchmark Corp. 200 12,336
UnionBanCal Corp. 200 11,516
UnumProvident Corp. 23,038 455,692
US Bancorp 2,473 83,686
Wachovia Corp. 4,599 255,245
Washington Mutual, Inc. 3,284 138,913
Western Union Co.+ 5,000 110,250
Wilmington Trust Corp. 200 8,316
WSFS Financial Corp. 2,350 151,434
Zions Bancorp. 100 8,040
------------
13,036,137
------------
HEALTH CARE - 5.40%
Abbott Laboratories 4,335 205,956
Aetna, Inc. 5,400 222,588
Allergan, Inc. 210 24,255
Baxter International, Inc. 500 22,985
Beckman Coulter, Inc. 100 5,757
Becton Dickinson & Co. 200 14,006
Boston Scientific Corp.+ 1,940 30,865
Bristol-Myers Squibb Co. 2,247 55,613
Cigna Corp. 2,682 313,740
CR Bard, Inc. 220 18,031
Eli Lilly & Co. 2,396 134,200
See Notes to Financial Statements.
21
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
MARKET
SECURITY SHARES VALUE
-------------------------------------------------------
COMMON STOCK
HEALTH CARE (CONTINUED)
Hospira, Inc.+ 2,933 $ 106,615
Johnson & Johnson 12,606 849,644
Medtronic, Inc. 2,670 129,976
Merck & Co., Inc. 4,843 219,969
Pfizer, Inc. 20,763 553,334
Schering-Plough Corp. 8,900 197,046
Stryker Corp. 2,600 135,954
UnitedHealth Group, Inc. 6,548 319,411
Watson Pharmaceuticals, Inc.+ 100 2,691
Wyeth 3,630 185,239
------------
3,747,875
------------
INFORMATION SERVICES - 2.00%
Alltel Corp. 5,377 286,648
AT&T, Inc. 1,336 45,758
BellSouth Corp. 8,380 377,938
Citizens Communciations Co. 3,000 43,980
Sprint Nextel Corp. 16,827 314,497
Talk America Holdings, Inc.+ 3,300 26,466
Verizon Communications, Inc. 5,888 217,856
Windstream Corp. 5,559 76,269
------------
1,389,412
------------
INTERNET - 3.82%
Amazon.Com, Inc.+ 6,000 228,540
Cisco Systems, Inc.+ 28,857 696,319
Citrix Systems, Inc.+ 2,000 59,060
E*Trade Financial Corp.+ 10,600 246,768
eBay, Inc.+ 6,840 219,769
Google, Inc. - Class A+ 1,200 571,668
Juniper Networks, Inc.+ 7,400 127,428
Qwest Communications International,
Inc.+ 24,900 214,887
VeriSign, Inc.+ 1,400 28,952
Yahoo!, Inc.+ 9,920 261,293
------------
2,654,684
------------
RETAIL - 2.78%
American Eagle Outfitters, Inc. 1,100 50,380
Autonation, Inc.+ 234 4,692
Bed Bath & Beyond, Inc.+ 200 8,058
Best Buy Co., Inc. 456 25,194
Big Lots, Inc.+ 3,998 84,278
Borders Group, Inc. 2,500 51,475
MARKET
SECURITY SHARES VALUE
Circuit City Stores, Inc. 4,100 $ 110,618
Costco Wholesale Corp. 2,860 152,667
CVS Corp. 544 17,071
Dillard's, Inc. - Class A 4,671 140,924
Gap, Inc. 1,912 40,190
Home Depot, Inc. 1,520 56,742
Lowe's Cos., Inc. 2,268 68,358
Office Depot, Inc.+ 100 4,199
Sears Holdings Corp.+ 1,200 209,364
Target Corp. 1,198 70,898
Tech Data Corp.+ 1,700 66,895
Walgreen Co. 1,525 66,612
Wal-Mart Stores, Inc. 14,266 703,028
------------
1,931,643
------------
TECHNOLOGY - 6.59%
ACCO Brands, Corp.+ 3,408 82,814
Agilent Technologies, Inc.+ 5,105 181,738
Agilysys, Inc. 1,300 19,279
Amkor Technology, Inc.+ 4,900 33,859
Analog Devices, Inc. 6,800 216,376
Anixter International, Inc.+ 4,900 292,824
Apple Computer, Inc.+ 1,300 105,404
Applied Materials, Inc. 3,630 63,126
Autodesk, Inc.+ 2,900 106,575
Broadcom Corp. - Class A+ 1,950 59,027
Compuware Corp.+ 3,100 24,924
Dell, Inc.+ 4,691 114,132
Discovery Holding Co. - Class A+ 758 11,249
Ditech Networks, Inc.+ 2,219 17,508
Embarq Corp. 841 40,662
Entegris, Inc.+ 2,200 24,662
Gateway, Inc.+ 49,700 83,496
IBM 3,422 315,953
Intel Corp. 19,474 415,575
International Rectifier Corp.+ 1,000 35,970
Kla-Tencor Corp. 200 9,834
Komag, Inc.+ 2,300 87,975
Linear Technology Corp. 1,361 42,354
Lucent Technologies, Inc.+ 37,300 90,639
Microsoft Corp. 30,146 865,492
Novellus Systems, Inc.+ 3,500 96,775
Oracle Corp.+ 5,181 95,693
Photronics, Inc.+ 100 1,399
Qualcomm, Inc. 4,688 170,596
Seagate Technology+ 2,700 60,966
See Notes to Financial Statements.
22
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
MARKET
SECURITY SHARES VALUE
------------------------------------------------------
COMMON STOCK
TECHNOLOGY (CONTINUED)
Skyworks Solutions, Inc.+ 7,900 $ 52,377
Sun Microsystems, Inc.+ 54,200 294,306
Symantec Corp.+ 4,001 79,380
Synopsys, Inc.+ 630 14,181
Texas Instruments, Inc. 5,615 169,461
Unisys Corp.+ 4,000 26,160
Valuevision Media, Inc. - Class A+ 3,400 43,894
Veeco Instruments, Inc.+ 3,580 66,910
Zoran Corp.+ 4,600 64,032
------------
4,577,577
------------
TRANSPORTATION - 2.91%
AMR Corp.+ 300 8,502
Burlington Northern Santa Fe Corp. 2,900 224,837
CH Robinson Worldwide, Inc. 3,800 158,612
Con-Way, Inc. 5,000 235,850
CSX Corp. 10,000 356,700
FedEx Corp. 3,400 389,436
MARKET
SECURITY SHARES VALUE
Royal Carribean Cruises, Ltd. 1,900 $ 76,950
Ryder System, Inc. 1,139 59,968
Southwest Airlines Co. 8,000 120,240
Union Pacific Corp. 400 36,252
United Parcel Service, Inc. - Class B 4,600 346,610
World Air Holdings, Inc.+ 769 6,936
------------
2,020,893
------------
UTILITIES - 1.74%
AES Corp.+ 5,000 109,950
Allegheny Energy, Inc.+ 7,200 309,816
American Electric Power Co., Inc. 1,250 51,788
CMS Energy Corp.+ 4,060 60,453
Dominion Resources, Inc. 3,400 275,366
PPL Corp. 186 6,421
TXU Corp. 6,274 396,078
------------
1,209,872
------------
TOTAL COMMON STOCK
(COST $42,064,238) 53,275,685
------------
See Notes to Financial Statements.
23
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2006
INTEREST MATURITY PAR MARKET
RATE DATE VALUE VALUE
--------------------------------------------------------------------------------------------------
US TREASURY SECURITIES - 22.64%
US Treasury Bond.................... 9.250% 2/15/16 $ 1,000,000 $ 1,346,875
US Treasury Bond.................... 6.000% 2/15/26 1,000,000 1,147,969
US Treasury Bond.................... 6.750% 8/15/26 1,300,000 1,619,109
US Treasury Bond.................... 6.375% 8/15/27 2,200,000 2,651,344
US Treasury Bond.................... 4.500% 2/15/36 1,000,000 965,469
US Treasury Note.................... 4.250% 8/15/13 1,000,000 980,781
US Treasury Note.................... 4.750% 5/15/14 3,000,000 3,030,469
US Treasury Note.................... 4.250% 10/31/07 4,000,000 3,974,375
------------
TOTAL US TREASURY SECURITIES
(COST $15,408,961).................................................... 15,716,391
------------
REPURCHASE AGREEMENT - 0.38%
JPMORGAN CHASE BANK, N.A.
