As filed with the Securities and Exchange Commission on July 1, 2004
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07292
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
535 Madison Avenue, 30th Floor
New York, New York 10022
(212) 446-5600
R. Alan Medaugh, President
535 Madison Avenue, 30th Floor
New York, NY 10022
(212) 446-5600
Date of fiscal year end: October 31, 2004
Date of reporting period: April 30, 2004
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
ISI
INTERNATIONAL STRATEGY & INVESTMENT
SEMI - ANNUAL REPORT
APRIL 30, 2004
TOTAL RETURN
US TREASURY
FUND
MANAGED MUNICIPAL
FUND
NORTH AMERICAN
GOVERNMENT BOND
FUND
ISI STRATEGY
FUND
ISI FUNDS SEMI-ANNUAL REPORT - TABLE OF CONTENTS
<Table>
Investment Advisor's Message................................ 1
Performance Comparisons..................................... 2
Schedules of Investments.................................... 6
Statements of Assets and Liabilities........................ 20
Statements of Operations.................................... 22
Statements of Changes in Net Assets......................... 24
Financial Highlights........................................ 28
Notes to Financial Statements............................... 33
</Table>
INVESTMENT ADVISOR'S MESSAGE
Dear Shareholder:
I am pleased to present the semi-annual report to shareholders for the ISI
Funds. This report covers the six-month reporting period ended April 30, 2004.
For this period, the Total Return US Treasury Fund, Inc. ('Total Return')
produced a +0.39% return; Managed Municipal Fund, Inc. ('Managed Municipal')
produced a +0.04% return; North American Government Bond Fund, Inc. ('North
American') produced a -0.52% return in its Class A Shares and a -0.86% return in
its Class C Shares; and ISI Strategy Fund, Inc. ('Strategy') produced a +4.42%
return. These figures assume the reinvestment of dividends and capital gain
distributions and exclude the impact of any sales charges.
DESCRIPTION OF FUND OBJECTIVES
Total Return, Managed Municipal, North American and 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.
ISI manages all four Funds for total return through active management. 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 designed 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
designed to maximize total return through a combination of long-term growth of
capital and current income.
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
May 7, 2004
1
TOTAL RETURN US TREASURY FUND - ISI SHARES PERFORMANCE COMPARISON(1)
(PERFORMANCE GRAPH)
<Table>
<Caption>
TOTAL RETURN US LEHMAN BROTHERS LEHMAN BROTHERS LONG-
TREASURY FUND - ISI LEHMAN BROTHERS INTERMEDIATE TREASURY TERM TREASURY INDEX:
DATE SHARES: $18,733 TREASURY INDEX: $19,809 INDEX: $18,704 $22,929
- ---- ------------------- ----------------------- --------------------- ---------------------
4/30/1994 9700 10000 10000 10000
9670 9988 10007 9934
9622 9965 10009 9840
9829 10147 10139 10173
9812 10149 10169 10098
9639 10007 10085 9780
9632 10001 10088 9746
9625 9981 10042 9804
9712 10042 10075 9955
9895 10228 10238 10210
10111 10446 10434 10500
10157 10512 10491 10590
4/30/1995 10289 10649 10612 10779
10854 11080 10911 11606
10944 11167 10984 11741
10838 11126 10989 11554
10995 11255 11077 11810
11131 11362 11151 12027
11367 11538 11275 12364
11583 11717 11413 12673
11810 11885 11527 13010
11825 11959 11626 13011
11435 11715 11502 12382
11256 11613 11445 12135
4/30/1996 11121 11543 11412 11932
11090 11520 11406 11870
11256 11666 11520 12123
11271 11694 11555 12127
11181 11670 11569 11976
11409 11861 11717 12307
11758 12122 11909 12791
12072 12332 12052 13217
11835 12205 11986 12897
11791 12217 12031 12805
11782 12232 12048 12811
11602 12100 11977 12483
4/30/1997 11778 12274 12112 12784
11893 12380 12206 12927
12071 12518 12309 13177
12574 12877 12540 13951
12340 12746 12490 13562
12558 12940 12626 13936
12816 13165 12774 14405
12909 13234 12804 14597
13092 13373 12908 14841
13290 13578 13082 15143
13229 13538 13064 15035
13259 13575 13103 15066
4/30/1998 13289 13635 13165 15122
13477 13777 13257 15411
13693 13936 13346 15769
13670 13957 13398 15703
14210 14337 13663 16412
14617 14736 13992 17012
14418 14689 14021 16755
14517 14686 13968 16884
14506 14714 14021 16849
14595 14800 14082 17000
14091 14422 13877 16164
14096 14477 13969 16127
4/30/1999 14143 14512 14008 16150
13975 14376 13919 15896
13878 14346 13945 15728
13825 14334 13958 15652
13771 14336 13986 15591
13878 14446 14095 15706
13868 14462 14113 15716
13798 14434 14119 15609
13683 14338 14079 15376
13838 14376 14041 15595
14129 14592 14150 16066
14497 14882 14331 16615
4/30/2000 14456 14835 14321 16482
14414 14857 14381 16423
14650 15108 14588 16778
14841 15264 14687 17067
15111 15488 14840 17456
14990 15500 14954 17245
15184 15651 15053 17514
15521 15972 15271 18067
15845 16277 15524 18492
15882 16409 15708 18524
16112 16607 15853 18841
16068 16661 15978 18746
4/30/2001 15748 16454 15914 18236
15785 16505 15980 18259
15840 16593 16038 18416
16308 17007 16329 19102
16579 17233 16470 19510
16701 17506 16811 19656
17245 17991 17066 20622
16675 17546 16873 19641
16510 17375 16792 19271
16618 17470 16838 19457
16726 17649 16977 19748
16334 17225 16717 18949
4/30/2002 16756 17653 17016 19669
16829 17752 17133 19731
17114 18003 17342 20085
17540 18429 17688 20704
18057 18828 17874 21608
18540 19335 18217 22509
18241 19121 18183 21862
18065 18932 18014 21620
18500 19424 18349 22506
18432 19365 18297 22430
18762 19698 18494 23109
18656 19616 18493 22818
4/30/2003 18751 19707 18530 23050
19343 20276 18818 24346
19217 20152 18788 23975
18351 19266 18376 21830
18448 19381 18402 22179
18955 19965 18783 23333
18659 19661 18600 22684
18701 19685 18595 22794
18831 19859 18736 23065
18992 20029 18828 23461
19222 20277 19003 23928
19375 20467 19137 24291
4/30/2004 18733 19809 18704 22929
</Table>
<Table>
<Caption>
Cumulative Total Returns With Load Annualized Total Returns With Load
Periods Ending Since Since
April 30, 2004 6 Months 1 Year 5 Years 10 Years Inception(2) 1 Year 5 Years 10 Years Inception(2)
Total Return US Treasury
Fund - ISI Shares -2.65% -3.13% 28.42% 87.33% 206.20% -3.13% 5.13% 6.48% 7.38%
Lehman Brothers Treasury
Index(3) 0.75% 0.51% 36.50% 98.09% 234.12% 0.51% 6.42% 7.07% 8.01%
Lehman Brothers
Intermediate Treasury
Index(3) 0.56% 0.94% 33.52% 87.04% 204.02% 0.94% 5.95% 6.46% 7.36%
Lehman Brothers Long-Term
Treasury Index(3) 1.08% -0.53% 41.97% 129.29% 326.77% -0.53% 7.26% 8.65% 9.71%
</Table>
- --------------------------------------------------------------------------------
(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 8.0 years.
(2) The Fund's inception date is August 10, 1988. Benchmark returns are for the
periods beginning August 31, 1988.
(3) The Lehman Brothers Treasury Index is an unmanaged index reflecting the
performance of all public obligations and does not focus on one particular
segment of the Treasury market. The Lehman Brothers 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.
2
MANAGED MUNICIPAL FUND - ISI SHARES PERFORMANCE COMPARISON(1)
(PERFORMANCE GRAPH)
<Table>
<Caption>
MANAGED MUNICIPAL LEHMAN BROTHERS LEHMAN BROTHERS
FUND - ISI SHARES: GENERAL OBLIGATION PREREFUNDED MUNICIPAL CONSUMER PRICE INDEX:
$16,638 INDEX: $18,423 BOND INDEX: $16,892 $12,754
------------------ ------------------ --------------------- ---------------------
4/30/1994 9700 10000 10000 10000
9807 10078 10034 10007
9726 10017 10033 10041
9884 10174 10166 10068
9908 10217 10233 10109
9711 10074 10157 10136
9512 9929 10075 10143
9333 9773 9931 10156
9603 9946 10084 10156
9895 10182 10233 10197
10228 10451 10479 10238
10303 10592 10553 10271
4/30/1995 10268 10600 10608 10305
10665 10915 10851 10326
10519 10841 10879 10346
10625 10967 10995 10346
10722 11106 11068 10373
10768 11177 11068 10394
10979 11305 11138 10427
11170 11464 11260 10421
11310 11555 11328 10414
11389 11667 11457 10475
11268 11613 11415 10509
11053 11484 11302 10563
4/30/1996 11006 11444 11308 10604
10969 11426 11306 10624
11103 11541 11353 10631
11237 11651 11457 10651
11188 11650 11454 10672
11345 11793 11560 10706
11491 11931 11650 10740
11693 12153 11793 10760
11617 12104 11765 10760
11617 12137 11808 10794
11700 12247 11901 10828
11539 12089 11771 10855
4/30/1997 11634 12183 11810 10868
11807 12365 11978 10862
11937 12499 12058 10875
12292 12822 12262 10889
12117 12708 12204 10909
12282 12853 12308 10936
12345 12924 12357 10963
12397 12985 12384 10957
12593 13169 12491 10943
12721 13305 12600 10963
12692 13315 12635 10984
12698 13327 12632 11004
4/30/1998 12621 13257 12593 11024
12851 13475 12750 11045
12881 13524 12795 11058
12899 13556 12843 11072
13132 13770 12981 11086
13294 13955 13088 11099
13276 13958 13137 11126
13306 14004 13178 11126
13355 14048 13200 11119
13514 14233 13343 11147
13422 14160 13343 11160
13404 14166 13341 11194
4/30/1999 13447 14205 13379 11276
13310 14126 13331 11276
13099 13918 13215 11276
13149 13974 13294 11309
13011 13892 13294 11337
12948 13904 13337 11391
12797 13783 13323 11411
12962 13923 13389 11418
12847 13836 13353 11418
12757 13785 13370 11452
12963 13922 13423 11520
13285 14202 13538 11615
4/30/2000 13156 14130 13530 11622
13065 14055 13531 11635
13443 14416 13726 11696
13639 14606 13848 11723
13823 14815 13971 11723
13704 14740 13958 11784
13877 14895 14045 11805
14010 14999 14116 11811
14424 15353 14314 11805
14491 15520 14516 11879
14544 15567 14570 11927
14652 15704 14674 11954
4/30/2001 14436 15541 14606 12001
14585 15698 14747 12056
14694 15796 14825 12076
14900 16020 14968 12042
15134 16279 15151 12042
15037 16243 15208 12096
15231 16409 15344 12056
15092 16265 15240 12035
14994 16134 15174 11988
15192 16399 15395 12015
15375 16599 15562 12062
15063 16282 15246 12130
4/30/2002 15320 16618 15537 12198
15434 16709 15635 12198
15549 16896 15793 12205
15736 17105 15964 12219
15952 17300 16101 12259
16286 17650 16333 12280
16009 17364 16142 12300
15936 17279 16090 12300
16303 17618 16422 12273
16215 17588 16402 12327
16436 17830 16587 12422
16451 17865 16561 12497
4/30/2003 16570 17980 16645 12470
16883 18377 16924 12449
16734 18288 16876 12463
16102 17681 16484 12476
16283 17845 16581 12524
16738 18357 16946 12565
16631 18234 16861 12551
16799 18384 16940 12517
16937 18514 17036 12503
16937 18606 17098 12565
17239 18898 17308 12632
17094 18848 17209 12714
4/30/2004 16638 18423 16892 12754
</Table>
<Table>
<Caption>
Cumulative Total Returns With Load Annualized Total Returns With Load
Periods Ending Since Since
April 30, 2004 6 Months 1 Year 5 Years 10 Years Inception(2) 1 Year 5 Years 10 Years Inception(2)
Managed Municipal Fund - ISI Shares -2.99% -2.58% 19.98% 66.38% 121.33% -2.58% 3.71% 5.22% 5.77%
Lehman Brothers General Obligation
Index(3) 1.04% 2.46% 29.69% 84.23% 154.33% 2.46% 5.34% 6.30% 6.81%
Lehman Brothers Prerefunded Municipal Bond
Index(3) 0.19% 1.48% 26.25% 68.92% 127.96% 1.48% 4.77% 5.38% 5.99%
Consumer Price Index(4) 1.61% 2.29% 13.12% 27.54% 46.88% 2.29% 2.50% 2.46% 2.75%
</Table>
- --------------------------------------------------------------------------------
(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. For certain investors, a portion of the Fund's income
may be subject to federal alternative minimum tax. Distribution of the
Fund's income and capital gains may be subject to state and local taxes.
