As filed with the Securities and Exchange Commission on January 10, 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, New York 10022
(212) 446-5600
Date of fiscal year end: October 31, 2004
Date of reporting period: October 31, 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. REPORT TO STOCKHOLDERS.
[ISI LOGO]
ANNUAL REPORT
OCTOBER 31, 2004
[GRAPHIC]
TOTAL RETURN US TREASURY FUND
MANAGED MUNICIPAL FUND
NORTH AMERICAN GOVERNMENT BOND FUND
ISI STRATEGY FUND
ISI FUNDS ANNUAL REPORT - TABLE OF CONTENTS
Investment Advisor's Message........................... 1
Management Discussion and Analysis..................... 3
Performance Comparisons................................ 5
Shareholder Expense Example............................ 9
Portfolio Profiles..................................... 11
Schedules of Investments............................... 12
Statements of Assets and Liabilities................... 23
Statements of Operations............................... 25
Statements of Changes in Net Assets.................... 27
Financial Highlights................................... 31
Notes to Financial Statements.......................... 36
Report of Independent Registered Public Accounting Firm 41
Fund Directors and Officers............................ 42
Notice to Shareholders................................. 45
INVESTMENT ADVISOR'S MESSAGE
Dear Shareholder:
I am pleased to present the annual report to the shareholders of the ISI
Funds, individually a 'Fund' and collectively the 'Funds'. This report covers
the 12-month reporting period through October 31, 2004 and includes commentary
from the Funds' portfolio managers at International Strategy & Investment, Inc.
('ISI') (see Management Discussion and Analysis that follows this letter), a
complete list of holdings and the financial statements.
Stocks recorded positive returns for the past year and were down slightly
over the past five years. For example, the Dow Jones Wilshire 5000 (Full Cap)
Index was +10.00% for the past year but averaged -0.94% for the past five
years. US Treasuries and top quality municipal indices were up over the past
year and up over the past five years. For example, the Lehman Brothers Treasury
Index was +4.97% for the past year and averaged +7.37% for the past five years.
The Lehman Brothers Municipal GO Index was +5.81% for the past year and
averaged +6.96% for the past five years.
The following is a summary of Fund performance during the reporting period.
These performance figures assume the reinvestment of dividend and capital gain
distributions, and exclude the impact of any sales charges. During the year
ended October 31, 2004, Total Return US Treasury Fund, Managed Municipal Fund
and North American Government Bond Fund continued their policy of paying
dividends at a fixed rate, which resulted in dividends that consist of net
investment income, short-term capital gains, long-term capital gains and return
of capital.
TOTAL RETURN US TREASURY FUND'S investment objective is to achieve a high
level of total return with relative stability of principal and, secondarily,
high current income consistent with an investment in securities issued by the
US Treasury. For the reporting period, the Fund produced a one-year total
return of +4.64% and a five-year average annual total return of +7.08%. From
its inception on August 10, 1988 through October 31, 2004, the Fund has posted
a cumulative total return of +229.71%, which translates into an average annual
total return of +7.63%. The Fund's net assets totaled $194.8 million at the end
of the reporting period.
MANAGED MUNICIPAL FUND'S investment objective is to provide a high level of
total return with relative stability of principal and, secondarily, high
current income exempt from Federal income tax through investment in a portfolio
consisting primarily of tax-free municipal obligations. For the reporting
period, the Fund produced a one-year total return of +4.26% and a five-year
average annual total return of +6.27%. From its inception on February 26, 1990
through October 31, 2004, the Fund has posted a cumulative total return of
+137.83%, which translates into an average annual total return of +6.08%. The
Fund's net assets totaled $113.8 million at the end of the reporting period.
NORTH AMERICAN GOVERNMENT BOND FUND'S investment objective is to provide a
high level of current income, consistent with prudent investment risk, by
investing primarily in a portfolio consisting of fixed-income securities issued
or guaranteed by the governments of the US, Canada and Mexico. For the
reporting period, the ISI Class A Shares produced a one-year total return of
+3.62% and a five-year average annual total return of +7.17%. From its
inception on January 15, 1993 through October 31, 2004, the ISI Class A Shares
have posted a cumulative total return of +100.85%, which translates into an
average annual total return of +6.09%. For the reporting period, the ISI Class
C Shares produced a one-year total return of +2.91% and from its inception on
May 16, 2003 through October 31, 2004, have posted a cumulative total return of
+0.21%, which translates into an average annual total return of +0.14%. The
Fund's net assets totaled $222.9 million at the end of the reporting period.
ISI STRATEGY FUND'S investment objective is to maximize total return through
a combination of long-term growth of capital and current income by actively
allocating the Fund's assets between common stocks of US issuers and US
Treasury securities. For the reporting period, the Fund produced a one-year
total return of +7.71% and a five-year average annual total return of +1.44%.
From its inception on September 16, 1997 through October 31, 2004, the Fund has
posted a cumulative total return of +35.99%, which translates into an average
annual total return of +4.41%. The Fund's net assets totaled $44.9 million at
the end of the reporting period.
1
INVESTMENT ADVISOR'S MESSAGE
We would like to welcome new investors to the ISI Funds and thank those who
have been with us for some time. We appreciate your confidence.
Sincerely,
/s/ R. Alan Medaugh
R. Alan Medaugh
President
November 5, 2004
2
MANAGEMENT DISCUSSION AND ANALYSIS
TOTAL RETURN US TREASURY FUND
Total Return US Treasury Fund is a US Treasury-oriented active maturity
management fund. ISI's economic outlook for key bond market factors such as
inflation, growth and market sentiment form the basis for the portfolio's
activity. During the year, interest rates on the 10-year Treasury note ranged
from 3.68% to 4.87%, ending the year with a yield of 4.03%. During the year,
rates were at their highest level in May and June, as economic growth appeared
to be accelerating. Policy moves by the Federal Reserve ('Fed') to increase the
overnight Federal Funds rate by 75 basis points (0.75%) helped long-term bonds
by reinstating the Fed's role as an inflation fighter. Two other factors helped
bonds late in the fiscal year: (1) the economy growth rate slowed; and (2) core
inflation remained in check. The Fund's structure shifted to longer-term bonds
from reserves. The performance of the Fund was influenced by these actions. As
of October 31, 2004, the Fund's weighted average maturity including reserves
was 9.9 years. The Fund's annual total return was +4.64%.
[CHART]
10-Year US Treasury Yield*
10/31/03 4.295
11/01/03 4.342
11/02/03 4.342
11/03/03 4.342
11/04/03 4.297
11/05/03 4.354
11/06/03 4.410
11/07/03 4.440
11/08/03 4.480
11/09/03 4.480
11/10/03 4.480
11/11/03 4.480
11/12/03 4.400
11/13/03 4.271
11/14/03 4.219
11/15/03 4.196
11/16/03 4.196
11/17/03 4.196
11/18/03 4.144
11/19/03 4.238
11/20/03 4.154
11/21/03 4.161
11/22/03 4.230
11/23/03 4.230
11/24/03 4.230
11/25/03 4.186
11/26/03 4.248
11/27/03 4.248
11/28/03 4.334
11/29/03 4.387
11/30/03 4.387
12/01/03 4.387
12/02/03 4.381
12/03/03 4.404
12/04/03 4.367
12/05/03 4.232
12/06/03 4.269
12/07/03 4.269
12/08/03 4.269
12/09/03 4.353
12/10/03 4.318
12/11/03 4.232
12/12/03 4.240
12/13/03 4.258
12/14/03 4.258
12/15/03 4.258
12/16/03 4.215
12/17/03 4.184
12/18/03 4.128
12/19/03 4.135
12/20/03 4.170
12/21/03 4.170
12/22/03 4.170
12/23/03 4.261
12/24/03 4.185
12/25/03 4.185
12/26/03 4.152
12/27/03 4.244
12/28/03 4.244
12/29/03 4.244
12/30/03 4.259
12/31/03 4.247
01/01/04 4.247
01/02/04 4.381
01/03/04 4.379
01/04/04 4.379
01/05/04 4.379
01/06/04 4.273
01/07/04 4.244
01/08/04 4.257
01/09/04 4.082
01/10/04 4.088
01/11/04 4.088
01/12/04 4.088
01/13/04 4.013
01/14/04 3.996
01/15/04 3.971
01/16/04 4.032
01/17/04 4.032
01/18/04 4.032
01/19/04 4.032
01/20/04 4.057
01/21/04 4.020
01/22/04 3.955
01/23/04 4.074
01/24/04 4.132
01/25/04 4.132
01/26/04 4.132
01/27/04 4.076
01/28/04 4.190
01/29/04 4.175
01/30/04 4.134
01/31/04 4.147
02/01/04 4.147
02/02/04 4.147
02/03/04 4.099
02/04/04 4.114
02/05/04 4.169
02/06/04 4.079
02/07/04 4.054
02/08/04 4.054
02/09/04 4.054
02/10/04 4.114
02/11/04 4.033
02/12/04 4.046
02/13/04 4.042
02/14/04 4.042
02/15/04 4.042
02/16/04 4.042
02/17/04 4.040
02/18/04 4.050
02/19/04 4.033
02/20/04 4.098
02/21/04 4.038
02/22/04 4.038
02/23/04 4.038
02/24/04 4.025
02/25/04 4.009
02/26/04 4.036
02/27/04 3.973
02/28/04 3.975
02/29/04 3.975
03/01/04 3.975
03/02/04 4.044
03/03/04 4.052
03/04/04 4.017
03/05/04 3.851
03/06/04 3.770
03/07/04 3.770
03/08/04 3.770
03/09/04 3.723
03/10/04 3.730
03/11/04 3.700
03/12/04 3.779
03/13/04 3.764
03/14/04 3.764
03/15/04 3.764
03/16/04 3.681
03/17/04 3.713
03/18/04 3.756
03/19/04 3.773
03/20/04 3.714
03/21/04 3.714
03/22/04 3.714
03/23/04 3.692
03/24/04 3.709
03/25/04 3.739
03/26/04 3.831
03/27/04 3.890
03/28/04 3.890
03/29/04 3.890
03/30/04 3.896
03/31/04 3.837
04/01/04 3.880
04/02/04 4.145
04/03/04 4.208
04/04/04 4.208
04/05/04 4.208
04/06/04 4.149
04/07/04 4.159
04/08/04 4.193
04/09/04 4.193
04/10/04 4.230
04/11/04 4.230
04/12/04 4.230
04/13/04 4.354
04/14/04 4.366
04/15/04 4.402
04/16/04 4.340
04/17/04 4.387
04/18/04 4.387
04/19/04 4.387
04/20/04 4.459
04/21/04 4.425
04/22/04 4.383
04/23/04 4.460
04/24/04 4.436
04/25/04 4.436
04/26/04 4.436
04/27/04 4.385
04/28/04 4.499
04/29/04 4.538
04/30/04 4.507
05/01/04 4.501
05/02/04 4.501
05/03/04 4.501
05/04/04 4.567
05/05/04 4.581
05/06/04 4.600
05/07/04 4.773
05/08/04 4.794
05/09/04 4.794
05/10/04 4.794
05/11/04 4.748
05/12/04 4.807
05/13/04 4.854
05/14/04 4.770
05/15/04 4.691
05/16/04 4.691
05/17/04 4.691
05/18/04 4.736
05/19/04 4.774
05/20/04 4.702
05/21/04 4.758
05/22/04 4.734
05/23/04 4.734
05/24/04 4.734
05/25/04 4.722
05/26/04 4.657
05/27/04 4.602
05/28/04 4.649
05/29/04 4.649
05/30/04 4.649
05/31/04 4.649
06/01/04 4.702
06/02/04 4.740
06/03/04 4.712
06/04/04 4.774
06/05/04 4.762
06/06/04 4.762
06/07/04 4.762
06/08/04 4.764
06/09/04 4.807
06/10/04 4.795
06/11/04 4.801
06/12/04 4.872
06/13/04 4.872
06/14/04 4.872
06/15/04 4.678
06/16/04 4.724
06/17/04 4.680
06/18/04 4.712
06/19/04 4.686
06/20/04 4.686
06/21/04 4.686
06/22/04 4.719
06/23/04 4.698
06/24/04 4.646
06/25/04 4.648
06/26/04 4.737
06/27/04 4.737
06/28/04 4.737
06/29/04 4.688
06/30/04 4.583
07/01/04 4.565
07/02/04 4.461
07/03/04 4.457
07/04/04 4.457
07/05/04 4.457
07/06/04 4.476
07/07/04 4.476
07/08/04 4.472
07/09/04 4.458
07/10/04 4.447
07/11/04 4.447
07/12/04 4.447
07/13/04 4.472
07/14/04 4.482
07/15/04 4.482
07/16/04 4.351
07/17/04 4.353
07/18/04 4.353
07/19/04 4.353
07/20/04 4.446
07/21/04 4.468
07/22/04 4.446
07/23/04 4.432
07/24/04 4.487
07/25/04 4.487
07/26/04 4.487
07/27/04 4.615
07/28/04 4.585
07/29/04 4.577
07/30/04 4.477
07/31/04 4.451
08/01/04 4.451
08/02/04 4.451
08/03/04 4.426
08/04/04 4.420
08/05/04 4.402
08/06/04 4.222
08/07/04 4.258
08/08/04 4.258
08/09/04 4.258
08/10/04 4.291
08/11/04 4.273
08/12/04 4.256
08/13/04 4.229
08/14/04 4.264
08/15/04 4.264
08/16/04 4.264
08/17/04 4.192
08/18/04 4.238
08/19/04 4.215
08/20/04 4.234
08/21/04 4.285
08/22/04 4.285
08/23/04 4.285
08/24/04 4.273
08/25/04 4.263
08/26/04 4.211
08/27/04 4.228
08/28/04 4.178
08/29/04 4.178
08/30/04 4.178
08/31/04 4.119
09/01/04 4.115
09/02/04 4.215
09/03/04 4.296
09/04/04 4.293
09/05/04 4.293
09/06/04 4.293
09/07/04 4.240
09/08/04 4.161
09/09/04 4.197
09/10/04 4.188
09/11/04 4.137
09/12/04 4.137
09/13/04 4.137
09/14/04 4.126
09/15/04 4.166
09/16/04 4.074
09/17/04 4.108
09/18/04 4.058
09/19/04 4.058
09/20/04 4.058
09/21/04 4.037
09/22/04 3.980
09/23/04 4.018
09/24/04 4.029
09/25/04 3.991
09/26/04 3.991
09/27/04 3.991
09/28/04 4.004
09/29/04 4.089
09/30/04 4.121
10/01/04 4.189
10/02/04 4.166
10/03/04 4.166
10/04/04 4.166
10/05/04 4.174
10/06/04 4.222
10/07/04 4.244
10/08/04 4.131
10/09/04 4.132
10/10/04 4.132
10/11/04 4.132
10/12/04 4.100
10/13/04 4.057
10/14/04 4.026
10/15/04 4.055
10/16/04 4.043
10/17/04 4.043
10/18/04 4.043
10/19/04 4.034
10/20/04 3.982
10/21/04 3.997
10/22/04 3.976
10/23/04 3.972
10/24/04 3.972
10/25/04 3.972
10/26/04 4.001
10/27/04 4.084
10/28/04 4.051
10/29/04 4.025
10/30/04 4.025
10/31/04 4.025
*Source: Bloomberg
MANAGED MUNICIPAL FUND
Managed Municipal Fund is a top quality (AAA & AA rated bonds) national
tax-free bond fund where active maturity management is a part of the mandate.
Of importance is the percentage of the Treasury yield for top quality
municipals. In October 2004, the yield on 10-year AAA General Obligation
municipals was 84.7% of the yield of US Treasuries.* The percentage of Treasury
yield for the same municipal index for October 2002 was 98.0%.* This year's
reading is similar to 1999 and 2000. It still avails most taxable investors an
after-tax yield that is above US Treasuries of similar maturity, but the margin
is well below recent levels. Please see the table below for a comparison of the
percentages over the past 5 years.
10-YEAR AAA GO INDEX YIELD AS A % OF 10-YEAR US TREASURY YIELD
(AS OF OCTOBER 31 EACH YEAR)*
Year 2004 2003 2002 2001 2000
---- ---- ---- ---- ---- ----
Percentage 84.7 87.5 98.0 93.6 82.4
*Source: Bloomberg
The Fund's portfolio is oriented towards high quality General Obligation
issues in the 5 - 10 year range when the effects of call features are
incorporated. As of October 31, 2004, the Fund's weighted average maturity
including reserves was 5.3 years. This is a shorter portfolio structure than in
recent quarters, where the range was between 7 and 8 years. This shorter
maturity orientation held back recent performance. The Fund's annual total
return was +4.26%.
NORTH AMERICAN GOVERNMENT BOND FUND
North American Government Bond Fund actively manages both the Fund's
maturity and the asset allocation among the US, Canada and Mexico. The
management of the average maturity of the entire Fund is primarily accomplished
through moving the US Treasury section's maturity. As of October 31, 2004, the
Fund's US section had a weighted average maturity of 10.1 years, somewhat
longer than at the beginning of the fiscal year when it was 9.4 years. The
longer maturity orientation of the US section helped performance recently. Over
the past year, the Mexican section has represented between 14.4% and 20.1% of
the portfolio while the Canadian section has ranged between 5.1% and 7.7%.
Currently, Mexico represents 14.6% of the Fund while Canada is 5.6%.
3
MANAGEMENT DISCUSSION AND ANALYSIS
Overall, the Fund's weighted average maturity including reserves was 8.1 years
on October 31, 2004. The annual total return for ISI Class A Shares was +3.62%.
