As filed with the Securities and Exchange Commission on January 9, 2006
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-07292
NORTH AMERICAN GOVERNMENT BOND FUND, INC.
40 West 57th Street, 18th Floor
New York, New York 10019
(212) 446-5600
R. Alan Medaugh, President
40 West 57th Street, 18th Floor
New York, New York 10019
(212) 446-5600
Date of fiscal year end: October 31, 2005
Date of reporting period: October 31, 2005
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
[LOGO] ISI
INTERNATIONAL STRATEGY & INVESTMENT
ANNUAL REPORT
OCTOBER 31, 2005
[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........................ 24
Statements of Operations.................................... 26
Statements of Changes in Net Assets......................... 28
Financial Highlights........................................ 32
Notes to Financial Statements............................... 37
Report of Independent Registered Public Accounting Firm..... 42
Fund Directors and Officers................................. 43
Notice to Shareholders...................................... 46
INVESTMENT ADVISOR'S MESSAGE
Dear Shareholder:
I am pleased to present the annual report to shareholders for the ISI Funds
(each a 'Fund' and collectively, the 'Funds'). This report covers the 12-month
reporting period through October 31, 2005 and includes commentary from the
Funds' portfolio managers at International Strategy & Investment, Inc. ('ISI')
(see Management Discussion and Analysis that follows this letter for more
details), a complete list of holdings and the financial statements.
Stocks recorded positive returns for the last year and were down slightly
over the past five years. For example, the Dow Jones Wilshire 5000 (Full Cap)
Index was +10.77% for the last year but averaged -0.45% for the past five
years. U.S. Treasuries and top quality municipal indices increased modestly
over the last year and were up over the past 5 years. For example, the Lehman
Brothers Treasury Index was +0.88% for the past year and averaged +5.87% for
the past five years. The Lehman Brothers Municipal GO Index was +1.75% for the
past year and averaged +5.68% 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, 2005, Total Return US Treasury Fund, Managed Municipal Fund,
and North American Government Bond Fund continued their policy of paying
dividends at a fixed rate, which resulted in dividends consisting of net
investment income, short-term capital gains, long-term capital gains and/or
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 U.S. Treasury securities.
For the reporting period, the Fund produced a one-year total return of +1.38%
and a five-year average annual total return of +5.45%. From its inception on
August 10, 1988 through October 31, 2005, the Fund has posted a cumulative
total return of +234.26%, which translates into an average annual total return
of +7.26%. The Fund's net assets totaled $166.0 million at the end of the
reporting period.
MANAGED MUNICIPAL FUND'S investment objective is to provide a high level of
total return with relative stability of principal and, secondarily, high
current income exempt from Federal income tax through investment in a portfolio
consisting primarily of tax-free municipal obligations. For the reporting
period, the Fund produced a one-year total return of +1.19% and a five-year
average annual total return of +4.81%. From its inception on February 26, 1990
through October 31, 2005, the Fund has posted a cumulative total return of
+140.68%, which translates into an average annual total return of +5.76%. The
Fund's net assets totaled $94.0 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 at least 80% of its net assets in a portfolio consisting of bonds
issued or guaranteed by the governments of the United States, Canada and
Mexico. For the reporting period, the ISI Class A Shares produced a one-year
total return of +4.39% and a five-year average annual total return of +6.12%.
From its inception on January 15, 1993 through October 31, 2005, the ISI
Class A Shares have posted a cumulative total return of +109.68%, which
translates into an average annual total return of +5.96%. For the reporting
period, the ISI Class C Shares produced a one-year total return of +3.73% and
from its inception on May 16, 2003 through October 31, 2005 posted a cumulative
total return of +3.95%, which translates into an average annual total return of
+1.59%. The Fund's net assets totaled $193.0 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
1
INVESTMENT ADVISOR'S MESSAGE
U.S. issuers and U.S. Treasury securities. For the reporting period, the Fund
produced a one-year total return of +9.59% and a five-year average annual total
return of +1.83%. From its inception on September 16, 1997 through October 31,
2005, the Fund has posted a cumulative total return of +49.03%, which
translates into an average annual total return of +5.03%. The Fund's net assets
totaled $60.2 million at the end of the reporting period.
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, 2005
2
MANAGEMENT DISCUSSION AND ANALYSIS
TOTAL RETURN US TREASURY FUND
The market traded in a wide range of interest rates this year, with rates
closing towards the top of the range. Please see chart below for the 10-year
Treasury yield over the year. During the fiscal year, the Federal Reserve
('Fed') raised its overnight Federal Funds Target Rate from 1.75% to 4.00%
effective November 1. The increases were viewed as working to slow the economy
and cap inflation, but the oil price spike forced the Fed and the bond market
to worry about inflation passing through to the core (excluding: food and
energy) portion of prices. As a result, the bond market recently pushed 10-year
Treasuries above 4.50%. The Fund's total return over the year of +1.38%
reflected the rate increase (i.e. 10-year Treasury rates are up from 4.03% to
4.55% this year). ISI sees rates in their current range as a good value given
the long-term benevolent inflation effects of expanding world trade and
technology. We also expect the Federal Reserve to end its rate increases early
in 2006. Currently, the Fund has a weighted average maturity of 9.6 years and
is positioned to take advantage of a bond market rally.
[CHART]
10-Year US
Treasury Yield/*/
----------------
11/01/04 4.072
11/02/04 4.048
11/03/04 4.076
11/04/04 4.074
11/05/04 4.175
11/06/04 4.175
11/07/04 4.175
11/08/04 4.218
11/09/04 4.228
11/10/04 4.241
11/11/04 4.254
11/12/04 4.181
11/13/04 4.181
11/14/04 4.181
11/15/04 4.188
11/16/04 4.207
11/17/04 4.131
11/18/04 4.115
11/19/04 4.205
11/20/04 4.205
11/21/04 4.205
11/22/04 4.180
11/23/04 4.184
11/24/04 4.200
11/25/04 4.196
11/26/04 4.248
11/27/04 4.248
11/28/04 4.248
11/29/04 4.320
11/30/04 4.351
12/01/04 4.367
12/02/04 4.408
12/03/04 4.252
12/04/04 4.252
12/05/04 4.252
12/06/04 4.223
12/07/04 4.223
12/08/04 4.120
12/09/04 4.168
12/10/04 4.151
12/11/04 4.151
12/12/04 4.151
12/13/04 4.149
12/14/04 4.124
12/15/04 4.076
12/16/04 4.186
12/17/04 4.201
12/18/04 4.201
12/19/04 4.201
12/20/04 4.185
12/21/04 4.164
12/22/04 4.195
12/23/04 4.226
12/24/04 4.216
12/25/04 4.216
12/26/04 4.216
12/27/04 4.298
12/28/04 4.293
12/29/04 4.324
12/30/04 4.255
12/31/04 4.220
01/01/05 4.220
01/02/05 4.220
01/03/05 4.212
01/04/05 4.291
01/05/05 4.283
01/06/05 4.263
01/07/05 4.271
01/08/05 4.271
01/09/05 4.271
01/10/05 4.271
01/11/05 4.238
01/12/05 4.236
01/13/05 4.165
01/14/05 4.226
01/15/05 4.226
01/16/05 4.226
01/17/05 4.210
01/18/05 4.187
01/19/05 4.173
01/20/05 4.163
01/21/05 4.142
01/22/05 4.142
01/23/05 4.142
01/24/05 4.122
01/25/05 4.194
01/26/05 4.198
01/27/05 4.220
01/28/05 4.142
01/29/05 4.142
01/30/05 4.142
01/31/05 4.130
02/01/05 4.140
02/02/05 4.142
02/03/05 4.165
02/04/05 4.077
02/05/05 4.077
02/06/05 4.077
02/07/05 4.052
02/08/05 4.017
02/09/05 3.992
02/10/05 4.091
02/11/05 4.086
02/12/05 4.086
02/13/05 4.086
02/14/05 4.071
02/15/05 4.098
02/16/05 4.154
02/17/05 4.181
02/18/05 4.267
02/19/05 4.267
02/20/05 4.267
02/21/05 4.264
02/22/05 4.287
02/23/05 4.264
02/24/05 4.285
02/25/05 4.266
02/26/05 4.266
02/27/05 4.266
02/28/05 4.379
03/01/05 4.367
03/02/05 4.379
03/03/05 4.379
03/04/05 4.310
03/05/05 4.310
03/06/05 4.310
03/07/05 4.310
03/08/05 4.393
03/09/05 4.522
03/10/05 4.465
03/11/05 4.544
03/12/05 4.544
03/13/05 4.544
03/14/05 4.510
03/15/05 4.547
03/16/05 4.508
03/17/05 4.466
03/18/05 4.509
03/19/05 4.509
03/20/05 4.509
03/21/05 4.520
03/22/05 4.643
03/23/05 4.586
03/24/05 4.599
03/25/05 4.595
03/26/05 4.595
03/27/05 4.595
03/28/05 4.642
03/29/05 4.575
03/30/05 4.548
03/31/05 4.483
04/01/05 4.449
04/02/05 4.449
04/03/05 4.449
04/04/05 4.458
04/05/05 4.470
04/06/05 4.424
04/07/05 4.482
04/08/05 4.470
04/09/05 4.470
04/10/05 4.470
04/11/05 4.430
04/12/05 4.354
04/13/05 4.362
04/14/05 4.310
04/15/05 4.243
04/16/05 4.243
04/17/05 4.243
04/18/05 4.272
04/19/05 4.213
04/20/05 4.187
04/21/05 4.296
04/22/05 4.247
04/23/05 4.247
04/24/05 4.247
04/25/05 4.249
04/26/05 4.267
04/27/05 4.225
04/28/05 4.146
04/29/05 4.200
04/30/05 4.200
05/01/05 4.200
05/02/05 4.188
05/03/05 4.166
05/04/05 4.188
05/05/05 4.156
05/06/05 4.260
05/07/05 4.260
05/08/05 4.260
05/09/05 4.284
05/10/05 4.202
05/11/05 4.204
05/12/05 4.172
05/13/05 4.119
05/14/05 4.119
05/15/05 4.119
05/16/05 4.129
05/17/05 4.115
05/18/05 4.090
05/19/05 4.113
05/20/05 4.123
05/21/05 4.123
05/22/05 4.123
05/23/05 4.056
05/24/05 4.029
05/25/05 4.088
05/26/05 4.081
05/27/05 4.073
05/28/05 4.073
05/29/05 4.073
05/30/05 4.071
05/31/05 3.983
06/01/05 3.886
06/02/05 3.905
06/03/05 3.975
06/04/05 3.975
06/05/05 3.975
06/06/05 3.954
06/07/05 3.903
06/08/05 3.935
06/09/05 3.950
06/10/05 4.053
06/11/05 4.053
06/12/05 4.053
06/13/05 4.094
06/14/05 4.109
06/15/05 4.101
06/16/05 4.069
06/17/05 4.072
06/18/05 4.072
06/19/05 4.072
06/20/05 4.111
06/21/05 4.042
06/22/05 3.942
06/23/05 3.953
06/24/05 3.919
06/25/05 3.919
06/26/05 3.919
06/27/05 3.904
06/28/05 3.972
06/29/05 3.980
06/30/05 3.915
07/01/05 4.051
07/02/05 4.051
07/03/05 4.051
07/04/05 4.039
07/05/05 4.107
07/06/05 4.070
07/07/05 4.062
07/08/05 4.093
07/09/05 4.093
07/10/05 4.093
07/11/05 4.095
07/12/05 4.144
07/13/05 4.158
07/14/05 4.175
07/15/05 4.165
07/16/05 4.165
07/17/05 4.165
07/18/05 4.222
07/19/05 4.181
07/20/05 4.160
07/21/05 4.278
07/22/05 4.221
07/23/05 4.221
07/24/05 4.221
07/25/05 4.246
07/26/05 4.226
07/27/05 4.256
07/28/05 4.191
07/29/05 4.278
07/30/05 4.278
07/31/05 4.278
08/01/05 4.312
08/02/05 4.336
08/03/05 4.294
08/04/05 4.314
08/05/05 4.388
08/06/05 4.388
08/07/05 4.388
08/08/05 4.420
08/09/05 4.390
08/10/05 4.392
08/11/05 4.322
08/12/05 4.244
08/13/05 4.244
08/14/05 4.244
08/15/05 4.283
08/16/05 4.207
08/17/05 4.269
08/18/05 4.200
08/19/05 4.207
08/20/05 4.207
08/21/05 4.207
08/22/05 4.209
08/23/05 4.180
08/24/05 4.167
08/25/05 4.157
08/26/05 4.188
08/27/05 4.188
08/28/05 4.188
08/29/05 4.169
08/30/05 4.092
08/31/05 4.016
09/01/05 4.033
09/02/05 4.038
09/03/05 4.038
09/04/05 4.038
09/05/05 4.030
09/06/05 4.097
09/07/05 4.139
09/08/05 4.147
09/09/05 4.120
09/10/05 4.120
09/11/05 4.120
09/12/05 4.172
09/13/05 4.128
09/14/05 4.166
09/15/05 4.213
09/16/05 4.273
09/17/05 4.273
09/18/05 4.273
09/19/05 4.248
09/20/05 4.244
09/21/05 4.168
09/22/05 4.181
09/23/05 4.248
09/24/05 4.248
09/25/05 4.248
09/26/05 4.293
09/27/05 4.283
09/28/05 4.255
09/29/05 4.296
09/30/05 4.326
10/01/05 4.326
10/02/05 4.326
10/03/05 4.385
10/04/05 4.369
10/05/05 4.342
10/06/05 4.389
10/07/05 4.374
10/08/05 4.374
10/09/05 4.374
10/10/05 4.358
10/11/05 4.393
10/12/05 4.441
10/13/05 4.463
10/14/05 4.481
10/15/05 4.481
10/16/05 4.481
10/17/05 4.495
10/18/05 4.471
10/19/05 4.461
10/20/05 4.431
10/21/05 4.386
10/22/05 4.386
10/23/05 4.386
10/24/05 4.446
10/25/05 4.536
10/26/05 4.585
10/27/05 4.548
10/28/05 4.567
10/29/05 4.567
10/30/05 4.567
10/31/05 4.553
*Source: Bloomberg
MANAGED MUNICIPAL FUND
During the year, 20-year AAA quality general obligation municipal yields
moved from 4.13% in February 2005 to a high yield of 4.51% in March 2005. At
this year's fiscal year-end, the rate was 4.43%, near the high yield for the
year (please see chart below). As yields rose since the end of September, the
Fund has extended its weighted average maturity from 6.0 years to 8.2 years at
the end of the fiscal year. This move anticipates a better municipal market
next year when the Fed finishes its rate hike program. For the fiscal year, the
Fund's total return was +1.19% for the year, reflecting yield increases during
the fiscal year.