(2) The Fund's inception date is February 26, 1990. Benchmark returns are for
the periods beginning February 28, 1990.
(3) The Lehman Brothers 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.
3
NORTH AMERICAN GOVERNMENT BOND FUND - ISI CLASS A SHARES PERFORMANCE
COMPARISON(1)
(PERFORMANCE GRAPH)
<Table>
<Caption>
NORTH AMERICAN LEHMAN BROTHERS
GOVERNMENT BOND FUND LEHMAN BROTHERS EMERGING AMERICAS
-ISI CLASS A SHARES: INTERMEDIATE TREASURY INDEX: MEXICO SECTION: CONSUMER PRICE INDEX:
$17,799 INDEX: $18,704 $29,908 $12,754
-------------------- --------------------- ---------------------- ---------------------
4/30/1994 9700 10000 10000 10000
9632 10007 10389 10007
9549 10009 10056 10041
9643 10139 10333 10068
9811 10169 10605 10109
9769 10085 10500 10136
9706 10088 10444 10143
9727 10042 10539 10156
8929 10075 9292 10156
8822 10238 8870 10197
9029 10434 8208 10238
8887 10491 7947 10271
4/30/1995 9186 10612 8994 10305
9576 10911 9440 10326
9699 10984 10025 10346
9687 10989 10355 10346
9836 11077 10469 10373
9973 11151 10574 10394
10020 11275 10297 10427
10137 11413 10602 10421
10325 11527 11177 10414
10408 11626 11760 10475
10075 11502 11292 10509
10040 11445 11610 10563
4/30/1996 10016 11412 12033 10604
10065 11406 11929 10624
10188 11520 12115 10631
10250 11555 12144 10651
10273 11569 12570 10672
10536 11717 12995 10706
10851 11909 13042 10740
11167 12052 13511 10760
10964 11986 13633 10760
10964 12031 14108 10794
10976 12048 14352 10828
10833 11977 13787 10855
4/30/1997 10978 12112 14134 10868
11123 12206 14644 10862
11283 12309 14956 10875
11794 12540 15627 10889
11605 12490 15492 10909
11850 12626 15926 10936
11960 12774 15196 10963
12070 12804 15580 10957
12279 12908 15905 10943
12391 13082 16242 10963
12363 13064 16387 10984
12420 13103 16517 11004
4/30/1998 12477 13165 16563 11024
12549 13257 16418 11045
12694 13346 16340 11058
12708 13398 16496 11072
12928 13663 13902 11086
13240 13992 14373 11099
13150 14021 14864 11126
13270 13968 15838 11126
13315 14021 15792 11119
13361 14082 15622 11147
13051 13877 15702 11160
13161 13969 16434 11194
4/30/1999 13271 14008 16949 11276
13049 13919 16211 11276
13066 13945 16431 11276
13049 13958 16257 11309
13033 13986 16425 11337
13132 14095 16814 11391
13116 14113 17126 11411
13149 14119 17617 11418
13099 14079 18078 11418
13200 14041 17944 11452
13471 14150 18788 11520
13795 14331 19284 11615
4/30/2000 13726 14321 19020 11622
13709 14381 18650 11635
13865 14588 19384 11696
14094 14687 19853 11723
14324 14840 20351 11723
14270 14954 20399 11784
14378 15053 20197 11805
14687 15271 20504 11811
14943 15524 20807 11805
15017 15708 21196 11879
15202 15853 21046 11927
15277 15978 21133 11954
4/30/2001 15164 15914 21258 12001
15258 15980 21747 12056
15353 16038 22179 12076
15681 16329 22227 12042
15914 16470 22680 12042
15935 16811 22112 12096
16485 17066 22988 12056
16069 16873 23095 12035
15969 16792 23408 11988
16070 16838 23781 12015
16191 16977 24514 12062
15946 16717 24145 12130
4/30/2002 16172 17016 24698 12198
16193 17133 24711 12198
16314 17342 24315 12205
16624 17688 24043 12219
17063 17874 25056 12259
17356 18217 25009 12280
17181 18183 25522 12300
17113 18014 26068 12300
17385 18349 26769 12273
17272 18297 26643 12327
17531 18494 27168 12422
17526 18493 27689 12497
4/30/2003 17832 18530 28658 12470
18475 18818 29532 12449
18403 18788 29421 12463
17563 18376 28175 12476
17559 18402 28497 12524
18080 18783 29628 12565
17891 18600 29297 12551
17794 18595 29421 12517
17977 18736 29824 12503
18162 18828 30135 12565
18353 19003 30754 12632
18497 19137 31341 12714
4/30/2004 17799 18704 29908 12754
</Table>
<Table>
<Caption>
Cumulative Total Returns With Load Annualized Total Returns With Load
Periods Ending Since Since
April 30, 2004 6 Months 1 Year 5 Years 10 Years Inception(2) 1 Year 5 Years 10 Years Inception(2)
North American Government Bond Fund - ISI
Class A Shares -3.52% -3.22% 30.10% 77.99% 87.01% -3.22% 5.40% 5.94% 5.70%
Lehman Brothers Intermediate Treasury
Index(3) 0.56% 0.94% 33.52% 87.04% 93.74% 0.94% 5.95% 6.46% 6.06%
Lehman Brothers Emerging Americas Index:
Mexico Section(3) 2.09% 4.36% 76.46% 199.08% 217.55% 4.36% 12.03% 11.58% 11.35%
Consumer Price Index(4) 1.61% 2.29% 13.12% 27.54% 31.84% 2.29% 2.50% 2.46% 2.49%
</Table>
- --------------------------------------------------------------------------------
(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. On May 16, 2003, ISI Shares were redesignated as ISI
Class A Shares.
(2) The Fund's inception date is January 15, 1993. Benchmark returns are for
the periods beginning January 31, 1993.
(3) The Lehman Brothers Intermediate Treasury Index is an unmanaged index
reflecting the performance of US Treasury securities in the
intermediate-term Treasury sector. Lehman Brothers Emerging Americas Index:
Mexico Section is an unmanaged sub-index of the Lehman Brothers Emerging
Markets Index reflecting the performance of selected Mexican debt
instruments with maturities of one year or more. The performance
information in the graph and table above is quoted in US dollars. Benchmark
returns do not reflect expenses or sales charges that have been deducted
from the Fund's returns.
(4) The Consumer Price Index is a widely used measure of inflation.
4
ISI STRATEGY FUND - ISI SHARES PERFORMANCE COMPARISON(1)
(PERFORMANCE GRAPH)
<Table>
<Caption>
ISI STRATEGY FUND - ISI WILSHIRE 5000 STOCK CONSUMER PRICE INDEX: LIPPER FLEXIBLE PORTFOLIO
SHARES: $12,788 INDEX: $12,870 $11,662 FUNDS AVERAGE: $13,094
----------------------- ------------------- --------------------- -------------------------
9/16/1997 9700 10000 10000 10000
9719 10000 10000 10000
9554 9667 10025 9776
9767 9983 10019 9937
9933 10168 10006 10070
10020 10223 10025 10137
10459 10967 10043 10599
10810 11516 10062 10957
4/30/1998 10878 11653 10081 11046
10761 11343 10099 10919
11044 11741 10112 11132
10887 11483 10124 10986
9992 9695 10137 9874
10483 10328 10149 10265
10888 11097 10174 10722
11337 11796 10174 11138
11776 12550 10168 11553
12079 13012 10192 11756
11634 12540 10205 11431
11937 13024 10236 11737
4/30/1999 12301 13648 10310 12113
12068 13350 10310 11912
12443 14041 10310 12304
12148 13590 10341 12112
12046 13464 10366 12025
11863 13112 10416 11896
12282 13946 10434 12270
12496 14413 10440 12531
12953 15507 10440 13155
12649 14864 10472 12810
12869 15196 10534 13055
13498 16099 10620 13637
4/30/2000 13056 15260 10627 13318
12804 14727 10639 13116
13183 15377 10695 13438
13098 15063 10720 13322
13734 16157 10720 13931
13289 15403 10775 13568
13205 15076 10794 13475
12491 13576 10800 12904
12735 13818 10794 13201
13063 14347 10862 13452
12340 12986 10906 12779
11865 12112 10931 12251
4/30/2001 12299 13109 10974 12823
12379 13239 11024 12897
12254 13018 11042 12677
12259 12803 11011 12622
11814 12028 11011 12199
11107 10947 11061 11501
11416 11226 11024 11733
11874 12084 11005 12210
12006 12301 10962 12318
11903 12149 10986 12168
11765 11899 11030 12026
12087 12420 11092 12342
4/30/2002 11814 11813 11154 12041
11768 11674 11154 11983
11193 10854 11160 11383
10618 9978 11173 10768
10745 10036 11210 10861
10041 9029 11228 10161
10515 9720 11247 10599
10885 10306 11247 11000
10500 9735 11222 10682
10291 9490 11272 10530
10221 9329 11359 10435
10326 9435 11427 10471
4/30/2003 10932 10208 11402 11048
11479 10832 11383 11585
11569 10992 11396 11706
11592 11257 11408 11774
11849 11527 11452 11995
11779 11400 11489 12014
12246 12096 11476 12478
12363 12265 11445 12639
12722 12816 11433 13112
12956 13101 11489 13307
13120 13292 11551 13492
13046 13149 11625 13444
4/30/2004 12788 12870 11662 13094
</Table>
<Table>
<Caption>
Annualized Total Returns
Cumulative Total Returns With Load With Load
Periods Ending Since Since
April 30, 2004 6 Months 1 Year 5 Years Inception(2) 1 Year 5 Years Inception(2)
ISI Strategy Fund - ISI Shares 1.33% 13.48% 0.80% 27.88% 13.48% 0.16% 3.79%
Wilshire 5000 Stock Index(3) 6.40% 26.07% -5.71% 28.70% 26.07% -1.17% 3.91%
Consumer Price Index(4) 1.61% 2.29% 13.12% 16.62% 2.29% 2.50% 2.36%
Lipper Flexible Portfolio Funds Average(5) 4.29% 17.01% 8.34% 30.94% 17.01% 1.36% 3.98%
</Table>
- --------------------------------------------------------------------------------
(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 Wilshire 5000 Stock Index is an unmanaged index that represents the
broadest measure of the US equity market. Benchmark returns do not reflect
expenses or sales charges that have been deducted from the Fund's returns.
(4) The Consumer Price Index is a widely used measure of inflation.
(5) Lipper figures represent the average total returns by all the mutual funds
designated by Lipper, Inc. as falling into the category indicated.
5
TOTAL RETURN US TREASURY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
INTEREST MATURITY PAR MARKET
SECURITY RATE DATE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
US TREASURY OBLIGATIONS - 97.33%
US Treasury Bond 10.375% 11/15/12 $14,250,000 $ 17,683,359
US Treasury Bond 7.500% 11/15/24 4,000,000 5,086,875
US Treasury Bond 7.625% 2/15/25 11,500,000 14,811,641
US Treasury Bond 6.000% 2/15/26 11,500,000 12,432,578
US Treasury Bond 6.375% 8/15/27 28,000,000 31,701,250
US Treasury Note 3.250% 5/31/04 56,000,000 56,096,250
US Treasury Note 1.875% 11/30/05 19,000,000 18,946,563
US Treasury Note 3.000% 2/15/08 15,000,000 14,892,187
US Treasury Note 5.500% 5/15/09 25,000,000 27,171,875
------------
TOTAL US TREASURY OBLIGATIONS
(COST $206,374,492)...................................................... 198,822,578
------------
REPURCHASE AGREEMENT - 1.60%
JP MORGAN CHASE & CO.