ISI STRATEGY FUND
ISI Strategy Fund's primary active management focus is the proportion
allocated to stocks, bonds and cash. During the year, the portfolio was
invested in equities so that its average percentage weighting was about 65% of
the whole portfolio. The normal policy range is 40% to 80% equities. The higher
weighting in stocks helped performance because the Dow Jones Wilshire 5000
(Full Cap) Index, the Fund's benchmark index, was +10.00% for the year, while
the Lehman Brothers Treasury Index was +4.97%. Two additional investment
features are of importance to the Fund. First, the equity section is invested
to reflect the movement of the US stock market as a whole. Over the past year,
this broader measure of the equity market has performed just slightly ahead of
the narrower S&P 500 Index, with a total return of +10.00% versus +9.42%.
Second, the fixed-income section is US Treasury based with a managed maturity
orientation similar to that of the Total Return US Treasury Fund. As of October
31, 2004, the section's weighted average maturity including reserves was 8.1
years. The Fund's annual total return of +7.71% was most influenced by the
weighting in stocks, and that was favorable to performance.
4
TOTAL RETURN US TREASURY FUND - ISI SHARES PERFORMANCE COMPARISON/1/
[CHART]
Total Return US Treasury Fund - ISI Shares, Lehman Brothers Treasury Index,
Lehman Brothers Long-Term Treasury Index and Lehman Brothers Intermediate
Treasury Index: Value of a $10,000 Investment (for 10 Years ended October 31,
2003)
Date Total Return Lehman Brothers Lehman Brothers
US Treasury Fund Lehman Brothers Intermediate Long-Term
- ISI Shares Treasury Index Treasury Index Treasury Index
---------------- --------------- -------------- --------------
10/31/1994 $ 9,700 $10,000 $10,000 $10,000
11/30/1994 9,688 9,980 9,954 10,059
12/31/1994 9,776 10,041 9,986 10,214
1/31/1995 9,961 10,227 10,148 10,476
2/28/1995 10,180 10,445 10,342 10,773
3/31/1995 10,226 10,511 10,399 10,866
4/30/1995 10,360 10,648 10,519 11,060
5/31/1995 10,930 11,079 10,816 11,908
6/30/1995 11,022 11,166 10,887 12,047
7/31/1995 10,914 11,125 10,892 11,855
8/31/1995 11,073 11,254 10,980 12,118
9/30/1995 11,210 11,362 11,053 12,340
10/31/1995 11,449 11,537 11,176 12,686
11/30/1995 11,667 11,716 11,313 13,003
12/31/1995 11,897 11,884 11,426 13,349
1/31/1996 11,912 11,959 11,524 13,349
2/29/1996 11,518 11,714 11,401 12,704
3/31/1996 11,337 11,613 11,345 12,451
4/30/1996 11,201 11,542 11,312 12,243
5/31/1996 11,170 11,520 11,306 12,179
6/30/1996 11,337 11,666 11,419 12,439
7/31/1996 11,353 11,693 11,453 12,443
8/31/1996 11,261 11,669 11,468 12,288
9/30/1996 11,491 11,861 11,615 12,627
10/31/1996 11,842 12,121 11,804 13,124
11/30/1996 12,159 12,331 11,946 13,561
12/31/1996 11,921 12,204 11,881 13,232
1/31/1997 11,876 12,216 11,925 13,138
2/28/1997 11,867 12,231 11,943 13,144
3/31/1997 11,686 12,099 11,872 12,808
4/30/1997 11,863 12,273 12,005 13,117
5/31/1997 11,979 12,379 12,099 13,264
6/30/1997 12,158 12,517 12,201 13,520
7/31/1997 12,665 12,876 12,430 14,314
8/31/1997 12,429 12,746 12,380 13,915
9/30/1997 12,649 12,939 12,515 14,299
10/31/1997 12,908 13,165 12,662 14,780
11/30/1997 13,002 13,233 12,691 14,977
12/31/1997 13,187 13,373 12,795 15,228
1/31/1998 13,386 13,577 12,967 15,538
2/28/1998 13,324 13,537 12,950 15,426
3/31/1998 13,354 13,574 12,988 15,458
4/30/1998 13,385 13,634 13,050 15,516
5/31/1998 13,575 13,776 13,140 15,812
6/30/1998 13,792 13,935 13,229 16,180
7/31/1998 13,769 13,957 13,281 16,112
8/31/1998 14,312 14,336 13,543 16,839
9/30/1998 14,722 14,735 13,870 17,455
10/31/1998 14,522 14,688 13,898 17,191
11/30/1998 14,622 14,685 13,846 17,323
12/31/1998 14,611 14,714 13,898 17,287
1/31/1999 14,700 14,799 13,959 17,443
2/28/1999 14,193 14,421 13,756 16,585
3/31/1999 14,197 14,477 13,847 16,547
4/30/1999 14,245 14,511 13,886 16,570
5/31/1999 14,076 14,376 13,797 16,310
6/30/1999 13,979 14,346 13,822 16,137
7/31/1999 13,925 14,333 13,835 16,060
8/31/1999 13,870 14,336 13,863 15,997
9/30/1999 13,978 14,445 13,971 16,115
10/31/1999 13,968 14,461 13,989 16,125
11/30/1999 13,897 14,434 13,995 16,016
12/31/1999 13,782 14,338 13,956 15,776
1/31/2000 13,937 14,375 13,917 16,001
2/29/2000 14,230 14,591 14,026 16,484
3/31/2000 14,601 14,881 14,205 17,048
4/30/2000 14,560 14,834 14,195 16,911
5/31/2000 14,518 14,857 14,255 16,850
6/30/2000 14,756 15,107 14,460 17,215
7/31/2000 14,948 15,263 14,558 17,511
8/31/2000 15,220 15,487 14,710 17,911
9/30/2000 15,098 15,499 14,823 17,693
10/31/2000 15,293 15,650 14,921 17,970
11/30/2000 15,633 15,971 15,137 18,537
12/31/2000 15,959 16,276 15,388 18,974
1/31/2001 15,996 16,408 15,570 19,006
2/28/2001 16,228 16,606 15,714 19,331
3/31/2001 16,184 16,660 15,838 19,234
4/30/2001 15,861 16,453 15,775 18,711
5/31/2001 15,899 16,504 15,840 18,734
6/30/2001 15,954 16,592 15,898 18,896
7/31/2001 16,426 17,006 16,186 19,599
8/31/2001 16,699 17,232 16,326 20,018
9/30/2001 16,822 17,505 16,664 20,167
10/31/2001 17,369 17,990 16,917 21,158
11/30/2001 16,795 17,545 16,725 20,153
12/31/2001 16,629 17,374 16,644 19,773
1/31/2002 16,737 17,469 16,690 19,964
2/28/2002 16,847 17,648 16,828 20,262
3/31/2002 16,451 17,224 16,571 19,442
4/30/2002 16,877 17,652 16,867 20,181
5/31/2002 16,951 17,751 16,983 20,244
6/30/2002 17,237 18,002 17,190 20,608
7/31/2002 17,667 18,428 17,533 21,243
8/31/2002 18,187 18,827 17,717 22,171
9/30/2002 18,674 19,334 18,057 23,095
10/31/2002 18,372 19,120 18,024 22,431
11/30/2002 18,195 18,931 17,856 22,183
12/31/2002 18,634 19,423 18,188 23,092
1/31/2003 18,565 19,364 18,136 23,014
2/28/2003 18,897 19,697 18,332 23,710
3/31/2003 18,791 19,615 18,331 23,412
4/30/2003 18,887 19,706 18,368 23,650
5/31/2003 19,482 20,275 18,653 24,980
6/30/2003 19,356 20,150 18,623 24,599
7/31/2003 18,483 19,265 18,215 22,399
8/31/2003 18,581 19,380 18,241 22,756
9/30/2003 19,092 19,964 18,619 23,941
10/31/2003 18,794 19,659 18,437 23,275
11/30/2003 18,836 19,684 18,432 23,387
12/31/2003 18,967 19,858 18,571 23,665
1/31/2004 19,129 20,027 18,663 24,071
2/29/2004 19,361 20,276 18,836 24,551
3/31/2004 19,514 20,466 18,969 24,924
4/30/2004 18,868 19,808 18,540 23,525
5/31/2004 18,822 19,740 18,487 23,410
6/30/2004 18,917 19,819 18,526 23,624
7/31/2004 19,052 20,007 18,652 24,023
8/31/2004 19,453 20,421 18,925 24,915
9/30/2004 19,487 20,474 18,934 25,126
10/31/2004 19,665 20,636 19,038 25,495
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Ending Since Since
October 31, 2004 1 Year 3 Years 5 Years 10 Years Inception/2/ 1 Year 3 Years 5 Years 10 Years Inception/2/
Total Return US
Treasury Fund - ISI
Shares 1.46% 9.78% 36.56% 96.65% 219.80% 1.46% 3.16% 6.43% 7.00% 7.43%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Treasury
Index/3/ 4.97% 14.71% 42.70% 106.36% 248.10% 4.97% 4.68% 7.37% 7.51% 8.02%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Treasury
Index/3/ 3.26% 12.54% 36.09% 90.38% 212.18% 3.26% 4.02% 6.36% 6.65% 7.30%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Long-Term Treasury
Index/3/ 9.54% 20.50% 58.11% 154.95% 362.50% 9.54% 6.41% 9.59% 9.81% 9.94%
- -------------------------------------------------------------------------------------------------------------------
/1/ PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. The performance
information presented in the graph and table above does not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the redemption of Fund shares. All performance assumes the reinvestment of
dividends and capital gain distributions and includes the Fund's maximum
3.00% sales charge. Distribution of the Fund's capital gains and non-US
Treasury income may be subject to state and local taxes. Management is not
aware of any single index that is truly representative of the Fund since
its active maturity management policy allows the manager to adjust the
weighted average maturity throughout each US Treasury sector. Currently the
Fund's weighted average maturity is approximately 9.9 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 Treasury obligations and does not focus on one
particular segment of the Treasury market. The Lehman Brothers Intermediate
Treasury Index is an unmanaged index reflecting the performance of US
Treasury securities in the intermediate-term Treasury sector. The Lehman
Brothers Long-Term Treasury Index is an unmanaged index reflecting the
performance of US Treasury securities in the long-term Treasury sector.
Benchmark returns do not reflect expenses or sales charges that have been
deducted from the Fund's returns.
5
MANAGED MUNICIPAL FUND - ISI SHARES PERFORMANCE COMPARISON/1/
[CHART]
Managed Municipal Fund - ISI Shares, Lehman Brothers Prerefunded Municipal Bond
Index, Consumer Price Index and Lehman Brothers General Obligation Index: Value
of a $10,000 Investment (for 10 Years ended October 31, 2003)
Lehman Brothers
Lehman Brothers Prerefunded
Managed Municipal General Municipal Consumer
Date Fund - ISI Shares Obligation Index Bond Index Price Index
----------------- ---------------- --------------- -----------
10/31/1994 $ 9,700 $10,000 $10,000 $10,000
11/30/1994 9,521 9,843 9,857 10,013
12/31/1994 9,796 10,017 10,009 10,013
1/31/1995 10,094 10,255 10,157 10,054
2/28/1995 10,433 10,525 10,401 10,094
3/31/1995 10,510 10,667 10,474 10,127
4/30/1995 10,474 10,675 10,529 10,161
5/31/1995 10,879 10,993 10,771 10,181
6/30/1995 10,730 10,918 10,798 10,201
7/31/1995 10,838 11,045 10,913 10,201
8/31/1995 10,937 11,185 10,986 10,227
9/30/1995 10,984 11,257 10,985 10,248
10/31/1995 11,199 11,385 11,055 10,281
11/30/1995 11,394 11,545 11,176 10,274
12/31/1995 11,537 11,637 11,244 10,268
1/31/1996 11,617 11,750 11,371 10,328
2/29/1996 11,494 11,696 11,330 10,361
3/31/1996 11,275 11,566 11,218 10,415
4/30/1996 11,227 11,525 11,224 10,455
5/31/1996 11,189 11,507 11,222 10,475
6/30/1996 11,326 11,623 11,268 10,482
7/31/1996 11,463 11,733 11,372 10,502
8/31/1996 11,413 11,732 11,369 10,522
9/30/1996 11,573 11,877 11,474 10,555
10/31/1996 11,722 12,015 11,563 10,589
11/30/1996 11,928 12,239 11,705 10,609
12/31/1996 11,850 12,190 11,678 10,609
1/31/1997 11,850 12,223 11,720 10,642
2/28/1997 11,935 12,334 11,812 10,676
3/31/1997 11,771 12,175 11,683 10,702
4/30/1997 11,867 12,270 11,722 10,716
5/31/1997 12,044 12,453 11,889 10,709
6/30/1997 12,176 12,587 11,968 10,722
7/31/1997 12,539 12,913 12,170 10,736
8/31/1997 12,360 12,799 12,113 10,756
9/30/1997 12,528 12,944 12,216 10,783
10/31/1997 12,593 13,016 12,265 10,809
11/30/1997 12,646 13,077 12,292 10,803
12/31/1997 12,846 13,262 12,398 10,789
1/31/1998 12,976 13,399 12,507 10,809
2/28/1998 12,946 13,410 12,541 10,829
3/31/1998 12,953 13,422 12,538 10,850
4/30/1998 12,875 13,351 12,499 10,870
5/31/1998 13,109 13,571 12,655 10,890
6/30/1998 13,140 13,620 12,700 10,903
7/31/1998 13,158 13,652 12,747 10,916
8/31/1998 13,396 13,868 12,885 10,930
9/30/1998 13,561 14,054 12,991 10,943
10/31/1998 13,542 14,057 13,039 10,970
11/30/1998 13,573 14,103 13,080 10,970
12/31/1998 13,623 14,148 13,102 10,963
1/31/1999 13,785 14,334 13,243 10,990
2/28/1999 13,691 14,261 13,244 11,003
3/31/1999 13,673 14,266 13,241 11,037
4/30/1999 13,717 14,306 13,280 11,117
5/31/1999 13,578 14,226 13,232 11,117
6/30/1999 13,362 14,017 13,117 11,117
7/31/1999 13,413 14,073 13,195 11,151
8/31/1999 13,272 13,990 13,195 11,177
9/30/1999 13,208 14,003 13,238 11,231
10/31/1999 13,054 13,881 13,224 11,251
11/30/1999 13,222 14,022 13,290 11,258
12/31/1999 13,105 13,934 13,253 11,258
1/31/2000 13,013 13,883 13,270 11,291
2/29/2000 13,223 14,021 13,323 11,358
3/31/2000 13,552 14,303 13,437 11,452
4/30/2000 13,420 14,230 13,429 11,458
5/31/2000 13,327 14,155 13,430 11,472
6/30/2000 13,713 14,518 13,624 11,532
7/31/2000 13,913 14,710 13,745 11,559
8/31/2000 14,101 14,921 13,867 11,559
9/30/2000 13,980 14,844 13,854 11,619
10/31/2000 14,155 15,000 13,941 11,639
11/30/2000 14,291 15,105 14,011 11,646
12/31/2000 14,713 15,462 14,207 11,639
1/31/2001 14,782 15,631 14,408 11,712
2/28/2001 14,836 15,677 14,461 11,759
3/31/2001 14,946 15,815 14,565 11,786
4/30/2001 14,725 15,651 14,498 11,833
5/31/2001 14,878 15,810 14,637 11,886
6/30/2001 14,989 15,908 14,714 11,906
7/31/2001 15,199 16,134 14,857 11,873
8/31/2001 15,438 16,395 15,038 11,873
9/30/2001 15,339 16,359 15,095 11,926
10/31/2001 15,537 16,526 15,230 11,886
11/30/2001 15,395 16,380 15,126 11,866
12/31/2001 15,295 16,249 15,061 11,819
1/31/2002 15,497 16,516 15,281 11,846
2/28/2002 15,684 16,717 15,446 11,893
3/31/2002 15,366 16,398 15,132 11,960
4/30/2002 15,627 16,736 15,422 12,027
5/31/2002 15,744 16,828 15,518 12,027
6/30/2002 15,861 17,016 15,675 12,034
7/31/2002 16,052 17,227 15,845 12,047
8/31/2002 16,273 17,423 15,981 12,087
9/30/2002 16,612 17,775 16,211 12,107
10/31/2002 16,331 17,488 16,022 12,127
11/30/2002 16,256 17,402 15,970 12,127
12/31/2002 16,630 17,743 16,300 12,100
1/31/2003 16,540 17,713 16,280 12,154
2/28/2003 16,766 17,957 16,463 12,248
3/31/2003 16,781 17,991 16,437 12,321
4/30/2003 16,902 18,108 16,521 12,294
5/31/2003 17,222 18,507 16,798 12,274
6/30/2003 17,069 18,418 16,751 12,288
7/31/2003 16,425 17,806 16,361 12,301
8/31/2003 16,610 17,972 16,458 12,348
9/30/2003 17,074 18,487 16,820 12,388
10/31/2003 16,965 18,364 16,735 12,375
11/30/2003 17,136 18,514 16,814 12,341
12/31/2003 17,277 18,646 16,909 12,328
1/31/2004 17,277 18,738 16,971 12,388
2/29/2004 17,585 19,033 17,179 12,455
3/31/2004 17,437 18,982 17,081 12,535
4/30/2004 16,971 18,554 16,766 12,575
5/31/2004 16,854 18,529 16,694 12,649
6/30/2004 16,927 18,602 16,739 12,689
7/31/2004 17,177 18,826 16,910 12,669
8/31/2004 17,507 19,187 17,191 12,676
9/30/2004 17,565 19,280 17,214 12,702
10/31/2004 17,688 19,431 17,305 12,769
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Ending Since Since
October 31, 2004 1 Year 3 Years 5 Years 10 Years Inception/2/ 1 Year 3 Years 5 Years 10 Years Inception/2/
Managed Municipal Fund -
ISI Shares 1.11% 10.43% 31.47% 76.88% 130.68% 1.11% 3.36% 5.62% 5.87% 5.86%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers General
Obligation Index/3/ 5.81% 17.58% 39.99% 94.31% 166.35% 5.81% 5.55% 6.96% 6.87% 6.91%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Prerefunded Municipal
Bond Index/3/ 3.41% 13.63% 30.86% 73.05% 135.29% 3.41% 4.35% 5.53% 5.64% 6.01%
- -------------------------------------------------------------------------------------------------------------------
Consumer Price Index/4/ 3.18% 7.42% 13.49% 27.69% 60.41% 3.18% 2.41% 2.56% 2.47% 2.97%
- -------------------------------------------------------------------------------------------------------------------
/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.