Dated 10/31/06, 4.780%, principal and interest in the amount of $262,035
due 11/1/06, collaterized by US Treasury Strips, par value of $262,000
due 8/15/28 with a value of $268,168 (Cost $262,000).................. 262,000
------------
TOTAL INVESTMENTS IN SECURITIES - 99.74%
(COST $57,735,199)*........................................................ 69,254,076
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.26%..................................... 183,853
------------
NET ASSETS - 100.00%.............................................................. 69,437,929
============
- --------------------------------------------------------------------------------
+Non-income producing security.
*Cost for Federal income tax purposes is $57,899,206 and net unrealized
appreciation (depreciation) consists of:
Gross Unrealized Appreciation $12,494,249
Gross Unrealized Depreciation (1,139,379)
-----------
Net Unrealized Appreciation.. $11,354,870
===========
See Notes to Financial Statements.
24
ISI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2006
TOTAL RETURN US MANAGED
TREASURY FUND MUNICIPAL FUND
- ----------------------------------------------------------------------------------------------------------
ASSETS:
Investments:
In securities, at market value
(cost $153,141,168 and $77,537,640, respectively)..................... $149,009,820 $80,808,335
Repurchase agreement (cost $2,745,000 and $1,255,000, respectively)..... 2,745,000 1,255,000
Cash...................................................................... 3,295 695
Receivables:
Capital shares sold..................................................... 6,034 75,152
Interest................................................................ 2,547,471 987,604
Prepaid expenses.......................................................... 12,731 8,068
------------ -----------
Total assets.............................................................. 154,324,351 83,134,854
------------ -----------
LIABILITIES:
Payables:
Capital shares redeemed................................................. 223,534 48,112
Dividends............................................................... 168,027 107,002
Accrued Liabilities:
Investment advisory fees................................................ 33,247 28,070
Compliance services fees................................................ 3,178 1,424
Directors' fees and expenses............................................ 1,244 722
Distribution fees....................................................... 32,530 17,544
Accrued expenses and other.............................................. 78,367 51,678
------------ -----------
Total liabilities......................................................... 540,127 254,552
------------ -----------
Net assets................................................................. $153,784,224 $82,880,302
============ ===========
COMPONENTS OF NET ASSETS:
Paid in capital........................................................... $158,070,607 $78,486,688
Undistributed (distributions in excess of) net investment income.......... (168,027) 402,006
Accumulated net realized gain from investment transactions................ 12,992 720,913
Net unrealized appreciation (depreciation) on investments................. (4,131,348) 3,270,695
------------ -----------
Net assets................................................................. $153,784,224 $82,880,302
============ ===========
SHARES OF CAPITAL STOCK OUTSTANDING OF $0.001 PAR VALUE:
ISI Shares (115,000,000 and 55,000,000 shares authorized, respectively). 16,329,533 7,673,318
------------ -----------
NET ASSET VALUE PER SHARE:
ISI Shares (net assets / shares of capital stock outstanding)........... $ 9.42 $ 10.80
------------ -----------
MAXIMUM OFFERING PRICE PER SHARE:
ISI Shares ($9.42 / 0.97 and $10.80 / 0.97, respectively)............... $ 9.71 $ 11.13
------------ -----------
See Notes to Financial Statements.
25
ISI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2006
NORTH AMERICAN
GOVERNMENT
BOND FUND ISI STRATEGY FUND
- -------------------------------------------------------------------------------------------------------
ASSETS:
Investments:
In securities, at market value
(cost $161,137,232 and $57,473,199, respectively)................ $157,426,272 $68,992,076
Repurchase agreement
(cost $3,696,000 and $262,000, respectively)..................... 3,696,000 262,000
Cash................................................................. 532 634
Receivables:
Capital shares sold................................................ 104,930 91,868
Securities sold.................................................... - 19,979
Interest and dividends............................................. 2,106,597 198,477
Prepaid expenses..................................................... 8,787 10,679
------------ -----------
Total assets......................................................... 163,343,118 69,575,713
------------ -----------
LIABILITIES:
Payables:
Capital shares redeemed............................................ 372,865 51,348
Dividends.......................................................... 330,384 -
Accrued Liabilities:
Investment advisory fees........................................... 55,235 23,284
Compliance services fees........................................... 2,749 1,264
Directors' fees and expenses....................................... 1,460 571
Distribution fees.................................................. 59,804 14,552
Shareholder servicing fees......................................... 3,264 -
Accrued expenses and other......................................... 84,070 46,765
------------ -----------
Total liabilities.................................................... 909,831 137,784
------------ -----------
Net assets............................................................ $162,433,287 $69,437,929
============ ===========
COMPONENTS OF NET ASSETS:
Paid in capital...................................................... $166,467,170 $56,175,889
Undistributed (distributions in excess of) net investment income..... (330,384) 36,161
Accumulated net realized gain from investment and foreign currency
transactions....................................................... - 1,707,002
Net unrealized appreciation (depreciation) on investments and foreign
currencies......................................................... (3,703,499) 11,518,877
------------ -----------
Net assets............................................................ $162,433,287 $69,437,929
============ ===========
See Notes to Financial Statements.
26
ISI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2006
NORTH AMERICAN
GOVERNMENT
BOND FUND ISI STRATEGY FUND
- ---------------------------------------------------------------------------------------------
SHARES OF CAPITAL STOCK OUTSTANDING OF $0.001 PAR
VALUE:
ISI Class A Shares (50,000,000 shares authorized)........ 19,827,900 -
----------- ----------
ISI Class C Shares (5,000,000 shares authorized)......... 2,106,655 -
----------- ----------
ISI Shares (25,000,000 shares authorized)................ - 5,129,560
----------- ----------
NET ASSET VALUE PER SHARE:
(net assets / shares of capital stock outstanding)
ISI Class A Shares (based on net assets of $146,854,011). $ 7.41 $ -
----------- ----------
ISI Class C Shares (based on net assets of $15,579,276).. $ 7.40 $ -
----------- ----------
ISI Shares............................................... $ - $ 13.54
----------- ----------
MAXIMUM OFFERING PRICE PER SHARE:
ISI Class A Shares ($7.41 / 0.97)........................ $ 7.64 $ -
----------- ----------
ISI Shares ($13.54 / 0.97)............................... $ - $ 13.96
----------- ----------
See Notes to Financial Statements.
27
ISI FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
TOTAL RETURN US MANAGED
TREASURY FUND MUNICIPAL FUND
- -------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest......................................................... $6,467,146 $3,942,764
---------- ----------
EXPENSES:
Investment advisory fees......................................... 393,717 347,331
Distribution fees................................................ 384,872 217,082
Compliance services fees......................................... 11,164 5,991
Administration fees.............................................. 160,246 90,136
Transfer agent fees.............................................. 49,198 14,384
Custody fees..................................................... 20,617 12,699
Professional fees................................................ 107,174 68,168
Registration fees................................................ 27,475 25,799
Directors' fees.................................................. 13,166 7,485
Miscellaneous.................................................... 8,950 4,988
---------- ----------
Total expenses................................................. 1,176,579 794,063
Less: fee waiver................................................. (61) -
---------- ----------
Net expenses................................................... 1,176,518 794,063
---------- ----------
Net investment income............................................ 5,290,628 3,148,701
---------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain from investment transactions................... 520,514 720,970
Net change in unrealized appreciation/depreciation on investments 1,328,795 57,308
---------- ----------
Net realized and unrealized gain on investments.................. 1,849,309 778,278
---------- ----------
INCREASE IN NET ASSETS FROM OPERATIONS............................ $7,139,937 $3,926,979
========== ==========
See Notes to Financial Statements.
28
ISI FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2006
NORTH AMERICAN
GOVERNMENT
BOND FUND ISI STRATEGY FUND
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest..................................................................... $8,123,041 $ 722,319
Dividends.................................................................... - 681,417
---------- ----------
Total income............................................................... 8,123,041 1,403,736
---------- ----------
EXPENSES:
Investment advisory fees..................................................... 717,270 264,077
Distribution fees:
ISI Class A Shares......................................................... 655,437 -
ISI Class C Shares......................................................... 115,937 -
ISI Shares................................................................. - 165,048
Compliance services fees..................................................... 12,277 4,669
Administration fees.......................................................... 186,291 68,737
Transfer agent fees:
ISI Class A Shares......................................................... 66,637 -
ISI Class C Shares......................................................... 6,590 -
ISI Shares................................................................. - 24,192
Custody fees................................................................. 32,238 11,083
Professional fees............................................................ 113,126 58,066
Shareholder servicing fees:
ISI Class C Shares......................................................... 38,646 -
Registration fees............................................................ 35,533 25,498
Directors' fees.............................................................. 15,546 5,558
Miscellaneous................................................................ 10,315 3,124
---------- ----------
Total expenses............................................................. 2,005,843 630,052
Less: fee waiver and/or expense reimbursements............................... (171) -
---------- ----------
Net expenses............................................................... 2,005,672 630,052
---------- ----------
Net investment income........................................................ 6,117,369 773,684
---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment transactions.................................................... 1,436,186 3,910,226
Foreign currency transactions.............................................. (49,735) -
---------- ----------
Net realized gain on investments and foreign currency transactions........... 1,386,451 3,910,226
Net change in unrealized appreciation/depreciation on:
Investment transactions.................................................... 2,402,672 3,289,965
Foreign currency translations.............................................. 8,978 -
---------- ----------
Net change in unrealized appreciation/depreciation on investments and foreign
currency translations...................................................... 2,411,650 3,289,965
---------- ----------
Net realized and unrealized gain on investments and foreign currencies....... 3,798,101 7,200,191
---------- ----------
INCREASE IN NET ASSETS FROM OPERATIONS........................................ $9,915,470 $7,973,875
========== ==========
See Notes to Financial Statements.