Dated 4/30/04, 0.750%, principal and interest in the amount of $3,256,204
due 5/3/04, collateralized by US Treasury Bond, par value of $2,675,000,
due 4/15/32 with a value of $3,321,526..................................... 3,256,000
------------
TOTAL REPURCHASE AGREEMENT
(COST $3,256,000)........................................................ 3,256,000
------------
TOTAL INVESTMENTS - 98.93%
(COST $209,630,492)...................................................... 202,078,578
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.07%........................................ 2,190,858
------------
NET ASSETS - 100.00%................................................................. $204,269,436
============
</Table>
6 See Notes to Financial Statements.
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
RATING*
(MOODY'S/ PAR MARKET
SECURITY S&P) VALUE VALUE
- --------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 96.01%
GENERAL OBLIGATIONS - 64.62%
Alexandria, VA, Capital Improvement
4.250%, 6/15/21.................................... Aaa/AAA $3,300,000 $ 3,147,408
Arlington County, VA
5.000%, 10/1/14.................................... Aaa/AAA 2,000,000 2,126,860
4.500%, 1/15/28.................................... Aaa/AAA 4,500,000 4,215,375
Cary, NC
5.000%, 3/1/18..................................... Aaa/AAA 2,000,000 2,113,780
Charlotte, NC
5.000%, 2/1/19..................................... Aaa/AAA 2,300,000 2,401,752
Chesterfield County, VA
5.625%, 1/15/14.................................... Aaa/AAA 1,350,000 1,520,923
5.000%, 1/15/20.................................... Aaa/AAA 1,000,000 1,025,170
Dallas, TX
4.000%, 2/15/16.................................... Aa1/AA+ 2,450,000 2,350,653
4.500%, 2/15/23.................................... Aa1/AA+ 3,500,000 3,306,485
Delaware State, Series A
4.200%, 1/1/20..................................... Aaa/AAA 1,675,000 1,601,937
Dupage County, IL, Jail Project
5.600%, 1/1/21..................................... Aaa/AAA 1,600,000 1,777,808
Florida State, Board of Education, Public Education
Capital Outlay, Series A
5.125%, 6/1/21..................................... Aa2/AA+ 1,000,000 1,033,540
Florida State, Board of Education, Public Education,
Series I
4.125%, 6/1/21..................................... Aa2/AA+ 3,000,000 2,758,710
Georgia State, Series B
5.000%, 7/1/19..................................... Aaa/AAA 5,000,000 5,189,300
Georgia State, Series D
5.000%, 10/1/17.................................... Aaa/AAA 1,850,000 1,942,556
Guilford County, NC, Series B
5.250%, 10/1/16.................................... Aa1/AAA 3,000,000 3,236,490
King County, WA, Series G
5.000%, 12/1/17.................................... Aa1/AA+ 2,565,000 2,648,439
</Table>
See Notes to Financial Statements. 7
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
RATING*
(MOODY'S/ PAR MARKET
SECURITY S&P) VALUE VALUE
- --------------------------------------------------------------------------------------------------
Mecklenburg County, NC, Series A
4.250%, 2/1/19..................................... Aaa/AAA $2,000,000 $ 1,934,880
4.000%, 2/1/20..................................... Aaa/AAA 3,000,000 2,794,890
Minneapolis, MN, Series B
5.200%, 3/1/13..................................... Aa1/AAA 3,200,000 3,343,136
Minnesota State
5.500%, 6/1/18..................................... Aa1/AAA 2,000,000 2,180,740
Missouri State, Fourth State Building, Series A
4.125%, 10/1/19.................................... Aaa/AAA 2,000,000 1,913,960
5.000%, 6/1/23..................................... Aaa/AAA 2,000,000 2,019,020
Montgomery County, MD, Series A
4.000%, 5/1/21..................................... Aaa/AAA 2,450,000 2,241,848
5.000%, 2/1/22..................................... Aaa/AAA 2,750,000 2,847,515
North Carolina State, Public School Building
4.600%, 4/1/17..................................... Aa1/AAA 5,000,000 5,129,850
Salt Lake City, UT, School District, Series A
4.500%, 3/1/20..................................... Aaa/NR 2,240,000 2,181,670
South Carolina State, Highway, Series B
5.000%, 4/1/19..................................... Aaa/AAA 1,000,000 1,043,460
South Carolina State, State Institutional Series A
5.300%, 3/1/17..................................... Aaa/AAA 1,700,000 1,828,112
Spring Branch, TX, Independent School District
5.125%, 2/1/26..................................... Aaa/AAA 2,000,000 2,015,960
Virginia State
5.250%, 6/1/16..................................... Aaa/AAA 1,320,000 1,420,360
Washington State, Series E
5.000%, 7/1/22..................................... Aa1/AA 2,000,000 2,016,180
------------
77,308,767
------------
OTHER REVENUE - 13.32%
Cobb County, GA, Water & Sewer Revenue
4.250%, 7/1/20..................................... Aaa/AAA 4,700,000 4,495,456
Fairfax County, VA, Water Authority Water Revenue
5.000%, 4/1/27..................................... Aa1/AAA 3,500,000 3,538,640
Gwinnett County, GA, Water & Sewer Authority
5.300%, 8/1/20..................................... Aaa/AAA 1,250,000 1,331,600
5.250%, 8/1/24..................................... Aaa/AAA 1,500,000 1,553,295
</Table>
8 See Notes to Financial Statements.
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
RATING*
(MOODY'S/ PAR MARKET
SECURITY S&P) VALUE VALUE
- --------------------------------------------------------------------------------------------------
Gwinnett County, GA, Water & Sewer Authority, Series B
4.750%, 8/1/21..................................... Aaa/AAA $2,000,000 $ 2,017,020
Texas, Water Development Board Revenue
4.750%, 7/15/20.................................... Aaa/AAA 3,000,000 3,006,030
------------
15,942,041
------------
PREREFUNDED ISSUES - 18.07%
Arlington, TX, Independent School District
5.750%, 2/15/21.................................... Aaa/NR 3,535,000 3,659,149
Charlotte, NC, Water & Sewer System Revenue
5.250%, 6/1/24..................................... Aa1/AAA 1,600,000 1,784,848
Chicago, IL, Metropolitan Water Reclamation
District-Greater Chicago Capital Improvement
6.300%, 12/1/09.................................... Aaa/AA+ 1,000,000 1,073,150
Dallas, TX
5.000%, 2/15/10.................................... Aa1/AA+ 1,750,000 1,800,873
Delaware State, Series A
5.125%, 4/1/16..................................... Aaa/AAA 2,150,000 2,284,031
5.500%, 4/1/19..................................... Aaa/AAA 2,500,000 2,805,625
Florida State, Transportation
5.800%, 7/1/18..................................... Aa2/AAA 2,000,000 2,121,960
South Carolina State, Highway, Series B
5.650%, 7/1/21..................................... Aaa/AAA 1,260,000 1,385,105
Tennessee State, Series A
5.500%, 3/1/09..................................... Aa2/AA 1,535,000 1,588,525
Tennessee State, Series A
5.550%, 3/1/10..................................... Aa2/AA 1,000,000 1,035,290
Texas State, Series A
6.000%, 10/1/14.................................... Aaa/AA 2,000,000 2,085,320
------------
21,623,876
------------
TOTAL MUNICIPAL BONDS
(COST $111,648,096).................................................. 114,874,684
------------
</Table>
See Notes to Financial Statements. 9
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
MARKET
ISSUER VALUE
- -------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 3.28%
JP MORGAN CHASE & CO.
Dated 4/30/04, 0.750%, principal and interest in the amount of
$3,923,245
due 5/3/04, collateralized by US Treasury Note, par value of
$4,000,000,
due 1/15/14 with a value of $4,003,251................................. $ 3,923,000
------------
TOTAL REPURCHASE AGREEMENT
(COST $3,923,000)................................................... 3,923,000
------------
TOTAL INVESTMENTS - 99.29%
(COST $115,571,096)................................................. 118,797,684
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.71%................................. 844,975
------------
NET ASSETS - 100.00%.......................................................... $119,642,659
============
</Table>
- --------------------------------------------------------------------------------
*The Moody's and Standard & Poor's ratings indicated are believed to be the most
recent ratings available as of April 30, 2004. Moody's Municipal Bond Ratings:
<Table>
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.
</Table>
S & P Municipal Bond Ratings:
<Table>
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.
</Table>
10 See Notes to Financial Statements.
NORTH AMERICAN GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
INTEREST MATURITY PAR/NOMINAL MARKET
SECURITY RATE DATE VALUE(1) VALUE
- ---------------------------------------------------------------------------------------------
CANADIAN SECURITIES - 7.20%
Canadian Government Bond 4.500% 9/1/07 C 14,800,000 $ 11,191,381
Canadian Government Bond 6.000% 6/1/11 8,500,000 6,815,676
------------
TOTAL CANADIAN SECURITIES
(COST $15,747,640).................................................. 18,007,057
------------
MEXICAN SECURITIES - 20.08%
Mexican Bono(2) 14.000% 9/2/04 P 120,484,000 10,826,908
Mexican Bono(2) 14.500% 5/12/05 71,387,700 6,753,040
Mexican Bono(2) 10.500% 8/24/06 52,868,200 4,947,092
Mexican Bono(2) 8.000% 12/28/06 30,686,400 2,730,487
Mexican Bono(2) 9.000% 7/9/09 77,131,000 7,039,937
Mexican Bono(2) 10.500% 7/14/11 160,487,300 15,198,138
Mexican Bono(2) 9.000% 12/20/12 31,470,000 2,715,738
------------
TOTAL MEXICAN SECURITIES
(COST $55,011,568).................................................. 50,211,340
------------
US SECURITIES - 70.39%
US Treasury Bond 7.625% 2/15/25 $ 10,100,000 13,008,484
US Treasury Bond 6.000% 2/15/26 11,500,000 12,432,578
US Treasury Bond 6.375% 8/15/27 22,100,000 25,021,344
US Treasury Note 3.250% 5/31/04 42,000,000 42,072,188
US Treasury Note 1.875% 11/30/05 28,000,000 27,921,250
US Treasury Note 2.375% 8/15/06 2,000,000 1,994,062
US Treasury Note 3.000% 2/15/08 16,100,000 15,984,281
US Treasury Note 3.250% 8/15/08 5,500,000 5,465,625
US Treasury Note 3.125% 9/15/08 2,000,000 1,973,125
US Treasury Note 5.000% 2/15/11 19,500,000 20,569,453
US Treasury Note 4.250% 8/15/13 9,750,000 9,585,469
------------
TOTAL US SECURITIES
(COST $184,802,163)................................................. 176,027,859
------------
</Table>
See Notes to Financial Statements. 11
NORTH AMERICAN GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
MARKET
SECURITY VALUE
- ---------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.75%
JP MORGAN CHASE & CO.
Dated 4/30/04, 0.750%, principal and interest in the amount of $4,377,274
due 5/3/04, collateralized by US Treasury Note, par value of $4,465,000,
due 1/15/14 with a value of $4,468,629................................... $ 4,377,000
------------
TOTAL REPURCHASE AGREEMENT
(COST $4,377,000)...................................................... 4,377,000
------------
TOTAL INVESTMENTS - 99.42%
(COST $259,938,371).................................................... 248,623,256
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.58%................................. 1,448,860
------------
NET ASSETS - 100.00%.......................................................... $250,072,116
============
</Table>
- --------------------------------------------------------------------------------
(1) Par Value is shown in local currency: Canadian dollars (C), Mexican pesos
(P) and US dollars ($).
(2) Bonos are fixed rate, local currency-denominated coupon bonds issued by the
Mexican government.