[CHART]
20-Year AAA General
Obligation Yields/*/
-----------------
11/01/04 4.38
11/02/04 4.38
11/03/04 4.38
11/04/04 4.38
11/05/04 4.43
11/06/04 4.43
11/07/04 4.43
11/08/04 4.43
11/09/04 4.46
11/10/04 4.48
11/11/04 4.48
11/12/04 4.46
11/13/04 4.46
11/14/04 4.46
11/15/04 4.47
11/16/04 4.45
11/17/04 4.42
11/18/04 4.40
11/19/04 4.43
11/20/04 4.43
11/21/04 4.43
11/22/04 4.41
11/23/04 4.39
11/24/04 4.39
11/25/04 4.39
11/26/04 4.39
11/27/04 4.39
11/28/04 4.39
11/29/04 4.46
11/30/04 4.51
12/01/04 4.48
12/02/04 4.49
12/03/04 4.49
12/04/04 4.49
12/05/04 4.49
12/06/04 4.44
12/07/04 4.49
12/08/04 4.44
12/09/04 4.44
12/10/04 4.43
12/11/04 4.43
12/12/04 4.43
12/13/04 4.40
12/14/04 4.40
12/15/04 4.37
12/16/04 4.33
12/17/04 4.33
12/18/04 4.33
12/19/04 4.33
12/20/04 4.33
12/21/04 4.33
12/22/04 4.33
12/23/04 4.34
12/24/04 4.34
12/25/04 4.34
12/26/04 4.34
12/27/04 4.37
12/28/04 4.36
12/29/04 4.36
12/30/04 4.34
12/31/04 4.36
01/01/05 4.36
01/02/05 4.36
01/03/05 4.36
01/04/05 4.38
01/05/05 4.37
01/06/05 4.34
01/07/05 4.32
01/08/05 4.32
01/09/05 4.32
01/10/05 4.32
01/11/05 4.30
01/12/05 4.30
01/13/05 4.27
01/14/05 4.27
01/15/05 4.27
01/16/05 4.27
01/17/05 4.27
01/18/05 4.27
01/19/05 4.28
01/20/05 4.27
01/21/05 4.27
01/22/05 4.27
01/23/05 4.27
01/24/05 4.27
01/25/05 4.27
01/26/05 4.27
01/27/05 4.27
01/28/05 4.24
01/29/05 4.24
01/30/05 4.24
01/31/05 4.25
02/01/05 4.25
02/02/05 4.25
02/03/05 4.25
02/04/05 4.22
02/05/05 4.22
02/06/05 4.22
02/07/05 4.20
02/08/05 4.18
02/09/05 4.15
02/10/05 4.15
02/11/05 4.15
02/12/05 4.15
02/13/05 4.15
02/14/05 4.13
02/15/05 4.15
02/16/05 4.19
02/17/05 4.24
02/18/05 4.24
02/19/05 4.24
02/20/05 4.24
02/21/05 4.24
02/22/05 4.24
02/23/05 4.30
02/24/05 4.34
02/25/05 4.35
02/26/05 4.35
02/27/05 4.35
02/28/05 4.35
03/01/05 4.37
03/02/05 4.34
03/03/05 4.34
03/04/05 4.34
03/05/05 4.34
03/06/05 4.34
03/07/05 4.33
03/08/05 4.33
03/09/05 4.35
03/10/05 4.41
03/11/05 4.41
03/12/05 4.41
03/13/05 4.41
03/14/05 4.42
03/15/05 4.43
03/16/05 4.43
03/17/05 4.43
03/18/05 4.42
03/19/05 4.42
03/20/05 4.42
03/21/05 4.43
03/22/05 4.44
03/23/05 4.47
03/24/05 4.47
03/25/05 4.47
03/26/05 4.47
03/27/05 4.47
03/28/05 4.47
03/29/05 4.47
03/30/05 4.47
03/31/05 4.47
04/01/05 4.47
04/02/05 4.47
04/03/05 4.47
04/04/05 4.45
04/05/05 4.45
04/06/05 4.44
04/07/05 4.43
04/08/05 4.44
04/09/05 4.44
04/10/05 4.44
04/11/05 4.44
04/12/05 4.43
04/13/05 4.42
04/14/05 4.39
04/15/05 4.35
04/16/05 4.35
04/17/05 4.35
04/18/05 4.33
04/19/05 4.32
04/20/05 4.31
04/21/05 4.31
04/22/05 4.31
04/23/05 4.31
04/24/05 4.31
04/25/05 4.31
04/26/05 4.31
04/27/05 4.32
04/28/05 4.30
04/29/05 4.28
04/30/05 4.28
05/01/05 4.28
05/02/05 4.26
05/03/05 4.26
05/04/05 4.25
05/05/05 4.27
05/06/05 4.26
05/07/05 4.26
05/08/05 4.26
05/09/05 4.26
05/10/05 4.31
05/11/05 4.31
05/12/05 4.31
05/13/05 4.29
05/14/05 4.29
05/15/05 4.29
05/16/05 4.29
05/17/05 4.28
05/18/05 4.26
05/19/05 4.24
05/20/05 4.24
05/21/05 4.24
05/22/05 4.24
05/23/05 4.23
05/24/05 4.23
05/25/05 4.23
05/26/05 4.23
05/27/05 4.24
05/28/05 4.24
05/29/05 4.24
05/30/05 4.24
05/31/05 4.22
06/01/05 4.22
06/02/05 4.19
06/03/05 4.17
06/04/05 4.17
06/05/05 4.17
06/06/05 4.17
06/07/05 4.16
06/08/05 4.16
06/09/05 4.16
06/10/05 4.17
06/11/05 4.17
06/12/05 4.17
06/13/05 4.19
06/14/05 4.20
06/15/05 4.22
06/16/05 4.23
06/17/05 4.24
06/18/05 4.24
06/19/05 4.24
06/20/05 4.25
06/21/05 4.25
06/22/05 4.21
06/23/05 4.21
06/24/05 4.19
06/25/05 4.19
06/26/05 4.19
06/27/05 4.19
06/28/05 4.19
06/29/05 4.19
06/30/05 4.19
07/01/05 4.20
07/02/05 4.20
07/03/05 4.20
07/04/05 4.20
07/05/05 4.22
07/06/05 4.25
07/07/05 4.26
07/08/05 4.24
07/09/05 4.24
07/10/05 4.24
07/11/05 4.24
07/12/05 4.26
07/13/05 4.27
07/14/05 4.29
07/15/05 4.29
07/16/05 4.29
07/17/05 4.29
07/18/05 4.30
07/19/05 4.30
07/20/05 4.31
07/21/05 4.31
07/22/05 4.36
07/23/05 4.36
07/24/05 4.36
07/25/05 4.34
07/26/05 4.32
07/27/05 4.32
07/28/05 4.32
07/29/05 4.29
07/30/05 4.29
07/31/05 4.29
08/01/05 4.29
08/02/05 4.32
08/03/05 4.33
08/04/05 4.30
08/05/05 4.29
08/06/05 4.29
08/07/05 4.29
08/08/05 4.32
08/09/05 4.34
08/10/05 4.34
08/11/05 4.34
08/12/05 4.33
08/13/05 4.33
08/14/05 4.33
08/15/05 4.31
08/16/05 4.30
08/17/05 4.27
08/18/05 4.27
08/19/05 4.27
08/20/05 4.27
08/21/05 4.27
08/22/05 4.25
08/23/05 4.25
08/24/05 4.25
08/25/05 4.25
08/26/05 4.24
08/27/05 4.24
08/28/05 4.24
08/29/05 4.22
08/30/05 4.22
08/31/05 4.22
09/01/05 4.21
09/02/05 4.18
09/03/05 4.18
09/04/05 4.18
09/05/05 4.18
09/06/05 4.17
09/07/05 4.17
09/08/05 4.19
09/09/05 4.21
09/10/05 4.21
09/11/05 4.21
09/12/05 4.21
09/13/05 4.24
09/14/05 4.22
09/15/05 4.23
09/16/05 4.27
09/17/05 4.27
09/18/05 4.27
09/19/05 4.30
09/20/05 4.31
09/21/05 4.31
09/22/05 4.29
09/23/05 4.29
09/24/05 4.29
09/25/05 4.29
09/26/05 4.32
09/27/05 4.32
09/28/05 4.33
09/29/05 4.33
09/30/05 4.34
10/01/05 4.34
10/02/05 4.34
10/03/05 4.34
10/04/05 4.38
10/05/05 4.36
10/06/05 4.36
10/07/05 4.37
10/08/05 4.37
10/09/05 4.37
10/10/05 4.37
10/11/05 4.38
10/12/05 4.38
10/13/05 4.41
10/14/05 4.40
10/15/05 4.40
10/16/05 4.40
10/17/05 4.42
10/18/05 4.44
10/19/05 4.44
10/20/05 4.43
10/21/05 4.43
10/22/05 4.43
10/23/05 4.43
10/24/05 4.43
10/25/05 4.43
10/26/05 4.40
10/27/05 4.43
10/28/05 4.43
10/29/05 4.43
10/30/05 4.43
10/31/05 4.43
*Source: Bloomberg
NORTH AMERICAN GOVERNMENT BOND FUND
In May 2005 when the 10-year Treasury rate reached a low of 3.89%, the
Fund's U.S. Treasury investments had a weighted average maturity of 9.2 years.
At fiscal year-end, with 10-year Treasury rates over 4.50%, the section's
weighted average maturity was extended out to 10.4 years. ISI's outlook for
Treasury rates is that they are now in a good value range and have profit
potential for the next fiscal year. The Fund also increased its holdings of
Canadian and Mexican government bonds during the fiscal year, attracted by
their strong currency characteristics and, in the case of Mexico, its high
yield. Overall, the Canadian and Mexican sections moved up from 20.2% of the
portfolio in October 2004 to 25.4% in October 2005. The
3
MANAGEMENT DISCUSSION AND ANALYSIS
combination of these two active management steps helped the Fund's ISI Class A
shares produce a +4.39% total return over the fiscal year.
ISI STRATEGY FUND
One of the primary focuses in the active management of the Fund is making a
decision about the allocation between stocks, bonds and cash. During the past
year, the portfolio was invested in equities so that its average percentage
weighting was about 68.8% of the whole portfolio. The normal policy range is
40% to 80% equities. At the end of the fiscal year, the equity section
represented a high 74% of the portfolio. The higher weighting in stocks helped
performance because the Dow Jones Wilshire 5000 (Full Cap) Index was +10.77%
for the year, while the Lehman Brothers Treasury Index was up only +0.88%. Two
additional investment features were also important to the Fund. First, the
equity portfolio is invested to reflect the movement of the U.S. stock market
as a whole. The benchmark index is the Dow Jones Wilshire 5000 (Full Cap)
Index. Over the last year, this broader measure of the equity market
outperformed the somewhat narrower S&P 500 Index, with a total return of
+10.77% versus +8.91%. Second, the fixed income section is U.S. Treasury-based
with a managed maturity orientation similar to that of the Total Return US
Treasury Fund. At the beginning of the fiscal year, the section's weighted
average maturity, including reserves, was 8.1 years. As rates fell during the
first part of the fiscal year, the portfolio's weighted average maturity
including reserves was reduced to 6.7 years, helping the Fund weather the
following increase in yield. The Fund's average maturity was later extended as
rates rose, so that by the end of the fiscal year the weighted average maturity
was up to 7.6 years.
4
TOTAL RETURN US TREASURY FUND - ISI SHARES PERFORMANCE COMPARISON/1/
[CHART]
Total Return US Treasury Fund - ISI Shares, Lehman Brothers Treasury Index,
Lehman Brothers Intermediate Treasury Index and Lehman Brothers Long-Term
Treasury Index:
Value of a $10,000 Investment (for 10 Years ended October 31, 2005)
Total Return Lehman Brothers
US Treasury Intermediate Lehman Brothers
Fund - Lehman Brothers Treasury Long-Term
ISI Shares Treasury Index Index Treasury Index
------------ --------------- --------------- ---------------
10/31/1995 $ 9,700 $10,000 $10,000 $10,000
11/30/1995 9,880 10,155 10,122 10,250
12/31/1995 10,075 10,300 10,224 10,523
1/31/1996 10,088 10,365 10,311 10,523
2/29/1996 9,754 10,153 10,201 10,014
3/31/1996 9,601 10,065 10,151 9,815
4/30/1996 9,486 10,004 10,121 9,651
5/31/1996 9,459 9,985 10,117 9,601
6/30/1996 9,601 10,111 10,217 9,805
7/31/1996 9,614 10,135 10,248 9,809
8/31/1996 9,537 10,114 10,261 9,687
9/30/1996 9,731 10,280 10,392 9,954
10/31/1996 10,029 10,506 10,562 10,345
11/30/1996 10,297 10,688 10,689 10,690
12/31/1996 10,095 10,578 10,631 10,431
1/31/1997 10,057 10,589 10,670 10,357
2/28/1997 10,050 10,602 10,686 10,361
3/31/1997 9,896 10,487 10,623 10,096
4/30/1997 10,046 10,637 10,742 10,340
5/31/1997 10,144 10,729 10,826 10,456
6/30/1997 10,296 10,849 10,917 10,658
7/31/1997 10,725 11,160 11,122 11,283
8/31/1997 10,525 11,047 11,077 10,969
9/30/1997 10,711 11,215 11,198 11,271
10/31/1997 10,931 11,410 11,329 11,651
11/30/1997 11,011 11,470 11,356 11,806
12/31/1997 11,167 11,591 11,449 12,004
1/31/1998 11,336 11,768 11,602 12,248
2/28/1998 11,284 11,733 11,587 12,160
3/31/1998 11,309 11,765 11,621 12,185
4/30/1998 11,335 11,818 11,676 12,231
5/31/1998 11,496 11,940 11,757 12,464
6/30/1998 11,680 12,078 11,837 12,754
7/31/1998 11,660 12,097 11,883 12,701
8/31/1998 12,120 12,425 12,118 13,274
9/30/1998 12,468 12,772 12,410 13,760
10/31/1998 12,298 12,731 12,435 13,552
11/30/1998 12,383 12,728 12,389 13,656
12/31/1998 12,373 12,753 12,436 13,627
1/31/1999 12,449 12,827 12,490 13,750
2/28/1999 12,019 12,500 12,308 13,074
3/31/1999 12,023 12,548 12,389 13,044
4/30/1999 12,063 12,577 12,424 13,062
5/31/1999 11,920 12,460 12,345 12,857
6/30/1999 11,838 12,434 12,368 12,721
7/31/1999 11,792 12,424 12,379 12,659
8/31/1999 11,746 12,425 12,404 12,610
9/30/1999 11,837 12,521 12,501 12,703
10/31/1999 11,828 12,534 12,517 12,711
11/30/1999 11,769 12,510 12,522 12,625
12/31/1999 11,671 12,427 12,487 12,436
1/31/2000 11,803 12,460 12,453 12,613
2/29/2000 12,051 12,647 12,550 12,994
3/31/2000 12,365 12,898 12,710 13,439
4/30/2000 12,330 12,857 12,701 13,331
5/31/2000 12,295 12,877 12,754 13,283
6/30/2000 12,496 13,094 12,939 13,570
7/31/2000 12,659 13,229 13,026 13,804
8/31/2000 12,889 13,423 13,162 14,119
9/30/2000 12,786 13,434 13,263 13,947
10/31/2000 12,951 13,565 13,350 14,166
11/30/2000 13,239 13,843 13,544 14,613
12/31/2000 13,515 14,107 13,769 14,957
1/31/2001 13,546 14,222 13,931 14,982
2/28/2001 13,743 14,394 14,060 15,238
3/31/2001 13,706 14,440 14,171 15,162
4/30/2001 13,432 14,260 14,115 14,749
5/31/2001 13,464 14,305 14,173 14,768
6/30/2001 13,510 14,382 14,224 14,895
7/31/2001 13,910 14,740 14,482 15,450
8/31/2001 14,141 14,936 14,608 15,780
9/30/2001 14,245 15,173 14,910 15,898
10/31/2001 14,709 15,593 15,136 16,679
11/30/2001 14,223 15,207 14,965 15,886
12/31/2001 14,082 15,059 14,893 15,587
1/31/2002 14,174 15,160 14,934 15,737
2/28/2002 14,266 15,297 15,057 15,972
3/31/2002 13,932 14,929 14,827 15,326
4/30/2002 14,292 15,300 15,092 15,908
5/31/2002 14,355 15,386 15,196 15,958
6/30/2002 14,597 15,603 15,381 16,245
7/31/2002 14,961 15,973 15,688 16,746
8/31/2002 15,402 16,318 15,852 17,477
9/30/2002 15,814 16,758 16,157 18,205
10/31/2002 15,558 16,573 16,127 17,682
11/30/2002 15,409 16,408 15,977 17,487
12/31/2002 15,780 16,835 16,274 18,203
1/31/2003 15,721 16,784 16,227 18,141
2/28/2003 16,003 17,072 16,403 18,691
3/31/2003 15,913 17,001 16,402 18,456
4/30/2003 15,994 17,080 16,435 18,643
5/31/2003 16,499 17,573 16,690 19,691
6/30/2003 16,392 17,465 16,663 19,391
7/31/2003 15,652 16,698 16,298 17,657
8/31/2003 15,735 16,797 16,321 17,938
9/30/2003 16,168 17,304 16,659 18,872
10/31/2003 15,916 17,040 16,496 18,347
11/30/2003 15,951 17,061 16,492 18,436
12/31/2003 16,062 17,212 16,617 18,655
1/31/2004 16,199 17,359 16,699 18,975
2/29/2004 16,396 17,574 16,854 19,353
3/31/2004 16,526 17,739 16,973 19,647
4/30/2004 15,979 17,168 16,589 18,545
5/31/2004 15,940 17,109 16,541 18,454
6/30/2004 16,020 17,178 16,576 18,622
7/31/2004 16,135 17,342 16,689 18,937
8/31/2004 16,473 17,700 16,933 19,640
9/30/2004 16,503 17,746 16,941 19,806
10/31/2004 16,654 17,886 17,034 20,097
11/30/2004 16,422 17,646 16,859 19,650
12/31/2004 16,609 17,821 16,953 20,092
1/31/2005 16,814 17,951 16,972 20,599
2/28/2005 16,672 17,805 16,861 20,333
3/31/2005 16,617 17,747 16,826 20,197
4/30/2005 16,916 18,059 17,031 20,888
5/31/2005 17,163 18,279 17,161 21,430
6/30/2005 17,322 18,391 17,216 21,752
7/31/2005 17,034 18,142 17,056 21,181
8/31/2005 17,355 18,430 17,251 21,798
9/30/2005 17,065 18,185 17,110 21,172
10/31/2005 16,884 18,043 17,034 20,782
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Ending Since Since
October 31, 2005 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 -1.70% 5.31% 26.40% 68.84% 224.21% -1.70% 1.74% 4.80% 5.38% 7.07%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Treasury
Index/3/ 0.88% 8.87% 33.01% 80.43% 251.15% 0.88% 2.87% 5.87% 6.08% 7.59%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Treasury
Index/3/ 0.00% 5.62% 27.59% 70.34% 212.18% 0.00% 1.84% 4.99% 5.47% 6.86%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Long-Term Treasury
Index/3/ 3.41% 17.53% 46.71% 107.82% 378.25% 3.41% 5.53% 7.97% 7.59% 9.54%
- -------------------------------------------------------------------------------------------------------------------
/1/ PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. The performance
information presented in the graph and table above does not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the redemption of Fund shares. All performance assumes the reinvestment of
dividends and capital gain distributions and includes the Fund's maximum
3.00% sales charge. Distribution of the Fund's capital gains and non-US
Treasury income may be subject to state and local taxes. Management is not
aware of any single index that is truly representative of the Fund since
its active maturity management policy allows the manager to adjust the
weighted average maturity throughout each US Treasury sector. Currently the
Fund's weighted average maturity is approximately 9.6 years.