29
TOTAL RETURN US TREASURY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
------------------------------
2006 2005
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income..................................................... $ 5,290,628 $ 5,445,594
Net realized gain on investment transactions.............................. 520,514 632,100
Net change in unrealized appreciation/depreciation on investments......... 1,328,795 (3,403,049)
------------ ------------
Increase in net assets from operations.................................... 7,139,937 2,674,645
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................................... (5,796,709) (4,865,040)
Net realized gain on investments.......................................... - (632,100)
Return of capital......................................................... - (1,616,199)
------------ ------------
Total distributions....................................................... (5,796,709) (7,113,339)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares.............................................. 21,219,446 11,040,344
Distribution reinvestments................................................ 3,868,677 4,648,102
Cost of shares redeemed................................................... (38,620,829) (40,065,709)
------------ ------------
Decrease in net assets from capital share transactions.................... (13,532,706) (24,377,263)
------------ ------------
Total decrease in net assets.............................................. (12,189,478) (28,815,957)
NET ASSETS:
Beginning of year......................................................... 165,973,702 194,789,659
------------ ------------
End of year (including distributions in excess of net investment income of
$168,027 and $169,468, respectively).................................... $153,784,224 $165,973,702
============ ============
SHARE TRANSACTIONS:
Shares sold............................................................... 2,295,735 1,162,672
Shares issued to shareholders on reinvestment of distributions............ 417,867 489,356
Shares redeemed........................................................... (4,176,347) (4,220,380)
------------ ------------
Decrease in shares from capital share transactions........................ (1,462,745) (2,568,352)
============ ============
See Notes to Financial Statements.
30
MANAGED MUNICIPAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
------------------------------
2006 2005
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................... $ 3,148,701 $ 3,703,880
Net realized gain on investment transactions.................................... 720,970 299,727
Net change in unrealized appreciation/depreciation on investments............... 57,308 (2,755,318)
------------ ------------
Increase in net assets from operations.......................................... 3,926,979 1,248,289
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................................................... (2,715,401) (3,358,372)
Net realized gain on investments................................................ (289,342) -
------------ ------------
Total distributions............................................................. (3,004,743) (3,358,372)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares.................................................... 3,859,303 4,114,915
Distribution reinvestments...................................................... 1,631,474 1,897,217
Cost of shares redeemed......................................................... (17,559,432) (23,719,137)
------------ ------------
Decrease in net assets from capital share transactions.......................... (12,068,655) (17,707,005)
------------ ------------
Total decrease in net assets.................................................... (11,146,419) (19,817,088)
NET ASSETS:
Beginning of year............................................................... 94,026,721 113,843,809
------------ ------------
End of year (including undistributed (distributions in excess of) net investment
income of $402,006 and $(31,294), respectively)............................... $ 82,880,302 $ 94,026,721
============ ============
SHARE TRANSACTIONS:
Shares sold..................................................................... 361,229 379,795
Shares issued to shareholders on reinvestment of distributions.................. 152,711 175,163
Shares redeemed................................................................. (1,645,396) (2,185,091)
------------ ------------
Decrease in shares from capital share transactions.............................. (1,131,456) (1,630,133)
============ ============
See Notes to Financial Statements.
31
NORTH AMERICAN GOVERNMENT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
------------------------------
2006 2005
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................ $ 6,117,369 $ 7,249,304
Net realized gain on investment and foreign currency transactions............ 1,386,451 3,611,619
Net change in unrealized appreciation/depreciation on investments
and foreign currencies...................................................... 2,411,650 (2,033,622)
------------ ------------
Increase in net assets from operations....................................... 9,915,470 8,827,301
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
ISI Class A Shares.......................................................... (6,717,243) (7,838,916)
ISI Class C Shares.......................................................... (523,270) (595,672)
Net realized gain on investments:
ISI Class A Shares.......................................................... (203,699) (785,944)
ISI Class C Shares.......................................................... (21,643) (70,866)
Return of capital:
ISI Class A Shares.......................................................... (1,071,732) (1,356,475)
ISI Class C Shares.......................................................... (113,868) (122,309)
------------ ------------
Total distributions.......................................................... (8,651,455) (10,770,182)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares:
ISI Class A Shares.......................................................... 23,115,736 30,035,408
ISI Class C Shares.......................................................... 3,159,574 3,448,814
Distribution reinvestments:
ISI Class A Shares.......................................................... 4,001,123 5,220,552
ISI Class C Shares.......................................................... 345,590 359,466
Cost of shares redeemed:
ISI Class A Shares.......................................................... (58,492,446) (60,640,430)
ISI Class C Shares.......................................................... (4,005,443) (6,317,975)
------------ ------------
Decrease in net assets from capital share transactions....................... (31,875,866) (27,894,165)
------------ ------------
Decrease in net assets....................................................... (30,611,851) (29,837,046)
NET ASSETS:
Beginning of year........................................................... 193,045,138 222,882,184
------------ ------------
End of year (including distributions in excess of net investment income of
$330,384 and $368,349, respectively)....................................... $162,433,287 $193,045,138
============ ============
SHARE TRANSACTIONS:
Shares sold:
ISI Class A Shares.......................................................... 3,159,317 4,053,791
ISI Class C Shares.......................................................... 431,786 464,623
Shares issued to shareholders on reinvestment of distributions:
ISI Class A Shares.......................................................... 546,407 704,417
ISI Class C Shares.......................................................... 47,323 48,592
Shares redeemed:
ISI Class A Shares.......................................................... (8,017,963) (8,179,395)
ISI Class C Shares.......................................................... (549,102) (851,791)
------------ ------------
Decrease in shares from capital share transactions:
ISI Class A Shares.......................................................... (4,312,239) (3,421,187)
============ ============
ISI Class C Shares.......................................................... (69,993) (338,576)
============ ============
See Notes to Financial Statements.
32
ISI STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
------------------------------
2006 2005
- ----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................................... $ 773,684 $ 736,821
Net realized gain (loss) on investment transactions...................... 3,910,226 (35,017)
Net change in unrealized appreciation/depreciation on investments........ 3,289,965 4,156,937
------------ -----------
Increase in net assets from operations................................... 7,973,875 4,858,741
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.................................................... (765,946) (753,672)
------------ -----------
Total distributions...................................................... (765,946) (753,672)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares............................................. 13,419,552 18,477,449
Dividend reinvestments................................................... 651,658 674,238
Cost of shares redeemed.................................................. (12,046,141) (7,971,409)
------------ -----------
Increase in net assets from capital share transactions................... 2,025,069 11,180,278
------------ -----------
Total increase in net assets............................................. 9,232,998 15,285,347
NET ASSETS:
Beginning of year........................................................ 60,204,931 44,919,584
------------ -----------
End of year (including undistributed net investment income of $36,161 and
$41,868, respectively)................................................. $ 69,437,929 $60,204,931
============ ===========
SHARE TRANSACTIONS:
Shares sold.............................................................. 1,052,202 1,583,999
Shares issued to shareholders on reinvestment of dividends............... 50,673 56,938
Shares redeemed.......................................................... (941,380) (679,145)
------------ -----------
Increase in shares from capital share transactions....................... 161,495 961,792
============ ===========
See Notes to Financial Statements.