12 See Notes to Financial Statements.
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
MARKET MARKET
SECURITY SHARES VALUE SECURITY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCK - 68.78% BIOTECHNOLOGY - 1.40%
BASIC MATERIALS - 3.11% Caremark Rx, Inc.+ 6,431 $ 217,689
Air Products & Chemicals, Inc. 250 $ 12,453 Invitrogen Corp.+ 5,000 361,150
Alcoa, Inc. 712 21,894 -----------
Allegheny Technologies, Inc. 1,300 13,286 578,839
Archer-Daniels-Midland Co. 6,000 105,360 -----------
Bowater, Inc. 100 4,195 BUSINESS SERVICES - 0.14%
Buckeye Technologies, Inc.+ 3,400 35,700 CCC Information Services+ 548 8,823
Caraustar Industries, Inc.+ 2,400 30,360 Cendant Corp. 190 4,499
Central Garden & Pet Co.+ 5,000 192,550 ServiceMaster Co. 1,100 13,343
Cleveland-Cliffs, Inc.+ 450 21,321 United Rentals, Inc.+ 1,325 22,790
Corn Products International, Inc. 1,500 63,750 Weight Watchers International,
Crown Holdings, Inc.+ 4,600 38,824 Inc.+ 160 6,240
Dow Chemical Co. 592 23,496 -----------
Du Pont (E.I.) de Nemours & Co. 3,206 137,698 55,695
FMC Corp.+ 2,100 90,069 -----------
Glaims Gold Ltd.+ 5,100 73,440 CAPITAL GOODS - 3.52%
Lafarge North America, Inc. 200 8,850 3M Co. 1,262 109,138
Monsanto Co. 282 9,754 AGCO Corp.+ 3,100 59,675
Nucor Corp. 100 5,940 Amerco, Inc.+ 3,300 92,829
OM Group, Inc.+ 3,000 76,350 American Standard Cos., Inc.+ 300 31,557
Owens-Illinois, Inc.+ 2,900 40,484 Avery Dennison Corp. 100 6,423
Playtex Products, Inc.+ 700 5,187 Aviall, Inc.+ 2,100 34,755
Potlatch Corp. 2,800 106,064 Boeing Co. 730 31,164
PPG Industries, Inc. 200 11,862 Caterpillar, Inc. 510 39,642
Praxair, Inc. 300 10,965 Clarcor, Inc. 100 4,402
Quanex Corp. 300 12,240 Deere & Co. 200 13,608
Rohm & Haas Co. 273 10,587 Emerson Electric Co. 460 27,701
Smurfit-Stone Container Corp.+ 1,900 32,661 General Electric Co. 4,414 132,199
Sonoco Products Co. 270 6,712 Harsco Corp. 97 4,222
Temple-Inland, Inc. 100 6,177 Illinois Tool Works, Inc. 690 59,485
UnionBanCal Corp. 200 10,686 Johnson Controls, Inc. 1,220 66,929
United States Steel Corp. 516 14,773 Kennametal, Inc. 1,600 69,056
Valspar Corp. 100 4,965 Lockheed Martin Corp. 200 9,540
Vulcan Materials Co. 100 4,624 Manitowoc Co. 5,000 152,050
Weyerhaeuser Co. 350 20,720 Mastec, Inc.+ 700 5,131
Worthington Industries, Inc. 1,000 18,050 Navistar International Corp.+ 5,000 225,750
----------- Orbital Sciences Corp.+ 2,000 25,760
1,282,047 Pitney Bowes, Inc. 429 18,769
----------- Raytheon Co. 200 6,452
Solectron Corp.+ 8,800 43,120
Teleflex, Inc. 100 4,565
Terex Corp.+ 2,700 88,695
Textron, Inc. 200 11,036
United Stationers, Inc.+ 600 22,800
</Table>
See Notes to Financial Statements. 13
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
MARKET MARKET
SECURITY SHARES VALUE SECURITY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCK CONSUMER STAPLES - 5.22%
CAPITAL GOODS (CONTINUED) Altria Group, Inc. 2,171 $ 120,230
URS Corp.+ 1,430 $ 36,937 AMC Entertainment, Inc.+ 5,000 79,750
York International Corp. 500 19,600 Anheuser-Busch Cos., Inc. 3,202 164,070
----------- Bunge Ltd. 1,400 51,870
1,452,990 Cablevision Systems Corp.+ 3,325 72,585
----------- Cardinal Health, Inc. 416 30,472
CONSUMER CYCLICALS - 8.55% Clear Channel Communications, Inc. 85 3,527
Black & Decker Corp. 100 5,785 Clorox Co. 268 13,877
Brunswick Corp. 271 11,141 Coca-Cola Co. 5,612 283,799
Carnival Corp. 196 8,363 Colgate Palmolive Co. 820 47,462
Centex Corp. 5,400 258,930 ConAgra Foods, Inc. 469 13,549
Dow Jones & Co., Inc. 100 4,609 COX Communications, Inc. - Class A+ 701 22,916
Eagle Materials, Inc. 8 526 Dean Foods Co.+ 5,000 167,900
Ford Motor Co. 10,800 165,888 Eastman Kodak Co. 5,570 143,650
General Motors Corp. 2,545 120,684 Echostar Communications
Genesis Intermedia, Inc.+* 600 - Corp. - Class A+ 100 3,319
Genuine Parts Co. 1,450 51,910 Entercom Communications Corp.+ 260 11,856
Harley-Davidson, Inc. 300 16,896 Fortune Brands, Inc. 38 2,897
Harrah's Entertainment, Inc. 200 10,636 Kimberly-Clark Corp. 214 14,006
KB Home 200 13,786 Liberty Media Corp. - Class A+ 7,580 82,925
Knight-Ridder, Inc. 169 13,087 PepsiCo, Inc. 2,711 147,722
Lear Corp. 300 18,186 Procter & Gamble Co. 3,772 398,889
Lee Enterprises, Inc. 100 4,778 Sara Lee Corp. 300 6,924
Lennar Corp. - Class A 400 18,740 Sysco Corp. 670 25,627
Marriott International, Time Warner, Inc.+ 4,250 71,485
Inc. - Class A 300 14,148 Univision Communications,
Masco Corp. 210 5,882 Inc. - Class A+ 1,402 47,458
McClatchy Co. - Class A 150 10,650 Viacom, Inc. - Class B 1,566 60,526
McGraw-Hill Cos., Inc. 300 23,658 Walt Disney Co. 2,385 54,927
Meredith Corp. 100 5,094 Yum! Brands, Inc.+ 180 6,982
Mohawk Industries, Inc.+ 150 11,571 -----------
Nike, Inc. - Class B 350 25,182 2,151,200
NVR, Inc.+ 5,000 2,255,000 -----------
Pulte Homes, Inc. 394 19,373 ENERGY - 5.63%
Scholastic Corp.+ 600 17,016 ChevronTexaco Corp. 5,214 477,081
Scripps (E.W.) Co. - Class A 300 31,665 ConocoPhillips 4,325 308,372
V.F. Corp. 200 9,232 Devon Energy Corp. 5,136 314,323
Washington Post Co. - Class B 36 33,120 Exxon Mobil Corp. 14,663 623,911
Whirlpool Corp. 5,200 340,652 Marathon Oil Corp. 4,500 151,020
----------- Sunoco, Inc. 1,513 95,168
3,526,188 Valero Energy Corp. 5,500 350,680
----------- -----------
2,320,555
-----------
</Table>
14 See Notes to Financial Statements.
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
MARKET MARKET
SECURITY SHARES VALUE SECURITY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCK La Quinta Corp.+ 2,800 $ 20,132
FINANCE - 10.69% Legg Mason, Inc. 200 18,412
Affiliated Managers Group+ 600 $ 29,220 Lehman Brothers Holdings, Inc. 400 29,360
Aflac, Inc. 560 23,649 Liberty Property Trust 100 3,655
Alliance Capital Management Holding Lincoln National Corp. 100 4,488
LP 100 3,335 LNR Property Corp. 1,700 85,374
AMBAC Financial Group, Inc. 250 17,250 M & T Bank Corp. 512 43,520
American Capital Strategies Ltd. 1,889 49,586 Marsh & McLennan Cos., Inc. 1,525 68,777
American Express Co. 1,825 89,334 MBIA, Inc. 150 8,833
Associated Banc Corp. 121 4,955 MBNA, Inc. 1,475 35,960
AvalonBay Communities, Inc. 100 4,963 Mellon Financial Corp. 210 6,224
Bank of America Corp. 6,992 562,786 Mercantile Bankshares Corp. 100 4,292
Bank of Hawaii Corp. 1,855 81,101 Mercury General Corp. 100 5,099
Bank of New York Co., Inc. 670 19,524 Merrill Lynch & Co., Inc. 1,120 60,738
BB&T Corp. 1,391 47,976 Metlife, Inc. 648 22,356
Bear Stearns Cos. Inc. 220 17,631 MGIC Investment Corp. 153 11,264
Boston Properties, Inc. 100 4,700 Moody's Corp. 3,907 252,041
Capital One Financial Corp. 150 9,829 Morgan Stanley 2,481 127,499
Charter One Financial, Inc. 160 5,339 National City Corp. 710 24,616
Chubb Corp. 400 27,600 New Century Financial 1,868 79,259
Citigroup, Inc. 7,702 370,389 North Fork Bancorp., Inc. 150 5,568
City National Corp. 100 6,165 Northern Trust Corp. 300 12,684
Comerica, Inc. 250 12,907 Old Republic International Corp. 150 3,483
Commerce Bancorp, Inc./NJ 870 49,599 PNC Financial Services Group, Inc. 460 24,426
Commerce Bancshares, Inc. 132 5,927 Popular, Inc. 100 4,200
Countrywide Financial Corp. 399 23,661 Progressive Corp. 910 79,643
Equity Office Properties Trust 344 8,658 Prudential Financial, Inc. 1,450 63,713
Equity Residential 200 5,492 Public Storage, Inc. 186 7,773
Fannie Mae 5,652 388,405 Radian Group, Inc. 200 9,302
Fidelity National Financial, Inc. 520 19,032 Regions Financial Corp. 200 6,942
Financial Federal Corp.+ 812 25,416 Rouse Co. 100 4,330
First Horizon National Corp. 100 4,396 SEI Investments, Co. 1,000 29,520
Franklin Resources, Inc. 300 16,449 Simon Property Group, Inc. 100 4,821
Freddie Mac 1,060 61,904 SLM Corp. 1,250 47,888
Golden West Financial Corp. 300 31,533 St. Paul Travelers Cos., Inc. 100 4,067
Greenpoint Financial Corp. 225 8,775 State Street Corp. 300 14,640
Health Care Property Investors, Student Loan Corp. 710 100,536
Inc. 200 4,780 SunTrust Banks, Inc. 602 40,966
Host Marriott Corp.+ 5,200 61,880 T. Rowe Price Group, Inc. 100 5,128
iStar Financial, Inc. 100 3,554 TCF Financial Corp. 100 4,955
J.P. Morgan Chase & Co. 2,580 97,008 Torchmark Corp. 200 10,408
Jefferson-Pilot Corp. 225 11,158 Transatlantic Holdings, Inc. 820 73,390
KeyCorp 310 9,207
Kimco Realty Corp. 3,450 147,453
</Table>
See Notes to Financial Statements. 15
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
MARKET MARKET
SECURITY SHARES VALUE SECURITY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCK Johnson & Johnson 6,006 $ 324,504
FINANCE (CONTINUED) Manor Care, Inc. 460 14,922
Union Planters Corp. 300 $ 8,340 Medco Health Solutions, Inc.+ 2,180 77,172
UnumProvident Corp. 1,438 22,361 Medtronic, Inc. 2,670 134,728
US Bancorp 2,473 63,408 Merck & Co., Inc. 13,043 613,021
Valley National Bancorp 456 11,780 Mylan Laboratories, Inc. 262 6,002
Wachovia Corp. 1,867 85,415 Oxford Health Plans, Inc. 1,180 64,239
Washington Mutual, Inc. 1,084 42,699 Pacificare Health Systems, Inc.+ 2,000 71,520