6
NORTH AMERICAN GOVERNMENT BOND FUND - ISI CLASS A AND ISI CLASS C SHARES
PERFORMANCE COMPARISON/1/
[CHART]
North American Government Bond Fund - ISI Class A Shares, Lehman Brothers
Intermediate Treasury Index, Consumer Price Index and Lehman Brothers Emerging
Americas Index: Mexico Section: Value of a $10,000 Investment (for 10 Years
ended October 31, 2003)
North American Lehman Brothers
Government Bond Lehman Brothers Emerging Americas
Fund - ISI Intermediate Index: Consumer
Date Class A Shares Treasury Index Mexico Section Price Index
- ---------- --------------- --------------- ----------------- ------------
10/31/1994 9,700 10,000 10,000 10,000
11/30/1994 9,724 9,954 10,091 10,013
12/31/1994 8,926 9,986 8,896 10,013
1/31/1995 8,818 10,148 8,493 10,054
2/28/1995 9,026 10,342 7,858 10,094
3/31/1995 8,884 10,399 7,609 10,127
4/30/1995 9,182 10,519 8,612 10,161
5/31/1995 9,572 10,816 9,039 10,181
6/30/1995 9,696 10,887 9,599 10,201
7/31/1995 9,683 10,892 9,915 10,201
8/31/1995 9,832 10,980 10,024 10,227
9/30/1995 9,970 11,053 10,124 10,248
10/31/1995 10,016 11,176 9,859 10,281
11/30/1995 10,133 11,313 10,151 10,274
12/31/1995 10,321 11,426 10,701 10,268
1/31/1996 10,404 11,524 11,260 10,328
2/29/1996 10,071 11,401 10,812 10,361
3/31/1996 10,036 11,345 11,116 10,415
4/30/1996 10,013 11,312 11,521 10,455
5/31/1996 10,061 11,306 11,422 10,475
6/30/1996 10,184 11,419 11,600 10,482
7/31/1996 10,246 11,453 11,627 10,502
8/31/1996 10,270 11,468 12,035 10,522
9/30/1996 10,532 11,615 12,443 10,555
10/31/1996 10,847 11,804 12,487 10,589
11/30/1996 11,163 11,946 12,936 10,609
12/31/1996 10,960 11,881 13,053 10,609
1/31/1997 10,960 11,925 13,508 10,642
2/28/1997 10,973 11,943 13,741 10,676
3/31/1997 10,829 11,872 13,200 10,702
4/30/1997 10,974 12,005 13,532 10,716
5/31/1997 11,119 12,099 14,021 10,709
6/30/1997 11,279 12,201 14,320 10,722
7/31/1997 11,790 12,430 14,962 10,736
8/31/1997 11,601 12,380 14,833 10,756
9/30/1997 11,846 12,515 15,248 10,783
10/31/1997 11,955 12,662 14,550 10,809
11/30/1997 12,066 12,691 14,917 10,803
12/31/1997 12,274 12,795 15,229 10,789
1/31/1998 12,386 12,967 15,551 10,809
2/28/1998 12,358 12,950 15,690 10,829
3/31/1998 12,416 12,988 15,814 10,850
4/30/1998 12,473 13,050 15,858 10,870
5/31/1998 12,544 13,140 15,720 10,890
6/30/1998 12,689 13,229 15,645 10,903
7/31/1998 12,704 13,281 15,795 10,916
8/31/1998 12,924 13,543 13,311 10,930
9/30/1998 13,235 13,870 13,762 10,943
10/31/1998 13,145 13,898 14,232 10,970
11/30/1998 13,265 13,846 15,164 10,970
12/31/1998 13,310 13,898 15,120 10,963
1/31/1999 13,356 13,959 14,958 10,990
2/28/1999 13,047 13,756 15,034 11,003
3/31/1999 13,156 13,847 15,735 11,037
4/30/1999 13,266 13,886 16,228 11,117
5/31/1999 13,044 13,797 15,521 11,117
6/30/1999 13,061 13,822 15,733 11,117
7/31/1999 13,045 13,835 15,565 11,151
8/31/1999 13,029 13,863 15,726 11,177
9/30/1999 13,127 13,971 16,099 11,231
10/31/1999 13,111 13,989 16,398 11,251
11/30/1999 13,144 13,995 16,868 11,258
12/31/1999 13,094 13,956 17,309 11,258
1/31/2000 13,195 13,917 17,180 11,291
2/29/2000 13,466 14,026 17,989 11,358
3/31/2000 13,790 14,205 18,464 11,452
4/30/2000 13,721 14,195 18,211 11,458
5/31/2000 13,704 14,255 17,857 11,472
6/30/2000 13,860 14,460 18,559 11,532
7/31/2000 14,089 14,558 19,009 11,559
8/31/2000 14,319 14,710 19,486 11,559
9/30/2000 14,265 14,823 19,531 11,619
10/31/2000 14,373 14,921 19,338 11,639
11/30/2000 14,682 15,137 19,632 11,646
12/31/2000 14,938 15,388 19,922 11,639
1/31/2001 15,011 15,570 20,294 11,712
2/28/2001 15,197 15,714 20,151 11,759
3/31/2001 15,272 15,838 20,234 11,786
4/30/2001 15,158 15,775 20,354 11,833
5/31/2001 15,253 15,840 20,822 11,886
6/30/2001 15,348 15,898 21,236 11,906
7/31/2001 15,675 16,186 21,281 11,873
8/31/2001 15,908 16,326 21,715 11,873
9/30/2001 15,929 16,664 21,172 11,926
10/31/2001 16,479 16,917 22,010 11,886
11/30/2001 16,064 16,725 22,112 11,866
12/31/2001 15,963 16,644 22,412 11,819
1/31/2002 16,064 16,690 22,770 11,846
2/28/2002 16,185 16,828 23,471 11,893
3/31/2002 15,940 16,571 23,118 11,960
4/30/2002 16,166 16,867 23,647 12,027
5/31/2002 16,187 16,983 23,660 12,027
6/30/2002 16,308 17,190 23,280 12,034
7/31/2002 16,619 17,533 23,021 12,047
8/31/2002 17,057 17,717 23,991 12,087
9/30/2002 17,350 18,057 23,946 12,107
10/31/2002 17,175 18,024 24,437 12,127
11/30/2002 17,106 17,856 24,959 12,127
12/31/2002 17,379 18,188 25,631 12,100
1/31/2003 17,266 18,136 25,510 12,154
2/28/2003 17,524 18,332 26,012 12,248
3/31/2003 17,520 18,331 26,512 12,321
4/30/2003 17,826 18,368 27,439 12,294
5/31/2003 18,469 18,653 28,276 12,274
6/30/2003 18,397 18,623 28,169 12,288
7/31/2003 17,557 18,215 26,977 12,301
8/31/2003 17,553 18,241 27,285 12,348
9/30/2003 18,074 18,619 28,368 12,388
10/31/2003 17,885 18,437 28,051 12,375
11/30/2003 17,788 18,432 28,169 12,341
12/31/2003 17,971 18,571 28,556 12,328
1/31/2004 18,156 18,663 28,853 12,388
2/29/2004 18,346 18,836 29,446 12,455
3/31/2004 18,490 18,969 30,008 12,535
4/30/2004 17,792 18,540 28,636 12,575
5/31/2004 17,671 18,487 28,460 12,649
6/30/2004 17,695 18,526 28,557 12,689
7/31/2004 17,915 18,652 29,132 12,669
8/31/2004 18,260 18,925 30,127 12,676
9/30/2004 18,359 18,934 30,214 12,702
10/31/2004 18,533 19,038 30,633 12,769
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Ending Since Since
October 31, 2004 1 Year 3 Years 5 Years 10 Years Inception/2/ 1 Year 3 Years 5 Years 10 Years Inception/2/
North American
Government Bond Fund -
ISI Class A Shares 0.50% 9.07% 37.06% 85.33% 94.80% 0.50% 2.94% 6.51% 6.36% 5.82%
- -------------------------------------------------------------------------------------------------------------------
North American
Government Bond Fund -
ISI Class C Shares 1.95% - - - 0.21%/3/ 1.95% - - - 0.14%/3/
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Treasury
Index/4/ 3.26% 12.54% 36.09% 90.38% 98.94% 3.26% 4.02% 6.36% 6.65% 6.03%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Emerging
Americas Index: Mexico
Section/4/ 9.21% 39.18% 86.81% 206.33% 246.79% 9.21% 11.65% 13.31% 11.85% 11.17%
- -------------------------------------------------------------------------------------------------------------------
Consumer Price Index/5/ 3.18% 7.42% 13.49% 27.69% 33.88% 3.18% 2.41% 2.56% 2.47% 2.51%
- -------------------------------------------------------------------------------------------------------------------
/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 sales charges, if applicable.
ISI Class A Shares have a maximum 3.00% sales charge. ISI Class C Shares
have a maximum 1.00% contingent deferred sales charge in the first year,
which is eliminated thereafter.
/2/ ISI Class A shares inception date is January 15, 1993. Benchmark returns
are for the periods beginning January 31, 1993.
/3/ ISI Class C Shares inception date is May 16, 2003. Cumulative and
annualized returns for the Lehman Brothers Intermediate Treasury Index from
May 31, 2003 through October 31, 2004 were 2.06% and 1.45%, respectively.
/4/ The Lehman Brothers Intermediate Treasury Index is an unmanaged index
reflecting the performance of US Treasury securities in the
intermediate-term Treasury sector. Lehman Brothers Emerging Americas Index:
Mexico Section is an unmanaged sub-index of the Lehman Brothers Emerging
Americas Index reflecting the performance of selected Mexican debt
instruments with maturities of one year or more. The 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.
/5/ The Consumer Price Index is a widely used measure of inflation.
7
ISI STRATEGY FUND - ISI SHARES PERFORMANCE COMPARISON/1/
[CHART]
ISI Strategy Fund - ISI Shares, Dow Jones Wilshire 5000 (Full Cap) Index,
Consumer Price Index and Lipper Flexible Portfolio Funds Average: Value of a
$10,000 Investment (since inception/2/)
Dow Jones Lipper Flexible
ISI Strategy Fund Wilshire 5000 Consumer Portfolio
Date - ISI Shares (Full Cap)Index Price Index Funds Average
- ---------- ----------------- ------------- ----------- ---------------
9/16/1997 $ 9,700 $10,000 $10,000 $10,000
9/30/1997 9,719 10,000 10,000 10,000
10/31/1997 9,554 9,667 10,025 9,781
11/30/1997 9,767 9,983 10,019 9,944
12/31/1997 9,933 10,168 10,006 10,079
1/31/1998 10,020 10,223 10,025 10,145
2/28/1998 10,459 10,967 10,043 10,605
3/31/1998 10,810 11,516 10,062 10,964
4/30/1998 10,878 11,653 10,081 11,049
5/31/1998 10,761 11,343 10,099 10,928
6/30/1998 11,044 11,741 10,112 11,146
7/31/1998 10,887 11,483 10,124 11,004
8/31/1998 9,992 9,695 10,137 9,894
9/30/1998 10,483 10,328 10,149 10,284
10/31/1998 10,888 11,097 10,174 10,736
11/30/1998 11,337 11,796 10,174 11,155
12/31/1998 11,776 12,550 10,168 11,574
1/31/1999 12,079 13,012 10,192 11,776
2/28/1999 11,634 12,540 10,205 11,453
3/31/1999 11,937 13,024 10,236 11,760
4/30/1999 12,301 13,648 10,310 12,135
5/31/1999 12,068 13,350 10,310 11,932
6/30/1999 12,443 14,041 10,310 12,322
7/31/1999 12,148 13,590 10,341 12,129
8/31/1999 12,046 13,464 10,366 12,040
9/30/1999 11,863 13,112 10,416 11,915
10/31/1999 12,282 13,946 10,434 12,292
11/30/1999 12,496 14,413 10,440 12,547
12/31/1999 12,953 15,507 10,440 13,161
1/31/2000 12,649 14,864 10,472 12,814
2/29/2000 12,869 15,196 10,534 13,056
3/31/2000 13,498 16,099 10,620 13,628
4/30/2000 13,056 15,260 10,627 13,308
5/31/2000 12,804 14,727 10,639 13,103
6/30/2000 13,183 15,377 10,695 13,421
7/31/2000 13,098 15,063 10,720 13,313
8/31/2000 13,734 16,157 10,720 13,920
9/30/2000 13,289 15,403 10,775 13,566
10/31/2000 13,205 15,076 10,794 13,481
11/30/2000 12,491 13,576 10,800 12,918
12/31/2000 12,735 13,818 10,794 13,215
1/31/2001 13,063 14,347 10,862 13,458
2/28/2001 12,340 12,986 10,906 12,792
3/31/2001 11,865 12,112 10,931 12,266
4/30/2001 12,299 13,109 10,974 12,829
5/31/2001 12,379 13,239 11,024 12,907
6/30/2001 12,254 13,018 11,042 12,692
7/31/2001 12,259 12,803 11,011 12,640
8/31/2001 11,814 12,028 11,011 12,225
9/30/2001 11,107 10,947 11,061 11,530
10/31/2001 11,416 11,226 11,024 11,758
11/30/2001 11,874 12,084 11,005 12,235
12/31/2001 12,006 12,301 10,962 12,342
1/31/2002 11,903 12,149 10,986 12,197
2/28/2002 11,765 11,899 11,030 12,057
3/31/2002 12,087 12,420 11,092 12,369
4/30/2002 11,814 11,813 11,154 12,069
5/31/2002 11,768 11,674 11,154 12,012
6/30/2002 11,193 10,854 11,160 11,417
7/31/2002 10,618 9,978 11,173 10,808
8/31/2002 10,745 10,036 11,210 10,900
9/30/2002 10,041 9,029 11,228 10,200
10/31/2002 10,515 9,720 11,247 10,636
11/30/2002 10,885 10,306 11,247 11,040
12/31/2002 10,500 9,735 11,222 10,724
1/31/2003 10,291 9,490 11,272 10,571
2/28/2003 10,221 9,329 11,359 10,474
3/31/2003 10,326 9,435 11,427 10,511
4/30/2003 10,932 10,208 11,402 11,089
5/31/2003 11,479 10,832 11,383 11,627
6/30/2003 11,569 10,992 11,396 11,747
7/31/2003 11,592 11,257 11,408 11,815
8/31/2003 11,849 11,527 11,452 12,035
9/30/2003 11,779 11,400 11,489 12,056
10/31/2003 12,246 12,096 11,476 12,521
11/30/2003 12,363 12,265 11,445 12,681
12/31/2003 12,722 12,816 11,433 13,152
1/31/2004 12,956 13,101 11,489 13,350
2/29/2004 13,120 13,292 11,551 13,535
3/31/2004 13,046 13,149 11,625 13,487
4/30/2004 12,788 12,870 11,663 13,166
5/31/2004 12,847 13,047 11,731 13,243
6/30/2004 13,045 13,319 11,768 13,466
7/31/2004 12,752 12,811 11,749 13,127
8/31/2004 12,881 12,853 11,756 13,204
9/30/2004 13,084 13,082 11,780 13,401
10/31/2004 13,190 13,305 11,842 13,571
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Ending Since Since
October 31, 2004 1 Year 3 Years 5 Years Inception/2/ 1 Year 3 Years 5 Years Inception/2/
ISI Strategy Fund - ISI
Shares 4.52% 12.05% 4.19% 31.90% 4.52% 3.87% 0.82% 3.96%
- ---------------------------------------------------------------------------------------------------------------
Dow Jones Wilshire 5000 (Full Cap)
Index/3/ 10.00% 18.53% -4.59% 33.05% 10.00% 5.83% -0.94% 4.11%
- ---------------------------------------------------------------------------------------------------------------
Consumer Price Index/4/ 3.18% 7.42% 13.49% 18.42% 3.18% 2.41% 2.56% 2.41%
- ---------------------------------------------------------------------------------------------------------------
Lipper Flexible
Portfolio
Funds Average/5/ 7.67% 14.80% 10.96% 35.33% 7.67% 4.62% 1.80% 4.16%
- ---------------------------------------------------------------------------------------------------------------
/1/ PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. The performance
information presented in the graph and table above does not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the redemption of Fund shares. All performance assumes the reinvestment of
dividends and capital gain distributions and includes the Fund's maximum
3.00% sales charge. Performance would have been lower during the specified
period if certain of the Fund's fees and expenses had not been waived.
/2/ The Fund's inception date is September 16, 1997. Benchmark returns are for
the periods beginning September 30, 1997.
/3/ The Dow Jones Wilshire 5000 (Full Cap) Index is an unmanaged index that
represents the broadest measure of the US equity market. Benchmark returns
do not reflect expenses or sales charges that have been deducted from the
Fund's returns.
/4/ The Consumer Price Index is a widely used measure of inflation.
/5/ Lipper figures represent the average total returns by all the mutual funds
designated by Lipper, Inc. as falling into the category indicated. The
Lipper Flexible Portfolio Funds category includes funds that allocate their
investments across various asset classes, including domestic common stocks,
bonds and money market instruments with a focus on total return.