33
TOTAL RETURN US TREASURY FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
ISI SHARES
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year.................... $ 9.33 $ 9.57 $ 9.92 $ 10.18 $ 10.20
-------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.32/1/ 0.29/1/ 0.24/1/ 0.23 0.35
Net realized and unrealized gain (loss) on investments 0.12 (0.16) 0.19 0.01 0.20
-------- -------- -------- -------- --------
Total from investment operations...................... 0.44 0.13 0.43 0.24 0.55
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income................................. (0.35) (0.25) (0.23) (0.25) (0.40)
Net realized gain on investments...................... - (0.03) (0.33) (0.25) (0.17)
Tax return of capital................................. - (0.09) (0.22) - -
-------- -------- -------- -------- --------
Total distributions................................... (0.35) (0.37) (0.78) (0.50) (0.57)
-------- -------- -------- -------- --------
Net asset value, end of year.......................... $ 9.42 $ 9.33 $ 9.57 $ 9.92 $ 10.18
======== ======== ======== ======== ========
TOTAL RETURN/2/........................................ 4.83% 1.38% 4.64% 2.30% 5.78%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (000s)........................ $153,784 $165,974 $194,790 $229,027 $262,928
Ratios to average daily net assets:
Net investment income/3/............................ 3.44% 3.01% 2.56% 2.50% 3.64%
Expenses/3/......................................... 0.76% 0.70% 0.69% 0.67% 0.74%
Portfolio turnover rate............................... 51% 16% 31% 125% 129%
- --------------------------------------------------------------------------------
/1/Calculated using the average shares outstanding for the period.
/2/Total return excludes the effect of sales charges.
/3/The October 31, 2006 ratios of expense and net investment income to average
net assets were unaffected by the waiver of distribution fees during the
year.
See Notes to Financial Statements.
34
MANAGED MUNICIPAL FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
ISI SHARES
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year.................... $ 10.68 $ 10.91 $ 10.89 $ 11.00 $ 10.99
-------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.39/1/ 0.40/1/ 0.38/1/ 0.40 0.45
Net realized and unrealized gain (loss) on investments 0.10 (0.27) 0.08 0.01 0.09
-------- -------- -------- -------- --------
Total from investment operations...................... 0.49 0.13 0.46 0.41 0.54
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income................................. (0.34) (0.36) (0.44) (0.47) (0.45)
Net realized gain on investments...................... (0.03) - - (0.05) (0.08)
-------- -------- -------- -------- --------
Total distributions................................... (0.37) (0.36) (0.44) (0.52) (0.53)
-------- -------- -------- -------- --------
Net asset value, end of year.......................... $ 10.80 $ 10.68 $ 10.91 $ 10.89 $ 11.00
======== ======== ======== ======== ========
TOTAL RETURN/2/........................................ 4.68% 1.19% 4.26% 3.89% 5.11%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of year (000s)........................ $ 82,880 $ 94,027 $113,844 $107,078 $103,198
Ratios to average daily net assets:
Net investment income............................... 3.63% 3.64% 3.53% 3.66% 3.92%
Expenses after waivers and/or reimbursements........ 0.91% 0.86% 0.88% 0.89% 0.94%
Expenses before waivers and/or reimbursements....... 0.91% 0.86% 0.88% 0.89% 0.96%
Portfolio turnover rate............................... 7% 7% 17% 11% 11%
- --------------------------------------------------------------------------------
/1/Calculated / /using the average shares outstanding for the period.
/2/Total / /return excludes the effect of sales charges.
See Notes to Financial Statements.
35
NORTH AMERICAN GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
ISI CLASS A SHARES/1 /
APRIL 1, 2002 FOR THE
THROUGH YEAR ENDED
FOR THE YEARS ENDED OCTOBER 31, OCTOBER 31, MARCH 31,
-------------------------------------- 2002/2/ 2002
2006 2005 2004 2003 ------------- ----------
- ----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period... $ 7.34 $ 7.41 $ 7.73 $ 8.03 $ 7.80 $ 8.17
-------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.25/3/ 0.26/3/ 0.24/3/ 0.25 0.18 0.38
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions......................... 0.18 0.06 0.03 0.07 0.41 (0.03)
-------- -------- -------- -------- -------- --------
Total from investment operations....... 0.43 0.32 0.27 0.32 0.59 0.35
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income.................. (0.30) (0.31) (0.16) (0.29) (0.17) (0.41)
Net realized gain on investments....... (0.01) (0.03) (0.08) (0.33) (0.07) (0.23)
Return of capital...................... (0.05) (0.05) (0.35) - (0.12) (0.08)
-------- -------- -------- -------- -------- --------
Total distributions.................... (0.36) (0.39) (0.59) (0.62) (0.36) (0.72)
-------- -------- -------- -------- -------- --------
Net asset value, end of period......... $ 7.41 $ 7.34 $ 7.41 $ 7.73 $ 8.03 $ 7.80
======== ======== ======== ======== ======== ========
TOTAL RETURN/4,5/....................... 6.04% 4.39% 3.62% 4.14% 7.75% 4.38%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)....... $146,854 $177,101 $204,266 $267,756 $257,495 $220,629
Ratios to average daily net assets:/6/
Net investment income/7/............. 3.47% 3.55% 3.22% 3.03% 3.84% 4.60%
Expenses/7/.......................... 1.06% 1.04% 1.05% 1.09% 1.01% 1.13%
Portfolio turnover rate/5/............. 53% 66% 47% 152% 95% 136%
- --------------------------------------------------------------------------------
/1/On May 16, 2003, ISI Shares were redesignated as ISI Class A Shares.
/2/The Fund changed its fiscal year end from March 31 to October 31.
/3/Calculated using the average shares outstanding for the period.
/4/Total return excludes the effect of sales charges.
/5/Not annualized for periods less than one year.
/6/Annualized for periods less than one year.
/7/The October 31, 2006 ratios of expense and net investment income to average
net assets were unaffected by the waiver of distribution fees during the
year.
See Notes to Financial Statements.
36
NORTH AMERICAN GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
ISI CLASS C SHARES
MAY 16, 2003/1/
FOR THE YEARS ENDED OCTOBER 31, THROUGH
---------------------------- OCTOBER 31, 2003
2006 2005 2004 ----------------
- ----------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............ $ 7.33 $ 7.40 $ 7.72 $ 8.20
-------- -------- -------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income........................... 0.21/2/ 0.21/2/ 0.19/2/ 0.17
Net realized and unrealized gain (loss) on
investments and foreign currency transactions. 0.17 0.06 0.02 (0.38)
-------- -------- -------- -------
Total from investment operations................ 0.38 0.27 0.21 (0.21)
-------- -------- -------- -------
LESS DISTRIBUTIONS:
Net investment income........................... (0.25) (0.26) (0.14) (0.21)
Net realized gain on investments................ (0.01) (0.03) (0.08) (0.06)
Return of capital............................... (0.05) (0.05) (0.31) -
-------- -------- -------- -------
Total distributions............................. (0.31) (0.34) (0.53) (0.27)
-------- -------- -------- -------
Net asset value, end of period.................. $ 7.40 $ 7.33 $ 7.40 $ 7.72
======== ======== ======== =======
TOTAL RETURN/3,4/................................ 5.35% 3.73% 2.91% (2.62)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)................ $ 15,579 $ 15,944 $ 18,616 $13,565
Ratios to average daily net assets:/5/
Net investment income......................... 2.81% 2.89% 2.50% 3.32%
Expenses after waivers and/or reimbursements.. 1.72% 1.69% 1.77% 1.85%
Expenses before waivers and/or reimbursements. 1.72% 1.69% 1.77% 2.12%
Portfolio turnover rate/4/...................... 53% 66% 47% 152%
- --------------------------------------------------------------------------------
/1/Commencement of operations.
/2/Calculated using the average shares outstanding for the period.
/3/Total return excludes the effect of sales charges.
/4/Not annualized for periods less than one year.
/5/Annualized for periods less than one year.
See Notes to Financial Statements.