Wells Fargo & Co. 3,286 185,528 Pfizer, Inc. 13,263 474,285
Westamerica Bancorp 100 4,860 Pharmaceutical Resources, Inc.+ 700 28,210
White Mountains Insurance Group Renal Care Group, Inc.+ 100 4,948
Ltd. 25 12,875 Respironics, Inc.+ 100 5,241
Wilmington Trust Corp. 200 6,954 Schering-Plough Corp. 100 1,673
WSFS Financial Corp. 2,350 113,881 St. Jude Medical, Inc.+ 820 62,533
Zions Bancorp 100 5,652 Stryker Corp. 300 29,679
----------- UnitedHealth Group, Inc. 1,599 98,307
4,406,561 Watson Pharmaceuticals, Inc.+ 100 3,561
----------- Wellpoint Health Networks, Inc.+ 870 97,170
HEALTH CARE - 12.13% Wyeth 8,630 328,544
Abbott Laboratories 9,335 410,927 -----------
Adolor Corp.+ 2,100 33,747 5,000,204
Aetna, Inc. 7,600 628,900 -----------
Allergan, Inc. 210 18,491 INFORMATION SERVICES - 1.76%
American Medical Service Group, Alltel Corp. 377 18,978
Inc.+ 2,300 58,880 AT&T Corp. 5,900 101,185
Bausch & Lomb, Inc. 100 6,283 BellSouth Corp. 780 20,132
Baxter International, Inc. 500 15,825 Commonwealth Telephone Enterprises,
Beckman Coulter, Inc. 100 5,584 Inc.+ 5,000 208,300
Becton Dickinson & Co. 200 10,110 Nextel Communications, Inc. - Class
Beverly Enterprises, Inc.+ 4,000 23,800 A+ 430 10,260
Biomet, Inc. 275 10,863 Nextel Partners, Inc. - Class A+ 5,200 69,420
Boston Scientific Corp.+ 1,540 63,433 Powerwave Technologies, Inc.+ 7,400 50,098
Bristol-Myers Squibb Co. 3,805 95,506 Sprint Corp. - FON Group 1,500 26,835
C.R. Bard, Inc. 210 22,317 Verizon Communications, Inc. 5,888 222,213
Cigna Corp. 8,700 561,237 -----------
Dentsply International, Inc. 150 7,269 727,421
Edwards Lifesciences Corp.+ 380 13,095 -----------
Eli Lilly & Co. 2,396 176,849 INTERNET - 7.74%
Express Scripts, Inc.+ 400 30,936 3Com Corp.+ 14,400 88,704
Forest Laboratories, Inc.+ 1,596 102,910 Amazon.Com, Inc.+ 6,642 288,661
Guidant Corp. 1,155 72,777 Ameritrade Holding Corp.+ 9,200 112,608
HCA, Inc. 2,560 104,013 Cisco Systems, Inc.+ 31,157 650,247
Health Net, Inc.+ 1,820 46,301 Citrix Systems, Inc.+ 6,800 129,540
Henry Schein, Inc.+ 150 10,570 E*Trade Financial Corp.+ 9,200 104,512
Humana, Inc.+ 1,800 29,322 eBay, Inc.+ 12,020 959,436
</Table>
16 See Notes to Financial Statements.
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
MARKET MARKET
SECURITY SHARES VALUE SECURITY SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCK Analog Devices, Inc. 200 $ 8,520
INTERNET (CONTINUED) Applera Corp. - Celera Genomics
Intuit, Inc.+ 6,817 $ 289,518 Group+ 1,340 15,799
Juniper Networks, Inc.+ 3,000 65,640 Applied Materials, Inc.+ 3,630 66,175
Level 3 Communications, Inc.+ 11,900 33,677 Asyst Technologies, Inc.+ 100 661
Netbank, Inc. 1,059 11,427 Corning, Inc.+ 1,645 18,144
Network Associates, Inc.+ 6,500 101,920 Dell, Inc.+ 4,691 162,825
Sun Microsystems, Inc.+ 18,165 70,843 Flir Systems, Inc.+ 200 9,382
VeriSign, Inc.+ 6,400 103,232 IBM 3,422 301,718
Yahoo!, Inc.+ 3,618 182,564 Integrated Circuit Systems, Inc.+ 210 4,975
----------- Intel Corp. 10,874 279,788
3,192,529 Iron Mountain, Inc.+ 229 10,422
----------- KLA-Tencor Corp.+ 200 8,334
RETAIL - 2.92% Linear Technology Corp. 1,361 48,492
Albertson's, Inc. 4,676 109,231 Maxtor Corp.+ 2,700 17,577
Autonation, Inc.+ 234 3,983 Microsoft Corp. 20,946 543,968
Autozone, Inc.+ 100 8,757 Motorola, Inc. 4,970 90,703
Bed Bath & Beyond, Inc.+ 200 7,424 Oracle Corp.+ 10,181 114,231
Best Buy Co., Inc. 304 16,492 Photronics, Inc.+ 100 1,489
Costco Wholesale Corp. 660 24,717 QLogic Corp.+ 352 9,500
CVS Corp. 272 10,507 Qualcomm, Inc. 2,344 146,406
Footstar, Inc.+ 400 1,942 SoftBrands, Inc.+ 45 50
Gap, Inc. 1,912 42,083 Texas Instruments, Inc. 5,615 140,936
Home Depot, Inc. 1,520 53,489 Vitesse Semiconductor Corp.+ 1,700 7,276
Ingram Micro, Inc.+ 2,700 32,265 Xerox Corp.+ 1,745 23,435
Kroger Co.+ 4,810 84,175 Xilinx, Inc. 1,000 33,630
Lowe's Cos., Inc. 1,134 59,036 -----------
May Department Stores Co. 255 7,854 2,110,373
Office Depot, Inc.+ 100 1,751 -----------
RadioShack Corp. 300 9,228 TRANSPORTATION - 0.27%
Saks, Inc. 380 5,472 ExpressJet Holdings, Inc. - Class
Sears Roebuck & Co. 4,810 192,641 A+ 1,500 19,080
Target Corp. 1,198 51,957 Ryder Systems, Inc. 1,900 69,901
TJX Cos., Inc. 200 4,914 United Parcel Service, Inc. - Class
Walgreen Co. 1,525 52,582 B 300 21,045
Wal-Mart Stores, Inc. 7,466 425,562 -----------
----------- 110,026
1,206,062 -----------
----------- UTILITIES - 0.58%
TECHNOLOGY - 5.12% American Electric Power Co., Inc. 3,550 108,062
Agilent Technologies, Inc.+ 205 5,537 FirstEnergy Corp. 200 7,820
Amkor Technology, Inc.+ 5,000 40,400 NiSource, Inc. 2,200 44,352
PPL Corp. 93 3,985
</Table>
See Notes to Financial Statements. 17
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
MARKET
SECURITY SHARES VALUE
- --------------------------------------------------------------------------------
COMMON STOCK
UTILITIES (CONTINUED)
Public Service Enterprise Group,
Inc. 293 $ 12,570
Xcel Energy, Inc. 3,800 63,574
-----------
240,363
-----------
TOTAL COMMON STOCK
(COST $24,921,405) 28,361,053
-----------
RIGHTS - 0.00%
Seagate* (Cost $0) 300 -
-----------
WARRANTS - 0.00%
Citigroup, Inc. 100 98
MasoTech* 200 -
Tokheim Corp. 500 4
-----------
TOTAL WARRANTS
(COST $8,690) 102
-----------
</Table>
18 See Notes to Financial Statements.
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
INTEREST MATURITY PAR MARKET
SECURITY RATE DATE VALUE VALUE
- -------------------------------------------------------------------------------------------------------
US TREASURY SECURITIES - 11.41%
US Treasury Bond 9.250% 2/15/16 $1,000,000 $ 1,400,156
US Treasury Bond 8.750% 5/15/17 1,500,000 2,051,016
US Treasury Note 5.500% 5/15/09 250,000 271,719
US Treasury Note 4.250% 8/15/13 1,000,000 983,125
-----------
TOTAL US TREASURY SECURITIES
(COST $4,564,243)............................................................... 4,706,016
-----------
REPURCHASE AGREEMENT - 19.49%
JP MORGAN CHASE & CO.
Dated 4/30/04, 0.750%, principal and interest in the amount of $8,039,502
due 5/3/04, collateralized by US Treasury Obligations, par value of $8,142,000,
due 1/15/14 to 4/15/32 with a value of $8,200,407............................... 8,039,000
-----------
TOTAL REPURCHASE AGREEMENT
(COST $8,039,000)............................................................... 8,039,000
-----------
TOTAL INVESTMENTS IN SECURITIES - 99.68%
(COST $37,533,338).............................................................. 41,106,171
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.32%........................................ 133,025
-----------
NET ASSETS - 100.00%................................................................. $41,239,196
===========
</Table>
- --------------------------------------------------------------------------------
+ Non-income producing security.
* Security fair valued in good faith under procedures established by and under
the general supervision of the Fund's Board of Directors.
See Notes to Financial Statements. 19
ISI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
TOTAL RETURN US MANAGED
TREASURY FUND MUNICIPAL FUND
- ----------------------------------------------------------------------------------------------
ASSETS:
Investments:
In securities, at market value
(cost $206,374,492 and $111,648,096, respectively)... $198,822,578 $114,874,684
Repurchase agreement
(cost $3,256,000 and $3,923,000, respectively)....... 3,256,000 3,923,000
Cash...................................................... 586 527
Receivables:
Capital shares sold..................................... 165,513 -
Interest................................................ 3,159,043 1,349,572
Prepaid expenses.......................................... 18,894 18,502
------------ ------------
Total assets.............................................. 205,422,614 120,166,285
------------ ------------
LIABILITIES:
Payables:
Capital shares redeemed................................. 186,235 -
Dividends............................................... 814,116 405,356
Accrued Liabilities:
Investment advisory fees................................ 38,815 40,017
Distribution fees....................................... 43,013 25,010
Accrued expenses and other.............................. 70,999 53,243
------------ ------------
Total liabilities......................................... 1,153,178 523,626
------------ ------------
Net assets.................................................. $204,269,436 $119,642,659
============ ============
COMPONENTS OF NET ASSETS:
Paid in capital........................................... $215,229,333 $117,216,561
Distributions in excess of net investment income.......... (3,686,801) (834,289)
Accumulated net realized gain from investment
transactions............................................ 278,818 33,799
Net unrealized appreciation/(depreciation) on
investments............................................. (7,551,914) 3,226,588
------------ ------------
Net assets.................................................. $204,269,436 $119,642,659