/2/ The Fund's inception date is August 10, 1988. Benchmark returns are for the
periods beginning August 31, 1988.
/3/ The Lehman Brothers Treasury Index is an unmanaged index reflecting the
performance of all public Treasury obligations and does not focus on one
particular segment of the Treasury market. The Lehman Brothers Intermediate
Treasury Index is an unmanaged index reflecting the performance of US
Treasury securities in the intermediate-term Treasury sector. The Lehman
Brothers Long-Term Treasury Index is an unmanaged index reflecting the
performance of US Treasury securities in the long-term Treasury sector.
Benchmark returns do not reflect expenses or sales charges that have been
deducted from the Fund's returns.
5
MANAGED MUNICIPAL FUND - ISI SHARES PERFORMANCE COMPARISON/1 /
[CHART]
Managed Municipal Fund - ISI Shares, Lehman Brothers General Obligation Index,
Lehman Brothers Prerefunded Municipal Bond Index and Consumer Price Index: Value
of a $10,000 Investment (for 10 Years ended October 31, 2005)
Lehman Brothers
Managed Lehman Brothers Prerefunded
Municipal Fund - General Municipal Bond Consumer Price
ISI Shares Obligation Index Index Index
-------------- ---------------- --------------- --------------
10/31/1995 $9,700 $10,000 $10,000 $10,000
11/30/1995 9,868 10,141 10,109 9,994
12/31/1995 9,992 10,221 10,171 9,987
1/31/1996 10,062 10,320 10,286 10,046
2/29/1996 9,955 10,273 10,249 10,078
3/31/1996 9,765 10,159 10,147 10,130
4/30/1996 9,724 10,123 10,152 10,169
5/31/1996 9,691 10,107 10,151 10,189
6/30/1996 9,809 10,209 10,193 10,195
7/31/1996 9,928 10,306 10,286 10,215
8/31/1996 9,884 10,305 10,283 10,234
9/30/1996 10,023 10,432 10,378 10,267
10/31/1996 10,152 10,554 10,459 10,299
11/30/1996 10,330 10,750 10,588 10,319
12/31/1996 10,263 10,707 10,563 10,319
1/31/1997 10,263 10,736 10,601 10,351
2/28/1997 10,337 10,834 10,685 10,384
3/31/1997 10,194 10,694 10,568 10,410
4/30/1997 10,278 10,777 10,603 10,423
5/31/1997 10,432 10,938 10,754 10,416
6/30/1997 10,546 11,056 10,826 10,429
7/31/1997 10,860 11,342 11,009 10,442
8/31/1997 10,705 11,242 10,956 10,462
9/30/1997 10,851 11,369 11,050 10,488
10/31/1997 10,906 11,432 11,094 10,514
11/30/1997 10,952 11,486 11,119 10,508
12/31/1997 11,126 11,649 11,215 10,495
1/31/1998 11,238 11,769 11,313 10,514
2/28/1998 11,213 11,778 11,344 10,534
3/31/1998 11,218 11,789 11,341 10,553
4/30/1998 11,151 11,727 11,306 10,573
5/31/1998 11,354 11,920 11,447 10,592
6/30/1998 11,380 11,963 11,487 10,605
7/31/1998 11,396 11,992 11,530 10,618
8/31/1998 11,602 12,181 11,655 10,631
9/30/1998 11,745 12,344 11,750 10,644
10/31/1998 11,729 12,347 11,794 10,670
11/30/1998 11,756 12,387 11,831 10,670
12/31/1998 11,799 12,427 11,851 10,664
1/31/1999 11,939 12,590 11,979 10,690
2/28/1999 11,858 12,526 11,979 10,703
3/31/1999 11,842 12,531 11,977 10,735
4/30/1999 11,880 12,566 12,012 10,813
5/31/1999 11,759 12,495 11,969 10,813
6/30/1999 11,573 12,312 11,864 10,813
7/31/1999 11,617 12,361 11,936 10,846
8/31/1999 11,495 12,288 11,936 10,872
9/30/1999 11,439 12,299 11,974 10,924
10/31/1999 11,306 12,192 11,961 10,943
11/30/1999 11,451 12,316 12,021 10,950
12/31/1999 11,350 12,239 11,988 10,950
1/31/2000 11,271 12,194 12,004 10,982
2/29/2000 11,452 12,316 12,051 11,048
3/31/2000 11,737 12,563 12,155 11,139
4/30/2000 11,623 12,499 12,147 11,145
5/31/2000 11,543 12,433 12,148 11,158
6/30/2000 11,877 12,752 12,323 11,217
7/31/2000 12,050 12,921 12,433 11,243
8/31/2000 12,213 13,105 12,543 11,243
9/30/2000 12,108 13,038 12,532 11,301
10/31/2000 12,260 13,176 12,610 11,321
11/30/2000 12,377 13,268 12,674 11,327
12/31/2000 12,743 13,581 12,851 11,321
1/31/2001 12,802 13,729 13,033 11,392
2/28/2001 12,850 13,770 13,081 11,438
3/31/2001 12,945 13,891 13,174 11,464
4/30/2001 12,753 13,747 13,114 11,509
5/31/2001 12,886 13,886 13,239 11,562
6/30/2001 12,982 13,972 13,310 11,581
7/31/2001 13,164 14,171 13,439 11,549
8/31/2001 13,370 14,400 13,603 11,549
9/30/2001 13,285 14,369 13,654 11,601
10/31/2001 13,456 14,515 13,776 11,562
11/30/2001 13,333 14,388 13,682 11,542
12/31/2001 13,247 14,272 13,623 11,496
1/31/2002 13,421 14,507 13,822 11,522
2/28/2002 13,584 14,683 13,971 11,568
3/31/2002 13,308 14,403 13,688 11,633
4/30/2002 13,535 14,700 13,949 11,698
5/31/2002 13,636 14,781 14,037 11,698
6/30/2002 13,737 14,946 14,179 11,705
7/31/2002 13,902 15,131 14,332 11,718
8/31/2002 14,094 15,303 14,456 11,757
9/30/2002 14,388 15,613 14,664 11,776
10/31/2002 14,144 15,360 14,493 11,796
11/30/2002 14,079 15,285 14,446 11,796
12/31/2002 14,403 15,585 14,744 11,770
1/31/2003 14,325 15,558 14,726 11,822
2/28/2003 14,521 15,773 14,892 11,913
3/31/2003 14,534 15,803 14,868 11,984
4/30/2003 14,639 15,905 14,944 11,958
5/31/2003 14,916 16,256 15,194 11,939
6/30/2003 14,784 16,178 15,152 11,952
7/31/2003 14,226 15,640 14,799 11,965
8/31/2003 14,386 15,786 14,887 12,010
9/30/2003 14,787 16,238 15,214 12,049
10/31/2003 14,693 16,130 15,138 12,036
11/30/2003 14,842 16,262 15,209 12,004
12/31/2003 14,963 16,377 15,295 11,991
1/31/2004 14,963 16,459 15,351 12,049
2/29/2004 15,230 16,717 15,539 12,115
3/31/2004 15,102 16,672 15,450 12,193
4/30/2004 14,699 16,297 15,166 12,232
5/31/2004 14,597 16,275 15,100 12,303
6/30/2004 14,660 16,339 15,141 12,342
7/31/2004 14,876 16,536 15,296 12,323
8/31/2004 15,163 16,853 15,550 12,329
9/30/2004 15,213 16,934 15,571 12,355
10/31/2004 15,319 17,067 15,653 12,420
11/30/2004 15,173 16,919 15,540 12,427
12/31/2004 15,351 17,103 15,664 12,381
1/31/2005 15,473 17,232 15,694 12,407
2/28/2005 15,399 17,164 15,632 12,479
3/31/2005 15,254 17,045 15,520 12,576
4/30/2005 15,508 17,309 15,710 12,661
5/31/2005 15,605 17,428 15,759 12,648
6/30/2005 15,702 17,522 15,845 12,655
7/31/2005 15,599 17,422 15,761 12,713
8/31/2005 15,754 17,595 15,865 12,778
9/30/2005 15,636 17,476 15,817 12,934
10/31/2005 15,502 17,366 15,748 12,960
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Ending Since Since
October 31, 2005 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 -1.86% 6.32% 22.70% 55.02% 133.43% -1.86% 2.06% 4.18% 4.48% 5.56%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers General
Obligation Index/3/ 1.75% 13.06% 31.81% 73.66% 171.02% 1.75% 4.18% 5.68% 5.67% 6.57%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Prerefunded Municipal
Bond Index/3/ 0.61% 8.66% 24.89% 57.48% 136.71% 0.61% 2.81% 4.55% 4.65% 5.65%
- -------------------------------------------------------------------------------------------------------------------
Consumer Price Index/4/ 4.34% 9.88% 14.48% 29.60% 55.63% 4.34% 3.19% 2.74% 2.63% 2.86%
- -------------------------------------------------------------------------------------------------------------------
/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, Lehman Brothers Emerging Americas Index:
Mexico Section/Citigroup US Broad Investment-Grade Bond Index Mexico Sector
and Consumer Price Index: Value of a $10,000 Investment (for 10 Years ended
October 31, 2005)
Lehman Brothers Emerging
Americas Index: Mexico
North American Section / Citigroup
Government Lehman Brothers Investment-Grade Bond
Bond Fund - ISI Intermediate US Broad Index Consumer Price
Class A Shares Treasury Index Mexico Sector Index
-------------- -------------- --------------------- --------------
10/31/1995 $ 9,700 $10,000 $10,000 $10,000
11/30/1995 9,811 10,122 10,296 9,994
12/31/1995 9,992 10,224 10,854 9,987
1/31/1996 10,073 10,311 11,420 10,046
2/29/1996 9,750 10,201 10,966 10,078
3/31/1996 9,717 10,151 11,275 10,130
4/30/1996 9,694 10,121 11,685 10,169
5/31/1996 9,741 10,117 11,585 10,189
6/30/1996 9,860 10,217 11,765 10,195
7/31/1996 9,920 10,248 11,793 10,215
8/31/1996 9,943 10,261 12,207 10,234
9/30/1996 10,197 10,392 12,620 10,267
10/31/1996 10,502 10,562 12,666 10,299
11/30/1996 10,808 10,689 13,121 10,319
12/31/1996 10,611 10,631 13,240 10,319
1/31/1997 10,611 10,670 13,701 10,351
2/28/1997 10,623 10,686 13,937 10,384
3/31/1997 10,485 10,623 13,388 10,410
4/30/1997 10,625 10,742 13,725 10,423
5/31/1997 10,765 10,826 14,221 10,416
6/30/1997 10,920 10,917 14,524 10,429
7/31/1997 11,414 11,122 15,175 10,442
8/31/1997 11,232 11,077 15,045 10,462
9/30/1997 11,469 11,198 15,466 10,488
10/31/1997 11,575 11,329 14,757 10,514
11/30/1997 11,682 11,356 15,130 10,508
12/31/1997 11,884 11,449 15,446 10,495
1/31/1998 11,992 11,602 15,773 10,514
2/28/1998 11,965 11,587 15,914 10,534
3/31/1998 12,021 11,621 16,040 10,553
4/30/1998 12,076 11,676 16,085 10,573
5/31/1998 12,145 11,757 15,944 10,592
6/30/1998 12,285 11,837 15,868 10,605
7/31/1998 12,299 11,883 16,020 10,618
8/31/1998 12,512 12,118 13,500 10,631
9/30/1998 12,814 12,410 13,958 10,644
10/31/1998 12,727 12,435 14,435 10,670
11/30/1998 12,843 12,389 15,380 10,670
12/31/1998 12,886 12,436 15,336 10,664
1/31/1999 12,931 12,490 15,171 10,690
2/28/1999 12,632 12,308 15,248 10,703
3/31/1999 12,738 12,389 15,960 10,735
4/30/1999 12,844 12,424 16,459 10,813
5/31/1999 12,629 12,345 15,743 10,813
6/30/1999 12,645 12,368 15,957 10,813
7/31/1999 12,630 12,379 15,787 10,846
8/31/1999 12,614 12,404 15,951 10,872
9/30/1999 12,709 12,501 16,329 10,924
10/31/1999 12,694 12,517 16,632 10,943
11/30/1999 12,726 12,522 17,109 10,950
12/31/1999 12,677 12,487 17,556 10,950
1/31/2000 12,775 12,453 17,425 10,982
2/29/2000 13,037 12,550 18,245 11,048
3/31/2000 13,351 12,710 18,728 11,139
4/30/2000 13,284 12,701 18,471 11,145
5/31/2000 13,268 12,754 18,111 11,158
6/30/2000 13,419 12,939 18,824 11,217
7/31/2000 13,640 13,026 19,280 11,243
8/31/2000 13,863 13,162 19,764 11,243
9/30/2000 13,811 13,263 19,810 11,301
10/31/2000 13,916 13,350 19,614 11,321
11/30/2000 14,214 13,544 19,912 11,327
12/31/2000 14,462 13,769 20,207 11,321
1/31/2001 14,534 13,931 20,584 11,392
2/28/2001 14,713 14,060 20,438 11,438
3/31/2001 14,786 14,171 20,522 11,464
4/30/2001 14,676 14,115 20,644 11,509
5/31/2001 14,767 14,173 21,119 11,562
6/30/2001 14,859 14,224 21,538 11,581
7/31/2001 15,176 14,482 21,585 11,549
8/31/2001 15,402 14,608 22,025 11,549
9/30/2001 15,422 14,910 21,474 11,601
10/31/2001 15,955 15,136 22,324 11,562
11/30/2001 15,552 14,965 22,428 11,542
12/31/2001 15,455 14,893 22,732 11,496
1/31/2002 15,553 14,934 23,094 11,522
2/28/2002 15,670 15,057 23,806 11,568
3/31/2002 15,433 14,827 23,448 11,633
4/30/2002 15,652 15,092 23,984 11,698
5/31/2002 15,672 15,196 23,998 11,698
6/30/2002 15,789 15,381 23,612 11,705
7/31/2002 16,090 15,688 23,349 11,718
8/31/2002 16,514 15,852 24,333 11,757
9/30/2002 16,798 16,157 24,287 11,776
10/31/2002 16,628 16,127 24,785 11,796
11/30/2002 16,562 15,977 25,315 11,796
12/31/2002 16,826 16,274 25,996 11,770
1/31/2003 16,716 16,227 25,874 11,822
2/28/2003 16,967 16,403 26,383 11,913
3/31/2003 16,962 16,402 26,890 11,984
4/30/2003 17,259 16,435 27,831 11,958
5/31/2003 17,881 16,690 28,679 11,939
6/30/2003 17,811 16,663 28,571 11,952
7/31/2003 16,998 16,298 27,362 11,965
8/31/2003 16,994 16,321 27,674 12,010
9/30/2003 17,498 16,659 28,772 12,049
10/31/2003 17,316 16,496 28,451 12,036
11/30/2003 17,222 16,492 28,571 12,004
12/31/2003 17,399 16,617 28,963 11,991
1/31/2004 17,578 16,699 29,265 12,049
2/29/2004 17,762 16,854 29,866 12,115
3/31/2004 17,901 16,973 30,436 12,193
4/30/2004 17,225 16,589 29,044 12,232
5/31/2004 17,108 16,541 28,866 12,303
6/30/2004 17,132 16,576 28,964 12,342
7/31/2004 17,345 16,689 29,548 12,323
8/31/2004 17,679 16,933 30,557 12,329
9/30/2004 17,774 16,941 30,645 12,355
10/31/2004 17,943 17,034 31,070 12,420
11/30/2004 17,846 16,859 30,858 12,427
12/31/2004 18,114 16,953 31,392 12,381
1/31/2005 18,261 16,972 31,898 12,407
2/28/2005 18,113 16,861 31,876 12,479
3/31/2005 18,039 16,826 31,083 12,576
4/30/2005 18,337 17,031 31,581 12,661
5/31/2005 18,735 17,161 32,552 12,648
6/30/2005 19,011 17,216 32,876 12,655
7/31/2005 18,785 17,056 32,782 12,713
8/31/2005 19,138 17,251 33,342 12,778
9/30/2005 18,960 17,110 33,322 12,934
10/31/2005 18,732 17,034 32,934 12,960
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Ending Since Since
October 31, 2005 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 1.25% 9.25% 30.52% 87.32% 103.36% 1.25% 2.99% 5.47% 6.48% 5.71%
- -------------------------------------------------------------------------------------------------------------------
North American
Government Bond Fund -
ISI Class C Shares 2.74% - - - 3.95%/3/ 2.74% - - - 1.59%/3/
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers
Intermediate Treasury
Index/4/ 0.00% 5.62% 27.59% 70.34% 98.94% 0.00% 1.84% 4.99% 5.47% 5.54%
- -------------------------------------------------------------------------------------------------------------------
Lehman Brothers Emerging
Americas Index: Mexico
Section/ Citigroup US
Broad Investment- Grade
Bond Index Mexico
Sector/5/ 6.00% 32.88% 67.91% 229.34% 267.58% 6.00% 9.94% 10.92% 12.66% 10.75%
- -------------------------------------------------------------------------------------------------------------------
Consumer Price Index/6/ 4.34% 9.88% 14.48% 29.60% 39.69% 4.34% 3.19% 2.74% 2.63% 2.66%
- -------------------------------------------------------------------------------------------------------------------
/1/ PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. The performance
information presented in the graph and table above does not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the redemption of Fund shares. All performance assumes the reinvestment of
dividends and capital gain distributions and includes sales charges, if
applicable. ISI Class A Shares have a maximum 3.00% sales charge. ISI Class
C Shares have a maximum 1.00% contingent deferred sales charge in the first
year, which is eliminated thereafter. The performance of ISI Class C Shares
may be greater than or less than the line shown in the graph above for ISI
Class A Shares, based on the differences in loads and fees paid by
shareholders investing in the different classes.