37
ISI STRATEGY FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
ISI SHARES
JUNE 1, 2002 FOR THE
THROUGH YEAR ENDED
FOR THE YEARS ENDED OCTOBER 31, OCTOBER 31, MAY 31,
------------------------------------- 2002/1/ 2002
2006 2005 2004 2003 ------------ ----------
- ------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...... $ 12.12 $ 11.21 $ 10.50 $ 9.08 $ 10.23 $ 10.89
-------- -------- -------- ------- ------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.15/2/ 0.16/2/ 0.10/2/ 0.08 0.05 0.12
Net realized and unrealized gain (loss) on
investments............................. 1.42 0.91 0.70 1.42 (1.14) (0.66)
-------- -------- -------- ------- ------- -------
Total from investment operations.......... 1.57 1.07 0.80 1.50 (1.09) (0.54)
-------- -------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income..................... (0.15) (0.16) (0.09) (0.08) (0.06) (0.12)
-------- -------- -------- ------- ------- -------
Total distributions....................... (0.15) (0.16) (0.09) (0.08) (0.06) (0.12)
-------- -------- -------- ------- ------- -------
Net asset value, end of period............ $ 13.54 $ 12.12 $ 11.21 $ 10.50 $ 9.08 $ 10.23
======== ======== ======== ======= ======= =======
TOTAL RETURN/3,4/.......................... 13.01% 9.59% 7.71% 16.47% (10.65)% (4.93)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s).......... $ 69,438 $ 60,205 $ 44,920 $30,262 $19,924 $24,398
Ratios to average daily net assets:/5/
Net investment income................... 1.17% 1.33% 0.92% 0.77% 1.18% 1.14%
Expenses after waivers and/or
reimbursements........................ 0.95% 0.94% 1.12% 1.30% 1.30% 1.19%
Expenses before waivers and/or
reimbursements........................ 0.95% 0.94% 1.12% 1.79% 1.99% 1.42%
Portfolio turnover rate/4/................ 41% 30% 66% 60% 12% 72%
- --------------------------------------------------------------------------------
/1/The Fund changed its fiscal year end from May 31 to October 31.
/2/Calculated using the average shares outstanding for the period.
/3/Total return excludes the effect of sales charges.
/4/Not annualized for periods less than one year.
/5/Annualized for periods less than one year.
See Notes to Financial Statements.
38
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
Total Return US Treasury Fund, Inc. ('Total Return'), Managed Municipal Fund,
Inc. ('Managed Municipal'), North American Government Bond Fund, Inc. ('North
American') and ISI Strategy Fund, Inc. ('Strategy'), (each a 'Fund' and
collectively, the 'Funds') are registered under the Investment Company Act of
1940, as amended, as open-end management investment companies. The Funds are
organized as corporations under the laws of the State of Maryland.
Total Return's investment objective is to achieve a high level of total
return with relative stability of principal and, secondarily, high current
income consistent with an investment in securities issued by the United States
Treasury. Managed Municipal's investment objective is to provide a high level
of total return with relative stability of principal and, secondarily, high
current income exempt from Federal income tax through investment in a portfolio
consisting primarily of tax-free municipal obligations. North American's
investment objective is designed to provide a high level of current income,
consistent with prudent investment risk. Strategy's investment objective is to
maximize total return through a combination of long-term growth of capital and
current income.
Total Return, Managed Municipal and Strategy currently offer ISI Shares to
investors. North American offers ISI North American Government Bond Fund
Class A Shares ('ISI Class A Shares') and ISI North American Government Bond
Fund Class C Shares ('ISI Class C Shares'). ISI Shares and North American's ISI
Class A Shares are subject to a maximum front-end sales charge of 3.00%. A
contingent deferred sales charge of 1.00% is imposed on the sale of North
American's 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 or NOCP, such securities are
valued at the mean of the last bid and the last asked prices. Non-exchange
traded securities for which over-the-counter quotations are readily available
are generally valued at the mean between the last bid and 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.
When valuing securities for which market quotations are not readily available
or for which the market quotations that are available are considered
unreliable, the Funds determine a fair value in good faith under procedures
established by and under the general supervision of the Funds' Boards of
Directors (the '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 time as of which the Funds value their
investments if such an 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).
39
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
If a fair value is required, the investment advisor or 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, 2006, there were no fair valued securities.
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 a dividend daily, and Managed Municipal and North
American declare monthly dividends at fixed rates approved by the Funds' Board.
These dividends are paid monthly. To the extent that their net investment
income and short-term capital gains are less than the approved fixed rate, some
of their dividends may be paid from long-term capital gains or as a return of
shareholder capital. 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 and to distribute all its taxable
income. In addition, by distributing in each calendar year substantially all of
its net income, capital gains and other amounts, if any, the Funds will not be
subject to Federal excise taxes. Accordingly, no Federal income taxes have been
accrued.
F. FOREIGN CURRENCY TRANSLATION
The Funds maintain their accounting records in US dollars. North American
determines the US dollar value of foreign currency-denominated assets,
liabilities and transactions by using prevailing exchange rates. In valuing
assets and liabilities, North American uses the prevailing exchange rate on
valuation date. In valuing security transactions, the receipt of income and the
payment of expenses, North American uses the prevailing exchange rate on the
transaction date.
Net realized gains and losses on foreign currency transactions shown on North
American's financial statements result from the sale of foreign bonds and
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 the Fund's books and the US dollar
equivalent of the amounts actually received or paid.
G. FORWARD FOREIGN CURRENCY CONTRACTS
North American may use forward foreign currency contracts to manage foreign
exchange rate risk. The Fund may use these contracts to fix the US dollar value
of securities transactions for the period between the date of the transaction
and the date the security is received or delivered or to hedge the US dollar
value of securities that it already owns. The use of forward foreign currency
contracts does not eliminate fluctuations in the prices of the underlying
securities, but does establish a rate of exchange that can be achieved in the
future.
The Fund determines the net US dollar value of forward foreign currency
contracts using prevailing exchange rates. As of October 31, 2006, there were
no open forward currency contracts.
H. REPURCHASE AGREEMENTS
The Funds may make short-term investments in repurchase agreements that are
fully collateralized by US
40
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
government securities. Under the terms of a repurchase agreement, a financial
institution sells fixed-income securities to the Funds and agrees to buy them
back on a specified day in return for the principal amount of the original sale
plus accrued interest. The custodial bank holds the collateral in a separate
account until the agreement matures. If the value of the securities falls below
the principal amount of the repurchase agreement plus accrued interest, the
financial institution deposits additional collateral by the following business
day. If the financial institution either fails to deposit the required
additional collateral or fails to repurchase the securities as agreed, the
Funds have the right to sell the securities and recover any resulting loss from
the financial institution. If the financial institution enters into bankruptcy,
the Funds' claims on the collateral may be subject to legal proceedings.
I. ESTIMATES
In preparing its financial statements in conformity with US 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 - NEW ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Financial Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
(the "Interpretation") which is effective for fiscal years beginning after
December 15, 2006, and is to be applied to all open tax years as of the
effective date. This Interpretation prescribes a minimum threshold for
financial statement recognition of the benefit of a tax position taken or
expected to be taken in a tax return, and requires certain expanded
disclosures. Management has recently begun to evaluate the application of the
Interpretation, and has not at this time determined the impact, if any,
resulting from its adoption on the Fund's financial statements.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157 "Fair Value Measurements" (the "Statement") which is
effective for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. This Statement defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
Management has recently begun to evaluate the application of the Statement, and
has not at this time determined the impact, if any, resulting from its adoption
on the Fund's financial statements.
NOTE 3 - FEES AND TRANSACTIONS WITH AFFILIATES AND OTHER SERVICE PROVIDERS
International Strategy & Investment, Inc. ('ISI') is the Funds' Advisor. As
compensation for its advisory services, Total Return pays ISI an annual fee
based on the Fund's average daily net assets, which is calculated daily and
paid monthly at the following annual rates: 0.20% of the first $100 million,
0.18% of the next $100 million, 0.16% of the next $100 million, 0.14% of the
next $200 million and 0.12% of the amount over $500 million. In addition, Total
Return pays ISI 1.50% of the Fund's gross interest income. Managed Municipal,
North American and Strategy each pay ISI an annual fee based on its average
daily net assets, which is calculated daily and paid monthly at the annual rate
of 0.40%.
ISI has contractually agreed to waive its fees and/or reimburse expenses of
North American through February 28, 2007, to the extent necessary, to limit the
expenses of ISI Class C Shares to 1.85% of the class' average daily net assets.
For the year ended October 31, 2006, there were no fees waived.
Los Angeles Capital Management and Equity Research, Inc. ('LA Capital
Management') is Strategy's Sub-Advisor and is responsible for managing the
common stocks in the Fund's portfolio. The Sub-Advisor is paid by ISI, not the
Fund.
The Northern Trust Company is the Funds' Custodian.
41
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
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. For the year ended
October 31, 2006, North American Class A Shares did not pay any shareholder
servicing fees. ISI Group voluntarily waived fees of $61 and $171 for Total
Return and North American, respectively.
For the year ended October 31, 2006, ISI Group earned commissions on sales of
ISI Shares of Total Return, Managed Municipal, and Strategy of $4,639, $2,595
and $18,730, respectively, and $12,702 on sales of ISI Class A Shares of North
American. ISI Group retained $2,740 of the back-end sales charges on the sale
of ISI Class C Shares of North American.