8
SHAREHOLDER EXPENSE EXAMPLE
As a shareholder of a Fund, you incur two types of costs: (1) transaction
costs for certain share classes, including sales charges (loads) on purchase
payments or other distributions; and (2) ongoing costs, including management
fees, Rule 12b-1 distribution fees for certain share classes and other Fund
expenses. This example is intended to help you understand your ongoing costs
(in dollars) of investing in a Fund and to compare these costs with the ongoing
costs of investing in other mutual funds.
The following example is based on $1,000 invested on May 1, 2004 and held
for six months through October 31, 2004.
ACTUAL EXPENSES - The "Actual Return" rows in the following table provide
information about actual account values and actual expenses. You may use the
information, together with the amount you invested, to estimate the expenses
that you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the "Expenses Paid During Period" column to estimate
the expenses you paid on your account during this period. Each Fund charges IRA
accounts an annual maintenance fee of $12, which is not included in the
following table. If it was, the estimate of expenses you paid on an IRA account
during the period would be higher, and your ending account value lower, by this
amount.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES - The "Hypothetical Return"
rows in the following table provide information about hypothetical account
values and hypothetical expenses based on each Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
actual return of each Fund. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing cost of
investing in a Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of other funds. Each Fund charges IRA accounts an annual maintenance
fee of $12, which is not included in the following table. If it was, the
estimate of expenses you paid on an IRA account during the period would be
higher, and your ending account value lower, by this amount.
Expenses shown in the table are meant to highlight your ongoing costs only
and do not reflect any transactional costs, such as sales charges (loads).
Therefore, the "Hypothetical Return" rows in the table are useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. If these transactional costs were included, your costs
would have been higher.
9
SHAREHOLDER EXPENSE EXAMPLE
BEGINNING ENDING EXPENSES PAID ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE DURING EXPENSE
MAY 1, 2004 OCTOBER 31, 2004 PERIOD/(1)/ RATIO
- -------------------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND
Actual Return $1,000.00 $1,042.25 $3.59 0.70%
Hypothetical Return $1,000.00 $1,021.62 $3.56 0.70%
MANAGED MUNICIPAL FUND
Actual Return $1,000.00 $1,042.23 $4.36 0.85%
Hypothetical Return $1,000.00 $1,020.86 $4.32 0.85%
NORTH AMERICAN GOVERNMENT BOND FUND
ISI CLASS A SHARES
Actual Return $1,000.00 $1,041.67 $5.39 1.05%
Hypothetical Return $1,000.00 $1,019.86 $5.33 1.05%
NORTH AMERICAN GOVERNMENT BOND FUND
ISI CLASS C SHARES
Actual Return $1,000.00 $1,038.05 $9.12 1.78%
Hypothetical Return $1,000.00 $1,016.19 $9.02 1.78%
ISI STRATEGY FUND
Actual Return $1,000.00 $1,031.43 $4.95 0.97%
Hypothetical Return $1,000.00 $1,020.26 $4.93 0.97%
- --------------------------------------------------------------------------------
(1)Equals the Fund's annualized expense ratio for the period, multiplied by the
average account value over the period, multiplied by the number of days in
most recent fiscal half-year, divided by 366 days.
10
ISI FUNDS
PORTFOLIO PROFILES (AS A % OF TOTAL PORTFOLIO INVESTMENTS) OCTOBER 31, 2004
TOTAL RETURN US TREASURY FUND
US Treasury Obligations 98.79%
Repurchase Agreements 1.21%
-------
100.00%
MANAGED MUNICIPAL FUND
Aaa* 57.92%
Aa* 32.98%
Repurchase Agreements 9.10%
-------
100.00%
*Ratings are based on Moody's Investor
Services, Inc.
NORTH AMERICAN GOVERNMENT BOND FUND
Canadian Securities 5.64%
Mexican Securities 14.65%
US Treasury Securities 78.66%
Repurchase Agreements 1.05%
-------
100.00%
ISI STRATEGY FUND
Basic Materials 2.25%
Biotechnology 1.73%
Business Services 1.86%
Capital Goods 3.59%
Consumer Cyclicals 3.14%
Consumer Staples 4.68%
Energy 7.18%
Finance 10.72%
Health Care 7.18%
Information Services 2.02%
Internet 4.07%
Retail 1.93%
Technology 4.27%
Transportation 3.92%
Utilities 0.52%
US Treasury Securities 32.47%
Repurchase Agreements 8.47%
-------
100.00%
11
TOTAL RETURN US TREASURY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
INTEREST MATURITY PAR MARKET
SECURITY RATE DATE VALUE VALUE
------------------------------------------------------------------------------------------------------
US TREASURY OBLIGATIONS - 97.74%
US Treasury Bond 10.375% 11/15/12 $14,250,000 $ 17,336,016
US Treasury Bond 7.500% 11/15/24 4,000,000 5,396,875
US Treasury Bond 7.625% 2/15/25 11,500,000 15,717,266
US Treasury Bond 6.000% 2/15/26 11,500,000 13,277,109
US Treasury Bond 6.375% 8/15/27 28,000,000 33,871,250
US Treasury Bond 5.250% 11/15/28 4,200,000 4,431,000
US Treasury Note 2.000% 11/30/04 15,000,000 15,002,344
US Treasury Note 1.625% 3/31/05 26,500,000 26,454,453
US Treasury Note 2.750% 6/30/06 10,000,000 10,051,562
US Treasury Note 3.000% 2/15/08 15,000,000 15,051,563
US Treasury Note 5.500% 5/15/09 25,000,000 27,453,125
US Treasury Note 4.750% 5/15/14 6,000,000 6,345,000
------------
TOTAL US TREASURY OBLIGATIONS
(COST $192,444,657).......................................................... 190,387,563
------------
REPURCHASE AGREEMENT - 1.19%
JPMORGAN CHASE BANK, N.A.
Dated 10/29/04, 1.500%, principal and interest in the amount of $2,326,291
due 11/1/04, collaterized by US Treasury Note, par value of $2,365,000, 4.000%,
due 2/15/14 with a value of $2,374,938....................................... 2,326,000
------------
TOTAL REPURCHASE AGREEMENT
(COST $2,326,000)............................................................ 2,326,000
------------
TOTAL INVESTMENTS - 98.93%
(COST $194,770,657)*.............................................................. 192,713,563
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.07%............................................ 2,076,096
------------
NET ASSETS - 100.00%..................................................................... $194,789,659
============
- --------------------------------------------------------------------------------
*Cost for Federal income tax purposes is $194,770,657 and the net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation............... $ 1,682,399
Gross Unrealized Depreciation............... (3,739,493)
-----------
Net Unrealized Appreciation (Depreciation).. $(2,057,094)
===========
See Notes to Financial Statements.
12
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
RATING/1/
INTEREST MATURITY (MOODY'S/ PAR MARKET
SECURITY RATE DATE S&P) VALUE VALUE
- -------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 90.20%
GENERAL OBLIGATIONS - 61.56%
Alexandria, VA, Capital Improvement................. 4.250% 6/15/21 Aaa/AAA $3,300,000 $ 3,340,227
Arlington County, VA................................ 5.000% 10/1/14 Aaa/AAA 2,000,000 2,193,960
Arlington County, VA................................ 4.500% 1/15/28 Aaa/AAA 4,500,000 4,501,260
Cary, NC............................................ 5.000% 3/1/18 Aaa/AAA 2,000,000 2,173,160
Charlotte, NC....................................... 5.000% 2/1/19 Aaa/AAA 2,300,000 2,497,570
Chesterfield County, VA............................. 5.000% 1/15/20 Aaa/AAA 1,000,000 1,075,170
Dallas, TX.......................................... 4.000% 2/15/16 Aa1/AA+ 2,450,000 2,478,518
Dallas, TX.......................................... 4.500% 2/15/23 Aa1/AA+ 3,500,000 3,513,825
Delaware State, Series A............................ 4.200% 1/1/20 Aaa/AAA 1,675,000 1,691,985
Dupage County, IL, Jail Project..................... 5.600% 1/1/21 Aaa/AAA 1,600,000 1,884,736
Florida State, Board of Education, Public Education
Capital Outlay, Series A.......................... 5.125% 6/1/21 Aa2/AA+ 1,000,000 1,062,530
Florida State, Board of Education, Public Education,
Series I.......................................... 4.125% 6/1/21 Aa2/AA+ 3,000,000 2,971,440
Georgia State, Series D............................. 5.000% 10/1/17 Aaa/AAA 390,000 428,360
Guilford County, NC, Series B....................... 5.250% 10/1/16 Aa1/AAA 3,000,000 3,387,570
King County, WA, Series G........................... 5.000% 12/1/17 Aa1/AA+ 2,565,000 2,742,985
Mecklenburg County, NC, Series A.................... 4.250% 2/1/19 Aaa/AAA 2,000,000 2,042,520
Mecklenburg County, NC, Series A.................... 4.000% 2/1/20 Aaa/AAA 3,000,000 2,987,970
Minneapolis, MN, Series B........................... 5.200% 3/1/13 Aa1/AAA 3,200,000 3,286,784
Minnesota State..................................... 5.500% 6/1/18 Aa1/AAA 2,000,000 2,249,440
Missouri State, Fourth State Building, Series A..... 4.125% 10/1/19 Aaa/AAA 2,000,000 2,020,160
Missouri State, Fourth State Building, Series A..... 5.000% 6/1/23 Aaa/AAA 2,000,000 2,100,560
Montgomery County, MD, Series A..................... 4.000% 5/1/21 Aaa/AAA 2,450,000 2,428,073
Montgomery County, MD, Series A..................... 5.000% 2/1/22 Aaa/AAA 2,750,000 2,939,475
North Carolina State, Public School Building........ 4.600% 4/1/17 Aa1/AAA 5,000,000 5,259,550
Salt Lake City, UT, School District, Series A....... 4.500% 3/1/20 Aaa/NR 2,240,000 2,297,053
South Carolina State, Highway, Series B............. 5.000% 4/1/19 Aaa/AAA 1,000,000 1,075,930
South Carolina State, State Institutional, Series A. 5.300% 3/1/17 Aaa/AAA 1,700,000 1,898,764
Virginia State...................................... 5.250% 6/1/16 Aaa/AAA 1,320,000 1,450,865
Washington State, Series E.......................... 5.000% 7/1/22 Aa1/AA 2,000,000 2,097,700
-----------
70,078,140
-----------
See Notes to Financial Statements.
13
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
RATING/1/
INTEREST MATURITY (MOODY'S/ PAR MARKET
SECURITY RATE DATE S&P) VALUE VALUE
- ---------------------------------------------------------------------------------------------------
OTHER REVENUE - 7.14%
Gwinnett County, GA, Water & Sewer Authority... 5.300% 8/1/20 Aaa/AAA $1,250,000 $ 1,372,612
Gwinnett County, GA, Water & Sewer Authority... 5.250% 8/1/24 Aaa/AAA 1,500,000 1,602,720
Gwinnett County, GA, Water & Sewer Authority,
Series B..................................... 4.750% 8/1/21 Aaa/AAA 2,000,000 2,092,460
Texas, Water Development Board Revenue......... 4.750% 7/15/20 Aaa/AAA 3,000,000 3,060,630
------------
8,128,422
------------
PREREFUNDED ISSUES - 21.50%
Arlington, TX, Independent School District,
2/15/05 @ 100................................ 5.750% 2/15/21 Aaa/NR 3,535,000 3,576,748
Charlotte, NC, Water & Sewer System Revenue,
6/1/09 @101.................................. 5.250% 6/1/24 Aa1/AAA 1,600,000 1,798,320
Chesterfield Country, VA, 1/15/10 @ 100........ 5.625% 1/15/14 Aaa/AAA 1,350,000 1,535,071
Chicago, IL, Metropolitan Water Reclamation
District-Greater Chicago Capital Improvement,
12/1/05 @ 100................................ 6.300% 12/1/09 Aaa/AA+ 1,000,000 1,048,340
Dallas, TX, 2/15/05 @ 100...................... 5.000% 2/15/10 Aa1/AA+ 1,750,000 1,766,783
Delaware State, Series A, 4/1/06 @ 100......... 5.125% 4/1/16 Aaa/AAA 2,150,000 2,248,513
Delaware State, Series A, 4/1/10 @ 100......... 5.500% 4/1/19 Aaa/AAA 2,500,000 2,836,650
Florida State, Transportation, 7/1/05 @ 101.... 5.800% 7/1/18 Aa2/AAA 2,000,000 2,074,500
Georgia State, Series A, 10/1/10 @ 100......... 5.000% 10/1/17 Aaa/AAA 1,460,000 1,628,645
South Carolina State, Highway, Series B,
7/1/06 @ 102................................. 5.650% 7/1/21 Aaa/AAA 1,260,000 1,362,110
Tennessee State, Series A, 3/1/05 @ 100........ 5.500% 3/1/09 Aa2/AA 1,535,000 1,554,510
Tennessee State, Series A, 3/1/05 @ 100........ 5.550% 3/1/10 Aa2/AA 1,000,000 1,012,880
Texas State, Series A, 4/1/05 @ 100............ 6.000% 10/1/14 Aaa/AA 2,000,000 2,035,940
------------
24,479,010
------------
TOTAL MUNICIPAL BONDS
(COST $96,716,867)........................................................ 102,685,572
------------
See Notes to Financial Statements.
14
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
MARKET
SECURITY VALUE
---------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 9.02%
JPMORGAN CHASE BANK, N.A.
Dated 10/29/04, 1.500%, principal and interest in the amount of $10,273,284
due 11/1/04, collateralized by US Treasury Note, par value of $10,435,000, 4.000%,
due 2/15/14 with a value of $10,478,850 $ 10,272,000
------------
TOTAL REPURCHASE AGREEMENT
(COST $10,272,000).............................................................. 10,272,000
------------
TOTAL INVESTMENTS - 99.22%
(COST $106,988,867)*................................................................. 112,957,572
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.78%............................................... 886,237
------------
NET ASSETS - 100.00%........................................................................ $113,843,809
============
- --------------------------------------------------------------------------------
/1/The Moody's and Standard & Poor's ratings are unaudited.
Moody's Municipal Bond Ratings:
AaaJudged to be of the best quality.
Aa Judged to be of high quality by all standards. Issues are sometimes
denoted with a 1, 2 or 3, which denote a high, medium or low ranking
within the rating.
S&P Municipal Bond Ratings:
AAAOf the highest quality.
AA The second strongest capacity for payment of debt services. Those issues
determined to possess very strong safety characteristics are denoted with
a plus (+) sign.
NR Not Rated.
*Cost for Federal income tax purposes is $106,988,867 and the net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation............... $5,992,154
Gross Unrealized Depreciation............... (23,449)
----------
Net Unrealized Appreciation (Depreciation).. $5,968,705
==========
See Notes to Financial Statements.
15
NORTH AMERICAN GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
INTEREST MATURITY PAR/NOMINAL MARKET
SECURITY RATE DATE VALUE/1/ VALUE
------------------------------------------------------------------------
CANADIAN SECURITIES - 5.60%
Canadian Government Bond 4.500% 9/1/07 C 14,800,000 $ 12,489,596
------------
TOTAL CANADIAN SECURITIES
(COST $10,245,871)............................. 12,489,596
------------
MEXICAN SECURITIES - 14.56%
Mexican Bono/2/ 10.500% 8/24/06 P 52,868,200 4,752,240
Mexican Bono/2/ 8.000% 12/28/06 30,686,400 2,640,322
Mexican Bono/2/ 9.000% 12/24/09 80,112,300 7,028,323
Mexican Bono/2/ 10.500% 7/14/11 160,487,300 14,446,152
Mexican Bono/2/ 9.000% 12/20/12 31,470,000 2,591,453
Mexican Bono/2/ 8.000% 12/7/23 14,599,800 994,221
------------
TOTAL MEXICAN SECURITIES
(COST $35,778,161)............................. 32,452,711
------------
US SECURITIES - 78.16%
US Treasury Bond 7.625% 2/15/25 $ 10,100,000 13,803,860
US Treasury Bond 6.000% 2/15/26 11,500,000 13,277,109
US Treasury Bond 6.375% 8/15/27 22,100,000 26,734,094
US Treasury Bond 5.250% 11/15/28 4,300,000 4,536,500
US Treasury Note 2.000% 11/30/04 11,500,000 11,501,797
US Treasury Note 1.625% 3/31/05 20,000,000 19,965,625
US Treasury Note 2.750% 6/30/06 10,000,000 10,051,562
US Treasury Note 2.375% 8/15/06 2,000,000 1,996,250
US Treasury Note 3.000% 2/15/08 16,100,000 16,155,344
US Treasury Note 3.250% 8/15/08 5,500,000 5,544,687
US Treasury Note 3.125% 9/15/08 2,000,000 2,005,937
US Treasury Note 5.000% 2/15/11 19,500,000 21,060,000
US Treasury Note 5.000% 8/15/11 6,500,000 7,020,000
US Treasury Note 4.250% 8/15/13 9,750,000 9,964,805
US Treasury Note 4.750% 5/15/14 10,000,000 10,575,000
------------
TOTAL US SECURITIES
(COST $177,184,372)............................ 174,192,570
------------
See Notes to Financial Statements.
16
NORTH AMERICAN GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
MARKET
SECURITY VALUE
-------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.04%
JPMORGAN CHASE BANK, N.A.
Dated 10/29/04, 1.500%, principal and interest in the amount of $2,319,290
due 11/01/04, collaterized by US Treasury Note, par value of $2,360,000, 4.000%,
due 2/15/14 with a value of $2,369,917........................................ $ 2,319,000
------------
TOTAL REPURCHASE AGREEMENT
(COST $2,319,000)............................................................. 2,319,000
------------
TOTAL INVESTMENTS - 99.36%
(COST $225,527,404)*............................................................... 221,453,877
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.64%............................................. 1,428,307
------------
NET ASSETS - 100.00%...................................................................... $222,882,184
============
- --------------------------------------------------------------------------------
/1/Par Value is shown in local currency: Canadian dollars (C), Mexican pesos
(P) and US dollars ($).