/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, 2005 were 2.06% and 0.85%, respectively.
/4/ The Lehman Brothers Intermediate Treasury Index is an unmanaged index
reflecting the performance of US Treasury securities in the
intermediate-term Treasury sector. Benchmark returns do not reflect
expenses or sales charges that have been deducted from the Fund's returns.
/5/ Reflects the performance of the Lehman Brothers Emerging Americas Index:
Mexico Section through October 31, 2004 and the Citigroup US Broad
Investment-Grade Bond Index Mexico Sector from that date through
October 31, 2005. The Lehman Brothers Emerging Americas Index: Mexico
Section has been discontinued. Lehman Brothers Emerging Americas Index:
Mexico Section was an unmanaged sub-index of the Lehman Brothers Emerging
Americas Index reflecting the performance of selected Mexican debt
instruments with maturities of one year or more. The Citigroup US Broad
Investment-Grade Bond Index Mexico Sector is an unmanaged sub-index of the
Citigroup US Broad Investment-Grade Bond Index reflecting the performance
of selected Mexican debt instruments with maturities of one year or more.
Benchmark returns do not reflect expenses or sales charges that have been
deducted from the Fund's returns.
/6/ The Consumer Price Index is a widely used measure of inflation.
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/):
Lipper Flexible
ISI Strategy Dow Jones Portfolio
Fund - Wilshire 5000 Consumer Price Funds
ISI Shares (Full Cap) Index Index Average
------------ ---------------- -------------- ---------------
9/16/1997 $ 9,700 $10,000 $10,000 $10,000
9/30/1997 9,719 10,000 10,000 10,000
10/31/1997 9,554 9,667 10,025 9,777
11/30/1997 9,767 9,983 10,019 9,933
12/31/1997 9,933 10,168 10,006 10,070
1/31/1998 10,020 10,223 10,025 10,135
2/28/1998 10,459 10,967 10,043 10,594
3/31/1998 10,810 11,516 10,062 10,950
4/30/1998 10,878 11,653 10,081 11,031
5/31/1998 10,761 11,343 10,099 10,911
6/30/1998 11,044 11,741 10,112 11,117
7/31/1998 10,887 11,483 10,124 10,965
8/31/1998 9,992 9,695 10,137 9,855
9/30/1998 10,483 10,328 10,149 10,235
10/31/1998 10,888 11,097 10,174 10,687
11/30/1998 11,337 11,796 10,174 11,104
12/31/1998 11,776 12,550 10,168 11,513
1/31/1999 12,079 13,012 10,192 11,708
2/28/1999 11,634 12,540 10,205 11,386
3/31/1999 11,937 13,024 10,236 11,687
4/30/1999 12,301 13,648 10,310 12,070
5/31/1999 12,068 13,350 10,310 11,873
6/30/1999 12,443 14,041 10,310 12,256
7/31/1999 12,148 13,590 10,341 12,069
8/31/1999 12,046 13,464 10,366 11,980
9/30/1999 11,863 13,112 10,416 11,857
10/31/1999 12,282 13,946 10,434 12,227
11/30/1999 12,496 14,413 10,440 12,488
12/31/1999 12,953 15,507 10,440 13,107
1/31/2000 12,649 14,864 10,472 12,771
2/29/2000 12,869 15,196 10,534 13,037
3/31/2000 13,498 16,099 10,620 13,581
4/30/2000 13,056 15,260 10,627 13,260
5/31/2000 12,804 14,727 10,639 13,053
6/30/2000 13,183 15,377 10,695 13,377
7/31/2000 13,098 15,063 10,720 13,267
8/31/2000 13,734 16,157 10,720 13,877
9/30/2000 13,289 15,403 10,775 13,533
10/31/2000 13,205 15,076 10,794 13,441
11/30/2000 12,491 13,576 10,800 12,876
12/31/2000 12,735 13,818 10,794 13,182
1/31/2001 13,063 14,347 10,862 13,419
2/28/2001 12,340 12,986 10,906 12,749
3/31/2001 11,865 12,112 10,931 12,222
4/30/2001 12,299 13,109 10,974 12,783
5/31/2001 12,379 13,239 11,024 12,860
6/30/2001 12,254 13,018 11,042 12,644
7/31/2001 12,259 12,803 11,011 12,588
8/31/2001 11,814 12,028 11,011 12,178
9/30/2001 11,107 10,947 11,061 11,478
10/31/2001 11,416 11,226 11,024 11,700
11/30/2001 11,874 12,084 11,005 12,170
12/31/2001 12,006 12,301 10,962 12,278
1/31/2002 11,903 12,149 10,986 12,138
2/28/2002 11,765 11,899 11,030 11,996
3/31/2002 12,087 12,420 11,092 12,311
4/30/2002 11,814 11,813 11,154 12,031
5/31/2002 11,768 11,674 11,154 11,975
6/30/2002 11,193 10,854 11,160 11,377
7/31/2002 10,618 9,978 11,173 10,761
8/31/2002 10,745 10,036 11,210 10,857
9/30/2002 10,041 9,029 11,228 10,160
10/31/2002 10,515 9,720 11,247 10,587
11/30/2002 10,885 10,306 11,247 10,988
12/31/2002 10,500 9,735 11,222 10,678
1/31/2003 10,291 9,490 11,272 10,528
2/28/2003 10,221 9,329 11,359 10,431
3/31/2003 10,326 9,435 11,427 10,466
4/30/2003 10,932 10,208 11,402 11,043
5/31/2003 11,479 10,832 11,383 11,587
6/30/2003 11,569 10,992 11,396 11,708
7/31/2003 11,592 11,257 11,408 11,778
8/31/2003 11,849 11,527 11,452 12,003
9/30/2003 11,779 11,400 11,489 12,025
10/31/2003 12,246 12,096 11,476 12,494
11/30/2003 12,363 12,265 11,445 12,659
12/31/2003 12,722 12,816 11,433 13,127
1/31/2004 12,956 13,101 11,489 13,330
2/29/2004 13,120 13,292 11,551 13,517
3/31/2004 13,046 13,149 11,625 13,473
4/30/2004 12,788 12,870 11,663 13,150
5/31/2004 12,847 13,047 11,731 13,225
6/30/2004 13,045 13,319 11,768 13,450
7/31/2004 12,752 12,811 11,749 13,111
8/31/2004 12,881 12,853 11,756 13,187
9/30/2004 13,084 13,082 11,780 13,395
10/31/2004 13,190 13,305 11,842 13,569
11/30/2004 13,531 13,928 11,849 14,062
12/31/2004 13,862 14,434 11,805 14,456
1/31/2005 13,602 14,049 11,830 14,232
2/28/2005 13,862 14,342 11,898 14,496
3/31/2005 13,705 14,089 11,991 14,262
4/30/2005 13,480 13,771 12,072 14,013
5/31/2005 13,895 14,308 12,060 14,376
6/30/2005 14,057 14,437 12,066 14,528
7/31/2005 14,426 15,041 12,122 14,943
8/31/2005 14,557 14,894 12,184 14,947
9/30/2005 14,694 14,999 12,333 15,125
10/31/2005 14,455 14,738 12,357 14,842
Cumulative Total Returns With Load Average Annual Total Returns With Load
Periods Ending Since Since
October 31, 2005 1 Year 3 Years 5 Years Inception/2/ 1 Year 3 Years 5 Years Inception/2/
ISI Strategy Fund - ISI
Shares 6.27% 33.36% 6.21% 44.55% 6.27% 10.07% 1.21% 4.64%
- -----------------------------------------------------------------------------------------------------
Dow Jones Wilshire
5000 (Full Cap) Index/3/ 10.77% 51.62% -2.24% 47.38% 10.77% 14.88% -0.45% 4.91%
- -----------------------------------------------------------------------------------------------------
Consumer Price Index/4/ 4.34% 9.88% 14.48% 23.57% 4.34% 3.19% 2.74% 2.65%
- -----------------------------------------------------------------------------------------------------
Lipper Flexible
Portfolio Funds
Average/5/ 8.22% 38.10% 9.61% 48.42% 8.22% 11.18% 1.58% 4.75%
- -----------------------------------------------------------------------------------------------------
/1/ PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. The performance
information presented in the graph and table above does not reflect the
deduction of taxes that a shareholder would pay on Fund distributions or
the redemption of Fund shares. All performance assumes the reinvestment of
dividends and capital gain distributions and includes the Fund's maximum
3.00% sales charge. Performance would have been lower during the specified
period if certain of the Fund's fees and expenses had not been waived.
/2/ The Fund's inception date is September 16, 1997. Benchmark returns are for
the periods beginning September 30, 1997.
/3/ The Dow Jones Wilshire 5000 (Full Cap) Index is an unmanaged index that
represents the broadest measure of the US equity market. Benchmark returns
do not reflect expenses or sales charges that have been deducted from the
Fund's returns.
/4/ The Consumer Price Index is a widely used measure of inflation.
/5/ Lipper figures represent the average total returns by all the mutual funds
designated by Lipper, Inc. as falling into the category indicated. The
Lipper Flexible Portfolio Funds category includes funds that allocate their
investments across various asset classes, including domestic common stocks,
bonds and money market instruments with a focus on total return. Benchmark
returns do not reflect expenses or sales charges that have been deducted
from the Fund's returns.
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/shareholder service fees for certain share
classes and other Fund expenses. This example is intended to help you
understand your ongoing costs (in dollars) of investing in a Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The following example is based on $1,000 invested on May 1, 2005 and held
for the six months through October 31, 2005.
ACTUAL EXPENSES - The "Actual Return" rows in the following table provide
information about actual account values and actual expenses. You may use the
information, together with the amount you invested, to estimate the expenses
that you paid over the period. Simply divide your account value by $1,000 (for
example, an $8,600 account value divided by $1,000 = 8.6), then multiply the
result by the number in the "Expenses Paid During Period" column to estimate
the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES - The "Hypothetical Return"
rows in the following table provide information about hypothetical account
values and hypothetical expenses based on each Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
actual return of each Fund. The hypothetical account values and expenses may
not be used to estimate the actual ending account balance or expenses you paid
for the period. You may use this information to compare the ongoing cost of
investing in a Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder
reports of other funds.
Expenses shown in the table are meant to highlight your ongoing costs only
and do not reflect any transactional costs, such as sales charges (loads).
Therefore, the "Hypothetical Return" rows in the table are useful in comparing
ongoing costs only, and will not help you determine the relative total costs of
owning different funds. If these transactional costs were included, your costs
would have been higher.
9
SHAREHOLDER EXPENSE EXAMPLE
BEGINNING ENDING EXPENSES PAID ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE DURING EXPENSE
MAY 1, 2005 OCTOBER 31, 2005 PERIOD/(1)/ RATIO
- -------------------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND
Actual Return $1,000.00 $ 998.07 $3.58 0.71%
Hypothetical Return $1,000.00 $1,021.63 $3.62 0.71%
MANAGED MUNICIPAL FUND
Actual Return $1,000.00 $ 999.69 $4.39 0.87%
Hypothetical Return $1,000.00 $1,020.82 $4.43 0.87%
NORTH AMERICAN GOVERNMENT BOND FUND
ISI CLASS A SHARES
Actual Return $1,000.00 $1,021.54 $5.35 1.05%
Hypothetical Return $1,000.00 $1,019.91 $5.35 1.05%
NORTH AMERICAN GOVERNMENT BOND FUND
ISI CLASS C SHARES
Actual Return $1,000.00 $1,018.29 $8.65 1.70%
Hypothetical Return $1,000.00 $1,016.64 $8.64 1.70%
ISI STRATEGY FUND
Actual Return $1,000.00 $1,072.35 $4.91 0.94%
Hypothetical Return $1,000.00 $1,020.47 $4.79 0.94%
- --------------------------------------------------------------------------------
(1)Equals the Fund's annualized expense ratio for the period, multiplied by the
average account value over the period, multiplied by the number of days in
most recent fiscal half-year, divided by 365 to reflect the half-year period.
10
ISI FUNDS
PORTFOLIO PROFILES (AS A % OF TOTAL NET ASSETS) OCTOBER 31, 2005
TOTAL RETURN US TREASURY FUND ISI STRATEGY FUND
US Treasury Obligations 97.12% Basic Materials 0.68%
Repurchase Agreements 1.75% Biotechnology 2.77%
Other Assets and Liabilities 1.13% Business Services 3.16%
------- Capital Goods 5.96%
100.00% Consumer Cyclicals 3.04%
Consumer Staples 7.79%
MANAGED MUNICIPAL FUND Energy 7.73%
Aaa* 66.53% Finance 14.46%
Aa* 28.70% Health Care 8.34%
Repurchase Agreements 3.87% Information Services 1.97%
Other Assets and Liabilities 0.90% Internet 4.57%
------- Retail 3.44%
100.00% Technology 6.44%
Transportation 1.38%
* Ratings are based on Moody's Investor Services, Inc. Utilities 2.51%
US Treasury Securities 22.92%
NORTH AMERICAN GOVERNMENT BOND FUND Repurchase Agreements 1.35%
Canadian Securities 8.10% Other Assets and Liabilities 1.49%
Mexican Securities 17.27% -------
US Treasury Securities 72.03% 100.00%
Repurchase Agreements 1.77%
Other Assets and Liabilities 0.83%
-------
100.00%
11
TOTAL RETURN US TREASURY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
INTEREST MATURITY PAR MARKET
SECURITY RATE DATE VALUE VALUE
----------------------------------------------------------------------------------------------------
US TREASURY OBLIGATIONS - 97.12%
US Treasury Bond 10.375% 11/15/12 $14,250,000 $ 15,888,750
US Treasury Bond 7.625% 2/15/25 11,500,000 15,496,250
US Treasury Bond 6.000% 2/15/26 11,500,000 13,223,203
US Treasury Bond 6.375% 8/15/27 28,000,000 33,801,250
US Treasury Note 1.500% 3/31/06 13,100,000 12,960,813
US Treasury Note 2.750% 6/30/06 10,000,000 9,900,000
US Treasury Note 3.125% 1/31/07 4,000,000 3,938,750
US Treasury Note 3.000% 2/15/08 15,000,000 14,547,656
US Treasury Note 5.500% 5/15/09 25,000,000 25,878,906
US Treasury Note 4.125% 8/15/10 6,000,000 5,910,000
US Treasury Note 4.125% 5/15/15 10,000,000 9,650,000
------------
TOTAL US TREASURY OBLIGATIONS
(COST $166,655,721)........................................................ 161,195,578
------------
REPURCHASE AGREEMENT - 1.75%
JPMORGAN CHASE BANK, N.A.
Dated 10/31/05, 2.500%, principal and interest in the amount of $2,909,202
due 11/1/05, collaterized by US Treasury Securities, par value of $7,768,000,
due 5/15/24 and 2/15/26 with a value of $2,968,280 2,909,000
------------
TOTAL REPURCHASE AGREEMENT
(COST $2,909,000).......................................................... 2,909,000
------------
TOTAL INVESTMENTS - 98.87%
(COST $169,564,721)*............................................................ 164,104,578
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.13%.......................................... 1,869,124
------------
NET ASSETS - 100.00%................................................................... $165,973,702
============
- --------------------------------------------------------------------------------
*Cost for Federal income tax purposes is $169,564,721 and the net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation............. $ 238,963
Gross Unrealized Depreciation............. (5,699,106)
-----------
Net Unrealized Appreciation (Depreciation) $(5,460,143)
===========
See Notes to Financial Statements.