============ ============
SHARES OF BENEFICIAL INTEREST OUTSTANDING
ISI Shares (115,000,000 and 55,000,000 shares authorized,
respectively)........................................... 21,727,960 11,209,778
------------ ------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
ISI Shares (net assets / shares of beneficial interest
outstanding)............................................ $ 9.40 $ 10.67
------------ ------------
MAXIMUM OFFERING PRICE PER SHARE
ISI Shares ($9.40 / 0.97 and $10.67 / 0.97,
respectively)........................................... $ 9.69 $ 11.00
------------ ------------
</Table>
20 See Notes to Financial Statements.
ISI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2004
<Table>
<Caption>
NORTH AMERICAN
GOVERNMENT
BOND FUND ISI STRATEGY FUND
- ------------------------------------------------------------------------------------------------
ASSETS:
Investments:
In securities, at market value (cost $255,561,371 and
$29,494,338, respectively)............................ $244,246,256 $33,067,171
Repurchase agreement (cost $4,377,000 and $8,039,000,
respectively)......................................... 4,377,000 8,039,000
Cash...................................................... 800 375
Receivables:
Capital shares sold..................................... 53,894 75,269
Interest and dividends.................................. 3,572,985 121,499
Prepaid expenses.......................................... 43,638 10,493
------------ -----------
Total assets.............................................. 252,294,573 41,313,807
------------ -----------
LIABILITIES:
Payables:
Capital shares redeemed................................. 595,548 2,024
Dividends............................................... 1,349,374 -
Accrued Liabilities:
Investment advisory fees................................ 84,856 12,666
Distribution fees....................................... 90,072 8,537
Shareholder servicing fees.............................. 3,726 -
Accrued expenses and other.............................. 98,881 51,384
------------ -----------
Total liabilities......................................... 2,222,457 74,611
------------ -----------
Net assets.................................................. $250,072,116 $41,239,196
============ ===========
COMPONENTS OF NET ASSETS:
Paid in capital........................................... $269,148,465 $40,458,894
Undistributed (distributions in excess of) net investment
income.................................................. (6,638,875) 14,602
Accumulated net realized loss from investment and foreign
currency transactions................................... (1,072,010) (2,807,133)
Net unrealized appreciation/(depreciation) on investments
and foreign currencies.................................. (11,365,464) 3,572,833
------------ -----------
Net assets.................................................. $250,072,116 $41,239,196
============ ===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING
ISI Class A Shares (50,000,000 shares authorized)......... 31,623,784 -
------------ -----------
ISI Class C Shares (5,000,000 shares authorized).......... 2,412,077 -
------------ -----------
ISI Shares (25,000,000 shares authorized)................. - 3,776,003
------------ -----------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE
(net assets / shares of beneficial interest outstanding)
ISI Class A Shares (based on net assets of
$232,369,684)........................................... $ 7.35 $ -
------------ -----------
ISI Class C Shares (based on net assets of $17,702,432)... $ 7.34 $ -
------------ -----------
ISI Shares................................................ $ - $ 10.92
------------ -----------
MAXIMUM OFFERING PRICE PER SHARE
ISI Class A Shares ($7.35 / 0.97)......................... $ 7.58 $ -
------------ -----------
ISI Shares ($10.92 / 0.97)................................ $ - $ 11.26
------------ -----------
</Table>
See Notes to Financial Statements. 21
ISI FUNDS
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED APRIL 30, 2004
<Table>
<Caption>
TOTAL RETURN US MANAGED
TREASURY FUND MUNICIPAL FUND
- --------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest................................................ $ 3,454,466 $ 2,662,231
----------- -----------
EXPENSES:
Investment advisory fees................................ 256,493 243,642
Distribution fees....................................... 275,737 152,276
Administration fees..................................... 55,147 30,455
Transfer agent fees..................................... 49,839 20,281
Custody fees............................................ 7,058 4,321
Professional fees....................................... 36,993 28,815
Accounting fees......................................... 27,013 27,928
Printing and shareholder reports........................ 8,461 5,604
Registration fees....................................... 11,988 14,294
Directors' fees......................................... 11,878 6,503
Miscellaneous........................................... 9,210 7,560
----------- -----------
Total expenses....................................... 749,817 541,679
----------- -----------
Net investment income................................... 2,704,649 2,120,552
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions.......... 279,013 33,799
Net change in unrealized appreciation/depreciation on
investments.......................................... (1,819,017) (2,203,730)
----------- -----------
Net realized and unrealized gain (loss) on
investments.......................................... (1,540,004) (2,169,931)
----------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:.......... $ 1,164,645 $ (49,379)
=========== ===========
</Table>
22 See Notes to Financial Statements.
ISI FUNDS
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED APRIL 30, 2004
<Table>
<Caption>
NORTH AMERICAN
GOVERNMENT
BOND FUND ISI STRATEGY FUND
- ----------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest................................................ $ 5,784,385 $ 175,017
Dividend................................................ - 188,159
----------- ----------
Total Income....................................... 5,784,385 363,176
----------- ----------
EXPENSES:
Investment advisory fees................................ 539,819 75,671
Distribution fees:
ISI Class A Shares................................. 507,843 -
ISI Class C Shares................................. 59,954 -
ISI Shares......................................... - 47,294
Administration fees..................................... 67,477 20,412
Transfer agent fees:
ISI Class A Shares................................. 68,838 -
ISI Class C Shares................................. 8,262 -
ISI Shares......................................... - 14,380
Custody fees............................................ 40,631 21,828
Professional fees....................................... 48,040 22,121
Accounting fees......................................... 38,451 28,923
Shareholder servicing fees:
ISI Class C Shares................................. 19,985 -
Printing and shareholder reports........................ 11,048 3,939
Registration fees....................................... 21,295 8,909
Directors' fees......................................... 14,595 1,998
Miscellaneous........................................... 11,852 6,328
----------- ----------
Total expenses..................................... 1,458,090 251,803
Less: fee waiver and/or expense reimbursements.......... - (7,763)
----------- ----------
Net expenses....................................... 1,458,090 244,040
----------- ----------
Net investment income................................... 4,326,295 119,136
----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from:
Investment transactions............................ (1,083,388) 1,160,216
Foreign currency transactions...................... 11,408 -
Net change in unrealized appreciation/depreciation on
investments and foreign currencies................. (4,332,988) 102,775
----------- ----------
Net realized and unrealized gain (loss) on investments
and foreign currencies............................. (5,404,968) 1,262,991
----------- ----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:.......... $(1,078,673) $1,382,127
=========== ==========
</Table>
See Notes to Financial Statements. 23
TOTAL RETURN US TREASURY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
2004(1) 2003
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 2,704,649 $ 6,263,843
Net realized gain on investment transactions............ 279,013 13,569,304
Net change in unrealized appreciation/depreciation on
investments.......................................... (1,819,017) (13,632,522)
------------ ------------
Increase in net assets from operations.................. 1,164,645 6,200,625
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income and net realized short-term
gains................................................ (5,408,656) (12,426,417)
Net realized long-term capital gains.................... (7,280,828) -
------------ ------------
Total distributions..................................... (12,689,484) (12,426,417)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares............................ 5,181,738 19,262,461
Dividend reinvestments.................................. 8,211,975 7,616,844
Cost of shares redeemed................................. (26,626,050) (54,554,409)
------------ ------------
Decrease in net assets from capital share
transactions......................................... (13,232,337) (27,675,104)
------------ ------------
Total decrease in net assets............................ (24,757,176) (33,900,896)
NET ASSETS:
Beginning of period..................................... 229,026,612 262,927,508
------------ ------------
End of period (including distributions in excess of net
investment income of $3,686,801 and $982,794,
respectively)........................................ $204,269,436 $229,026,612
============ ============
SHARE TRANSACTIONS:
Shares sold............................................. 530,728 1,898,497
Shares issued to shareholders on reinvestment of
dividends............................................ 847,698 750,559
Shares redeemed......................................... (2,747,623) (5,382,976)
------------ ------------
Decrease in shares from capital share transactions...... (1,369,197) (2,733,920)
============ ============
</Table>
- --------------------------------------------------------------------------------
(1) Unaudited.
24 See Notes to Financial Statements.
MANAGED MUNICIPAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
2004(1) 2003
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 2,120,552 $ 3,881,685
Net realized gain on investment transactions............ 33,799 458,899
Net change in unrealized appreciation/depreciation on
investments.......................................... (2,203,730) (439,966)
------------ ------------
Increase (decrease) in net assets from operations....... (49,379) 3,900,618
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income and net realized short-term
gains................................................ (2,560,571) (4,545,840)
Net realized long-term capital gains.................... - (458,899)
------------ ------------
Total distributions..................................... (2,560,571) (5,004,739)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares............................ 22,079,699 18,611,488
Dividend reinvestments.................................. 1,251,773 2,602,438
Cost of shares redeemed................................. (8,156,812) (16,229,802)
------------ ------------
Increase in net assets from capital share
transactions......................................... 15,174,660 4,984,124
------------ ------------
Total increase in net assets............................ 12,564,710 3,880,003
NET ASSETS:
Beginning of period..................................... 107,077,949 103,197,946
------------ ------------
End of period (including distributions in excess of net
investment income of $834,289 and $394,270,
respectively)........................................ $119,642,659 $107,077,949
============ ============
SHARE TRANSACTIONS:
Shares sold............................................. 2,008,510 1,688,868
Shares issued to shareholders on reinvestment of
dividends............................................ 113,561 236,891
Shares redeemed......................................... (741,879) (1,476,733)
------------ ------------
Increase in shares from capital share transactions...... 1,380,192 449,026
============ ============
</Table>
- --------------------------------------------------------------------------------
(1) Unaudited.
See Notes to Financial Statements. 25
NORTH AMERICAN GOVERNMENT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
2004(1) 2003
- ---------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.................................... $ 4,326,295 $ 8,320,234
Net realized gain (loss) on investment and foreign
currency transactions................................ (1,071,980) 14,360,348
Net change in unrealized appreciation/depreciation on
investments and foreign currencies................... (4,332,988) (11,632,023)
------------ ------------
Increase (decrease) in net assets from operations........ (1,078,673) 11,048,559
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:(2)
Net investment income and net realized short-term capital
gains:
ISI Class A Shares................................... (8,729,000) (20,717,901)
ISI Class C Shares................................... (503,496) (274,098)
Net realized long-term capital gains:
ISI Class A Shares................................... (2,732,055) (486,266)
ISI Class C Shares................................... (152,251) (6,433)
------------ ------------
Total distributions...................................... (12,116,802) (21,484,698)
------------ ------------
CAPITAL SHARE TRANSACTIONS:(2)
Proceeds from sale of shares:
ISI Class A Shares................................... 17,741,996 66,866,368
ISI Class C Shares................................... 5,427,459 14,038,549
Dividend reinvestments:
ISI Class A Shares................................... 5,822,850 11,214,133
ISI Class C Shares................................... 317,841 155,876
Cost of shares redeemed:
ISI Class A Shares................................... (46,639,087) (57,844,825)
ISI Class C Shares................................... (724,175) (168,139)
------------ ------------
Increase (decrease) in net assets from capital share
transactions......................................... (18,053,116) 34,261,962
------------ ------------
Total increase (decrease) in net assets.................. (31,248,591) 23,825,823
NET ASSETS:
Beginning of period...................................... 281,320,707 257,494,884
------------ ------------
End of period (including distributions in excess of net
investment income of $6,638,375 and $1,732,674,
respectively)........................................ $250,072,116 $281,320,707
============ ============
SHARE TRANSACTIONS:(2)
Shares sold:
ISI Class A Shares................................... 2,310,774 8,402,353
ISI Class C Shares................................... 709,065 1,758,597
Shares issued to shareholders on reinvestment of
dividends:
ISI Class A Shares................................... 762,151 1,416,957
ISI Class C Shares................................... 41,650 19,950
Shares redeemed:
ISI Class A Shares................................... (6,088,592) (7,262,057)
ISI Class C Shares................................... (95,417) (21,768)
------------ ------------
Increase (decrease) in shares from capital share
transactions:
ISI Class A Shares................................... (3,015,667) 2,557,253
============ ============
ISI Class C Shares................................... 655,298 1,756,779
============ ============
</Table>
- --------------------------------------------------------------------------------
(1) Unaudited.
(2) On May 16, 2003, the Fund commenced the offering of ISI Class C Shares and
ISI Shares were redesignated as ISI Class A Shares.
26 See Notes to Financial Statements.
ISI STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX MONTHS FOR THE YEAR ENDED
ENDED APRIL 30, OCTOBER 31,
2004(1) 2003
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 119,136 $ 175,912
Net realized gain (loss) on investment transactions..... 1,160,216 (75,683)
Net change in unrealized appreciation/depreciation on
investments........................................ 102,775 3,392,601
----------- -----------
Increase in net assets from operations.................. 1,382,127 3,492,830
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income................................... (119,286) (174,119)
----------- -----------
Total distributions..................................... (119,286) (174,119)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares............................ 14,915,965 10,757,570
Dividend reinvestments.................................. 102,186 151,755
Cost of shares redeemed................................. (5,303,320) (3,890,270)
----------- -----------
Increase in net assets from capital share
transactions....................................... 9,714,831 7,019,055
----------- -----------
Total increase in net assets............................ 10,977,672 10,337,766
NET ASSETS:
Beginning of period..................................... 30,261,524 19,923,758
----------- -----------
End of period (including undistributed net investment
income of $14,602 and $14,752, respectively)....... $41,239,196 $30,261,524
=========== ===========
SHARE TRANSACTIONS:
Shares sold............................................. 1,368,631 1,088,564
Shares issued to shareholders on reinvestment of
dividends.......................................... 9,276 16,233
Shares redeemed......................................... (485,305) (415,768)
----------- -----------
Increase in shares from capital share transactions...... 892,602 689,029
=========== ===========
</Table>
- --------------------------------------------------------------------------------
(1) Unaudited.