EJV Financial Services, LLC ("EJV") provides certain compliance support
services to the Fund's Chief Compliance Officer. Edward J. Veilleux, Vice
President of the Funds is also a principal of EJV.
Citigroup Fund Services, LLC ('Citigroup') serves as the Funds'
Administrator, Accountant, and Transfer Agent. For its services, Citigroup
receives a combined fee based on the aggregate average net assets of the Funds
(subject to a minimum monthly fee) and monthly fees per open shareholder
account. Average net asset-based fees are calculated daily and all fees are
paid monthly.
NOTE 4 - 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 US generally accepted
accounting principles. These book/tax differences may be either temporary or
permanent. To the extent they are permanent, they are charged or credited to
paid-in-capital, undistributed net investment income or accumulated net
realized gain as appropriate, in the period that the differences arose. The
reclassifications have no impact on the net assets of the Funds. As of
October 31, 2006, the following reclassifications were made to the statement of
assets and liabilities:
--------------------------------------------------
Accumulated Undistributed
Net Realized Net Investment Paid-In
Gain Income Capital
--------------------------------------------------
Total Return $ (507,522) $ 507,522 $ --
North American (1,161,109) 1,161,109 --
Strategy 13,454 (13,445) (9)
--------------------------------------------------
Total Return's reclassification was the result of a reclass of distributions.
North American's reclass was the result of bond bifurcation tax adjustments and
currency gain/loss reclassifications. Strategy's reclassification was a result
of a reclassification of income on real estate investment trust securities.
42
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
The Funds determine their net investment income and capital gain
distributions in accordance with income tax regulations, which may differ from
US generally accepted accounting principles. Distributions during the fiscal
years ended October 31, 2006 and 2005 were characterized for tax purposes as
follows:
- -----------------------------------------------------------------------------------------------------
Long-Term
Ordinary Income Tax-Exempt Income Capital Gains Return of Capital
- -----------------------------------------------------------------------------------------------------
October 31, October 31, October 31, October 31,
----------- ----------- ----------- -----------
2006 2005 2006 2005 2006 2005 2006 2005
---- ---- ---- ---- ---- ---- ---- ----
Total Return $5,796,709 $5,069,701 $ - $ - $ - $427,439 $ - $1,616,199
Managed Municipal 45,169 68,211 2,670,232 3,290,161 289,342 - - -
North American 7,465,855 9,291,398 - - - - 1,185,600 1,478,784
Strategy 765,946 753,672 - - - - - -
- -----------------------------------------------------------------------------------------------------
As of October 31, 2006, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
- ----------------------------------------------------------------------------------------------------
Undistributed Undistributed Undistributed Unrealized
Tax Exempt Ordinary Long-Term Capital Loss Appreciation
Income Income Capital Gains Carryforward (Depreciation) Total
- ----------------------------------------------------------------------------------------------------
Total Return $ - $12,992 $ - $- $(4,131,348) $(4,118,356)
Managed Municipal 509,008 - 720,913 - 3,270,695 4,500,616
North American - - - - (3,703,499) (3,703,499)
Strategy - 26,521 1,880,649 - 11,354,870 13,262,040
- ----------------------------------------------------------------------------------------------------
The difference between book basis 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, 2006, were as
follows:
-------------------------------------------------------------------------
Non-US Government Obligations US Government Obligations
-------------------------------------------------------------------------
Purchases Sales Purchases Sales
Total Return $ - $ - $72,740,307 $77,926,039
Managed Municipal 5,992,620 15,544,490 - -
North American 38,769,279 48,552,469 45,394,438 58,619,602
Strategy 18,351,393 16,864,358 11,348,177 9,250,046
-------------------------------------------------------------------------
43
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
NOTE 5 - MARKET AND CREDIT RISK
North American invests in Canadian and Mexican government securities.
Investing in Canadian and Mexican government securities may have different
risks than investing in US government securities. An investment in Canada or
Mexico may be affected by developments unique to those countries. These
developments may not affect the US economy or the prices of US government
securities in the same manner. In addition, the value of bonds issued by non-US
governments may be affected by adverse international political and economic
developments that may not impact the value of US government securities.
NOTE 6 - 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 expect the risk of loss
thereunder to be remote.
44
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors 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, 2006, and the related statements of
operations, the statements of changes in net assets, and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The statements of changes in net assets for the year ended
October 31, 2005 and the financial highlights for each of the four 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
statements and 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, 2006 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, 2006, the results of their operations, the changes in their net assets, and
their financial highlights for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
December 1, 2006
45
FUND DIRECTORS AND OFFICERS (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
NAME, BIRTH DATE AND BUSINESS EXPERIENCE AND DIRECTORSHIPS
POSITION WITH THE FUND/1/ DURING THE PAST 5 YEARS
- -------------------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- -------------------------------------------------------------------------------------------------------------------
W. Murray Jacques President, WMJ Consulting, LLC (real estate investment management company)
3/28/36 (1999 to present). Formerly, Principal, CM Coastal Development, LLC (real
Director since 2002. estate development) (2002 to 2006). Formerly, Chairman, Saint David's School
(2002 to 2004).
- -------------------------------------------------------------------------------------------------------------------
Louis E. Levy Retired Partner, KPMG Peat Marwick, (retired 1990). Formerly, Chairman of the
11/16/32 Quality Control Inquiry Committee, American Institute of Certified Public
Director since 1994. Accountants (1992 to 1998); Formerly, Director, Kimberly-Clark Corp.,
(personal consumer products) (retired 2000), Household International, Inc.
(consumer finance) (retired 2004), and Scudder Group of Mutual Funds (retired
2005).
- -------------------------------------------------------------------------------------------------------------------
FUND DIRECTORS AND OFFICERS
- -------------------------------------------------------------------------------------------------------------------
Edward S. Hyman* Director, Capital Trust (real estate investment trust) (2005 to present); Chairman,
4/8/45 International Strategy & Investment, Inc. (registered investment advisor) (1991 to
Director since 1991. present); Chairman and President, International Strategy & Investment Group,
Inc. (registered broker-dealer) (1991 to present).
- -------------------------------------------------------------------------------------------------------------------
R. Alan Medaugh President, International Strategy & Investment, Inc. (registered investment
8/20/43 advisor) (1991 to present); Director, International Strategy & Investment Group,
President since 1991. Inc. (registered broker-dealer) (1991 to present).
- -------------------------------------------------------------------------------------------------------------------
Nancy Lazar Executive Vice President, Assistant Treasurer and Secretary of International
8/1/57 Strategy & Investment, Inc. (registered investment advisor) (1991 to present);
Vice President since 1997. Executive Vice President, Assistant Treasurer and Secretary of International
Strategy & Investment Group, Inc. (registered broker-dealer) (1991 to present).
- -------------------------------------------------------------------------------------------------------------------
Thomas D. Stevens/2/ Chairman and President, Los Angeles Capital Management and Equity Research,
5/27/49 Inc. (registered investment advisor) (March 2002 to present). Formerly, Senior
Vice President since 1997. Vice President and Principal, Wilshire Associates Inc. (registered investment
advisor) (1980-2002); Chief Investment Officer, Wilshire Asset Management
(registered investment advisor) (1980 to 1999).
- -------------------------------------------------------------------------------------------------------------------
Carrie L. Butler Managing Director, International Strategy & Investment, Inc. (registered
5/1/67 investment advisor) (2000 to present). Formerly, Assistant Vice President,
Vice President since 1991. International Strategy & Investment, Inc. (registered investment advisor) (1991 to
2000).
46
FUND DIRECTORS AND OFFICERS (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------------------
NAME, BIRTH DATE AND BUSINESS EXPERIENCE AND DIRECTORSHIPS
POSITION WITH THE FUND/1/ DURING THE PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------------
FUND DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------
Edward J. Veilleux President, EJV Financial Services, LLC (2002 to present); Officer of various
8/26/43 investment companies for which EJV Financial Services provides consulting and
Vice President since 1992. compliance services. Formerly, Trustee, Devcap Trust (registered investment
company) (2000 to 2003); Director, Deutsche Asset Management (formerly B.T.
Alex Brown, Inc.) (October 1965 to May 2002); Executive Vice President,
Investment Company Capital Corp. (May 1987 to May 2002).
- -----------------------------------------------------------------------------------------------------------------------------
Stephen V. Killorin Executive Managing Director and Chief Financial Officer, International Strategy
6/27/53 & Investment, Inc. (registered investment advisor) (December 2000 to present);
Vice President since 2002. Executive Managing Director and Chief Financial Officer, International Strategy
Treasurer, Chief Compliance Officer & Investment Group, Inc. (registered broker-dealer) (December 2000 to present);
and Chief Financial Officer since Formerly, Controller, Sanford C. Bernstein & Co., Inc. (registered investment
2004. advisor) (November 1999 to December 2000) and Managing Director, Deutsche
Bank (May 1994 to November 1999).