12
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
RATING/1/
INTEREST MATURITY (MOODY'S/ PAR MARKET
SECURITY RATE DATE S&P) VALUE VALUE
- -------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - 95.23%
GENERAL OBLIGATIONS - 55.58%
Alexandria, VA, Capital Improvement 4.250% 6/15/21 Aaa/AAA $3,300,000 $ 3,264,558
Arlington County, VA 5.000% 10/1/14 Aaa/AAA 2,000,000 2,108,780
Arlington County, VA 4.500% 1/15/28 Aaa/AAA 4,500,000 4,459,185
Cary, NC 5.000% 3/1/18 Aaa/AAA 2,000,000 2,118,040
Chesterfield County, VA 5.000% 1/15/20 Aaa/NR 1,000,000 1,046,990
Dallas, TX 4.000% 2/15/16 Aa1/AA+ 2,450,000 2,422,389
Dallas, TX 4.500% 2/15/23 Aa1/AA+ 3,500,000 3,485,230
Delaware State, Series A 4.200% 1/1/20 Aaa/AAA 1,675,000 1,657,815
Dupage County, IL, Jail Project 5.600% 1/1/21 Aaa/AAA 1,600,000 1,791,104
Florida State, Board of Education, Public Education
Capital Outlay, Series A 5.125% 6/1/21 Aa1/AAA 1,000,000 1,057,660
Florida State, Board of Education, Public Education,
Series I 4.125% 6/1/21 Aa1/AAA 3,000,000 2,882,340
Henrico County, VA 4.250% 7/15/24 Aaa/AAA 2,830,000 2,734,063
King County, WA, Series G 5.000% 12/1/17 Aa1/AAA 2,565,000 2,642,976
Maryland State, Capital Improvement, Series A 4.000% 2/15/20 Aaa/AAA 4,000,000 3,855,680
Mecklenburg County, NC, Series A 4.250% 2/1/19 Aaa/AAA 2,000,000 2,001,740
Mecklenburg County, NC, Series A 4.000% 2/1/20 Aaa/AAA 3,000,000 2,900,040
Minnesota State 5.500% 6/1/18 Aa1/AAA 2,000,000 2,157,860
Missouri State, Fourth State Building, Series A 4.125% 10/1/19 Aaa/AAA 2,000,000 1,970,780
Montgomery County, MD, Series A 4.000% 5/1/21 Aaa/AAA 2,450,000 2,345,777
Salt Lake City, UT, School District, Series A 4.500% 3/1/20 Aaa/NR 2,240,000 2,258,682
South Carolina State, Highway, Series B 5.000% 4/1/19 Aaa/AA+ 1,000,000 1,056,530
Washington State, Series E 5.000% 7/1/22 Aa1/AA 2,000,000 2,040,420
-----------
52,258,639
-----------
OTHER REVENUE - 7.12%
Gwinnett County, GA, Water & Sewer Authority 5.250% 8/1/24 Aaa/AAA 1,500,000 1,603,815
Gwinnett County, GA, Water & Sewer Authority,
Series B 4.750% 8/1/21 Aaa/AAA 2,000,000 2,054,020
Texas, Water Development Board Revenue 4.750% 7/15/20 Aaa/AAA 3,000,000 3,034,710
-----------
6,692,545
-----------
See Notes to Financial Statements.
13
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
RATING/1/
INTEREST MATURITY (MOODY'S/ PAR MARKET
SECURITY RATE DATE S&P) VALUE VALUE
- --------------------------------------------------------------------------------------------------------
PREREFUNDED ISSUES - 32.53%
Charlotte, NC, Water & Sewer System Revenue,
6/1/09 @ 101 5.250% 6/1/24 Aa1/AAA $1,600,000 $ 1,716,848
Chesterfield Country, VA, 1/15/10 @ 100 5.625% 1/15/14 Aaa/AAA 1,350,000 1,464,615
Chicago, IL, Metropolitan Water Reclamation District-
Greater Chicago Capital Improvement,
12/1/05 @ 100 6.300% 12/1/09 Aaa/AA+ 1,000,000 1,002,900
Delaware State, Series A, 4/1/06 @ 100 5.125% 4/1/16 Aaa/AAA 2,150,000 2,169,909
Delaware State, Series A, 4/1/10 @ 100 5.500% 4/1/19 Aaa/AAA 2,500,000 2,709,800
Georgia State, Series D, 10/1/10 @ 100 5.000% 10/1/17 Aaa/AAA 1,460,000 1,560,477
Georgia State, Series D, Unrefunded Balance,
10/1/10 @ 100 5.000% 10/1/17 Aaa/AAA 390,000 416,840
Guilford County, NC, Series B, 10/1/10 @ 102 5.250% 10/1/16 Aa1/AAA 3,000,000 3,292,200
Gwinnett County, GA, Water & Sewer Authority,
8/1/09 @ 101 5.300% 8/1/20 Aaa/AAA 1,250,000 1,347,350
Missouri State, Fourth State Building, Series A,
6/1/08 @ 100 5.000% 6/1/23 Aaa/AAA 2,000,000 2,088,420
Montgomery County, MD, Series A, 2/1/12 @ 101 5.000% 2/1/22 Aaa/AAA 2,750,000 2,976,792
North Carolina State, Public School Building,
4/1/09 @ 102 4.600% 4/1/17 Aa1/AAA 5,000,000 5,291,850
South Carolina State, Highway, Series B,
7/1/06 @ 102 5.650% 7/1/21 Aaa/AA+ 1,260,000 1,306,733
South Carolina State, State Institutional, Series A,
3/1/10 @ 101 5.300% 3/1/17 Aaa/AA+ 1,700,000 1,841,729
Virginia State, 6/1/09 @ 100 5.250% 6/1/16 Aaa/AAA 1,320,000 1,405,457
-----------
30,591,920
-----------
TOTAL MUNICIPAL BONDS
(COST $86,329,717).............................................................. 89,543,104
-----------
See Notes to Financial Statements.
14
MANAGED MUNICIPAL FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
MARKET
SECURITY VALUE
---------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 3.87%
JPMORGAN CHASE BANK, N.A.
Dated 10/31/05, 2.500%, principal and interest in the amount of $3,634,252
due 11/1/05, collateralized by US Treasury Security, par value of $9,980,000,
due 2/15/26 with a value of $3,707,969 $ 3,634,000
-----------
TOTAL REPURCHASE AGREEMENT
(COST $3,634,000).......................................................... 3,634,000
-----------
TOTAL INVESTMENTS - 99.10%
(COST $89,963,717)*............................................................. 93,177,104
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.90%.......................................... 849,617
-----------
NET ASSETS - 100.00%................................................................... $94,026,721
===========
- --------------------------------------------------------------------------------
/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 $89,963,717 and the net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation............. $3,704,750
Gross Unrealized Depreciation............. (491,363)
----------
Net Unrealized Appreciation (Depreciation) $3,213,387
==========
See Notes to Financial Statements.
15
NORTH AMERICAN GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
INTEREST MATURITY PAR/NOMINAL MARKET
SECURITY RATE DATE VALUE/1/ VALUE
------------------------------------------------------------------------
CANADIAN SECURITIES - 8.10%
Canadian Government Bond 4.500% 6/1/15 C 18,000,000 $ 15,632,509
------------
TOTAL CANADIAN SECURITIES
(COST $15,798,870)............................. 15,632,509
------------
MEXICAN SECURITIES - 17.27%
Mexican Bono/2/ 9.000% 12/27/07 P129,833,800 12,165,749
Mexican Bono/2/ 9.000% 12/22/11 80,322,900 7,540,679
Mexican Bono/2/ 9.000% 12/20/12 31,470,000 2,937,297
Mexican Bono/2/ 9.500% 12/18/14 24,013,700 2,306,365
Mexican Cetes/3/ 8.840%/4/ 7/6/06 95,970,000 8,389,236
------------
TOTAL MEXICAN SECURITIES
(COST $33,082,840)............................. 33,339,326
------------
US SECURITIES - 72.03%
US Treasury Bond 7.625% 2/15/25 $ 10,100,000 13,609,750
US Treasury Bond 6.000% 2/15/26 11,500,000 13,223,203
US Treasury Bond 6.375% 8/15/27 22,100,000 26,678,844
US Treasury Note 1.500% 3/31/06 2,550,000 2,522,906
US Treasury Note 2.750% 6/30/06 6,000,000 5,940,000
US Treasury Note 2.375% 8/15/06 2,000,000 1,970,000
US Treasury Note 3.125% 1/31/07 5,000,000 4,923,438
US Treasury Note 3.000% 2/15/08 16,100,000 15,614,485
US Treasury Note 3.250% 8/15/08 5,500,000 5,333,281
US Treasury Note 3.125% 9/15/08 2,000,000 1,930,938
US Treasury Note 5.000% 2/15/11 19,500,000 19,984,453
US Treasury Note 5.000% 8/15/11 6,500,000 6,670,625
US Treasury Note 4.250% 8/15/13 9,750,000 9,562,617
US Treasury Note 4.125% 5/15/15 11,500,000 11,097,500
------------
TOTAL US SECURITIES
(COST $145,265,797)............................ 139,062,040
------------
See Notes to Financial Statements.
16
NORTH AMERICAN GOVERNMENT BOND FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
MARKET
SECURITY VALUE
--------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 1.77%
JPMORGAN CHASE BANK, N.A.
Dated 10/31/05, 2.500%, principal and interest in the amount of $3,412,237
due 11/1/05, collaterized by US Treasury Security, par value of $9,370,000,
due 2/15/26 with a value of $3,481,330 $ 3,412,000
------------
TOTAL REPURCHASE AGREEMENT
(COST $3,412,000)........................................................ 3,412,000
------------
TOTAL INVESTMENTS - 99.17%
(COST $197,559,507)*.......................................................... 191,445,875
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.83%........................................ 1,599,263
------------
NET ASSETS - 100.00%................................................................. $193,045,138
============
- --------------------------------------------------------------------------------
/1/Par Value is shown in local currency: Canadian dollars (C), Mexican pesos
(P) and US dollars ($).
/2/Bonos are fixed rate, local currency-denominated coupon bonds issued by the
Mexican government.
/3/Cetes are short-term zero-coupon Mexican government debt securities.
/4/Yield as of October 31, 2005.
*Cost for Federal income tax purposes is $197,559,507 and the net unrealized
appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation............. $ 366,253
Gross Unrealized Depreciation............. (6,479,885)
-----------
Net Unrealized Appreciation (Depreciation) $(6,113,632)
===========
See Notes to Financial Statements.
17
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
MARKET
SECURITY SHARES VALUE
----------------------------------------------------------
COMMON STOCK - 74.24%
BASIC MATERIALS - 0.68%
Bowater, Inc. 100 $ 2,650
Crown Holdings, Inc.+ 700 11,354
FMC Corp.+ 2,100 114,324
Massey Energy Co. 2,669 106,947
Nucor Corp. 2,400 143,640
Owens-Illinois, Inc.+ 100 1,904
Temple-Inland, Inc. 200 7,366
Weyerhaeuser Co. 350 22,169
-----------
410,354
-----------
BIOTECHNOLOGY - 2.77%
Albany Molecular Research, Inc.+ 9,100 121,940
American Pharmaceutical Partners, Inc.+ 238 10,246
American Superconductor Corp.+ 4,600 37,766
Arena Pharmaceuticals, Inc.+ 5,400 56,160
Caremark Rx, Inc.+ 6,431 336,984
Durect Corp.+ 5,300 33,602
Enzon Pharmaceuticals, Inc.+ 7,000 49,070
Genzyme Corp.+ 5,000 361,500
Geron Corp.+ 3,800 34,314
Human Genome Sciences, Inc.+ 5,900 49,265
Idenix Pharmaceuticals, Inc.+ 2,200 45,782
Immucor, Inc.+ 3,500 90,720
Immunogen, Inc.+ 5,200 29,120
Momenta Pharmaceuticals, Inc.+ 2,800 60,284
Onyx Pharmaceuticals, Inc.+ 2,000 51,380
OSI Pharmaceuticals, Inc.+ 2,000 46,600
Regeneron Pharmaceuticals, Inc.+ 4,900 61,299
Senomyx, Inc.+ 3,900 55,575
Serologicals Corp.+ 5,100 99,348
Zymogenetics, Inc.+ 2,000 35,040
-----------
1,665,995
-----------
BUSINESS SERVICES - 3.16%
Alderwoods Group, Inc.+ 4,004 63,023
Allied Waste Industries, Inc.+ 5,600 45,584
CCC Information Services Group+ 548 14,226
Cendant Corp. 5,190 90,410
CheckFree Corp.+ 5,000 212,500
Computer Sciences Corp.+ 5,000 256,250
Expedia, Inc.+ 2,543 47,783
First Data Corp. 5,000 202,250
IMS Health, Inc. 5,000 116,150
MARKET
SECURITY SHARES VALUE
Interpublic Group of Cos., Inc.+ 1,900 $ 19,627
Laidlaw International, Inc. 5,000 113,700
Landauer, Inc. 700 35,000
Regis Corp. 4,211 161,534
Rent-A-Center, Inc.+ 6,000 108,120
ServiceMaster Co. 1,100 13,838
United Rentals, Inc.+ 10,023 196,150
VCA Antech, Inc.+ 5,400 139,320
Waste Management, Inc. 2,026 59,787
Weight Watchers International, Inc.+ 160 8,411
-----------
1,903,663
-----------
CAPITAL GOODS - 5.96%
AGCO Corp.+ 3,100 49,569
American Standard Cos., Inc. 2,900 110,316
Applied Films Corp.+ 2,000 38,840
Boeing Co. 2,730 176,467
Caterpillar, Inc. 3,220 169,340
Clarcor, Inc. 200 5,500
Cree, Inc.+ 5,000 120,200
Deere & Co. 200 12,136
Emerson Electric Co. 2,460 171,093
General Electric Co. 20,614 699,021
Harsco Corp. 97 6,232
Illinois Tool Works, Inc. 2,690 228,004
Johnson Controls, Inc. 1,220 83,021
Kennametal, Inc. 1,600 81,776
Manitowoc Co. 5,000 266,050
Orbital Sciences Corp.+ 8,300 96,529
Pitney Bowes, Inc. 429 18,052
Raytheon Co. 200 7,390
Reliance Steel & Aluminum Co. 2,000 114,040
RTI International Metals, Inc.+ 2,000 67,040
Schnitzer Steel Industries, Inc. 2,800 89,320
Solectron Corp.+ 4,100 14,473
Spectrum Brands, Inc.+ 4,900 101,430
Terex Corp.+ 2,700 148,419
Textron, Inc. 200 14,408
Titanium Metals Corp.+ 4,200 198,240
Tredegar Corp. 5,500 69,245
United Stationers, Inc.+ 600 27,222
URS Corp.+ 1,430 57,815
Wabash National Corp. 2,000 36,820
York International Corp. 5,500 308,605
-----------
3,586,613
-----------
See Notes to Financial Statements.
18
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
MARKET
SECURITY SHARES VALUE
---------------------------------------------------------
COMMON STOCK
CONSUMER CYCLICALS - 3.04%
Black & Decker Corp. 100 $ 8,213
Brunswick Corp. 271 10,333
Centex Corp. 400 25,740
D.R. Horton, Inc. 6,666 204,580
Ford Motor Co. 10,800 89,856
General Motors Corp. 2,545 69,733
Genuine Parts Co. 1,450 64,336
Goodyear Tire & Rubber Co.+ 23,300 364,412
Harley-Davidson, Inc. 300 14,859
Harrah's Entertainment, Inc. 200 12,096
Hovnanian Enterprises - Class A+ 1,900 85,481
Knight-Ridder, Inc. 169 9,021
La Quinta Corp.+ 100 835
Lear Corp. 300 9,138
Lee Enterprises, Inc. 100 3,921
Marriott International, Inc. - Class A 300 17,886
Masco Corp. 210 5,985
McGraw-Hill Cos., Inc. 600 29,364
Meredith Corp. 100 4,990
Mohawk Industries, Inc.+ 150 11,707
News Corp. Ltd. - Class A 10,404 148,257
Penn National Gaming, Inc.+ 598 17,671
Scholastic Corp.+ 600 19,530
Scripps (E.W.) Co. - Class A 2,600 119,080
V.F. Corp. 900 47,025
Washington Post Co. - Class B 36 26,820
Whirlpool Corp. 5,200 408,200
-----------
1,829,069
-----------
CONSUMER STAPLES - 7.79%
Altria Group, Inc. 2,171 162,934
American Tower Corp. - Class A+ 7,321 174,606
AmerisourceBergen Corp. 5,000 381,350
Anheuser-Busch Cos., Inc. 3,202 132,115
Aramark Corp. - Class B 5,637 143,293
Brinker International, Inc. 5,000 190,600
Bunge Ltd. 4,276 222,095
Cardinal Health, Inc. 5,815 363,496
Clear Channel Communications, Inc. 85 2,586
Coca-Cola Co. 5,612 240,081
ConAgra Foods, Inc. 469 10,914
Dean Foods Co.+ 5,000 180,750
Eastman Kodak Co. 5,570 121,983
MARKET
SECURITY SHARES VALUE
EchoStar Communications Corp. -
Class A 5,000 $ 134,350
Entercom Communications Corp.+ 260 7,506
Fortune Brands, Inc. 38 2,887
IAC/InterActiveCorp.+ 2,543 65,101
Kimberly-Clark Corp. 2,514 142,896
Liberty Global, Inc. - Class A+ 6,533 161,822
Liberty Global, Inc. - Class C+ 6,533 154,963
Liberty Media Corp. - Class A+ 7,580 60,413
McDonald's Corp. 10,000 316,000
McKesson Corp. 4,700 213,521
Mediacom Communications Corp. -
Class A+ 387 2,248
PepsiCo, Inc. 2,711 160,166
Procter & Gamble Co. 7,644 427,988
Reynolds American, Inc. 100 8,500
Sara Lee Corp. 300 5,355
Sirius Satellite Radio, Inc.+ 2,900 18,096
SUPERVALU, Inc. 5,000 157,150
Time Warner, Inc. 11,036 196,772
TreeHouse Foods, Inc.+ 1,000 25,840
Univision Communications, Inc. -
Class A+ 1,402 36,648
Viacom, Inc. - Class B 1,866 57,790
Yum! Brands, Inc. 180 9,157
-----------
4,691,972
-----------
ENERGY - 7.73%
Chevron Corp. 11,128 635,075
ConocoPhillips 8,650 565,537
Denbury Resources, Inc.+ 2,000 87,260
Devon Energy Corp. 4,624 279,197
Exxon Mobil Corp. 20,263 1,137,565
Forest Oil Corp.+ 3,500 152,880
Global Power Equipment Group, Inc.+ 4,900 30,723
Lone Star Technologies+ 4,900 224,175
Marathon Oil Corp. 4,500 270,720
PetroHawk Energy Corp.+ 3,900 48,204
Sunoco, Inc. 3,026 225,437
Swift Energy Co.+ 2,000 87,320
Toreador Resources Corp.+ 2,400 66,072
Valero Energy Corp. 7,925 834,027
Veritas DGC, Inc.+ 300 9,663
-----------
4,653,855
-----------
See Notes to Financial Statements.