/2/Bonos are fixed rate, local currency-denominated coupon bonds issued by the
Mexican government.
*Cost for Federal income tax purposes is $225,527,404 and the net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation............. $ 3,439,642
Gross Unrealized Depreciation............. (7,513,169)
-----------
Net Unrealized Appreciation (Depreciation) $(4,073,527)
===========
See Notes to Financial Statements.
17
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
MARKET
SECURITY SHARES VALUE
----------------------------------------------------
COMMON STOCK - 58.71%
BASIC MATERIALS - 2.23%
Air Products & Chemicals, Inc. 250 $ 13,295
Alcoa, Inc. 712 23,140
Allegheny Technologies, Inc. 1,300 21,853
Archer-Daniels-Midland Co. 6,000 116,220
Bowater, Inc. 100 3,684
Buckeye Technologies, Inc.+ 3,400 35,870
Caraustar Industries, Inc.+ 2,400 35,688
Cleveland-Cliffs, Inc.+ 450 32,805
Crown Holdings, Inc.+ 4,600 52,210
Dow Chemical Co. 592 26,604
Du Pont (E.I.) de Nemours & Co. 3,206 137,441
FMC Corp.+ 2,100 92,085
Massey Energy Co. 4,900 131,957
Monsanto Co. 282 12,055
Nucor Corp. 200 8,446
OM Group, Inc.+ 3,000 98,970
Owens-Illinois, Inc.+ 100 1,853
PPG Industries, Inc. 200 12,750
Praxair, Inc. 300 12,660
Quanex Corp. 300 15,210
Rohm & Haas Co. 273 11,572
Smurfit-Stone Container Corp.+ 1,900 32,984
Sonoco Products Co. 270 7,195
Temple-Inland, Inc. 100 5,912
United States Steel Corp. 516 18,948
Weyerhaeuser Co. 350 21,924
Worthington Industries, Inc. 1,000 19,850
------------
1,003,181
------------
BIOTECHNOLOGY - 1.72%
Caremark Rx, Inc.+ 6,431 192,737
Invitrogen Corp.+ 5,000 289,500
OSI Pharmaceuticals, Inc.+ 4,493 291,955
------------
774,192
------------
BUSINESS SERVICES - 1.85%
Allied Waste Industries, Inc.+ 5,600 45,696
CCC Information Services Group+ 548 10,039
Cendant Corp. 5,190 106,862
Computer Sciences Corp.+ 5,000 248,350
First Data Corp. 5,000 206,400
IMS Health, Inc. 5,000 105,900
Interpublic Group of Cos., Inc.+ 6,900 84,594
ServiceMaster Co. 1,100 14,124
United Rentals, Inc.+ 100 1,545
MARKET
SECURITY SHARES VALUE
Weight Watchers International, Inc.+ 160 $ 5,747
------------
829,257
------------
CAPITAL GOODS - 3.57%
AGCO Corp.+ 3,100 60,202
American Standard Cos., Inc.+ 900 32,913
Boeing Co. 730 36,427
Caterpillar, Inc. 510 41,075
Clarcor, Inc. 100 4,930
DDi Corp.+ 7,500 29,550
Deere & Co. 200 11,956
Emerson Electric Co. 460 29,463
General Electric Co. 9,414 321,206
Harsco Corp. 97 4,700
Illinois Tool Works, Inc. 690 63,673
Johnson Controls, Inc. 1,220 69,967
Kennametal, Inc. 1,600 74,448
Manitowoc Co. 5,000 176,500
Navistar International Corp.+ 5,000 172,750
Orbital Sciences Corp.+ 2,000 20,700
Pitney Bowes, Inc. 429 18,769
Power-One, Inc.+ 1,300 9,126
Rayovac Corp.+ 4,900 122,059
Raytheon Co. 200 7,296
Sanmina-SCI Corp.+ 8,900 71,200
Solectron Corp.+ 4,100 21,402
Teleflex, Inc. 100 4,379
Terex Corp.+ 2,700 102,600
Textron, Inc. 200 13,630
United Stationers, Inc.+ 600 26,700
URS Corp.+ 1,430 39,468
York International Corp. 500 15,920
------------
1,603,009
------------
CONSUMER CYCLICALS - 3.12%
Black & Decker Corp. 100 8,028
Brunswick Corp. 271 12,715
Carnival Corp. 196 9,910
Centex Corp. 400 20,776
Dow Jones & Co., Inc. 100 4,425
Ford Motor Co. 10,800 140,724
General Motors Corp. 2,545 98,110
Genesis Intermedia, Inc.+^ 600 -
Genuine Parts Co. 1,450 57,840
Harley-Davidson, Inc. 300 17,271
Harrah's Entertainment, Inc. 200 11,704
KB Home 200 16,450
See Notes to Financial Statements.
18
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
MARKET
SECURITY SHARES VALUE
-----------------------------------------
COMMON STOCK
CONSUMER CYCLICALS (CONTINUED)
Knight-Ridder, Inc. 169 $ 11,582
Lear Corp. 300 16,176
Lee Enterprises, Inc. 100 4,632
Lennar Corp. - Class A 400 17,992
Marriott International, Inc. - Class A 300 16,347
Masco Corp. 210 7,195
McGraw-Hill Cos., Inc. 300 25,875
Meredith Corp. 100 4,900
Mohawk Industries, Inc.+ 150 12,762
New York Times Co. - Class A 5,000 200,250
Pulte Homes, Inc. 394 21,623
Scholastic Corp.+ 600 18,192
Scripps (E.W.) Co. - Class A 600 28,632
V.F. Corp. 5,200 279,916
Washington Post Co. - Class B 36 32,940
Whirlpool Corp. 5,200 305,500
------------
1,402,467
------------
CONSUMER STAPLES - 4.66%
Altria Group, Inc. 2,171 105,207
AmerisourceBergen Corp. 5,000 275,200
Anheuser-Busch Cos., Inc. 3,202 159,940
Cablevision Systems Corp.+ 3,325 68,428
Clear Channel Communications, Inc. 85 2,839
Clorox Co. 268 14,633
Coca-Cola Co. 5,612 228,184
Colgate Palmolive Co. 820 36,588
ConAgra Foods, Inc. 469 12,382
COX Communications, Inc. - Class A+ 701 24,142
Dean Foods Co.+ 5,000 149,250
Eastman Kodak Co. 5,570 168,660
Entercom Communications Corp.+ 260 8,632
Fortune Brands, Inc. 38 2,767
Kimberly-Clark Corp. 514 30,670
Liberty Media Corp. - Class A+ 7,580 67,614
Liberty Media International, Inc.+ 379 13,663
PepsiCo, Inc. 2,711 134,411
Procter & Gamble Co. 7,644 391,220
Sara Lee Corp. 300 6,984
Time Warner, Inc.+ 4,250 70,720
Univision Communications, Inc. - Class A+ 1,402 43,406
Viacom, Inc. - Class B 1,866 68,090
Yum! Brands, Inc. 180 7,830
------------
2,091,460
------------
MARKET
SECURITY SHARES VALUE
ENERGY - 7.13%
BP Prudhoe Bay Royalty Trust 5,000 $ 223,850
ChevronTexaco Corp. 10,628 563,922
ConocoPhillips 4,325 364,641
Devon Energy Corp. 5,136 379,910
Exxon Mobil Corp. 14,763 726,635
Input/Output, Inc.+ 6,400 44,736
Lone Star Technologies+ 4,900 129,360
Marathon Oil Corp. 4,500 171,495
Sunoco, Inc. 1,513 112,507
Valero Energy Corp. 11,200 481,264
Veritas DGC, Inc.+ 300 6,330
------------
3,204,650
------------
FINANCE - 10.66%
Affiliated Managers Group+ 600 33,504
Alliance Capital Management Holding LP 100 3,800
AMBAC Financial Group, Inc. 250 19,515
American Express Co. 1,825 96,853
American Home Mortgage Investment
Corp. 5,000 138,150
American International Group, Inc. 5,000 303,550
Anworth Mortgage Asset Corp. 17,000 173,910
Arthur J. Gallagher & Co. 5,000 140,500
Associated Banc Corp. 181 6,279
AvalonBay Communities, Inc. 100 6,547
Bank of America Corp. 3,984 178,443
Bank of Hawaii Corp. 1,855 88,576
Bank of New York Co., Inc. 670 21,748
BB&T Corp. 1,391 57,184
Bear Stearns Cos., Inc. 220 20,845
Boston Properties, Inc. 100 5,972
Capital One Financial Corp. 150 11,064
Citigroup, Inc. 7,702 341,738
City National Corp. 100 6,890
Comerica, Inc. 250 15,377
Commerce Bancorp, Inc. 870 51,539
Commerce Bancshares, Inc. 132 6,481
Equity Office Properties Trust 344 9,673
Equity Residential 200 6,670
Fannie Mae 652 45,738
Fidelity National Financial, Inc. 520 19,625
First Horizon National Corp. 100 4,328
Franklin Resources, Inc. 300 18,186
Golden West Financial Corp. 300 35,076
Health Care Property Investors, Inc. 200 5,566
Host Marriott Corp. 5,200 75,660
See Notes to Financial Statements.
19
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
MARKET
SECURITY SHARES VALUE
------------------------------------------------------
COMMON STOCK
FINANCE (CONTINUED)
IMPAC Mortgage Holdings, Inc. 5,100 $ 115,311
Irwin Financial Corp. 5,000 124,650
iStar Financial, Inc. 100 4,142
J.P. Morgan Chase & Co. 2,580 99,588
Jefferson-Pilot Corp. 225 10,865
Kimco Realty Corp. 3,450 188,197
La Quinta Corp.+ 100 805
Legg Mason, Inc. 300 19,113
Lehman Brothers Holdings, Inc. 5,400 443,610
Liberty Property Trust 100 4,055
Lincoln National Corp. 100 4,380
M&T Bank Corp. 512 52,736
MBIA, Inc. 150 8,679
MBNA, Inc. 1,475 37,804
Mellon Financial Corp. 210 6,069
Mercantile Bankshares Corp. 100 4,874
Mercury General Corp. 100 5,143
Merrill Lynch & Co., Inc. 6,120 330,113
Moody's Corp. 3,907 304,004
Morgan Stanley 2,481 126,754
North Fork Bancorp., Inc. 386 17,023
Northern Trust Corp. 300 12,762
Old Republic International Corp. 150 3,502
PNC Financial Services Group, Inc. 460 24,058
Public Storage, Inc. 186 9,719
Radian Group, Inc. 200 9,586
Regions Financial Corp. 546 19,154
Rouse Co. 100 6,670
SEI Investments Co. 1,000 35,990
Simon Property Group, Inc. 100 5,832
SLM Corp. 1,250 56,575
South Financial Group, Inc. 5,000 150,100
St. Paul Travelers Cos., Inc. 100 3,396
State Street Corp. 300 13,515
Student Loan Corp. 810 118,665
SunTrust Banks, Inc. 602 42,369
T. Rowe Price Group, Inc. 100 5,577
TCF Financial Corp. 200 6,304
Torchmark Corp. 200 10,804
UnionBanCal Corp. 200 12,150
UnumProvident Corp. 1,438 19,643
US Bancorp 2,473 70,753
Valley National Bancorp 455 12,904
MARKET
SECURITY SHARES VALUE
Wachovia Corp. 1,867 $ 91,875
Washington Mutual, Inc. 1,084 41,962
Westamerica Bancorp. 100 5,719
Wilmington Trust Corp. 200 6,912
WSFS Financial Corp. 2,350 127,617
Zions Bancorp. 100 6,617
------------
4,787,632
------------
HEALTH CARE - 7.13%
Abbott Laboratories 4,335 184,801
Aetna, Inc. 3,000 285,000
Allergan, Inc. 210 15,028
Bausch & Lomb, Inc. 100 6,096
Baxter International, Inc. 500 15,380
Beckman Coulter, Inc. 100 5,950
Becton Dickinson & Co. 200 10,500
Beverly Enterprises, Inc.+ 4,000 34,760
Biomet, Inc. 275 12,837
Bristol-Myers Squibb Co. 3,805 89,151
C.R. Bard, Inc. 420 23,856
Cigna Corp. 5,100 323,646
Dentsply International, Inc. 150 7,801
Edwards Lifesciences Corp.+ 380 12,988
Eli Lilly & Co. 2,396 131,564
Guidant Corp. 1,155 76,946
HCA, Inc. 2,560 94,029
Health Net, Inc.+ 1,820 44,153
Henry Schein Inc.+ 150 9,484
Hospira, Inc.+ 933 29,772
Humana, Inc.+ 1,800 34,470
Johnson & Johnson 6,006 350,630
Manor Care, Inc. 460 15,060
Medco Health Solutions, Inc.+ 2,180 73,924
Medtronic, Inc. 2,670 136,464
Merck & Co., Inc. 13,143 411,507
Mylan Laboratories, Inc. 262 4,512
Par Pharmaceutical Cos., Inc.+ 700 27,615
Pfizer, Inc. 13,363 386,859
Renal Care Group, Inc.+ 150 4,734
Schering-Plough Corp. 100 1,811
Stryker Corp. 600 25,854
UnitedHealth Group, Inc. 2,349 170,068
Watson Pharmaceuticals, Inc.+ 100 2,803
Wyeth 3,630 143,930
------------
3,203,983
------------
See Notes to Financial Statements.
20
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
MARKET
SECURITY SHARES VALUE
----------------------------------------------------------
COMMON STOCK
INFORMATION SERVICES - 2.01%
Alltel Corp. 377 $ 20,709
AT&T Corp. 5,900 100,949
BellSouth Corp. 5,680 151,486
Citizens Communications Co. 10,800 144,720
Nextel Communications, Inc. - Class A+ 430 11,391
Nextel Partners, Inc. - Class A+ 5,200 87,568
SBC Communications, Inc. 4,900 123,774
Sprint Corp. 1,500 31,425
Verizon Communications, Inc. 5,888 230,221
------------
902,243
------------
INTERNET - 4.05%
Amazon.Com, Inc.+ 1,942 66,280
Ameritrade Holding Corp.+ 4,200 54,684
Cisco Systems, Inc.+ 19,057 366,085
E*Trade Financial Corp.+ 9,200 118,680
eBay, Inc.+ 5,920 577,851
Intuit, Inc.+ 6,817 309,219
Netbank, Inc. 1,059 9,828
Sun Microsystems, Inc.+ 3,465 15,696
VeriSign, Inc.+ 1,400 37,562
Yahoo!, Inc.+ 7,236 261,871
------------
1,817,756
------------
RETAIL - 1.92%
Autonation, Inc.+ 234 4,032
Autozone, Inc.+ 100 8,181
Bed Bath & Beyond, Inc.+ 200 8,158
Best Buy Co., Inc. 304 18,003
Costco Wholesale Corp. 660 31,640
CVS Corp. 272 11,821
Gap, Inc. 1,912 38,202
Home Depot, Inc. 1,520 62,442
Kroger Co.+ 4,810 72,679
Lowe's Cos., Inc. 1,134 63,822
May Department Stores Co. 255 6,645
Office Depot, Inc.+ 100 1,619
RadioShack Corp. 300 8,979
Saks, Inc. 380 4,644
Target Corp. 1,198 59,924
Walgreen Co. 1,525 54,732
Wal-Mart Stores, Inc. 7,566 407,959
------------
863,482
------------
TECHNOLOGY - 4.24%
Agilent Technologies, Inc.+ 5,105 127,931
Analog Devices, Inc. 200 8,052
MARKET
SECURITY SHARES VALUE
Applied Materials, Inc.+ 3,630 $ 58,443
Corning, Inc.+ 1,645 18,835
Dell, Inc.+ 4,691 164,466
IBM 3,422 307,125
Integrated Circuit Systems, Inc.+ 210 4,736
Intel Corp. 10,874 242,055
KLA-Tencor Corp.+ 200 9,106
Linear Technology Corp. 1,361 51,555
Maxtor Corp.+ 2,700 7,992
Microsoft Corp. 16,046 449,128
Oracle Corp.+ 5,181 65,591
Photronics, Inc.+ 100 1,755
Qualcomm, Inc. 4,688 196,005
Texas Instruments, Inc. 5,615 137,287
Xerox Corp.+ 1,745 25,774
Xilinx, Inc. 1,000 30,600
------------
1,906,436
------------
TRANSPORTATION - 3.90%
AMR Corp.+ 5,000 38,600
CNF, Inc. 5,000 218,900
CSX Corp. 5,000 182,500
ExpressJet Holdings, Inc. - Class A+ 1,500 16,680
FedEx Corp. 5,100 464,712
Ryder Systems, Inc. 1,900 95,190
Union Pacific Corp. 5,000 314,850
United Parcel Service, Inc. - Class B 5,300 419,654
------------
1,751,086
------------
UTILITIES - 0.52%
American Electric Power Co., Inc. 3,550 116,901
NiSource, Inc. 2,200 47,190
PPL Corp. 93 4,836
Xcel Energy, Inc. 3,800 64,980
------------
233,907
------------
TOTAL COMMON STOCK
(COST $22,823,768) 26,374,741
------------
RIGHTS - 0.00%
Seagate^+ (Cost $0) 300 -
------------
WARRANTS - 0.00%
MasoTech^+ 200 -
Tokheim Corp.+ 500 1
------------
TOTAL WARRANTS
(COST $8,109) 1
------------
See Notes to Financial Statements.