- -----------------------------------------------------------------------------------------------------------------------------
Margaret M. Beeler Managing Director, International Strategy & Investment, Inc. (registered
3/1/67 investment advisor) (July 2004 to present). Formerly, Assistant Managing Director
Vice President since 2005. and Assistant Vice President (1996 to 2000), International Strategy & Investment,
Secretary since 2004. Inc. (registered investment advisor).
- -----------------------------------------------------------------------------------------------------------------------------
Heena Dhruv Managing Director, International Strategy & Investment, Inc. (registered
11/13/76 investment advisor) (July 2005 to present). Associate Managing Director,
Assistant Vice President since 2005.// International Strategy & Investment, Inc. (January 2003 to July 2005). Portfolio
Assistant, Pershing, Division of DLJ (April 1999 to August 2000).
- -----------------------------------------------------------------------------------------------------------------------------
Dana A. Lukens General Counsel, Citigroup Fund Services, LLC ("Citigroup") (fund
4/23/62 administrator) (2001 to present). Formerly, General Counsel, Clareon Corp.
Assistant Secretary since 2003.// (money transmitter) (2000 to 2001); Associate, Drummond Woodsum &
MacMahon (law firm) (1998 to 2000); Officer of various registered investment
companies for which Citigroup serves as fund accountant and administrator.
- -----------------------------------------------------------------------------------------------------------------------------
Frederick Skillin Senior Vice President, Financial Control, Citigroup (2003 to present); Senior
5/27/58 Manager, Corporate Finance, Citigroup (1994 to 2004); Officer of various
Assistant Treasurer since 2004.// registered investment companies for which Citigroup serves as fund accountant
and administrator.
- -----------------------------------------------------------------------------------------------------------------------------
*Considered to be an "interested person" as defined in the Investment Company
Act, because of his employment with the Advisor and the Distributor.
/1/The mailing address of each Director and Executive Officer with respect to
Fund operations is 40 West 57/th/ Street, 18th Floor, New York, New York
10019.
/2/Thomas D. Stevens is an officer only for the ISI Strategy Fund, Inc.
Except for Mr. Stevens, each of the above named persons serves in the
capacity noted above for each Fund in the Fund Complex. The Funds' Statements
of Additional Information include additional information about the Funds'
directors and officers. To receive your free copy of the Statements of
Additional Information, call toll-free: (800) 955-7175.
47
NOTICE TO SHAREHOLDERS (UNAUDITED)
PROXY VOTING INFORMATION
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. The
Fund's proxy voting record for the 12-month period ended June 30, 2006 is
available, without charge and upon request, by calling (800) 955-7175. This
information is also available from the EDGAR database on the SEC's website at
http://www.sec.gov.
Total Return, Managed Municipal and North American are not required to adopt
proxy voting policies and procedures.
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 Funds' 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.
TAX INFORMATION FOR THE TAX YEAR ENDED OCTOBER 31, 2006:
The amounts may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
- -------------------------------------------------------------------------------------------------------------------------
% of Ordinary
Income % of Ordinary % of Ordinary % of Short-Term
Distributions that Income Income Capital Gain
% of Qualify for the Distributions that Distributions that Distributions that
Long-Term Tax-Exempt Corporate Qualify as are exempt from are exempt from
Capital Gain Income Dividends Received Qualified Dividend US tax for Foreign US tax for Foreign
Distributions Distributions Deduction Income Shareholders Shareholders
- -------------------------------------------------------------------------------------------------------------------------
Total Return $ - - - - 100.00% 100.00%
Managed Municipal 289,342 98.34% - - 1.92% -
North American - - - - 54.10% 100.00%
Strategy - - 83.48% 83.47% 65.16% -
- -------------------------------------------------------------------------------------------------------------------------
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Effective December 14, 2005, the Funds replaced Ernst & Young LLP ("E & Y")
with Briggs Bunting & Dougherty, LLP as the Funds' independent registered
public accounting firm by action of the Funds' Board of Directors and upon the
recommendation of the Audit and Compliance Committee of the Board. E & Y's
reports on each Fund's financial statements for the fiscal years ended
October 31, 2004 and October 31, 2005 contained no adverse opinion or
disclaimer of opinion nor were they qualified or modified as to the
uncertainty, audit scope, or accounting principles.
48
NOTICE TO SHAREHOLDERS (UNAUDITED)
During the Fund's fiscal years ended October 31, 2004 and October 31, 2005,
(i) there were no disagreements with E & Y on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of E & Y,
would have caused it to make reference to the subject matter of disagreements
in connection with its report on each Fund's financial statements for such
year, and (ii) there were no "reportable events" of the kind described in Item
304 (a) (1) (v) of Regulation S-K under the Securities Exchange Act of 1934, as
amended.
INVESTMENT ADVISORY AGREEMENT APPROVAL
At the September 27, 2006 Board meeting, the Board, including the Independent
Directors, considered the approval of the continuance of the Investment
Advisory Agreements between ISI and each of the Funds (the "Advisory
Agreements") as well as the Sub-Advisory Agreement between ISI and the
Sub-Advisor with respect to Strategy (the "Sub-Advisory Agreement"). In
evaluating the 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, ISI and the Sub-Advisor; (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 its 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 Board met with senior management
of ISI and discussed ISI's management approach with respect to each Fund as
well as ISI's general economic outlook. The Board also considered the
background and quality of ISI's investment management team and the history of
the organization of the Funds and their relationship with ISI and the
Sub-Advisor. With respect to Strategy, the Board noted that, under the
Sub-Advisory Agreement, the Sub-Advisor managed the Fund's equity portfolio and
reviewed data provided by the Sub-Advisor regarding its general order execution
results. The Board also reviewed information provided by Lipper Inc. and
Thomson Financial regarding the investment performance of each Fund.
TOTAL RETURN FUND. ISI reported that the Fund's duration had been extended
from 6.3 years to 7.5 years during the quarter and that its return was
better than the Lehman Index, having returned roughly 4% for the quarter
versus 3.05% for the index. ISI advised the Board that the Fund's longer
duration had contributed to this relative performance. ISI reported that the
Fund had performed like a 5-year Treasury in an environment where 2-year
Treasuries had returned 2.63% and 10-year Treasuries had returned -2.09%.
The Board noted that Lipper Inc. and CDA/Thomson Financial had given the
Fund a high ranking for its one quarter and three year performance but a low
ranking for its one-year performance, while Morningstar had given the Fund a
high ranking for its one year performance and a low ranking for its three
year performance. The Board also noted that the Fund's expense ratio of 75
basis points was below the 100 basis points average for like-size Treasury
Funds.
MANAGED MUNICIPAL FUND. Referring to a chart showing yields from 1 year to
30 years for New York and Georgia, ISI reported that the spread compression
between a strong AAA Georgia and a weak AA New York had reduced to nothing.
ISI reported that the Fund had weathered similar situations over the past
couple of years. ISI reported and
49
NOTICE TO SHAREHOLDERS (UNAUDITED)
the Board noted that, in the past, credit quality issues had been
overwhelming, but that, currently, the spreads between different credit
qualities were extremely narrow, nothing that big states such as California
and New York compared with high quality states such as Georgia. ISI reported
that it believed it was likely that credit quality would likely be less of
an issue in the future and that maturity management would come more into
play. ISI reported, and the Board noted that the Fund had recently invested
in Georgia bonds because they appeared to be cheap compared with New York
State bonds. The Board noted that the Fund's duration was still quite a bit
longer than the market. The Board also noted that the Fund's 91 basis point
expense ratio was above the 88 basis point average of funds of a similar
size.
NORTH AMERICAN FUND. ISI reported that the losing candidate in Mexico's
recent presidential elections had refused to concede, prompting riots and
demonstrations. Nonetheless, ISI reported that, with an increase of over
10%, Mexico was the best performing market for bonds over the quarter. The
Board noted that the Fund had performed significantly better than its peer
group. Referring to the Board materials, the Board noted that the Fund had
outperformed each of the indices for every time frame. ISI advised the Board
that the ability to invest in Canada and Mexico had been very important for
the Fund. ISI reported that the Fund was underinvested in Canada but was
looking for an opportunity to reinvest. The Board noted that the returns for
the Fund had been good. ISI advised the Directors that the Fund's duration
had been lowered, since 10-year rates were about 70 basis points through the
Fed Funds rate. ISI advised the Directors that it was important to remember
that the first quarter of a year was often a difficult one as the economy
usually gets scaled up during the quarter due to seasonal factors. The Board
noted that although the Fund's duration had recently been lowered it was
still fairly long. The Board also noted that the Fund's expense ratio of 106
basis points was marginally above the 104 basis point average of funds of a
similar size.