See Notes to Financial Statements. 27
TOTAL RETURN US TREASURY FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
ISI SHARES
<Table>
<Caption>
SIX MONTHS FOR THE YEARS ENDED OCTOBER 31,
ENDED ----------------------------------------------------
APRIL 30, 2004(1) 2003 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period....................... $ 9.92 $ 10.18 $ 10.20 $ 9.57 $ 9.35 $ 10.62
-------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income............. 0.10 0.23 0.35 0.45 0.50 0.64
Net realized and unrealized gain
(loss) on investments........ (0.06) 0.01 0.20 0.82 0.38 (1.03)
-------- -------- -------- -------- -------- --------
Total from investment
operations................... 0.04 0.24 0.55 1.27 0.88 (0.39)
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income and
short-term capital gains..... (0.24) (0.50) (0.53) (0.45) (0.50) (0.71)
Net realized long-term capital
gains........................ (0.32) - (0.04) - - (0.17)
Tax return of capital............. - - - (0.19) (0.16) -
-------- -------- -------- -------- -------- --------
Total distributions............... (0.56) (0.50) (0.57) (0.64) (0.66) (0.88)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.... $ 9.40 $ 9.92 $ 10.18 $ 10.20 $ 9.57 $ 9.35
======== ======== ======== ======== ======== ========
TOTAL RETURN(2)....................... 0.39%(4) 2.30% 5.78% 13.57% 9.49% (3.82)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period
(000s)....................... $204,269 $229,027 $262,928 $149,588 $136,728 $151,532
Ratios to average daily net
assets:
Net investment income........ 2.47%(3) 2.50% 3.64% 4.51% 5.10% 4.68%
Expenses..................... 0.68%(3) 0.67% 0.74% 0.78% 0.82% 0.81%
Portfolio turnover rate........... 18%(4) 125% 129% 61% 15% 77%
</Table>
- --------------------------------------------------------------------------------
(1) Unaudited.
(2) Total return excludes the effect of sales charges.
(3) Annualized.
(4) Not Annualized.
28 See Notes to Financial Statements.
MANAGED MUNICIPAL FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
ISI SHARES
<Table>
<Caption>
SIX MONTHS FOR THE YEARS ENDED OCTOBER 31,
ENDED -------------------------------------------------
APRIL 30, 2004(1) 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of
period....................... $ 10.89 $ 11.00 $ 10.99 $ 10.47 $ 10.12 $ 11.01
-------- -------- -------- ------- ------- -------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income............. 0.20 0.40 0.45 0.45 0.47 0.45
Net realized and unrealized gain
(loss) on investments........ (0.19) 0.01 0.09 0.55 0.36 (0.83)
-------- -------- -------- ------- ------- -------
Total from investment
operations................... 0.01 0.41 0.54 1.00 0.83 (0.38)
-------- -------- -------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income and
short-term capital gains..... (0.23) (0.47) (0.45) (0.47) (0.48) (0.47)
Net realized long-term capital
gains........................ -- (0.05) (0.08) (0.01) -- (0.04)
-------- -------- -------- ------- ------- -------
Total distributions............... (0.23) (0.52) (0.53) (0.48) (0.48) (0.51)
-------- -------- -------- ------- ------- -------
Net asset value, end of period.... $ 10.67 $ 10.89 $ 11.00 $ 10.99 $ 10.47 $ 10.12
======== ======== ======== ======= ======= =======
TOTAL RETURN(2)....................... 0.04%(4) 3.89% 5.11% 9.76% 8.44% (3.61)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period
(000s)....................... $119,643 $107,078 $103,198 $66,105 $65,233 $70,609
Ratios to average daily net
assets:
Net investment income........ 3.50%(3) 3.66% 3.92% 4.18% 4.60% 4.23%
Expenses after waivers and/or
reimbursements.......... 0.90%(3) 0.89% 0.94% 0.93% 0.90% 0.90%
Expenses before waivers
and/or reimbursements... 0.90%(3) 0.89% 0.96% 0.99% 1.01% 1.10%
Portfolio turnover rate........... 1%(4) 11% 11% 21% 22% 8%
</Table>
- --------------------------------------------------------------------------------
(1) Unaudited.
(2) Total return excludes the effect of sales charges.
(3) Annualized.
(4) Not Annualized.
See Notes to Financial Statements. 29
NORTH AMERICAN GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI CLASS A SHARES(1)
<Table>
<Caption>
SIX FOR THE APRIL 1,
MONTHS YEAR 2002
ENDED ENDED THROUGH FOR THE YEARS ENDED MARCH 31,
APRIL 30, OCTOBER 31, OCTOBER 31, ---------------------------------------
2004(2) 2003 2002(3) 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning
of period............. $ 7.73 $ 8.03 $ 7.80 $ 8.17 $ 8.07 $ 8.42 $ 8.74
-------- -------- -------- -------- -------- ------- -------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income...... 0.08 0.25 0.18 0.38 0.44 0.49 0.60
Net realized and unrealized
gain (loss) on
investments and
foreign currency
transactions.......... (0.12) 0.07 0.41 (0.03) 0.38 (0.12) (0.09)
-------- -------- -------- -------- -------- ------- -------
Total from investment
operations............ (0.04) 0.32 0.59 0.35 0.82 0.37 0.51
-------- -------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
Net investment income and
short-term capital
gains................. (0.26) (0.61) (0.22) (0.58) (0.53) (0.49) (0.60)
In excess of net investment
income................ - - - -(4) (0.01) - -
Net realized long-term
capital gains......... (0.08) (0.01) (0.02) (0.06) (0.06) - (0.23)
Tax return of capital...... - - (0.12) (0.08) (0.12) (0.23) -
-------- -------- -------- -------- -------- ------- -------
Total distributions........ (0.34) (0.62) (0.36) (0.72) (0.72) (0.72) (0.83)
-------- -------- -------- -------- -------- ------- -------
Net asset value, end of
period................ $ 7.35 $ 7.73 $ 8.03 $ 7.80 $ 8.17 $ 8.07 $ 8.42
======== ======== ======== ======== ======== ======= =======
TOTAL RETURN(5)................ (0.52)%(6) 4.14% 7.75%(6) 4.38% 10.74% 4.82% 5.96%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period
(000s)................ $232,370 $267,756 $257,495 $220,629 $117,445 $61,697 $55,891
Ratios to average daily net
assets:
Net investment
income............ 3.27%(7) 3.03% 3.84%(7) 4.60% 5.62% 5.59% 5.79%
Expenses after waivers
and/or
reimbursements.... 1.04%(7) 1.09% 1.01%(7) 1.13% 1.24% 1.25% 1.25%
Expenses before
waivers and/or
reimbursements.... 1.04%(7) 1.09% 1.01%(7) 1.13% 1.24% 1.41% 1.42%
Portfolio turnover rate.... 20%(6) 152% 95%(6) 136% 89% 32% 173%
</Table>
- --------------------------------------------------------------------------------
(1) On May 16, 2003, ISI Shares were designated ISI Class A Shares.
(2) Unaudited.
(3) The Fund changed its fiscal year end from March 31 to October 31.
(4) Less than $0.01 per share.
(5) Total return excludes the effect of sales charges.
(6) Not Annualized.
(7) Annualized.
30 See Notes to Financial Statements.
NORTH AMERICAN GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI CLASS C SHARES
<Table>
<Caption>
SIX MONTHS MAY 16, 2003(2)
ENDED THROUGH
APRIL 30, 2004(1) OCTOBER 31, 2003
- ---------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.................... $ 7.72 $ 8.20
------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income................................... 0.14 0.17
Net realized and unrealized gain (loss) on investments
and foreign currency transactions.................. (0.20) (0.38)
------- -------
Total from investment operations........................ (0.06) (0.21)
------- -------
LESS DISTRIBUTIONS:
Net investment income and short-term capital gains...... (0.24) (0.26)
Net realized long-term capital gains.................... (0.08) (0.01)
------- -------
Total distributions..................................... (0.32) (0.27)
------- -------
Net asset value, end of period.......................... $ 7.34 $ 7.72
======= =======
TOTAL RETURN(3)............................................. (0.86)%(4) (2.62)%(4)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)........................ $17,702 $13,565
Ratios to average daily net assets:
Net investment income.............................. 2.57%(5) 3.32%(5)
Expenses after waivers and/or reimbursements....... 1.76%(5) 1.85%(5)
Expenses before waivers and/or reimbursements...... 1.76%(5) 2.12%(5)
Portfolio turnover rate................................. 20%(4) 152%(4)
- ---------------------------------------------------------------------------------------------------
</Table>
(1) Unaudited.
(2) Commencement of operations.
(3) Total return excludes the effect of sales charges.
(4) Not Annualized.
(5) Annualized.
See Notes to Financial Statements. 31
ISI STRATEGY FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI SHARES
<Table>
<Caption>
SIX FOR THE JUNE 1,
MONTHS YEAR 2002
ENDED ENDED THROUGH FOR THE YEARS ENDED MAY 31,
APRIL 30, OCTOBER 31, OCTOBER 31, -------------------------------------
2004(1) 2003 2002(2) 2002 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning
of period............. $ 10.50 $ 9.08 $ 10.23 $ 10.89 $ 12.15 $ 11.91 $ 11.00
------- ------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income...... 0.03 0.08 0.05 0.12 0.25 0.26 0.21
Net realized and unrealized
gain (loss) on
investments........... 0.42 1.42 (1.14) (0.66) (0.62) 0.46 1.10
------- ------- ------- ------- ------- ------- -------
Total from investment
operations............ 0.45 1.50 (1.09) (0.54) (0.37) 0.72 1.31
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income and
short-term capital
gains................. (0.03) (0.08) (0.06) (0.12) (0.27) (0.24) (0.21)
Net realized long-term
capital gains......... -- -- -- -- (0.62) (0.24) (0.19)
------- ------- ------- ------- ------- ------- -------
Total distributions........ (0.03) (0.08) (0.06) (0.12) (0.89) (0.48) (0.40)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period................ $ 10.92 $ 10.50 $ 9.08 $ 10.23 $ 10.89 $ 12.15 $ 11.91
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN(3)................ 4.42%(4) 16.47% (10.65)%(4) (4.93)% (3.32)% 6.09% 12.15%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period
(000s)................ $41,239 $30,262 $19,924 $24,398 $27,051 $36,544 $35,734
Ratios to average daily net
assets:
Net investment
income........... 0.63%(5) 0.77% 1.18%(5) 1.14% 2.09% 2.10% 1.81%
Expenses after waivers
and/or
reimbursements... 1.30%(5) 1.30% 1.30%(5) 1.19% 1.00% 1.00% 1.00%
Expenses before
waivers and/or
reimbursements... 1.34%(5) 1.79% 1.99%(5) 1.42% 1.38% 1.31% 1.68%
Portfolio turnover rate.... 39%(4) 60% 12%(4) 72% 57% 59% 32%
</Table>
- --------------------------------------------------------------------------------
(1) Unaudited.
(2) The Fund changed its fiscal year end from May 31 to October 31.
(3) Total return excludes the effect of sales charges.
(4) Not Annualized.
(5) Annualized.
32 See Notes to Financial Statements.
ISI FUNDS NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
Total Return US Treasury Fund, Inc. ('Total Return'), Managed Municipal
Fund, Inc. ('Managed Municipal'), North American Government Bond Fund, Inc.
('North American') and ISI Strategy Fund, Inc. ('Strategy'), (each a 'Fund' and
collectively, the 'Funds') are registered under the Investment Company Act of
1940, as amended, as open-end management investment companies. The Funds are
organized as corporations under the laws of the State of Maryland.
Total Return's investment objective is to achieve a high level of total
return with relative stability of principal, and secondarily, high current
income consistent with an investment in securities issued by the United States
Treasury. Managed Municipal's investment objective is to provide a high level of
total return with relative stability of principal and, secondarily, high current
income exempt from federal income tax through investment in a portfolio
consisting primarily of tax-free municipal obligations. North American's
investment objective is designed to provide a high level of current income,
consistent with prudent investment risk. Strategy's investment objective is to
maximize total return through a combination of long-term growth of capital and
current income.