21
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2004
INTEREST MATURITY PAR MARKET
SECURITY RATE DATE VALUE VALUE
-------------------------------------------------------------------------------------------------------
US TREASURY SECURITIES - 32.28%
US Treasury Bond 9.250% 2/15/16 $1,000,000 $ 1,449,219
US Treasury Bond 8.750% 5/15/17 1,500,000 2,132,578
US Treasury Bond 5.250% 11/15/28 2,500,000 2,637,500
US Treasury Note 4.750% 5/15/14 3,000,000 3,172,500
US Treasury Note 2.000% 11/30/04 1,300,000 1,300,203
US Treasury Note 2.750% 6/30/06 2,500,000 2,512,891
US Treasury Note 5.500% 5/15/09 250,000 274,531
US Treasury Note 4.250% 8/15/13 1,000,000 1,022,031
------------
TOTAL US TREASURY SECURITIES
(COST $13,972,343)............................................................ 14,501,453
------------
REPURCHASE AGREEMENT - 8.43%
JPMORGAN CHASE BANK, N.A.
Dated 10/29/04, 1.500%, principal and interest in the amount of $3,785,473
due 11/01/04, collaterized by US Treasury Note, par value of $3,845,000, 4.000%,
due 2/15/14 with a value of $3,861,158........................................ 3,785,000
------------
TOTAL REPURCHASE AGREEMENT
(COST $3,785,000)............................................................. 3,785,000
------------
TOTAL INVESTMENTS IN SECURITIES - 99.42%
(COST $40,589,220)*................................................................ 44,661,195
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.58%............................................. 258,389
------------
NET ASSETS - 100.00%...................................................................... $ 44,919,584
============
- --------------------------------------------------------------------------------
+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.
*Cost for Federal income tax purposes is $40,800,903; the difference between
book basis and tax basis net unrealized appreciation (depreciation) is
primarily attributable to the tax deferral of losses on wash sales. The net
net unrealized appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation............... $ 5,153,708
Gross Unrealized Depreciation............... (1,293,416)
-----------
Net Unrealized Appreciation (Depreciation).. $ 3,860,292
===========
See Notes to Financial Statements.
22
ISI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004
TOTAL RETURN US MANAGED
TREASURY FUND MUNICIPAL FUND
- -------------------------------------------------------------------------------------------------------
ASSETS:
Investments:
In securities, at market value
(cost $192,444,657 and $96,716,867, respectively).................. $190,387,563 $102,685,572
Repurchase agreement
(cost $2,326,000 and $10,272,000, respectively).................... 2,326,000 10,272,000
Cash................................................................... 554 21
Receivables:
Capital shares sold.................................................. 112,600 3,085
Interest............................................................. 2,753,141 1,180,255
Prepaid expenses....................................................... 9,851 4,288
------------ ------------
Total assets........................................................... 195,589,709 114,145,221
------------ ------------
LIABILITIES:
Payables:
Capital shares redeemed.............................................. 373,866 -
Dividends............................................................ 267,571 180,545
Accrued Liabilities:
Investment advisory fees............................................. 38,847 38,531
Distribution fees.................................................... 41,243 24,082
Accrued expenses and other........................................... 78,523 58,254
------------ ------------
Total liabilities...................................................... 800,050 301,412
------------ ------------
Net assets.............................................................. $194,789,659 $113,843,809
============ ============
COMPONENTS OF NET ASSETS:
Paid in capital........................................................ $197,596,775 $108,262,348
Distributions in excess of net investment income....................... (750,022) (376,802)
Accumulated net realized gain (loss) from investment transactions...... - (10,442)
Net unrealized appreciation (depreciation) on investments.............. (2,057,094) 5,968,705
------------ ------------
Net assets.............................................................. $194,789,659 $113,843,809
============ ============
SHARES OF BENEFICIAL INTEREST OUTSTANDING:
ISI Shares (115,000,000 and 55,000,000 shares authorized, respectively) 20,360,630 10,434,907
------------ ------------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE:
ISI Shares (net assets / shares of beneficial interest outstanding).... $ 9.57 $ 10.91
------------ ------------
MAXIMUM OFFERING PRICE PER SHARE:
ISI Shares ($9.57 / 0.97 and $10.91 / 0.97, respectively).............. $ 9.87 $ 11.25
------------ ------------
See Notes to Financial Statements.
23
ISI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2004
NORTH AMERICAN
GOVERNMENT
BOND FUND ISI STRATEGY FUND
- ------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments:
In securities, at market value (cost $223,208,404 and $36,804,220, respectively)... $219,134,877 $40,876,195
Repurchase agreement (cost $2,319,000 and $3,785,000, respectively)................ 2,319,000 3,785,000
Cash................................................................................. 338 1,581
Receivables:
Capital shares sold................................................................ 207,065 47,524
Interest and dividends............................................................. 2,671,250 285,187
Prepaid expenses..................................................................... 7,703 8,287
------------ -----------
Total assets......................................................................... 224,340,233 45,003,774
------------ -----------
LIABILITIES:
Payables:
Capital shares redeemed............................................................ 616,808 16,162
Dividends.......................................................................... 575,681 -
Accrued Liabilities:
Investment advisory fees........................................................... 75,958 18,235
Distribution fees.................................................................. 81,328 9,381
Shareholder servicing fees......................................................... 3,836 -
Accrued expenses and other......................................................... 104,438 40,412
------------ -----------
Total liabilities.................................................................... 1,458,049 84,190
------------ -----------
Net assets............................................................................. $222,882,184 $44,919,584
============ ===========
COMPONENTS OF NET ASSETS:
Paid in capital.................................................................... $228,901,585 $42,970,551
Undistributed (distributions in excess of) net investment income................... (1,187,078) 59,501
Accumulated net realized loss from investment and foreign currency transactions.... (750,796) (2,182,443)
Net unrealized appreciation (depreciation) on investments and foreign currencies... (4,081,527) 4,071,975
------------ -----------
Net assets............................................................................. $222,882,184 $44,919,584
============ ===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING:
ISI Class A Shares (50,000,000 shares authorized).................................. 27,561,326 -
------------ -----------
ISI Class C Shares (5,000,000 shares authorized)................................... 2,515,224 -
------------ -----------
ISI Shares (25,000,000 shares authorized).......................................... - 4,006,273
------------ -----------
NET ASSET VALUE AND REDEMPTION PRICE PER SHARE:
(net assets / shares of beneficial interest outstanding)
ISI Class A Shares (based on net assets of $204,265,740)........................... $ 7.41 $ -
------------ -----------
ISI Class C Shares (based on net assets of $18,616,444)............................ $ 7.40 $ -
------------ -----------
ISI Shares......................................................................... $ - $ 11.21
------------ -----------
MAXIMUM OFFERING PRICE PER SHARE:
ISI Class A Shares ($7.41 / 0.97).................................................. $ 7.64 $ -
------------ -----------
ISI Shares ($11.21 / 0.97)......................................................... $ - $ 11.56
------------ -----------
See Notes to Financial Statements.
24
ISI FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
TOTAL RETURN US MANAGED
TREASURY FUND MUNICIPAL FUND
- -------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest......................................................... $6,763,743 $5,181,422
---------- ----------
EXPENSES:
Investment advisory fees......................................... 494,817 471,785
Distribution fees................................................ 522,891 294,864
Administration fees.............................................. 145,588 82,651
Transfer agent fees.............................................. 88,901 30,678
Custody fees..................................................... 12,587 8,237
Professional fees................................................ 75,750 58,197
Accounting fees.................................................. 27,873 26,511
Printing and shareholder reports................................. 8,461 5,604
Registration fees................................................ 24,538 27,708
Directors' fees.................................................. 21,167 11,560
Miscellaneous.................................................... 14,789 11,157
---------- ----------
Total expenses................................................. 1,437,362 1,028,952
---------- ----------
Net investment income............................................ 5,326,381 4,152,470
---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) from investment transactions............ 172,261 (10,442)
Net change in unrealized appreciation/depreciation on investments 3,675,803 538,387
---------- ----------
Net realized and unrealized gain (loss) on investments........... 3,848,064 527,945
---------- ----------
INCREASE IN NET ASSETS FROM OPERATIONS............................ $9,174,445 $4,680,415
========== ==========
See Notes to Financial Statements.
25
ISI FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2004
NORTH AMERICAN
GOVERNMENT
BOND FUND ISI STRATEGY FUND
- -------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest............................................................. $10,647,851 $ 433,851
Dividends............................................................ - 400,362
----------- ----------
Total income....................................................... 10,647,851 834,213
----------- ----------
EXPENSES:
Investment advisory fees............................................. 1,001,732 164,081
Distribution fees:
ISI Class A Shares................................................. 934,499 -
ISI Class C Shares................................................. 126,061 -
ISI Shares......................................................... - 102,550
Administration fees.................................................. 172,663 37,429
Transfer agent fees:
ISI Class A Shares................................................. 121,833 -
ISI Class C Shares................................................. 10,992 -
ISI Shares......................................................... - 22,720
Custody fees......................................................... 84,152 18,697
Professional fees.................................................... 89,118 49,328
Accounting fees...................................................... 40,469 25,312
Shareholder servicing fees:
ISI Class C Shares................................................. 42,020 -
Printing and shareholder reports..................................... 11,048 3,939
Registration fees.................................................... 58,098 26,347
Directors' fees...................................................... 25,437 3,678
Miscellaneous........................................................ 20,757 5,197
----------- ----------
Total expenses..................................................... 2,738,879 459,278
----------- ----------
Net investment income................................................ 7,908,972 374,935
----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment transactions............................................ (2,926,496) 1,784,906
Foreign currency transactions...................................... 29,789 -
Net change in unrealized appreciation/depreciation on investments and
foreign currencies................................................. 2,950,949 601,917
----------- ----------
Net realized and unrealized gain (loss) on investments and foreign
currencies......................................................... 54,242 2,386,823
----------- ----------
INCREASE IN NET ASSETS FROM OPERATIONS................................ $ 7,963,214 $2,761,758
=========== ==========
See Notes to Financial Statements.
26
TOTAL RETURN US TREASURY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
------------------------------
2004 2003
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income..................................................... $ 5,326,381 $ 6,263,843
Net realized gain on investment transactions.............................. 172,261 13,569,304
Net change in unrealized appreciation/depreciation on investments......... 3,675,803 (13,632,522)
------------ ------------
Increase in net assets from operations.................................... 9,174,445 6,200,625
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................................... (5,093,609) (6,137,746)
Net realized gain on investments.......................................... (7,452,894) (6,288,671)
Return of capital......................................................... (4,778,172) -
------------ ------------
Total distributions....................................................... (17,324,675) (12,426,417)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares.............................................. 8,438,737 19,262,461
Dividend reinvestments.................................................... 11,673,042 7,616,844
Cost of shares redeemed................................................... (46,198,502) (54,554,409)
------------ ------------
Decrease in net assets from capital share transactions.................... (26,086,723) (27,675,104)
------------ ------------
Total decrease in net assets.............................................. (34,236,953) (33,900,896)
NET ASSETS:
Beginning of year......................................................... 229,026,612 262,927,508
------------ ------------
End of year (including distributions in excess of net investment income of
$750,022 and $982,794, respectively).................................... $194,789,659 $229,026,612
============ ============
SHARE TRANSACTIONS:
Shares sold............................................................... 876,475 1,898,497
Shares issued to shareholders on reinvestment of dividends................ 1,214,305 750,559
Shares redeemed........................................................... (4,827,307) (5,382,976)
------------ ------------
Decrease in shares from capital share transactions........................ (2,736,527) (2,733,920)
============ ============
See Notes to Financial Statements.
27
MANAGED MUNICIPAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
------------------------------
2004 2003
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income..................................................... $ 4,152,470 $ 3,881,685
Net realized gain (loss) on investment transactions....................... (10,442) 458,899
Net change in unrealized appreciation/depreciation on investments......... 538,387 (439,966)
------------ ------------
Increase in net assets from operations.................................... 4,680,415 3,900,618
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income..................................................... (4,831,949) (4,545,840)
Net realized gain on investments.......................................... - (458,899)
------------ ------------
Total distributions....................................................... (4,831,949) (5,004,739)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares.............................................. 23,397,588 18,611,488
Dividend reinvestments.................................................... 2,803,487 2,602,438
Cost of shares redeemed................................................... (19,283,681) (16,229,802)
------------ ------------
Increase in net assets from capital share transactions.................... 6,917,394 4,984,124
------------ ------------
Total increase in net assets.............................................. 6,765,860 3,880,003
NET ASSETS:
Beginning of year......................................................... 107,077,949 103,197,946
------------ ------------
End of year (including distributions in excess of net investment income of
$376,802 and $394,270, respectively).................................... $113,843,809 $107,077,949
============ ============
SHARE TRANSACTIONS:
Shares sold............................................................... 2,132,728 1,688,868
Shares issued to shareholders on reinvestment of dividends................ 258,162 236,891
Shares redeemed........................................................... (1,785,569) (1,476,733)
------------ ------------
Increase in shares from capital share transactions........................ 605,321 449,026
============ ============
See Notes to Financial Statements.
28
NORTH AMERICAN GOVERNMENT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
------------------------------
2004 2003
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income........................................................ $ 7,908,972 $ 8,320,234
Net realized gain (loss) on investment and foreign currency transactions..... (2,896,707) 14,360,348
Net change in unrealized appreciation/depreciation on investments
and foreign currencies...................................................... 2,950,949 (11,632,023)
------------ ------------
Increase in net assets from operations....................................... 7,963,214 11,048,559
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:/1/
Net investment income:
ISI Class A Shares.......................................................... (4,897,323) (9,700,209)
ISI Class C Shares.......................................................... (320,142) (193,281)
Net realized gain on investments:
ISI Class A Shares.......................................................... (2,733,166) (11,503,958)
ISI Class C Shares.......................................................... (151,110) (87,250)
Return of capital:
ISI Class A Shares.......................................................... (10,681,891) -
ISI Class C Shares.......................................................... (698,284) -
------------ ------------
Total distributions.......................................................... (19,481,916) (21,484,698)
------------ ------------
CAPITAL SHARE TRANSACTIONS:/1/
Proceeds from sale of shares:
ISI Class A Shares.......................................................... 23,239,002 66,866,368
ISI Class C Shares.......................................................... 7,255,836 14,038,549
Dividend reinvestments:
ISI Class A Shares.......................................................... 10,083,386 11,214,133
ISI Class C Shares.......................................................... 590,444 155,876
Cost of shares redeemed:
ISI Class A Shares.......................................................... (86,037,048) (57,844,825)
ISI Class C Shares.......................................................... (2,051,441) (168,139)
------------ ------------
Increase (decrease) in net assets from capital share transactions............ (46,919,821) 34,261,962
------------ ------------
Total increase (decrease) in net assets...................................... (58,438,523) 23,825,823
NET ASSETS:
Beginning of year........................................................... 281,320,707 257,494,884
------------ ------------
End of year (including distributions in excess of net investment income of
$1,187,078 and $1,732,674, respectively)................................... $222,882,184 $281,320,707
============ ============
SHARE TRANSACTIONS:/1/
Shares sold:
ISI Class A Shares.......................................................... 3,060,803 8,402,353
ISI Class C Shares.......................................................... 956,786 1,758,597
Shares issued to shareholders on reinvestment of dividends:
ISI Class A Shares.......................................................... 1,343,772 1,416,957
ISI Class C Shares.......................................................... 78,912 19,950
Shares redeemed:
ISI Class A Shares.......................................................... (11,482,700) (7,262,057)
ISI Class C Shares.......................................................... (277,253) (21,768)
------------ ------------
Increase (decrease) in shares from capital share transactions:
ISI Class A Shares.......................................................... (7,078,125) 2,557,253
============ ============
ISI Class C Shares.......................................................... 758,445 1,756,779
============ ============
- --------------------------------------------------------------------------------
/1/On May 16, 2003, the Fund commenced the offering of ISI Class C Shares and
ISI Shares were redesignated as ISI Class A Shares.
See Notes to Financial Statements.
29
ISI STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31,
------------------------------
2004 2003
- --------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................................ $ 374,935 $ 175,912
Net realized gain (loss) on investment transactions.............. 1,784,906 (75,683)
Net change in unrealized appreciation/depreciation on investments 601,917 3,392,601
----------- -----------
Increase in net assets from operations........................... 2,761,758 3,492,830
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................ (330,186) (174,119)
----------- -----------
Total distributions.............................................. (330,186) (174,119)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares..................................... 21,196,828 10,757,570
Dividend reinvestments........................................... 287,106 151,755
Cost of shares redeemed.......................................... (9,257,446) (3,890,270)
----------- -----------
Increase in net assets from capital share transactions........... 12,226,488 7,019,055
----------- -----------
Total increase in net assets..................................... 14,658,060 10,337,766
NET ASSETS:
Beginning of year................................................ 30,261,524 19,923,758
----------- -----------
End of year (including undistributed net investment income of
$59,501 and $14,752, respectively)............................. $44,919,584 $30,261,524
=========== ===========
SHARE TRANSACTIONS:
Shares sold...................................................... 1,942,633 1,088,564
Shares issued to shareholders on reinvestment of dividends....... 25,905 16,233
Shares redeemed.................................................. (845,666) (415,768)
----------- -----------
Increase in shares from capital share transactions............... 1,122,872 689,029
=========== ===========
See Notes to Financial Statements.