19
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
MARKET
SECURITY SHARES VALUE
--------------------------------------------------------
COMMON STOCK
FINANCE - 14.46%
Affiliated Managers Group+ 2,600 $ 199,550
AMBAC Financial Group, Inc. 250 17,723
American Equity Investment Life
Holding Co. 2,261 26,318
American Express Co. 1,825 90,830
American Home Mortgage Investment
Corp. 5,000 135,150
American International Group, Inc. 10,500 680,400
AmeriCredit Corp.+ 5,000 111,750
Ameriprise Financial, Inc. 365 13,585
Anworth Mortgage Asset Corp. 14,967 120,335
Arthur J. Gallagher & Co. 200 5,884
Associated Banc Corp. 181 5,649
Bank of America Corp. 3,984 174,260
Bank of New York Co., Inc. 670 20,964
BB&T Corp. 6,391 270,595
Bear Stearns Cos., Inc. 220 23,276
Boston Properties, Inc. 5,100 353,022
Capital One Financial Corp. 150 11,453
Citigroup, Inc. 12,702 581,498
City National Corp. 100 7,338
Colonial BancGroup, Inc. 5,000 121,750
Comerica, Inc. 250 14,445
Commerce Bancorp, Inc. 1,740 53,018
Commerce Bancshares, Inc. 138 7,332
Compass Bancshares, Inc. 5,000 243,800
Covanta Holding Corp.+ 11,523 133,552
Equity Office Properties Trust 344 10,595
Equity Residential 200 7,850
Fannie Mae 2,652 126,023
Fidelity National Financial, Inc. 520 19,479
Fidelity National Title Group, Inc. -
Class A 91 1,979
First Horizon National Corp. 100 3,868
Franklin Resources, Inc. 300 26,511
Genworth Financial, Inc. 5,000 158,450
Golden West Financial Corp. 2,600 152,698
Goldman Sachs Group, Inc. 5,000 631,850
Health Care Property Investors, Inc. 200 5,090
Host Marriott Corp. 5,200 87,308
Irwin Financial Corp. 3,645 76,071
iStar Financial, Inc. 100 3,687
JPMorgan Chase & Co. 2,580 94,480
MARKET
SECURITY SHARES VALUE
Kimco Realty Corp. 6,900 $ 204,378
Legg Mason, Inc. 2,300 246,813
Lehman Brothers Holdings, Inc. 5,400 646,218
Liberty Property Trust 100 4,169
M & T Bank Corp. 2,512 270,241
MBIA, Inc. 150 8,736
MBNA Corp. 1,475 37,716
Mellon Financial Corp. 210 6,655
Mercantile Bankshares Corp. 100 5,636
Merrill Lynch & Co., Inc. 6,120 396,209
Moody's Corp. 3,974 211,655
Morgan Stanley 2,481 134,991
North Fork Bancorp., Inc. 579 14,672
Northern Trust Corp. 300 16,080
Old Republic International Corp. 150 3,886
PNC Financial Services Group, Inc. 460 27,927
ProLogis 5,000 215,000
Public Storage, Inc. 186 12,313
Radian Group, Inc. 200 10,420
Regions Financial Corp. 546 17,772
SEI Investments Co. 3,200 124,160
Simon Property Group, Inc. 100 7,162
SLM Corp. 1,250 69,413
South Financial Group, Inc. 5,000 137,850
St. Paul Travelers Cos., Inc. 100 4,503
State Street Corp. 300 16,569
Stewart Information Services Corp. 1,469 74,816
Student Loan Corp. 810 177,552
SunTrust Banks, Inc. 2,602 188,593
T. Rowe Price Group, Inc. 100 6,552
TCF Financial Corp. 200 5,420
Torchmark Corp. 200 10,566
UCBH Holdings, Inc. 2,500 43,500
UnionBanCal Corp. 200 13,696
UnumProvident Corp. 1,438 29,177
US Bancorp 2,473 73,151
Valley National Bancorp 477 11,562
Wachovia Corp. 1,867 94,321
Washington Mutual, Inc. 3,284 130,046
Westamerica Bancorp. 100 5,331
Wilmington Trust Corp. 200 7,582
WSFS Financial Corp. 2,350 145,583
Zions Bancorp. 100 7,347
-----------
8,705,355
-----------
See Notes to Financial Statements.
20
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
MARKET
SECURITY SHARES VALUE
---------------------------------------------------
COMMON STOCK
HEALTH CARE - 8.34%
Abbott Laboratories 4,335 $ 186,622
Aetna, Inc. 6,000 531,360
Allergan, Inc. 210 18,753
Alpharma, Inc. - Class A 5,000 124,450
Bausch & Lomb, Inc. 100 7,419
Baxter International, Inc. 500 19,115
Beckman Coulter, Inc. 100 4,926
Becton Dickinson & Co. 200 10,150
Beverly Enterprises, Inc.+ 4,000 46,960
Biomet, Inc. 275 9,578
Bristol-Myers Squibb Co. 2,247 47,569
C.R. Bard, Inc. 420 26,200
Cigna Corp. 5,100 590,937
Dentsply International, Inc. 150 8,271
Edwards Lifesciences Corp.+ 380 15,724
Eli Lilly & Co. 2,396 119,297
Express Scripts, Inc.+ 6,200 467,542
Guidant Corp. 1,155 72,765
HCA, Inc. 2,560 123,366
Health Net, Inc.+ 1,820 85,249
Henry Schein, Inc.+ 300 11,892
Hospira, Inc.+ 2,933 116,880
Humana, Inc.+ 1,800 79,902
Johnson & Johnson 6,006 376,096
Manor Care, Inc. 460 17,135
Medco Health Solutions, Inc.+ 5,000 282,500
Medtronic, Inc. 2,670 151,282
Merck & Co., Inc. 1,843 52,009
Mylan Laboratories, Inc. 262 5,033
PacifiCare Health Systems, Inc.+ 5,000 411,800
Pfizer, Inc. 20,763 451,388
Renal Care Group, Inc.+ 150 7,028
Stryker Corp. 2,600 106,782
UnitedHealth Group, Inc. 4,698 271,967
Watson Pharmaceuticals, Inc.+ 100 3,456
Wyeth 3,630 161,753
-----------
5,023,156
-----------
INFORMATION SERVICES - 1.97%
Alltel Corp. 5,377 332,621
AT&T Corp. 1,715 33,923
BellSouth Corp. 5,680 147,794
Dobson Communications Corp.+ 400 2,916
MARKET
SECURITY SHARES VALUE
PowerwaveTechnologies, Inc.+ 5,100 $ 57,171
Sprint Nextel Corp. 16,827 392,237
Talk America Holdings, Inc.+ 3,300 31,812
Verizon Communications, Inc. 5,888 185,531
-----------
1,184,005
-----------
INTERNET - 4.57%
Cisco Systems, Inc.+ 21,357 372,680
E*Trade Financial Corp.+ 15,700 291,235
eBay, Inc.+ 6,840 270,864
Google, Inc. - Class A+ 4,200 1,562,988
Juniper Networks, Inc.+ 2,400 55,992
VeriSign, Inc.+ 1,400 33,082
Yahoo!, Inc.+ 4,520 167,104
-----------
2,753,945
-----------
RETAIL - 3.44%
American Eagle Outfitters 5,000 117,750
Autonation, Inc.+ 234 4,652
Bed Bath & Beyond, Inc.+ 200 8,104
Best Buy Co., Inc. 456 20,183
Costco Wholesale Corp. 2,860 138,310
CVS Corp. 544 13,279
Dillard's, Inc. - Class A 4,671 96,736
Gap, Inc. 1,912 33,039
Home Depot, Inc. 1,520 62,381
Lowe's Cos., Inc. 1,134 68,913
Office Depot, Inc.+ 100 2,753
RadioShack Corp. 300 6,630
Saks, Inc.+ 380 6,897
Sears Holdings Corp.+ 5,500 661,375
Target Corp. 1,198 66,717
Urban Outfitters, Inc.+ 700 19,831
Walgreen Co. 1,525 69,281
Wal-Mart Stores, Inc. 14,266 674,924
-----------
2,071,755
-----------
TECHNOLOGY - 6.44%
ACCO Brands, Corp.+ 8 194
Agilent Technologies, Inc.+ 5,105 163,411
Analog Devices, Inc. 1,100 38,258
Apple Computer, Inc.+ 10,000 575,900
Applied Materials, Inc. 3,630 59,459
Autodesk, Inc.+ 7,200 324,936
Dell, Inc.+ 4,691 149,549
Discovery Holding Co. - Class A+ 758 10,680
See Notes to Financial Statements.
21
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
MARKET
SECURITY SHARES VALUE
------------------------------------------------------
COMMON STOCK
TECHNOLOGY (CONTINUED)
Ditech Communications Corp.+ 3,400 $ 21,658
Harris Corp. 10,000 411,000
IBM 3,422 280,193
Integrated Device Technology, Inc.+ 273 2,697
Intel Corp. 10,474 246,139
KLA-Tencor Corp. 200 9,258
Komag, Inc.+ 2,300 61,686
Linear Technology Corp. 1,361 45,199
Microsoft Corp. 30,146 774,752
Oracle Corp.+ 5,181 65,695
Photronics, Inc.+ 100 1,800
Qualcomm, Inc. 4,688 186,395
Seagate Technology 10,000 144,900
Symantec Corp.+ 4,001 95,424
Texas Instruments, Inc. 5,615 160,308
Xerox Corp.+ 1,745 23,680
Xilinx, Inc. 1,000 23,950
-----------
3,877,121
-----------
MARKET
SECURITY SHARES VALUE
TRANSPORTATION - 1.38%
CNF, Inc. 5,000 $ 281,350
CSX Corp. 5,000 229,050
General Maritime Corp. 3,700 137,751
Ryder Systems, Inc. 1,139 45,184
Union Pacific Corp. 400 27,672
United Parcel Service, Inc. - Class B 300 21,882
World Air Holdings, Inc.+ 8,200 86,100
-----------
828,989
-----------
UTILITIES - 2.51%
AES Corp.+ 5,000 79,450
Allegheny Energy, Inc.+ 7,200 203,472
American Electric Power Co., Inc. 3,550 134,758
CMS Energy Corp.+ 5,060 75,445
Edison International 5,000 218,800
PPL Corp. 186 5,829
TXU Corp. 7,887 794,615
-----------
1,512,369
-----------
TOTAL COMMON STOCK
(COST $36,553,959) 44,698,216
-----------
See Notes to Financial Statements.
22
ISI STRATEGY FUND
SCHEDULE OF INVESTMENTS OCTOBER 31, 2005
INTEREST MATURITY PAR MARKET
RATE DATE VALUE VALUE
------------------------------------------------------------------------------------------------
US TREASURY SECURITIES - 22.92%
US Treasury Bond 9.250% 2/15/16 $1,000,000 $ 1,373,281
US Treasury Bond 8.750% 5/15/17 1,500,000 2,037,188
US Treasury Note 1.500% 3/31/06 250,000 247,344
US Treasury Note 2.750% 6/30/06 1,500,000 1,485,000
US Treasury Note 5.500% 5/15/09 250,000 258,789
US Treasury Note 4.250% 8/15/13 1,000,000 980,781
US Treasury Note 4.750% 5/15/14 3,000,000 3,037,500
US Treasury Note 4.250% 8/15/14 3,000,000 2,929,219
US Treasury Note 4.125% 5/15/15 1,500,000 1,447,500
-----------
TOTAL US TREASURY SECURITIES
(COST $13,711,947)...................................................... 13,796,602
-----------
REPURCHASE AGREEMENT - 1.35%
JPMORGAN CHASE BANK, N.A.
Dated 10/31/05, 2.500%, principal and interest in the amount of $813,056
due 11/1/05, collaterized by US Treasury Security, par value of $2,235,000
due 2/15/26 with a value of $830,392 813,000
-----------
TOTAL REPURCHASE AGREEMENT
(COST $813,000)......................................................... 813,000
-----------
TOTAL INVESTMENTS - 98.51%
(COST $51,078,906)*.......................................................... 59,307,818
OTHER ASSETS IN EXCESS OF LIABILITIES - 1.49%....................................... 897,113
-----------
NET ASSETS - 100.00%................................................................ $60,204,931
===========
- --------------------------------------------------------------------------------
+Non-income producing security.
*Cost for Federal income tax purposes is $51,246,898; 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
unrealized appreciation (depreciation) on a tax basis consists of:
Gross Unrealized Appreciation............. $ 9,890,105
Gross Unrealized Depreciation............. (1,829,185)
-----------
Net Unrealized Appreciation (Depreciation) $ 8,060,920
===========
See Notes to Financial Statements.
23
ISI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2005
TOTAL RETURN US MANAGED
TREASURY FUND MUNICIPAL FUND
- -------------------------------------------------------------------------------------------------------
ASSETS:
Investments:
In securities, at market value
(cost $166,655,721 and $86,329,717, respectively).................. $161,195,578 $89,543,104
Repurchase agreement
(cost $2,909,000 and $3,634,000, respectively)..................... 2,909,000 3,634,000
Cash................................................................... 1,352 2,689
Receivables:
Capital shares sold.................................................. 24,390 10,609
Interest............................................................. 2,508,742 1,047,034
Prepaid expenses....................................................... 11,440 6,949
------------ -----------
Total assets........................................................... 166,650,502 94,244,385
------------ -----------
LIABILITIES:
Payables:
Capital shares redeemed.............................................. 373,001 15
Dividends............................................................ 169,468 115,388
Accrued Liabilities:
Investment advisory fees............................................. 35,590 32,095
Directors' fees and expenses......................................... 2,235 1,260
Distribution fees.................................................... 35,623 20,060
Accrued expenses and other........................................... 60,883 48,846
------------ -----------
Total liabilities...................................................... 676,800 217,664
------------ -----------
Net assets.............................................................. $165,973,702 $94,026,721
============ ===========
COMPONENTS OF NET ASSETS:
Paid in capital........................................................ $171,603,313 $90,555,343
Distributions in excess of net investment income....................... (169,468) (31,294)
Accumulated net realized gain from investment transactions............. - 289,285
Net unrealized appreciation (depreciation) on investments.............. (5,460,143) 3,213,387
------------ -----------
Net assets.............................................................. $165,973,702 $94,026,721
============ ===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING:
ISI Shares (115,000,000 and 55,000,000 shares authorized, respectively) 17,792,278 8,804,774
------------ -----------
NET ASSET VALUE PER SHARE:
ISI Shares (net assets / shares of beneficial interest outstanding).... $ 9.33 $ 10.68
------------ -----------
MAXIMUM OFFERING PRICE PER SHARE:
ISI Shares ($9.33 / 0.97 and $10.68 / 0.97, respectively).............. $ 9.62 $ 11.01
------------ -----------
See Notes to Financial Statements.
24
ISI FUNDS
STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2005
NORTH AMERICAN
GOVERNMENT
BOND FUND ISI STRATEGY FUND
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments:
In securities, at market value (cost $194,147,507 and $50,265,906, respectively)......... $188,033,875 $58,494,818
Repurchase agreement (cost $3,412,000 and $813,000, respectively)........................ 3,412,000 813,000
Cash....................................................................................... 912 2,189
Foreign currency (cost $36)................................................................ 36 -
Receivables:
Capital shares sold...................................................................... 379,174 754,144
Interest and dividends................................................................... 2,502,718 257,752
Prepaid expenses........................................................................... 12,411 12,114
------------ -----------
Total assets............................................................................... 194,341,126 60,334,017
------------ -----------
LIABILITIES:
Payables:
Capital shares redeemed.................................................................. 700,304 55,143
Dividends................................................................................ 368,349 -
Accrued Liabilities:
Investment advisory fees................................................................. 66,555 20,028
Directors' fees and expenses............................................................. 2,598 774
Distribution fees........................................................................ 71,235 12,517
Shareholder servicing fees............................................................... 3,343 -
Accrued expenses and other............................................................... 83,604 40,624
------------ -----------
Total liabilities.......................................................................... 1,295,988 129,086
------------ -----------
Net assets................................................................................... $193,045,138 $60,204,931
============ ===========
COMPONENTS OF NET ASSETS:
Paid in capital.......................................................................... $199,528,636 $54,150,829
Undistributed (distributions in excess of) net investment income......................... (368,349) 41,868
Accumulated net realized gain (loss) from investment and foreign currency transactions... - (2,216,678)
Net unrealized appreciation (depreciation) on investments and foreign currencies......... (6,115,149) 8,228,912
------------ -----------
Net assets................................................................................... $193,045,138 $60,204,931
============ ===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING:
ISI Class A Shares (50,000,000 shares authorized)........................................ 24,140,139 -
------------ -----------
ISI Class C Shares (5,000,000 shares authorized)......................................... 2,176,648 -
------------ -----------
ISI Shares (25,000,000 shares authorized)................................................ - 4,968,065
------------ -----------
NET ASSET VALUE PER SHARE:
(net assets / shares of beneficial interest outstanding)...................................