Total Return, Managed Municipal and Strategy currently offer ISI Shares to
investors. North American offers ISI North American Government Bond Fund Class A
Shares ('ISI Class A Shares'), formerly ISI Shares and effective May 16, 2003,
ISI North American Government Bond Fund Class C Shares ('ISI Class C Shares').
ISI Shares and North American ISI Class A Shares are subject to a maximum
front-end sales charge of 3.00%. A sales charge of 1.00% is imposed on the sale
of shares of North American's ISI Class C Shares if redeemed within the first
year of purchase.
Total Return, Managed Municipal and Strategy are 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 for which market quotations are readily
available are valued using the last reported sales price or official closing
price provided by independent pricing services as of the close of trading on the
New York Stock Exchange (normally 4:00 p.m. Eastern time), on each Fund business
day. In the absence of a sale, such securities are valued at the mean of the
last bid and the last asked prices. Non-exchange traded securities for which
over-the-counter quotations are available are generally valued at the mean
between the 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 Funds may use these procedures to establish the fair value of
securities when, for example, a significant event occurs between the time the
market closes and the time the Funds value their investments. After
consideration of various factors, the Funds may value the securities at their
last reported price or at fair value. On April 30, 2004, Strategy had fair
valued securities, which are footnoted accordingly in the Fund's schedule of
investments.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on trade date. Realized gains and
losses are determined by comparing the proceeds of a sale or the cost of a
purchase with a specific
33
ISI FUNDS NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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. Income, gains
(losses) and common expenses are allocated to each class based on its respective
net assets. Class specific expenses are charged directly to each class.
D. DISTRIBUTIONS
Total Return declares a dividend daily, and Managed Municipal and North
American declare monthly dividends at rates approved by the Funds' Board of
Directors. To the extent that their net investment income and short-term capital
gains are less than the approved rate, the Funds may pay some of their dividends
from long-term capital gains or as a return of shareholder capital. Strategy
declares dividends quarterly from its net investment income. An additional
distribution of net realized short-term and long-term capital gains earned by
the Funds, if any, may be made annually to the extent they exceed capital loss
carryforwards. The Funds record dividends and distributions on the ex-dividend
date.
E. FEDERAL INCOME TAXES
Each Fund has a policy to qualify as a regulated investment company under
the Internal Revenue Code and to distribute substantially all of its taxable
income to shareholders. Accordingly, no federal income taxes have been accrued.
The Funds may periodically make reclassifications among certain capital
accounts as a result of differences in the characterization and allocation of
certain income and capital gain distributions determined annually in accordance
with federal tax regulations, which may differ from accounting principles
generally accepted in the United States. These book/tax differences may be
either temporary or permanent. To the extent they are permanent, they are
charged or credited to paid-in-capital or accumulated net realized gain as
appropriate, in the period that the differences arose.
F. FOREIGN CURRENCY TRANSLATION
The Funds maintain their accounting records in US dollars. North American
determines the US dollar value of foreign currency-denominated assets,
liabilities and transactions by using prevailing exchange rates. In valuing
assets and liabilities, North American uses the prevailing exchange rate on
valuation date. In valuing security transactions, the receipt of income and the
payment of expenses, North American uses the prevailing exchange rate on the
transaction date.
Net realized gains and losses on foreign currency transactions shown on
North American's financial statements result from the sale of foreign bonds,
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of interest recorded on its books and the US dollar equivalent of the
amounts actually received or paid.
G. FORWARD FOREIGN CURRENCY CONTRACTS
North American may use forward foreign currency contracts to manage foreign
exchange rate risk. The Fund may use these contracts to fix the US dollar value
of securities transactions for the period between the date of the transaction
and the date the security is received or delivered or to hedge the US dollar
value of securities that it already owns. The use of forward foreign currency
contracts does not eliminate fluctuations in the prices of the underlying
securities, but does establish a rate of exchange that can be achieved in the
future.
The Fund determines the net US dollar value of forward foreign currency
contracts using prevailing exchange rates. On April 30, 2004, there were no open
forward currency contracts.
34
ISI FUNDS NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
H. REPURCHASE AGREEMENTS
The Funds may make short-term investments in repurchase agreements that are
fully collateralized by US government securities. Under the terms of a
repurchase agreement, a financial institution sells fixed-income securities to
the Funds and agrees to buy them back on a specified day in return for the
principal amount of the original sale plus accrued interest. The custodial bank
holds the collateral in a separate account until the agreement matures. If the
value of the securities falls below the principal amount of the repurchase
agreement plus accrued interest, the financial institution deposits additional
collateral by the following business day. If the financial institution either
fails to deposit the required additional collateral or fails to repurchase the
securities as agreed, the Funds have the right to sell the securities and
recover any resulting loss from the financial institution. If the financial
institution enters into bankruptcy, the Funds' claims on the collateral may be
subject to legal proceedings.
I. ESTIMATES
In preparing its financial statements in conformity with accounting
principles generally accepted in the United States, management makes estimates
and assumptions. Actual results may be different.
NOTE 2 - FEES AND TRANSACTIONS WITH AFFILIATES
International Strategy & Investment, Inc. ('ISI') is the Funds' Advisor. As
compensation for its advisory services, Total Return pays ISI an annual fee
based on the Fund's average daily net assets, which is calculated daily and paid
monthly at the following annual rates: 0.20% of the first $100 million, 0.18% of
the next $100 million, 0.16% of the next $100 million, 0.14% of the next $200
million and 0.12% of the amount over $500 million. In addition, Total Return
pays ISI 1.50% of the Fund's gross interest income. Managed Municipal, North
American and Strategy each pay ISI an annual fee based on their 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, 2005, to the extent necessary, to limit all
expenses to 1.85% of the average daily net assets of ISI Class C Shares. ISI has
contractually agreed to waive its fees and/or reimburse expenses of Strategy
through February 28, 2005, to the extent necessary, to limit all expenses to
1.30% of its average daily net assets. For the six-months ended April 30, 2004,
ISI waived Strategy fees of $7,763.
Los Angeles Capital Management and Equity Research, Inc. is Strategy's
Sub-Advisor and is responsible for managing the common stocks in the Fund's
portfolio. The Sub-Advisor is paid by ISI.
Forum Administrative Services, LLC ('FAdS') is the Funds' Administrator.
FAdS receives, for its services, a minimum monthly fee or an annual fee based on
each Fund's average daily net assets which is calculated daily and paid monthly.
Forum Shareholder Services, LLC ('FSS') is the Funds' Transfer Agent. FSS
receives for its services a monthly fee and a monthly per account fee, all of
which are calculated daily and paid monthly.
Forum Accounting Services, LLC ('FAcS') is the Funds' Accountant. FAcS
receives for its services a monthly fee plus an annual fee based on each Fund's
average daily net assets, all of which are calculated daily and paid monthly.
Certain officers and directors of the Funds are also officers or directors
of ISI or FAcS. These persons are not paid by the Funds for serving in these
capacities.
The Northern Trust Company is the Funds' Custodian.
ISI Group, Inc. ('ISI Group'), an affiliate of ISI, is the Distributor for
the Funds. Total Return, Managed Municipal and Strategy each pay ISI Group an
annual fee,
35
ISI FUNDS NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
pursuant to Rule 12b-1, that is calculated daily and paid monthly at the annual
rate of 0.25% of their average daily net assets. North American ISI Class A
Shares and ISI Class C Shares pay ISI Group an annual fee, pursuant to Rule
12b-1, that is calculated daily and paid monthly at the annual rate of 0.40% and
0.75% of their average daily net assets, respectively.
ISI Group also acts as the Shareholder Servicing Agent for the North
American Class C Shares. North American Class C Shares pays ISI Group an annual
fee, pursuant to an agreement, that is calculated daily and paid monthly at the
annual rate of 0.25% of its average daily net assets.
For the six months ended April 30, 2004, ISI Group earned commissions on
sales of ISI Shares of Total Return, Managed Municipal, and Strategy of $5,244,
$11,062 and $12,411, respectively and $26,278 on sales of ISI Class A Shares of
North American.
NOTE 3 - INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of investments,
other than short-term obligations, for the six months ended April 30, 2004 were
as follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------
Non-US Government Obligations US Government Obligations
- --------------------------------------------------------------------------------------------------------------
Purchases Sales Purchases Sales
Total Return $ - $ - $ 29,896,442 $ 25,417,463
Managed Municipal 18,368,979 1,530,000 - -
North American 11,768,617 9,807,994 38,888,707 31,699,181
Strategy 15,115,758 9,905,686 2,725,945 2,032,180
- --------------------------------------------------------------------------------------------------------------
</Table>
The cost basis of investments, aggregate gross unrealized appreciation and
depreciation for all investments held at April 30, 2004 were as follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------
Net Appreciation/
Cost Appreciation Depreciation (Depreciation)
- --------------------------------------------------------------------------------------------------------------
Total Return $209,630,492 $1,091,839 $ (8,643,753) $ (7,551,914)
Managed Municipal 115,571,096 4,720,738 (1,494,150) 3,226,588
North American 259,938,371 2,259,417 (13,574,532) (11,315,115)
Strategy 37,533,338 4,295,910 (723,077) 3,572,833
- --------------------------------------------------------------------------------------------------------------
</Table>
36
ISI FUNDS NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 4 - MARKET AND CREDIT RISK
North American invests in Canadian and Mexican government securities.
Investing in Canadian and Mexican government securities may have different risks
than investing in US government securities. An investment in Canada or Mexico
may be affected by developments unique to those countries. These developments
may not affect the US economy or the prices of US government securities in the
same manner. In addition, the value of bonds issued by non-US governments may be
affected by adverse international political and economic developments that may
not impact the value of US government securities.
NOTE 5 - PROXY VOTING GUIDELINES
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. This information is also available from the EDGAR database on the
SEC's Web site at http://www.sec.gov.
Total Return, Managed Municipal and North American are not required to
adopt proxy voting policies and procedures under the applicable rule.
37
ISI
INTERNATIONAL STRATEGY & INVESTMENT
DIRECTORS AND OFFICERS
<Table>
EDWARD S. HYMAN THOMAS D. STEVENS*
Chairman Vice President
R. ALAN MEDAUGH STEPHEN V. KILLORIN
President Vice President
JOSEPH R. HARDIMAN MARGARET M. BEELER
Director Assistant Vice President
W. MURRAY JACQUES KEITH C. REILLY
Director Assistant Vice President
LOUIS E. LEVY STACEY E. HONG
Director Treasurer
NANCY R. LAZAR THOMAS G. SHEEHAN
Vice President Secretary
CARRIE L. BUTLER *Thomas D. Stevens is an
Vice President officer for only the ISI Strategy Fund.
EDWARD J. VEILLEUX
Vice President
</Table>
INVESTMENT ADVISOR
ISI, INC.
535 MADISON AVENUE, 30TH FLOOR
NEW YORK, NY 10022
(800) 955-7175
SHAREHOLDER SERVICING AGENT
FORUM SHAREHOLDER SERVICES, LLC
TWO PORTLAND SQUARE
PORTLAND, ME 04101
(800) 882-8585
DISTRIBUTOR
ISI GROUP, INC.
535 MADISON AVENUE, 30TH FLOOR
NEW YORK, NY 10022
(800) 955-7175
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule 30a-3(c)
under the Act) are effective in design and operation and are sufficient to form
the basis of the certifications required by Rule 30a-2 under the Act, based on
their evaluation of these disclosure controls and procedures within 90 days of
the filing date of this report on Form N-CSR.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act), or the internal control
over financial reporting of its service providers during the last fiscal half
year (the registrant's second half year in the case of an annual report) that
have materially affected, or are reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to section 302 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
(b) Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002
(Exhibit furnished herewith).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: NORTH AMERICAN GOVERNMENT BOND FUND, INC.
By: /S/ Stacey E. Hong
------------------
Stacey E. Hong, Treasurer
Date: June 23, 2004
-------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /S/ R. Alan Medaugh
-------------------
R. Alan Medaugh, President
Date: June 24, 2004
-------------
By: /S/ Stacey E. Hong
------------------
Stacey E. Hong, Treasurer
Date: June 23, 2004
-------------