30
TOTAL RETURN US TREASURY FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
ISI SHARES
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year.................... $ 9.92 $ 10.18 $ 10.20 $ 9.57 $ 9.35
-------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.24/1/ 0.23 0.35 0.45 0.50
Net realized and unrealized gain (loss) on investments 0.19 0.01 0.20 0.82 0.38
-------- -------- -------- -------- --------
Total from investment operations...................... 0.43 0.24 0.55 1.27 0.88
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income................................. (0.23) (0.25) (0.40) (0.45) (0.50)
Net realized gain on investments...................... (0.33) (0.25) (0.17) - -
Return of capital..................................... (0.22) - - (0.19) (0.16)
-------- -------- -------- -------- --------
Total distributions................................... (0.78) (0.50) (0.57) (0.64) (0.66)
-------- -------- -------- -------- --------
Net asset value, end of year.......................... $ 9.57 $ 9.92 $ 10.18 $ 10.20 $ 9.57
======== ======== ======== ======== ========
TOTAL RETURN/2/........................................ 4.64% 2.30% 5.78% 13.57% 9.49%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)...................... $194,790 $229,027 $262,928 $149,588 $136,728
Ratios to average daily net assets:
Net investment income............................... 2.56% 2.50% 3.64% 4.51% 5.10%
Expenses............................................ 0.69% 0.67% 0.74% 0.78% 0.82%
Portfolio turnover rate............................... 31% 125% 129% 61% 15%
- --------------------------------------------------------------------------------
/1/Calculated using the average shares outstanding for the period.
/2/Total return excludes the effect of sales charges.
See Notes to Financial Statements.
31
MANAGED MUNICIPAL FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
ISI SHARES
FOR THE YEARS ENDED OCTOBER 31,
----------------------------------------------
2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year.................... $ 10.89 $ 11.00 $ 10.99 $ 10.47 $ 10.12
-------- -------- -------- ------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.38/1/ 0.40 0.45 0.45 0.47
Net realized and unrealized gain (loss) on investments 0.08 0.01 0.09 0.55 0.36
-------- -------- -------- ------- -------
Total from investment operations...................... 0.46 0.41 0.54 1.00 0.83
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
Net investment income................................. (0.44) (0.47) (0.45) (0.45) (0.47)
Net realized gain on investments...................... - (0.05) (0.08) (0.03) (0.01)
-------- -------- -------- ------- -------
Total distributions................................... (0.44) (0.52) (0.53) (0.48) (0.48)
-------- -------- -------- ------- -------
Net asset value, end of year.......................... $ 10.91 $ 10.89 $ 11.00 $ 10.99 $ 10.47
======== ======== ======== ======= =======
TOTAL RETURN/2/........................................ 4.26% 3.89% 5.11% 9.76% 8.44%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)...................... $113,844 $107,078 $103,198 $66,105 $65,233
Ratios to average daily net assets:
Net investment income............................... 3.53% 3.66% 3.92% 4.18% 4.60%
Expenses after waivers and/or reimbursements........ 0.88% 0.89% 0.94% 0.93% 0.90%
Expenses before waivers and/or reimbursements....... 0.88% 0.89% 0.96% 0.99% 1.01%
Portfolio turnover rate............................... 17% 11% 11% 21% 22%
- --------------------------------------------------------------------------------
/1/Calculated using the average shares outstanding for the period.
/2/Total return excludes the effect of sales charges.
See Notes to Financial Statements.
32
NORTH AMERICAN GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI CLASS A SHARES/1/
FOR THE YEARS ENDED APRIL 1, 2002
OCTOBER 31, THROUGH FOR THE YEARS ENDED MARCH 31,
------------------ OCTOBER 31, ---------------------------
2004 2003 2002/2/ 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...... $ 7.73 $ 8.03 $ 7.80 $ 8.17 $ 8.07 $ 8.42
-------- -------- -------- -------- -------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.24/3/ 0.25 0.18 0.38 0.44 0.49
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions............................ 0.03 0.07 0.41 (0.03) 0.38 (0.12)
-------- -------- -------- -------- -------- -------
Total from investment operations.......... 0.27 0.32 0.59 0.35 0.82 0.37
-------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Net investment income..................... (0.16) (0.29) (0.17) (0.41) (0.47) (0.49)
Net realized gain on investments.......... (0.08) (0.33) (0.07) (0.23) (0.13) -
Return of capital......................... (0.35) - (0.12) (0.08) (0.12) (0.23)
-------- -------- -------- -------- -------- -------
Total distributions....................... (0.59) (0.62) (0.36) (0.72) (0.72) (0.72)
-------- -------- -------- -------- -------- -------
Net asset value, end of period............ $ 7.41 $ 7.73 $ 8.03 $ 7.80 $ 8.17 $ 8.07
======== ======== ======== ======== ======== =======
TOTAL RETURN/4/............................ 3.62% 4.14% 7.75%/5/ 4.38% 10.74% 4.82%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s).......... $204,266 $267,756 $257,495 $220,629 $117,445 $61,697
Ratios to average daily net assets:
Net investment income................... 3.22% 3.03% 3.84%/6/ 4.60% 5.62% 5.59%
Expenses after waivers and/or
reimbursements........................ 1.05% 1.09% 1.01%/6/ 1.13% 1.24% 1.25%
Expenses before waivers and/or
reimbursements........................ 1.05% 1.09% 1.01%/6/ 1.13% 1.24% 1.41%
Portfolio turnover rate................... 47% 152% 95%/5/ 136% 89% 32%
- --------------------------------------------------------------------------------
/1/On May 16, 2003, ISI Shares were redesignated as ISI Class A Shares.
/2/The Fund changed its fiscal year end from March 31 to October 31.
/3/Calculated using the average shares outstanding for the period.
/4/Total return excludes the effect of sales charges.
/5/Total return and portfolio turnover for less than one year are not
annualized.
/6/Annualized.
See Notes to Financial Statements.
33
NORTH AMERICAN GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI CLASS C SHARES
FOR THE YEAR ENDED MAY 16, 2003/1/
OCTOBER 31, THROUGH
2004 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...................................................... 0.19/2/ 0.17
Net realized and unrealized gain (loss) on investments and foreign currency
transactions............................................................. 0.02 (0.38)
-------- -------
Total from investment operations........................................... 0.21 (0.21)
-------- -------
LESS DISTRIBUTIONS:
Net investment income...................................................... (0.14) (0.21)
Net realized gain on investments........................................... (0.08) (0.06)
Return of capital.......................................................... (0.31) -
-------- -------
Total distributions........................................................ (0.53) (0.27)
-------- -------
Net asset value, end of period............................................. $ 7.40 $ 7.72
======== =======
TOTAL RETURN/3/............................................................. 2.91% (2.62)%/4/
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)........................................... $ 18,616 $13,565
Ratios to average daily net assets:
Net investment income.................................................... 2.50% 3.32%/5/
Expenses after waivers and/or reimbursements............................. 1.77% 1.85%/5/
Expenses before waivers and/or reimbursements............................ 1.77% 2.12%/5/
Portfolio turnover rate.................................................... 47% 152%/4/
- --------------------------------------------------------------------------------
/1/Commencement of operations.
/2/Calculated using the average shares outstanding for the period.
/3/Total return excludes the effect of sales charges.
/4/Total return and portfolio turnover for less than one year are not
annualized.
/5/Annualized.
See Notes to Financial Statements.
34
ISI STRATEGY FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI SHARES
FOR THE YEARS ENDED JUNE 1, 2002
OCTOBER 31, THROUGH FOR THE YEARS ENDED MAY 31,
----------------- OCTOBER 31, ---------------------------
2004 2003 2002/1/ 2002 2001 2000
- ------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period... $ 10.50 $ 9.08 $ 10.23 $ 10.89 $ 12.15 $ 11.91
-------- ------- ------- ------- ------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income.................. 0.10/2/ 0.08 0.05 0.12 0.25 0.26
Net realized and unrealized gain (loss)
on investments....................... 0.70 1.42 (1.14) (0.66) (0.62) 0.46
-------- ------- ------- ------- ------- -------
Total from investment operations....... 0.80 1.50 (1.09) (0.54) (0.37) 0.72
-------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income.................. (0.09) (0.08) (0.06) (0.12) (0.27) (0.24)
Net realized gains on investments...... - - - - (0.62) (0.24)
-------- ------- ------- ------- ------- -------
Total distributions.................... (0.09) (0.08) (0.06) (0.12) (0.89) (0.48)
-------- ------- ------- ------- ------- -------
Net asset value, end of period......... $ 11.21 $ 10.50 $ 9.08 $ 10.23 $ 10.89 $ 12.15
======== ======= ======= ======= ======= =======
TOTAL RETURN/3/......................... 7.71% 16.47% (10.65)%/4/ (4.93)% (3.32)% 6.09%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)....... $ 44,920 $30,262 $19,924 $24,398 $27,051 $36,544
Ratios to average daily net assets:
Net investment income................ 0.92% 0.77% 1.18%/5/ 1.14% 2.09% 2.10%
Expenses after waivers and/or
reimbursements..................... 1.12% 1.30% 1.30%/5/ 1.19% 1.00% 1.00%
Expenses before waivers and/or
reimbursements..................... 1.12% 1.79% 1.99%/5/ 1.42% 1.38% 1.31%
Portfolio turnover rate................ 66% 60% 12%/4/ 72% 57% 59%
- --------------------------------------------------------------------------------
/1/The Fund changed its fiscal year end from May 31 to October 31.
/2/Calculated using the average shares outstanding for the period.
/3/Total return excludes the effect of sales charges.
/4/Total return and portfolio turnover for less than one year are not
annualized.
/5/Annualized.
See Notes to Financial Statements.
35
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
Total Return US Treasury Fund, Inc. ('Total Return'), Managed Municipal Fund,
Inc. ('Managed Municipal'), North American Government Bond Fund, Inc. ('North
American') and ISI Strategy Fund, Inc. ('Strategy'), (each a 'Fund' and
collectively, the 'Funds') are registered under the Investment Company Act of
1940, as amended, as open-end management investment companies. The Funds are
organized as corporations under the laws of the State of Maryland.
Total Return's investment objective is to achieve a high level of total
return with relative stability of principal and, secondarily, high current
income. 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. North American's investment
objective is designed to provide a high level of current income, consistent
with prudent investment risk. Strategy's investment objective is to maximize
total return through a combination of long-term growth of capital and current
income.
Total Return, Managed Municipal and Strategy currently offer ISI Shares to
investors. North American offers ISI North American Government Bond Fund Class
A Shares ('ISI Class A Shares') and ISI North American Government Bond Fund
Class C Shares ('ISI Class C Shares'). ISI Shares and North American's ISI
Class A Shares are subject to a maximum front-end sales charge of 3.00%. A
sales charge of 1.00% is imposed on the sale 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 on each Fund business day 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). 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 'Board'). The Funds may use these procedures to establish the
fair value of securities when, for example, a significant event occurs between
the time the market closes and the time the Funds value their investments.
Other examples include securities that are subject to legal or contractual
restrictions on resale, securities for which no or limited trading activity has
occurred for a period of time, or securities that are otherwise deemed to be
illiquid (i.e., securities that cannot be disposed of within seven days at
approximately the price at which the security is currently priced by the
Funds). Market prices are also deemed to be unreliable when an event has
occurred between the close of the principal foreign market on which a security
trades and the time for determination of the net asset value of a Fund which is
holding that security, if the event is likely to affect the Fund's net asset
value per share.
36
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
In such cases, the administrator consults with the investment advisor to
determine the methodology for valuing the security, including information and
sources of information that may be used to value the security. This information
is referred to the Fund's Board which values the security based upon the
information or which assigns the security such other value as it may determine.
As of October 31, 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 offsetting transaction. Dividend income is recorded on the
ex-dividend date. Interest income, including amortization of premiums and
accretion of discounts, is accrued daily. Estimated expenses are also accrued
daily. With respect to North American, income, gains (losses) and common
expenses are allocated to each class based on its respective net assets. Class
specific expenses are charged directly to each class.
D. DISTRIBUTIONS
Total Return declares a dividend daily, and Managed Municipal and North
American declare monthly dividends at fixed rates approved by the Funds' Board.
To the extent that their net investment income and short-term capital gains are
less than the approved fixed rate, some of their dividends may be paid from
long-term capital gains or as a return of shareholder capital. Strategy
declares 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 income to
shareholders. Accordingly, no Federal income taxes have been accrued.
F. FOREIGN CURRENCY TRANSLATION
The Funds maintain their accounting records in US dollars. North American
determines the US dollar value of foreign currency-denominated assets,
liabilities and transactions by using prevailing exchange rates. In valuing
assets and liabilities, North American uses the prevailing exchange rate on
valuation date. In valuing security transactions, the receipt of income and the
payment of expenses, North American uses the prevailing exchange rate on the
transaction date.
Net realized gains and losses on foreign currency transactions shown on North
American's financial statements result from the sale of foreign bonds and
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and from the difference between
the amounts of interest recorded on the Fund's books and the US dollar
equivalent of the amounts actually received or paid.
G. FORWARD FOREIGN CURRENCY CONTRACTS
North American may use forward foreign currency contracts to manage foreign
exchange rate risk. The Fund may use these contracts to fix the US dollar value
of securities transactions for the period between the date of the transaction
and the date the security is received or delivered or to hedge the US dollar
value of securities that it already owns. The use of forward foreign currency
contracts does not eliminate fluctuations in the prices of the underlying
securities, but does establish a rate of exchange that can be achieved in the
future.
37
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
The Fund determines the net US dollar value of forward foreign currency
contracts using prevailing exchange rates. As of October 31, 2004, there were
no open forward currency contracts.
H. REPURCHASE AGREEMENTS
The Funds may make short-term investments in repurchase agreements that are
fully collateralized by US government securities. Under the terms of a
repurchase agreement, a financial institution sells fixed-income securities to
the Funds and agrees to buy them back on a specified day in return for the
principal amount of the original sale plus accrued interest. The custodial bank
holds the collateral in a separate account until the agreement matures. If the
value of the securities falls below the principal amount of the repurchase
agreement plus accrued interest, the financial institution deposits additional
collateral by the following business day. If the financial institution either
fails to deposit the required additional collateral or fails to repurchase the
securities as agreed, the Funds have the right to sell the securities and
recover any resulting loss from the financial institution. If the financial
institution enters into bankruptcy, the Funds' claims on the collateral may be
subject to legal proceedings.
I. ESTIMATES
In preparing its financial statements in conformity with US generally
accepted accounting principles, 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 the
expenses of ISI Class C Shares to 1.85% of the class' average daily net assets.
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 year ended October
31, 2004, there were no fees waived.
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, not the Fund.
Forum Administrative Services, LLC ('FAdS'), Forum Accounting Services, LLC
('FAcS'), and Forum Shareholder Services, LLC ('FSS') serve as the Funds'
Administrator, Accountant, and Transfer Agent, respectively. For their
services, these companies receive a combined fee based on average net assets
(subject to a minimum monthly fee) and monthly fees per open account.
Asset-based fees are calculated daily and all fees are paid monthly.
Certain officers and directors of the Funds are also officers or directors of
ISI or FAdS. 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 a
fee, pursuant to Rule 12b-1, that is calculated daily and paid monthly at the
annual rate of 0.25% of their average daily net assets. North American's ISI
Class A Shares and ISI Class C Shares pay ISI Group a fee, pursuant to Rule
12b-1, that is calculated daily and paid monthly at the
38
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
annual rate of 0.40% and 0.75% of their average daily net assets, respectively.
ISI Group also acts as the Shareholder Servicing Agent for the North American
ISI Class C Shares. North American ISI Class C Shares pays ISI Group a 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 year ended October 31, 2004, ISI Group earned commissions on sales of
ISI Shares of Total Return, Managed Municipal, and Strategy of $9,011, $13,384
and $17,937, respectively, and $36,934 on sales of ISI Class A Shares of North
American.
NOTE 3 - FEDERAL INCOME TAX AND INVESTMENT TRANSACTIONS
The Funds may periodically make reclassifications among certain capital
accounts as a result of differences in the characterization and allocation of
certain income and capital gain distributions determined annually in accordance
with Federal tax regulations, which may differ from US generally accepted
accounting principles. These book/tax differences may be either temporary or
permanent. To the extent they are permanent, they are charged or credited to
paid-in-capital or accumulated net realized gain as appropriate, in the period
that the differences arose. The reclassifications have no impact on the net
assets of the Funds. As of October 31, 2004, the following reclassifications
were made to the statement of assets and liabilities:
-------------------------------------------------------
Accumulated Undistributed
Paid-in- Net Realized Net Investment
Capital Gain Income
-------------------------------------------------------
Managed Municipal (696,947) - 696,947
North American - 2,145,911 (2,145,911)
-------------------------------------------------------
Managed Municipal's reclassification was primarily a result of distributions
in excess of earnings. North American's reclassification was the result of
foreign currency losses.
39
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
The Funds determine their net investment income and capital gain
distributions in accordance with income tax regulations, which may differ from
US generally accepted accounting principles. Distributions during the fiscal
years ended October 31, 2004 and 2003 were characterized for tax purposes as
follows:
- --------------------------------------------------------------------------------------------------------
Long-Term
Ordinary Income Tax-Exempt Income Capital Gains Return of Capital
- --------------------------------------------------------------------------------------------------------
October 31, October 31, October 31, October 31,
----------- ----------- ----------- -----------
2004 2003 2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ---- ---- ----
Total Return $9,554,624 $12,426,417 $ - $ - $2,991,879 $ - $ 4,778,172 $ -
Managed Municipal 787,393 353,407 4,044,556 4,192,433 - 458,899 - -
North American 5,217,465 20,991,999 - - 2,884,276 492,699 11,380,175 -
Strategy 330,186 174,119 - - - - - -
- --------------------------------------------------------------------------------------------------------
As of October 31, 2004, the components of distributable earnings on a tax
basis were as follows:
- ----------------------------------------------------------------------------------------
Undistributed Unrealized
Undistributed Long-Term Capital Loss Appreciation
Ordinary Income Capital Gains Carryforward (Depreciation) Total
- ----------------------------------------------------------------------------------------
Total Return $ - $ - $ - $(2,057,094) $(2,057,094)
Managed Municipal - - (10,442) 5,968,705 5,958,263
North American - - (750,796) (4,081,527) (4,832,323)
Strategy 59,502 - (1,970,751) 3,860,292 1,949,043
- ----------------------------------------------------------------------------------------
The difference between book basis and tax basis unrealized appreciation
(depreciation) for Strategy is primarily due to wash sales.