STRATEGY FUND. The Board noted that the Fund had underperformed its 60/40
index by about 1% for the quarter. ISI reported that this was primarily due
to LA Capital's analysis of securities variables which had caused it to
invest in stocks with higher betas and lower yields. ISI further reported
that the perception of a slowing economy had also hurt the Fund's
performance. ISI reported that the Fund's September performance had placed
it ahead of the index by about 20 basis points. ISI reported and the Board
noted that while the Fund's 75% investment in stocks had been a good call
over time, in the most recent quarter bonds had outperformed stocks. The
Board noted that the Fund's expense ratio of 95 basis points was slightly
better than the 100 basis point average of funds in its category.
Based on the above information, the Board concluded that the quality and range
of services provided by ISI have benefited, and should continue to benefit, the
Funds and their shareholders.
INVESTMENT ADVISORY FEE SCHEDULES FOR EACH FUND. The Board considered the
investment advisory fees paid by each Fund to ISI and the Sub-Advisor. The
Board noted that the sub-advisory fee is paid by ISI and not the Fund. The
Board concluded that the fee schedules under the Investment Advisory Agreements
provided 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.
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 on its advisory services to the Funds.
The Board noted that the level of ISI's profits was within the range found in
the industry of comparable fund complexes. The Board also was advised that
ISI's profitability on advisory services rendered to the Funds had declined
over the past year due to a decrease in assets of the Funds. The Board also
considered whether the Funds would benefit from any economies of scale, noting
that the investment advisory fees for Managed Municipal, North American and
Strategy
50
NOTICE TO SHAREHOLDERS (UNAUDITED)
did not contain breakpoints. The Board considered the size of each of these
Funds and concluded that it would not be necessary to consider the
implementation of fee breakpoints.
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 operated at a loss with respect to
distribution services provided to the Funds.
Prior to voting, the Board reviewed a memorandum from counsel to the
Independent Directors discussing the legal standards applicable to its
consideration of the Advisory Agreements and the Sub-Advisory Agreement and
discussed the proposed continuance of the Advisory Agreements and the
Sub-Advisory Agreement. The Independent Directors met their counsel without
management present to discuss the agreements further. Based upon its review,
the Board concluded that the overall arrangements between the ISI Funds and
ISI, and ISI and the Sub-Advisor (with respect to Strategy) as provided in the
Advisory and Sub-Advisory Agreements, were in the best interests of the Funds
and their respective shareholders.
OTHER INFORMATION
On October 31, 2006, one shareholder held approximately 11% of the
outstanding shares of North American. This shareholder is an omnibus account,
which is held on behalf of several individual shareholders.
51
[LOGO] ISI
INTERNATIONAL STRATEGY & INVESTMENT
DIRECTORS AND OFFICERS
EDWARD S. HYMAN STEPHEN V. KILLORIN
CHAIRMAN VICE PRESIDENT
W. MURRAY JACQUES TREASURER
DIRECTOR CHIEF COMPLIANCE OFFICER
LOUIS E. LEVY CHIEF FINANCIAL OFFICER
DIRECTOR MARGARET M. BEELER
R. ALAN MEDAUGH VICE PRESIDENT
PRESIDENT SECRETARY
NANCY R. LAZAR FREDERICK SKILLIN
VICE PRESIDENT ASSISTANT TREASURER
CARRIE L. BUTLER DANA A. LUKENS
VICE PRESIDENT ASSISTANT SECRETARY
EDWARD J. VEILLEUX
VICE PRESIDENT *Thomas D. Stevens is an
THOMAS D. STEVENS* officer for only the ISI Strategy Fund.
VICE PRESIDENT
INVESTMENT ADVISOR
ISI, INC.
40 WEST 57TH STREET, 18TH FLOOR
NEW YORK, NY 10019
(800) 955-7175
SHAREHOLDER SERVICING AGENT
CITIGROUP FUND SERVICES, LLC
TWO PORTLAND SQUARE
PORTLAND, ME 04101
(800) 882-8585
DISTRIBUTOR
ISI GROUP, INC.
40 WEST 57TH STREET, 18TH FLOOR
NEW YORK, NY 10019
(800) 955-7175
ITEM 2. CODE OF ETHICS
As of the end of the period covered by this report, the registrant has adopted
a code of ethics as defined in Item 2 of Form N-CSR, which applies to its Chief
Financial Officer and Principal Accounting Officer. A copy of the code is filed
as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The registrant's Board has determined that Louis E. Levy is an "audit committee
financial expert". Mr. Levy is "independent" for purposes of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees - The aggregate fees accrued for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by the
Registrant's principal accountant for the audit of the Registrant's annual
financial statements, or services that are normally provided by the principal
accountant in connection with the statutory and regulatory filings or
engagements for the Reporting Periods, were $24,075 in 2005 and $18,000 in 2006.
(b) Audit-Related Fees - There were no audit-related fees billed to the
Registrant in the Reporting Periods for assurance and related services rendered
by the principal accountant that were reasonably related to the performance of
the audit of the Registrant's financial statements and are not reported under
paragraph (a) of this Item 4.
(c) Tax Fees - The aggregate fees billed in the Reporting Periods for
professional services rendered by the principal accountant to the Registrant
for tax compliance, tax advice and tax planning were $3,300 in 2005 and $1,500
in 2006. These services consisted of review or preparation of U.S. federal,
state and local excise tax returns.
(d) Other Fees - The aggregate fees billed in the Reporting Periods for
products and services provided by the principal accountant to the Registrant,
other than the services reported in paragraphs (a) through (c) of this Item,
were $3,880 in 2005 and $0 in 2006. These services consisted of resignation
fees from prior audit firm and New York City and State Settlement.
(e) (1) The Audit Committee reviews and approves in advance all audit and
"permissible non-audit services" (as defined under Rule 2-01(c)(4)) for the
Registrant. In addition, the Audit Committee reviews and approves in advance
all "permissible non-audit services" (as defined under Rule 2-01(c)(4)) to be
provided to the Registrant's investment adviser ("Adviser") by the Registrant's
independent auditor if the engagement relates to the operations and financial
reporting of the Registrant. Pre-approval of any permissible non-audit services
provided to the Registrant is not required so long as: (i) the aggregate amount
of all such permissible non-audit services provided to the Registrant
constitutes not more than 5% of the total amount of revenues paid by the
Registrant to its auditor during the fiscal year in which the permissible
non-audit services are provided; (ii) the permissible non-audit services were
not recognized by the Registrant at the time of the engagement to be non-audit
services; and (iii) such services are promptly brought to the attention of the
Audit Committee and approved prior to the completion of the audit by the Audit
Committee or its authorized delegate(s). Pre-approval of permissible non-audit
services rendered to the Adviser is not required if such services constitute
not more than 5% of the total amount of revenues paid by the Registrant and the
Adviser collectively to the Registrant's independent auditor during the fiscal
year in which such services are provided. The Audit Committee may delegate to
one or more of its members authority to pre-approve permissible non-audit
services to be provided to the Registrant.
(e) (2) 0.00%
(f) Not applicable
(g) The aggregate non-audit fees billed by the principal accountant for
services rendered to the Registrant for the Reporting Periods were $7,180 in
2005 and $1,500 in 2006. There were no fees billed in each of the Reporting
Periods for non-audit services rendered by the principal accountant to the
investment adviser.
(h) If the Registrant's investment adviser has engaged the Registrant's auditor
for non-audit services and the engagement relates directly to the operations
and financial reporting of the Registrant, the Audit Committee does consider
such engagement in evaluating the independence of the Registrant's auditor.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule 30a-3(c)
under the Investment Company Act of 1940 (the "Act")) are effective, based on
their evaluation of these disclosure controls and procedures required by Rule
30a-3(b) as of a date within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act) that occurred during the
registrant's last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics (Exhibit filed herewith).
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
(a)(3) Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Registrant NORTH AMERICAN GOVERNMENT BOND FUND, INC
By /s/ R. Alan Medaugh
-----------------------------
R. Alan Medaugh, President
Date 1/5/07
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ R. Alan Medaugh
------------------------------
R. Alan Medaugh, President
Date 1/5/07
By /s/ Stephen V. Killorin
------------------------------
Stephen V. Killorin, Treasurer
Date 1/5/07