ISI Class A Shares (based on net assets of $177,100,586)................................. $ 7.34 $ -
------------ -----------
ISI Class C Shares (based on net assets of $15,944,552).................................. $ 7.33 $ -
------------ -----------
ISI Shares............................................................................... $ - $ 12.12
------------ -----------
MAXIMUM OFFERING PRICE PER SHARE:
ISI Class A Shares ($7.34 / 0.97)........................................................ $ 7.57 $ -
------------ -----------
ISI Shares ($12.12 / 0.97)............................................................... $ - $ 12.49
------------ -----------
See Notes to Financial Statements.
25
ISI FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2005
TOTAL RETURN US MANAGED
TREASURY FUND MUNICIPAL FUND
- -------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest......................................................... $ 6,715,234 $ 4,580,974
----------- -----------
EXPENSES:
Investment advisory fees......................................... 447,374 406,471
Distribution fees................................................ 452,264 254,044
Administration fees.............................................. 171,962 96,557
Transfer agent fees.............................................. 58,029 16,814
Custody fees..................................................... 14,458 9,705
Professional fees................................................ 74,897 57,149
Registration fees................................................ 23,820 21,075
Directors' fees.................................................. 16,528 9,310
Miscellaneous.................................................... 10,308 5,969
----------- -----------
Total expenses................................................. 1,269,640 877,094
----------- -----------
Net investment income............................................ 5,445,594 3,703,880
----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain from investment transactions................... 632,100 299,727
Net change in unrealized appreciation/depreciation on investments (3,403,049) (2,755,318)
----------- -----------
Net realized and unrealized gain (loss) on investments........... (2,770,949) (2,455,591)
----------- -----------
INCREASE IN NET ASSETS FROM OPERATIONS............................ $ 2,674,645 $ 1,248,289
=========== ===========
See Notes to Financial Statements.
26
ISI FUNDS
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2005
NORTH AMERICAN
GOVERNMENT
BOND FUND ISI STRATEGY FUND
- --------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest.............................................................. $ 9,515,905 $ 648,663
Dividends............................................................. - 607,856
----------- ----------
Total income........................................................ 9,515,905 1,256,519
----------- ----------
EXPENSES:
Investment advisory fees.............................................. 829,823 221,220
Distribution fees:
ISI Class A Shares.................................................. 761,821 -
ISI Class C Shares.................................................. 127,504 -
ISI Shares.......................................................... - 138,262
Administration fees................................................... 197,658 53,202
Transfer agent fees:
ISI Class A Shares.................................................. 80,995 -
ISI Class C Shares.................................................. 9,137 -
ISI Shares.......................................................... - 21,279
Custody fees.......................................................... 61,078 8,308
Professional fees..................................................... 82,933 46,567
Shareholder servicing fees:
ISI Class C Shares.................................................. 42,501 -
Registration fees..................................................... 42,563 22,871
Directors' fees....................................................... 18,655 5,414
Miscellaneous......................................................... 11,933 2,575
----------- ----------
Total expenses...................................................... 2,266,601 519,698
----------- ----------
Net investment income................................................. 7,249,304 736,821
----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment transactions............................................. 3,533,696 (35,017)
Foreign currency transactions....................................... 77,923 -
Net change in unrealized appreciation/depreciation on investments and
foreign currencies.................................................. (2,033,622) 4,156,937
----------- ----------
Net realized and unrealized gain on investments and foreign currencies 1,577,997 4,121,920
----------- ----------
INCREASE IN NET ASSETS FROM OPERATIONS................................. $ 8,827,301 $4,858,741
=========== ==========
See Notes to Financial Statements.
27
TOTAL RETURN US TREASURY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
OCTOBER 31,
--------------------------
2005 2004
- ----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income.............................................................. $ 5,445,594 $ 5,326,381
Net realized gain on investment transactions....................................... 632,100 172,261
Net change in unrealized appreciation/depreciation on investments.................. (3,403,049) 3,675,803
------------ ------------
Increase in net assets from operations............................................. 2,674,645 9,174,445
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.............................................................. (4,865,040) (5,093,609)
Net realized gain on investments................................................... (632,100) (7,452,894)
Return of capital.................................................................. (1,616,199) (4,778,172)
------------ ------------
Total distributions................................................................ (7,113,339) (17,324,675)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares....................................................... 11,040,344 8,438,737
Dividend reinvestments............................................................. 4,648,102 11,673,042
Cost of shares redeemed............................................................ (40,065,709) (46,198,502)
------------ ------------
Decrease in net assets from capital share transactions............................. (24,377,263) (26,086,723)
------------ ------------
Total decrease in net assets....................................................... (28,815,957) (34,236,953)
NET ASSETS:
Beginning of year.................................................................. 194,789,659 229,026,612
------------ ------------
End of year (including distributions in excess of net investment income of $169,468
and $750,022, respectively)...................................................... $165,973,702 $194,789,659
============ ============
SHARE TRANSACTIONS:
Shares sold........................................................................ 1,162,672 876,475
Shares issued to shareholders on reinvestment of dividends......................... 489,356 1,214,305
Shares redeemed.................................................................... (4,220,380) (4,827,307)
------------ ------------
Decrease in shares from capital share transactions................................. (2,568,352) (2,736,527)
============ ============
See Notes to Financial Statements.
28
MANAGED MUNICIPAL FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
OCTOBER 31,
--------------------------
2005 2004
- ---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................................................. $ 3,703,880 $ 4,152,470
Net realized gain (loss) on investment transactions............................... 299,727 (10,442)
Net change in unrealized appreciation/depreciation on investments................. (2,755,318) 538,387
------------ ------------
Increase in net assets from operations............................................ 1,248,289 4,680,415
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................................. (3,358,372) (4,831,949)
------------ ------------
Total distributions............................................................... (3,358,372) (4,831,949)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares...................................................... 4,114,915 23,397,588
Dividend reinvestments............................................................ 1,897,217 2,803,487
Cost of shares redeemed........................................................... (23,719,137) (19,283,681)
------------ ------------
Increase (decrease) in net assets from capital share transactions................. (17,707,005) 6,917,394
------------ ------------
Total increase (decrease) in net assets........................................... (19,817,088) 6,765,860
NET ASSETS:
Beginning of year................................................................. 113,843,809 107,077,949
------------ ------------
End of year (including distributions in excess of net investment income of $31,294
and $376,802, respectively)..................................................... $ 94,026,721 $113,843,809
============ ============
SHARE TRANSACTIONS:
Shares sold....................................................................... 379,795 2,132,728
Shares issued to shareholders on reinvestment of dividends........................ 175,163 258,162
Shares redeemed................................................................... (2,185,091) (1,785,569)
------------ ------------
Increase (decrease) in shares from capital share transactions..................... (1,630,133) 605,321
============ ============
See Notes to Financial Statements.
29
NORTH AMERICAN GOVERNMENT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
OCTOBER 31,
--------------------------
2005 2004
- -----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income....................................... $ 7,249,304 $ 7,908,972
Net realized gain (loss) on investment and foreign
currency transactions..................................... 3,611,619 (2,896,707)
Net change in unrealized appreciation/depreciation on
investments and foreign currencies........................ (2,033,622) 2,950,949
------------ ------------
Increase in net assets from operations...................... 8,827,301 7,963,214
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................................
ISI Class A Shares........................................ (7,838,916) (4,897,323)
ISI Class C Shares........................................ (595,672) (320,142)
Net realized gain on investments:
ISI Class A Shares........................................ (785,944) (2,733,166)
ISI Class C Shares........................................ (70,866) (151,110)
Return of capital:
ISI Class A Shares........................................ (1,356,475) (10,681,891)
ISI Class C Shares........................................ (122,309) (698,284)
------------ ------------
Total distributions......................................... (10,770,182) (19,481,916)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares:
ISI Class A Shares........................................ 30,035,408 23,239,002
ISI Class C Shares........................................ 3,448,814 7,255,836
Dividend reinvestments:
ISI Class A Shares........................................ 5,220,552 10,083,386
ISI Class C Shares........................................ 359,466 590,444
Cost of shares redeemed:
ISI Class A Shares........................................ (60,640,430) (86,037,048)
ISI Class C Shares........................................ (6,317,975) (2,051,441)
------------ ------------
Decrease in net assets from capital share transactions...... (27,894,165) (46,919,821)
------------ ------------
Decrease in net assets...................................... (29,837,046) (58,438,523)
NET ASSETS:
Beginning of year......................................... 222,882,184 281,320,707
------------ ------------
End of year (including distributions in excess of net
investment income of $368,349 and $1,187,078,
respectively)............................................ $193,045,138 $222,882,184
============ ============
SHARE TRANSACTIONS:
Shares sold:
ISI Class A Shares........................................ 4,053,791 3,060,803
ISI Class C Shares........................................ 464,623 956,786
Shares issued to shareholders on reinvestment of dividends:
ISI Class A Shares........................................ 704,417 1,343,772
ISI Class C Shares........................................ 48,592 78,912
Shares redeemed:
ISI Class A Shares........................................ (8,179,395) (11,482,700)
ISI Class C Shares........................................ (851,791) (277,253)
------------ ------------
Increase (decrease) in shares from capital share
transactions:
ISI Class A Shares........................................ (3,421,187) (7,078,125)
============ ============
ISI Class C Shares........................................ (338,576) 758,445
============ ============
See Notes to Financial Statements.
30
ISI STRATEGY FUND
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED
OCTOBER 31,
------------------------
2005 2004
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income............................................ $ 736,821 $ 374,935
Net realized gain (loss) on investment transactions.............. (35,017) 1,784,906
Net change in unrealized appreciation/depreciation on investments 4,156,937 601,917
----------- -----------
Increase in net assets from operations........................... 4,858,741 2,761,758
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................................ (753,672) (330,186)
----------- -----------
Total distributions.............................................. (753,672) (330,186)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares..................................... 18,477,449 21,196,828
Dividend reinvestments........................................... 674,238 287,106
Cost of shares redeemed.......................................... (7,971,409) (9,257,446)
----------- -----------
Increase in net assets from capital share transactions........... 11,180,278 12,226,488
----------- -----------
Total increase in net assets..................................... 15,285,347 14,658,060
NET ASSETS:
Beginning of year................................................ 44,919,584 30,261,524
----------- -----------
End of year (including undistributed net investment income of
$41,868 and $59,501, respectively)............................. $60,204,931 $44,919,584
=========== ===========
SHARE TRANSACTIONS:
Shares sold...................................................... 1,583,999 1,942,633
Shares issued to shareholders on reinvestment of dividends....... 56,938 25,905
Shares redeemed.................................................. (679,145) (845,666)
----------- -----------
Increase in shares from capital share transactions............... 961,792 1,122,872
=========== ===========
See Notes to Financial Statements.
31
TOTAL RETURN US TREASURY FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
ISI SHARES
FOR THE YEARS ENDED OCTOBER 31,
------------------------------------------------
2005 2004 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year.................... $ 9.57 $ 9.92 $ 10.18 $ 10.20 $ 9.57
-------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.29/1/ 0.24/1/ 0.23 0.35 0.45
Net realized and unrealized gain (loss) on investments (0.16) 0.19 0.01 0.20 0.82
-------- -------- -------- -------- --------
Total from investment operations...................... 0.13 0.43 0.24 0.55 1.27
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income................................. (0.25) (0.23) (0.25) (0.40) (0.45)
Net realized gain on investments...................... (0.03) (0.33) (0.25) (0.17) -
Return of capital..................................... (0.09) (0.22) - - (0.19)
-------- -------- -------- -------- --------
Total distributions................................... (0.37) (0.78) (0.50) (0.57) (0.64)
-------- -------- -------- -------- --------
Net asset value, end of year.......................... $ 9.33 $ 9.57 $ 9.92 $ 10.18 $ 10.20
======== ======== ======== ======== ========
TOTAL RETURN/2/........................................ 1.38% 4.64% 2.30% 5.78% 13.57%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)...................... $165,974 $194,790 $229,027 $262,928 $149,588
Ratios to average daily net assets:
Net investment income............................... 3.01% 2.56% 2.50% 3.64% 4.51%
Expenses............................................ 0.70% 0.69% 0.67% 0.74% 0.78%
Portfolio turnover rate............................... 16% 31% 125% 129% 61%
- --------------------------------------------------------------------------------
/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
MANAGED MUNICIPAL FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
ISI SHARES
FOR THE YEARS ENDED OCTOBER 31,
-----------------------------------------------
2005 2004 2003 2002 2001
- --------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year.................... $ 10.91 $ 10.89 $ 11.00 $ 10.99 $ 10.47
-------- -------- -------- -------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income................................. 0.40/1/ 0.38/1/ 0.40 0.45 0.45
Net realized and unrealized gain (loss) on investments (0.27) 0.08 0.01 0.09 0.55
-------- -------- -------- -------- -------
Total from investment operations...................... 0.13 0.46 0.41 0.54 1.00
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Net investment income................................. (0.36) (0.44) (0.47) (0.45) (0.45)
Net realized gain on investments...................... - - (0.05) (0.08) (0.03)
-------- -------- -------- -------- -------
Total distributions................................... (0.36) (0.44) (0.52) (0.53) (0.48)
-------- -------- -------- -------- -------
Net asset value, end of year.......................... $ 10.68 $ 10.91 $ 10.89 $ 11.00 $ 10.99
======== ======== ======== ======== =======
TOTAL RETURN/2/........................................ 1.19% 4.26% 3.89% 5.11% 9.76%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)...................... $ 94,027 $113,844 $107,078 $103,198 $66,105
Ratios to average daily net assets:
Net investment income............................... 3.64% 3.53% 3.66% 3.92% 4.18%
Expenses after waivers and/or reimbursements........ 0.86% 0.88% 0.89% 0.94% 0.93%
Expenses before waivers and/or reimbursements....... 0.86% 0.88% 0.89% 0.96% 0.99%
Portfolio turnover rate............................... 7% 17% 11% 11% 21%
- --------------------------------------------------------------------------------
/1/Calculated using the average shares outstanding for the period.
/2/Total return excludes the effect of sales charges.
See Notes to Financial Statements.
33
NORTH AMERICAN GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI CLASS A SHARES/1 /
APRIL 1, 2002
THROUGH FOR THE YEARS ENDED
FOR THE YEARS ENDED OCTOBER 31, OCTOBER 31, MARCH 31,
---------------------------- 2002/2/ ------------------
2005 2004 2003 ------------- 2002 2001
- ----------------------------------------------------------------------------- -------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...... $ 7.41 $ 7.73 $ 8.03 $ 7.80 $ 8.17 $ 8.07
-------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income..................... 0.26/3/ 0.24/3/ 0.25 0.18 0.38 0.44
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions............................ 0.06 0.03 0.07 0.41 (0.03) 0.38
-------- -------- -------- -------- -------- --------
Total from investment operations.......... 0.32 0.27 0.32 0.59 0.35 0.82
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Net investment income..................... (0.31) (0.16) (0.29) (0.17) (0.41) (0.47)
Net realized gain on investments.......... (0.03) (0.08) (0.33) (0.07) (0.23) (0.13)
Return of capital......................... (0.05) (0.35) - (0.12) (0.08) (0.12)
-------- -------- -------- -------- -------- --------
Total distributions....................... (0.39) (0.59) (0.62) (0.36) (0.72) (0.72)
-------- -------- -------- -------- -------- --------
Net asset value, end of period............ $ 7.34 $ 7.41 $ 7.73 $ 8.03 $ 7.80 $ 8.17
======== ======== ======== ======== ======== ========
TOTAL RETURN/4,5/.......................... 4.39% 3.62% 4.14% 7.75% 4.38% 10.74%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s).......... $177,101 $204,266 $267,756 $257,495 $220,629 $117,445
Ratios to average daily net assets:/6/
Net investment income................... 3.55% 3.22% 3.03% 3.84% 4.60% 5.62%
Expenses................................ 1.04% 1.05% 1.09% 1.01% 1.13% 1.24%
Portfolio turnover rate/5/................ 66% 47% 152% 95% 136% 89%
- --------------------------------------------------------------------------------
/1/On May 16, 2003, ISI Shares were redesignated as ISI Class A Shares.
/2/The Fund changed its fiscal year end from March 31 to October 31.
/3/Calculated using the average shares outstanding for the period.
/4/Total return excludes the effect of sales charges.
/5/Not annualized for periods less than one year.
/6/Annualized for periods less than one year.
See Notes to Financial Statements.