Managed Municipal's and North American's capital loss carryforwards of
$10,442 and $750,796, respectively, expire in 2012. Strategy's capital loss
carryforwards of $95,684 and $1,875,067 expire in 2009 and 2010, respectively.
To the extent future capital gains are offset by capital loss carryforwards,
such gains will not be distributed. During the year ended October 31, 2004,
Strategy utilized $1,631,267 of capital loss carryforwards.
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the year ended October 31, 2004 were as
follows:
-------------------------------------------------------------------------
Non-US Government Obligations US Government Obligations
-------------------------------------------------------------------------
Purchases Sales Purchases Sales
Total Return $ - $ - $50,353,817 $44,297,228
Managed Municipal 20,233,317 18,298,728 - -
North American 20,771,144 41,714,393 70,217,426 59,521,992
Strategy 22,901,624 20,415,600 10,856,805 2,032,180
-------------------------------------------------------------------------
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.
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Total Return US Treasury Fund, Inc.
Managed Municipal Fund, Inc.
North American Government Bond Fund, Inc.
ISI Strategy Fund, Inc.
We have audited the accompanying statements of assets and liabilities of
Total Return US Treasury Fund, Inc., Managed Municipal Fund, Inc., North
American Government Bond Fund, Inc. and ISI Strategy Fund, Inc. (the "Funds"),
including the schedules of investments, as of October 31, 2004, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended, the financial
highlights for each of the four years in the period then ended with respect to
Total Return US Treasury Fund, Inc. and Managed Municipal Fund, Inc., the
financial highlights for each of the periods presented from April 1, 2001
through October 31, 2004 with respect to North American Government Bond Fund,
Inc., and the financial highlights for each of the periods presented from June
1, 2001 through October 31, 2004 with respect to ISI Strategy Fund, Inc. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The
financial highlights of Total Return US Treasury Fund, Inc. and Managed
Municipal Fund, Inc. for the year ended October 31, 2000 were audited by other
auditors whose report dated December 8, 2000, expressed an unqualified opinion
on those financial highlights. The financial highlights of North American
Government Bond Fund, Inc. for the years presented through March 31, 2001 were
audited by other auditors whose report dated April 27, 2001, expressed an
unqualified opinion on those financial highlights. The financial highlights of
ISI Strategy Fund, Inc. for the years presented through May 31, 2001 were
audited by other auditors whose report dated June 29, 2001, expressed an
unqualified opinion on those financial highlights.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights. Our procedures included confirmation of securities owned as of
October 31, 2004, by correspondence with the Funds' custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the above listed Funds at October 31, 2004, the results of their operations
for the year then ended, the changes in their net assets for each of the two
years in the period then ended, the financial highlights for each of the four
years in the period then ended with respect to Total Return US Treasury Fund,
Inc. and Managed Municipal Fund, Inc., the financial highlights for each of the
periods presented from April 1, 2001 through October 31, 2004 with respect to
North American Government Bond Fund, Inc., and the financial highlights for
each of the periods presented from June 1, 2001 through October 31, 2004 with
respect to ISI Strategy Fund, Inc., in conformity with US generally accepted
accounting principles.
/s/
New York, New York
December 15, 2004
41
FUND DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------
NAME, BIRTH DATE AND BUSINESS EXPERIENCE AND DIRECTORSHIPS
POSITION WITH THE FUND/1/ DURING THE PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------
INDEPENDENT DIRECTORS
- -----------------------------------------------------------------------------------------------------------
Joseph R. Hardiman Private Equity Investor (1997 to present); Director, Soundview Technology
5/27/37 Group, Inc. (investment banking) (July 1998 to present); Corvis Corp. (optical
Director since 1998. networks) (July 2000 to present); The Nevis Fund (registered investment
company) (July 1999 to present); Brown Investment Advisory & Trust Company
(February 2001 to present), and certain funds in the Scudder Funds (formerly the
Deutsche Asset Management Family of Funds) (registered investment companies)
(March 1998 to present). Formerly, Director, Circon Corp. (medical instruments)
(November 1998 to January 1999); President and Chief Executive Officer, The
National Association of Securities Dealers, Inc. and The NASDAQ Stock Market,
Inc. (1987 to 1997); Director, Flag Investors Emerging Growth Fund, Inc. and
Flag Investors Short-Intermediate Income Fund, Inc. (registered investment
companies) (resigned 2000).
- -----------------------------------------------------------------------------------------------------------
W. Murray Jacques President, WMJ Consulting, LLC (real estate investment management company)
3/28/36 (1999 to present); Chairman, Saint David's School (2002 to present). Formerly,
Director since 2002. Chairman and Chief Executive Officer, VIB Management, Inc. (asset
management company) (1994 to 1999); VIB N.V. (1994 to 1995) (real estate
investment company); Trustee, Fifth Avenue Presbyterian Church (1991 to
1995); Jacques & Kurdziel, Inc. (real estate investment management company)
(1983 to 1994).
- -----------------------------------------------------------------------------------------------------------
Louis E. Levy Director, Household International (banking and finance) (1992 to present) and
11/16/32 certain funds in the Scudder Funds (formerly Deutsche Asset Management Family
Director since 1994. of Funds) (registered investment companies) (1993 to present). Formerly,
Chairman of the Quality Control Inquiry Committee, American Institute of
Certified Public Accountants (1992 to 1998); Director, Kimberly-Clark Corp.,
(personal consumer products) (retired 2000) and Partner, KPMG Peat Marwick,
(retired 1990).
- -----------------------------------------------------------------------------------------------------------
FUND DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------
Edward S. Hyman* Chairman, International Strategy & Investment, Inc. (registered investment
4/8/45 advisor) (1991 to present); Chairman and President, International Strategy &
Director since 1991. Investment Group, Inc. (registered broker-dealer) (1991 to present).
- -----------------------------------------------------------------------------------------------------------
R. Alan Medaugh President, International Strategy & Investment, Inc. (registered investment
8/20/43 advisor) (1991 to present); Director, International Strategy & Investment Group,
President since 1991. Inc. (registered investment advisor) (1991 to present).
42
FUND DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------
NAME, BIRTH DATE AND BUSINESS EXPERIENCE AND DIRECTORSHIPS
POSITION WITH THE FUND/1/ DURING THE PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------------
FUND DIRECTORS AND OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------
Nancy Lazar Executive Vice President, Assistant Treasurer and Secretary of International
8/1/57 Strategy & Investment, Inc. (registered investment advisor) (1991 to present);
Vice President since 1997. Executive Vice President, Assistant Treasurer and Secretary of International
Strategy & Investment Group, Inc. (registered broker-dealer) (1991 to present).
- -----------------------------------------------------------------------------------------------------------------------------
Thomas D. Stevens/2/ Chief Executive Officer and President, Los Angeles Capital Management and
5/27/49 Equity Research, Inc. (registered investment advisor) (March 2002 to present).
Vice President since 1997. Formerly, Senior Vice President and Principal, Wilshire Associates Inc. (registered
investment advisor) (1980 to 2002); Chief Investment Officer, Wilshire Asset
Management (registered investment advisor) (1980 to 1999).
- -----------------------------------------------------------------------------------------------------------------------------
Carrie L. Butler Managing Director, International Strategy & Investment, Inc. (registered
5/1/67 investment advisor) (2000 to present). Formerly, Assistant Vice President,
Vice President since 1991. International Strategy & Investment, Inc. (registered investment advisor) (1991 to
2000).
- -----------------------------------------------------------------------------------------------------------------------------
Edward J. Veilleux President, EJV Financial Services, LLC; Officer of various investment companies
8/26/43 for which EJV Financial Services provides consulting and compliance services.
Vice President since 1992. Formerly, Trustee Devcap Trust (registered investment company) (2000 to 2003);
Director, Deutsche Asset Management (formerly B.T. Alex Brown, Inc.) (October
1965 to May 2002); Executive Vice President, Investment Company Capital
Corp. (May 1987 to May 2002).
- -----------------------------------------------------------------------------------------------------------------------------
Stephen V. Killorin/3/ Executive Managing Director and Chief Financial Officer, International Strategy
6/27/53 & Investment, Inc. (registered investment advisor) (December 2000 to present);
Vice President since 2002. Executive Managing Director and Chief Financial Officer, International Strategy
Treasurer and Chief Compliance & Investment Group, Inc. (registered broker-dealer) (December 2000 to present);
Officer since 2004. Formerly, Controller, Sanford C. Bernstein & Co., Inc. (registered investment
advisor) (November 1999 to December 2000) and Managing Director, Deutsche
Bank (May 1994 to November 1999).
- -----------------------------------------------------------------------------------------------------------------------------
Margaret M. Beeler Managing Director, International Strategy & Investment, Inc. (registered
3/1/67 investment advisor) (July 2004 to present). Formerly, Associate Managing
Assistant Vice President since 1996. Director (2000 to July 2004) and Assistant Vice President (1996 to 2000),
Secretary since 2004. International Strategy & Investment, Inc. (registered investment advisor);
Marketing Representative, US Healthcare, Inc. (1995 to 1996); Sales Manager,
Donna Maione, Inc. (1994 to 1995) and Deborah Wiley California (1989 to
1994).
43
FUND DIRECTORS AND OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------
NAME, BIRTH DATE AND BUSINESS EXPERIENCE AND DIRECTORSHIPS
POSITION WITH THE FUND/1/ DURING THE PAST 5 YEARS
- ----------------------------------------------------------------------------------------------------------------------------
FUND DIRECTORS AND OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------
Keith C. Reilly Managing Director, International Strategy & Investment, Inc. (registered
6/2/66 investment advisor) (2000 to present). Formerly, Assistant Vice President,
Assistant Vice President since 1996. International Strategy & Investment, Inc. (registered investment advisor) (1996 to
2000); Select Private Banking Officer, Assistant Manager, Chemical Bank (1995
to 1996); Financial Consultant, Dreyfus Corp. (1989 to 1995).
- ----------------------------------------------------------------------------------------------------------------------------
Dana A. Lukens General Counsel, Forum Administrative Services, LLC (fund administrator) (2001
4/23/62 to present). Formerly, General Counsel, Clareon Corp. (money transmitter) (2000
Assistant Secretary since 2003. to 2001); Associate, Drummond Woodsum & MacMahon (law firm) (1998 to
2000); Officer of various registered investment companies for which Forum
Financial Group, LLC ("Forum") (a fund services company acquired by Citigroup
Global Transaction Services "Citigroup" in 2003) or its affiliates serve as fund
accountant, administrator and/or distributor.
- ----------------------------------------------------------------------------------------------------------------------------
Frederick Skillin Senior Vice President, Financial Control, Citigroup (2003 to present); Senior
5/27/58 Manager, Corporate Finance, Forum (1994 to 2004); Officer of various registered
Assistant Treasurer since 2004. investment companies for which Forum or its affiliates serve as fund accountant,
administrator and/or distributor.
- ----------------------------------------------------------------------------------------------------------------------------
*Considered to be an "interested person" as defined in the Investment Company
Act, because of his employment with the Advisor and the Distributor.
/1/The mailing address of each Director and Executive Officer with respect to
Fund operations is 535 Madison Avenue, 30th Floor, New York, New York 10022.
/2/Thomas D. Stevens is an officer only for the ISI Strategy Fund, Inc.
/3/On December 2, 2004, Stephen V. Killorin was voted Chief Financial Officer
of the Funds.
Except for Mr. Stevens, each of the above named persons serves in the
capacity noted above for each fund in the Fund Complex. The Funds' Statements
of Additional Information include additional information about the Funds'
directors and officers. To receive your free copy of the Statements of
Additional Information, call toll-free: (800) 955-7175.
44
NOTICE TO SHAREHOLDERS
PROXY VOTING INFORMATION
A description of the policies and procedures that Strategy uses to determine
how to vote proxies relating to securities held in Strategy's portfolio is
available, without charge and upon request, by calling (800) 955-7175. The
Fund's proxy voting record for the 12-month period ended June 30, 2004 is
available, without charge and upon request, by calling (800) 955-7175. This
information is also available from the EDGAR database on the SEC's website at
http://www.sec.gov.
Total Return, Managed Municipal and North American are not required to adopt
proxy voting policies and procedures under the applicable rule.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULE
Effective June 30, 2004, the Funds file their complete schedule of portfolio
holdings with the SEC for the first and third quarters of each fiscal year on
Form N-Q. The Funds' Form N-Q is available on the SEC's website at
http://www.sec.gov or may be reviewed and copied at the SEC's Public Reference
Room in Washington, DC. Information on the operation of the Public Reference
Room may be obtained by calling 800-SEC-0330.
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED OCTOBER 31, 2004:
The amounts may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
- -----------------------------------------------------------------------------------------
% of Ordinary Income
Distributions that % of Ordinary Income
Long-Term % of Tax-Exempt Qualify for the Distributions that
Capital Gain Income Corporate Dividends Qualify as Qualified
Distributions Distributions Received Deduction Dividend Income
- -----------------------------------------------------------------------------------------
Total Return $2,991,879 - - -
Managed Municipal - 83.70% - -
North American 2,884,276 - - -
Strategy - - 100.00% 100.00%
- -----------------------------------------------------------------------------------------
45
[LOGO]
DIRECTORS AND OFFICERS
EDWARD S. HYMAN THOMAS D. STEVENS*
CHAIRMAN VICE PRESIDENT
R. ALAN MEDAUGH STEPHEN V. KILLORIN
PRESIDENT VICE PRESIDENT
JOSEPH R. HARDIMAN TREASURER
DIRECTOR CHIEF COMPLIANCE OFFICER
W. MURRAY JACQUES CHIEF FINANCIAL OFFICER
DIRECTOR MARGARET M. BEELER
LOUIS E. LEVY ASSISTANT VICE PRESIDENT
DIRECTOR SECRETARY
NANCY R. LAZAR KEITH C. REILLY
VICE PRESIDENT ASSISTANT VICE PRESIDENT
CARRIE L. BUTLER FREDERICK SKILLIN
VICE PRESIDENT ASSISTANT TREASURER
EDWARD J. VEILLEUX DANA A. LUKENS
VICE PRESIDENT ASSISTANT SECRETARY
*Thomas D. Stevens is an
officer for only the ISI Strategy Fund.
INVESTMENT ADVISOR
ISI, INC.
535 MADISON AVENUE, 30TH FLOOR
NEW YORK, NY 10022
(800) 955-7175
SHAREHOLDER SERVICING AGENT
FORUM SHAREHOLDER SERVICES, LLC
TWO PORTLAND SQUARE
PORTLAND, ME 04101
(800) 882-8585
DISTRIBUTOR
ISI GROUP, INC.
535 MADISON AVENUE, 30TH FLOOR
NEW YORK, NY 10022
(800) 955-7175
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, North American Government
Bond Fund, Inc. has adopted a code of ethics as defined in Item 2 of Form N-CSR,
which applies to its President and Treasurer. A copy of the code is filed as an
exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board has determined that Louis E. Levy is an "audit committee
financial expert". Mr. Levy is "independent" for purposes of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees - The aggregate fees accrued for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by the
Registrant's principal accountant for the audit of the Registrant's annual
financial statements, or services that are normally provided by the principal
accountant in connection with the statutory and regulatory filings or
engagements for the Reporting Periods, were $26,200 in 2003 and $25,300 in 2004.
(b) Audit-Related Fees - There were no audit-related fees billed to the
Registrant in the Reporting Periods for assurance and related services rendered
by the principal accountant that were reasonably related to the performance of
the audit of the Registrant's financial statements and are not reported under
paragraph (a) of this Item 4.
(c) Tax Fees - The aggregate fees billed in the Reporting Periods for
professional services rendered by the principal accountant to the Registrant for
tax compliance, tax advice and tax planning were $3,000 in 2003 and $3,000 in
2004. These services consisted of review or preparation of U.S. federal, state,
local and excise tax returns.
(d) Other Fees - There were no other fees billed in the Reporting Periods for
products and services provided to the Registrant by the principal accountant, or
services provided to the investment adviser, other than the services reported
above.
(e) (1) The Registrant's Audit Committee is responsible for pre-approving all
audit and permissible non-audit services rendered to the Registrant.
(e) (2) 0.00%
(f) Not applicable
(g) The aggregate non-audit fees billed by the principal accountant for services
rendered to the Registrant for the Reporting Periods were $3,000 in 2003 and
$3,000 in 2004. There were no fees billed in each of the Reporting Periods for
non-audit services rendered by the principal accountant to the investment
adviser.
(h) If the Registrant's investment adviser has engaged the Registrant's auditor
for non-audit services and the engagement relates directly to the operations and
financial reporting of the Registrant, the Audit Committee does consider such
engagement in evaluating the independence of the Registrant's auditor.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable
ITEM 6. SCHEDULE OF INVESTMENTS.
Not Applicable
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable
ITEM 8. 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, based on their evaluation of these disclosure
controls and procedures required by Rule 30a-3(b) as of a date within 90 days of
the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act) that occurred during the
registrant's last fiscal half year that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
(a)(3) Not applicable
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Exhibit 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/ R. Alan Medaugh
-----------------------------------
R. Alan Medaugh, President
Date January 7, 2005
-----------------------------------
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
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R. Alan Medaugh, President
Date January 7, 2005
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By /s/ Stephen V. Killorin
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Stephen V. Killorin, Treasurer
Date January 7, 2005
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