34
NORTH AMERICAN GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI CLASS C SHARES
MAY 16, 2003/1/
THROUGH
FOR THE YEARS ENDED OCTOBER 31, OCTOBER 31,
------------------------------- 2003
2005 2004 --------------
- --------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period...................... $ 7.40 $ 7.72 $ 8.20
-------- -------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income..................................... 0.21/2/ 0.19/2/ 0.17
Net realized and unrealized gain (loss) on investments and
foreign currency transactions........................... 0.06 0.02 (0.38)
-------- -------- -------
Total from investment operations.......................... 0.27 0.21 (0.21)
-------- -------- -------
LESS DISTRIBUTIONS:
Net investment income..................................... (0.26) (0.14) (0.21)
Net realized gain on investments.......................... (0.03) (0.08) (0.06)
Return of capital......................................... (0.05) (0.31) -
-------- -------- -------
Total distributions....................................... (0.34) (0.53) (0.27)
-------- -------- -------
Net asset value, end of period............................ $ 7.33 $ 7.40 $ 7.72
======== ======== =======
TOTAL RETURN/3,4/.......................................... 3.73% 2.91% (2.62)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s).......................... $ 15,944 $ 18,616 $13,565
Ratios to average daily net assets:/5/
Net investment income................................... 2.89% 2.50% 3.32%
Expenses after waivers and/or reimbursements............ 1.69% 1.77% 1.85%
Expenses before waivers and/or reimbursements........... 1.69% 1.77% 2.12%
Portfolio turnover rate/4/................................ 66% 47% 152%
- --------------------------------------------------------------------------------
/1/Commencement of operations.
/2/Calculated using the average shares outstanding for the period.
/3/Total return excludes the effect of sales charges.
/4/Not annualized for periods less than one year.
/5/Annualized for periods less than one year.
See Notes to Financial Statements.
35
ISI STRATEGY FUND
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD INDICATED)
ISI SHARES
JUNE 1, 2002 FOR THE
FOR THE YEARS ENDED OCTOBER 31, THROUGH YEARS ENDED MAY 31,
------------------------------ OCTOBER 31 -----------------
2005 2004 2003 2002/1/ 2002 2001
- -----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period............ $ 11.21 $ 10.50 $ 9.08 $ 10.23 $ 10.89 $ 12.15
-------- -------- ------- ------- ------- -------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income........................... 0.16/2/ 0.10/2/ 0.08 0.05 0.12 0.25
Net realized and unrealized gain (loss) on
investments.................................... 0.91 0.70 1.42 (1.14) (0.66) (0.62)
-------- -------- ------- ------- ------- -------
Total from investment operations................ 1.07 0.80 1.50 (1.09) (0.54) (0.37)
-------- -------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Net investment income........................... (0.16) (0.09) (0.08) (0.06) (0.12) (0.27)
Net realized gain on investments................ - - - - - (0.62)
-------- -------- ------- ------- ------- -------
Total distributions............................. (0.16) (0.09) (0.08) (0.06) (0.12) (0.89)
-------- -------- ------- ------- ------- -------
Net asset value, end of period.................. $ 12.12 $ 11.21 $ 10.50 $ 9.08 $ 10.23 $ 10.89
======== ======== ======= ======= ======= =======
TOTAL RETURN/3,4/................................. 9.59% 7.71% 16.47% (10.65)% (4.93)% (3.32)%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000s)................ $ 60,205 $ 44,920 $30,262 $19,924 $24,398 $27,051
Ratios to average daily net assets:/5/
Net investment income.......................... 1.33% 0.92% 0.77% 1.18% 1.14% 2.09%
Expenses after waivers and/or reimbursements... 0.94% 1.12% 1.30% 1.30% 1.19% 1.00%
Expenses before waivers and/or reimbursements.. 0.94% 1.12% 1.79% 1.99% 1.42% 1.38%
Portfolio turnover rate/4/...................... 30% 66% 60% 12% 72% 57%
- --------------------------------------------------------------------------------
/1/The Fund changed its fiscal year end from May 31 to October 31.
/2/Calculated using the average shares outstanding for the period.
/3/Total return excludes the effect of sales charges.
/4/Not annualized for periods less than one year.
/5/Annualized for periods less than one year.
See Notes to Financial Statements.
36
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION
Total Return US Treasury Fund, Inc. ('Total Return'), Managed Municipal Fund,
Inc. ('Managed Municipal'), North American Government Bond Fund, Inc. ('North
American') and ISI Strategy Fund, Inc. ('Strategy'), (each a 'Fund' and
collectively, the 'Funds') are registered under the Investment Company Act of
1940, as amended, as open-end management investment companies. The Funds are
organized as corporations under the laws of the State of Maryland.
Total Return's investment objective is to achieve a high level of total
return with relative stability of principal and, secondarily, high current
income consistent with an investment in U.S. Treasury securities. Managed
Municipal's investment objective is to provide a high level of total return
with relative stability of principal and, secondarily, high current income
exempt from Federal income tax through investment in a portfolio consisting
primarily of tax-free municipal obligations. North American's investment
objective is designed to provide a high level of current income, consistent
with prudent investment risk. Strategy's investment objective is to maximize
total return through a combination of long-term growth of capital and current
income.
Total Return, Managed Municipal and Strategy currently offer ISI Shares to
investors. North American offers ISI North American Government Bond Fund
Class A Shares ('ISI Class A Shares') and ISI North American Government Bond
Fund Class C Shares ('ISI Class C Shares'). ISI Shares and North American's ISI
Class A Shares are subject to a maximum front-end sales charge of 3.00%. A
contingent deferred sales charge of 1.00% is imposed on the sale of North
American's ISI Class C Shares if redeemed within the first year 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 and over-the-counter securities listed on the
NASDAQ National Market System for which market quotations are readily available
are valued each Fund business day using the last reported sales price or the
NASDAQ Official Closing Price ('NOCP'), provided by independent pricing
services as of the close of trading on the New York Stock Exchange (normally
4:00 p.m. Eastern time). In the absence of a sale or NOCP, such securities are
valued at the mean of the last bid and the last asked prices. Non-exchange
traded securities for which over-the-counter quotations are readily available
are generally valued at the mean between the last bid and last asked prices.
Money market instruments that mature in 60 days or less may be valued at
amortized cost unless the Fund's investment advisor believes another valuation
is more appropriate. Debt securities are valued at prices supplied by a Fund's
pricing agents based on broker or dealer supplied valuations or on matrix
pricing, a method of valuing securities by reference to the value of other
securities with similar characteristics, such as rating, interest rate and
maturity.
When valuing securities for which market quotations are not readily available
or for which the market quotations that are available are considered
unreliable, the Funds determine a fair value in good faith under procedures
established by and under the general supervision of the Funds' Boards of
Directors (the 'Board'). The Funds may use these procedures to establish the
fair value of securities when, for example, a significant event occurs between
the time the market closes and the time as of which the Funds value their
investments if such an event is likely to affect the Fund's net asset value per
share. Fair valuation may also be used for securities that are subject to legal
or contractual restrictions on resale, securities for which no or limited
trading activity has occurred for a period of time, or securities that are
otherwise deemed to be illiquid (i.e.,
37
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
securities that cannot be disposed of within seven days at approximately the
price at which the security is currently priced by the Funds).
In such cases, the Funds consult 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 assigns the security such other value as it may determine.
As of October 31, 2005, there were no fair valued securities.
C. SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on trade date. Realized gains and losses
are determined by comparing the proceeds of a sale or the cost of a purchase
with a specific offsetting transaction. Dividend income is recorded on the
ex-dividend date. Interest income, including amortization of premiums and
accretion of discounts, is accrued daily. Estimated expenses are also accrued
daily. With respect to North American, income, gains (losses) and common
expenses are allocated to each class based on its respective net assets. Class
specific expenses are charged directly to each class.
D. DISTRIBUTIONS
Total Return declares a dividend daily, and Managed Municipal and North
American declare monthly dividends at fixed rates approved by the Funds' Board.
These dividends are paid monthly. To the extent that their net investment
income and short-term capital gains are less than the approved fixed rate, some
of their dividends may be paid from long-term capital gains or as a return of
shareholder capital. Strategy declares and pays dividends quarterly from its
net investment income. Net realized gains, if any, are distributed at least
annually. The Funds record dividends and distributions on the ex-dividend date.
E. FEDERAL INCOME TAXES
Each Fund has a policy to qualify as a regulated investment company under
subchapter M of the Internal Revenue Code and to distribute 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.
The Fund determines the net US dollar value of forward foreign currency
contracts using prevailing
38
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
exchange rates. As of October 31, 2005, 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, 2007, 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, 2006, to the extent necessary, to limit all
expenses to 1.30% of its average daily net assets. For the year ended
October 31, 2005, there were no fees waived.
Los Angeles Capital Management and Equity Research, Inc. ('LA Capital
Management') is Strategy's Sub-Advisor and is responsible for managing the
common stocks in the Fund's portfolio. The Sub-Advisor is paid by ISI, not the
Fund.
Citigroup Fund Services, LLC ('Citigroup') serves as the Funds'
Administrator, Accountant, and Transfer Agent. For its services, Citigroup
receives a combined fee based on the aggregate average net assets of the Funds
(subject to a minimum monthly fee) and monthly fees per open shareholder
account. Average net asset-based fees are calculated daily and all fees are
paid monthly.
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
distribution/shareholder service fee, pursuant to Rule 12b-1, that is
calculated daily and paid monthly at the annual rate up to 0.25% of their
average daily net assets. North American's ISI Class A Shares and ISI Class C
Shares pay ISI Group a distribution/shareholder service fee, pursuant to Rule
12b-1, that is calculated daily and paid monthly at the annual rate up to 0.40%
and 1.00% (which includes up to 0.25% for shareholder servicing fees for each
class) of their average daily net assets, respectively.
For the year ended October 31, 2005, ISI Group earned commissions on sales of
ISI Shares of Total Return, Managed Municipal, and Strategy of $9,252, $3,438
and $27,604, respectively, and $18,158 on sales of ISI Class A Shares of North
American.
39
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
Certain officers and directors of the Funds are also officers or directors of
ISI, LA Capital Management, Citigroup or ISI Group. These persons are not paid
by the Funds for serving in these capacities.
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, undistributed net investment income or accumulated net
realized gain as appropriate, in the period that the differences arose. The
reclassifications have no impact on the net assets of the Funds. As of
October 31, 2005, the following reclassifications were made to the statement of
assets and liabilities:
------------------------------------------
Accumulated Undistributed
Net Realized Net Investment
Gain Income
------------------------------------------
North American $(2,004,013) $2,004,013
Strategy 782 (782)
------------------------------------------
North American's reclassification was the result of bond bifurcation and
currency gain/loss reclass tax adjustments. Strategy's reclassification was a
result of a reclassification of income on Real Estate Investment Trust
securities.
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, 2005 and 2004 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,
----------- ----------- ----------- -----------
2005 2004 2005 2004 2005 2004 2005 2004
---- ---- ---- ---- ---- ---- ---- ----
Total Return $5,069,701 $9,554,624 $ - $ - $427,439 $2,991,879 $1,616,199 $ 4,778,172
Managed Municipal 68,211 787,393 3,290,161 4,044,556 - - - -
North American 9,291,398 5,217,465 - - - 2,884,276 1,478,784 11,380,175
Strategy 753,672 330,186 - - - - - -
- --------------------------------------------------------------------------------------------------------
As of October 31, 2005, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
- ----------------------------------------------------------------------------------------------------------
Undistributed Unrealized
Undistributed Undistributed Long-Term Capital Loss Appreciation
Tax Exempt Income Ordinary Income Capital Gains Carryforward (Depreciation) Total
- ----------------------------------------------------------------------------------------------------------
Total Return $ - $ - $ - $ - $(5,460,143) $(5,460,143)
Managed Municipal 84,094 - 289,285 - 3,213,387 3,586,766
North American - - - - (6,115,149) (6,115,149)
Strategy - 40,256 - (2,047,065) 8,060,920 6,054,111
- ----------------------------------------------------------------------------------------------------------
40
ISI FUNDS NOTES TO FINANCIAL STATEMENTS
The difference between book basis and tax basis unrealized appreciation
(depreciation) for Strategy was primarily due to wash sales.
Strategy's capital loss carryforwards of $95,684, $1,875,067 and $76,314
expire in 2009, 2010 and 2013, respectively. During the year ended October 31,
2005, Managed Municipal and North American utilized $10,442 and $750,796 of
capital loss carryforwards, respectively. To the extent future capital gains
are offset by capital loss carryforwards, such gains will not be distributed.
The aggregate cost of purchases and proceeds from sales of investments, other
than short-term obligations, for the year ended October 31, 2005, were as
follows:
-------------------------------------------------------------------------
Non-US Government Obligations US Government Obligations
-------------------------------------------------------------------------
Purchases Sales Purchases Sales
Total Return $ - $ - $26,987,891 $23,290,125
Managed Municipal 6,768,056 17,489,592 - -
North American 97,442,786 106,170,488 24,410,664 26,904,914
Strategy 25,496,478 11,806,375 4,480,352 3,581,289
-------------------------------------------------------------------------
NOTE 4 - MARKET AND CREDIT RISK
North American invests in Canadian and Mexican government securities.
Investing in Canadian and Mexican government securities may have different
risks than investing in US government securities. An investment in Canada or
Mexico may be affected by developments unique to those countries. These
developments may not affect the US economy or the prices of US government
securities in the same manner. In addition, the value of bonds issued by non-US
governments may be affected by adverse international political and economic
developments that may not impact the value of US government securities.
NOTE 5 - CONTRACTUAL OBLIGATIONS
In the ordinary course of business, the Funds enter into contracts that
contain a variety of indemnifications. Each Fund's maximum exposure under these
arrangements is unknown. However, the Funds have not had prior claims or losses
pursuant to these indemnification provisions and expect the risk of loss
thereunder to be remote.
41
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors Total Return U.S. Treasury Fund,
Inc. Managed Municipal Fund, Inc. North American Government Bond Fund,
Inc. ISI Strategy Fund, Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Total Return U.S. Treasury Fund,
Inc., Managed Municipal Fund, Inc., North American Government Bond Fund, Inc.
and ISI Strategy Fund, Inc. (the "Funds") as of October 31, 2005, 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 five years in the period then ended with
respect to Total Return U.S. Treasury Fund, Inc. and Managed Municipal Fund,
Inc., the financial highlights for each of the periods presented from April 1,
2001 through October 31, 2005 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, 2005 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 North American Government Bond Fund, Inc. for the year
ended 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 year ended 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. We were not engaged to perform an audit of the Funds' internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Funds' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of October 31, 2005, by correspondence with
the custodian and brokers. 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, 2005, 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 five
years in the period then ended with respect to Total Return U.S. Treasury Fund,
Inc. and Managed Municipal Fund, Inc., the financial highlights for each of the
periods presented from April 1, 2001 through October 31, 2005 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, 2005 with
respect to ISI Strategy Fund, Inc., in conformity with U.S. generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
New York, New York
December 23, 2005
42
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) (registered investment company). 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).
11/16/32 Formerly, Chairman of the Quality Control Inquiry Committee, American
Director since 1994. 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 broker-dealer) (1991 to present).
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
- ----------------------------------------------------------------------------------------------------------------------------
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) (1980-2002); 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 (2002 to present); Officer of various
8/26/43 investment companies for which EJV Financial Services provides consulting and
Vice President since 1992. compliance services. Formerly, Trustee, Devcap Trust (registered investment
company) (2000 to 2003); Director, Deutsche Asset Management (formerly B.T.
Alex Brown, Inc.) (October 1965 to May 2002); Executive Vice President,
Investment Company Capital Corp. (May 1987 to May 2002).
- ----------------------------------------------------------------------------------------------------------------------------
Stephen V. Killorin Executive Managing Director and Chief Financial Officer, International Strategy
6/27/53 & Investment, Inc. (registered investment advisor) (December 2000 to present);
Vice President since 2002. Executive Managing Director and Chief Financial Officer, International Strategy
Treasurer, Chief Compliance Officer & Investment Group, Inc. (registered broker-dealer) (December 2000 to present);
and Chief Financial Officer since Formerly, Controller, Sanford C. Bernstein & Co., Inc. (registered investment
2004. advisor) (November 1999 to December 2000) and Managing Director, Deutsche
Bank (May 1994 to November 1999).
- ----------------------------------------------------------------------------------------------------------------------------
Margaret M. Beeler Managing Director, International Strategy & Investment, Inc. (registered
3/1/67 investment advisor) (July 2004 to present). Formerly, Assistant Managing Director
Vice President since 2005. and Assistant Vice President (1996 to 2000), International Strategy & Investment,
Secretary since 2004. Inc. (registered investment advisor).
44
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
- --------------------------------------------------------------------------------------------------------------------------
Heena Dhruv Managing Director, International Strategy & Investment, Inc. (registered
11/13/76 investment advisor) (July 2005 to present). Associate Managing Director,
Assistant Vice President since 2005. International Strategy & Investment, Inc. (January 2003 to July 2005). Portfolio
Assistant, Pershing, Division of DLJ (April 1999 to August 2000).
- --------------------------------------------------------------------------------------------------------------------------
Ashleigh Mitchell Associate, International Strategy & Investment, Inc. (registered investment
7/1/81 advisor) (May 2005 to present); Private Client Associate, Sanford C. Bernstein &
Assistant Vice President since Co. (2003 to 2005).
May 2005.
- --------------------------------------------------------------------------------------------------------------------------
Dana A. Lukens General Counsel, Citigroup Fund Services, LLC ("Citigroup") (fund
4/23/62 administrator) (2001 to present). Formerly, General Counsel, Clareon Corp.
Assistant Secretary since 2003. (money transmitter) (2000 to 2001); Associate, Drummond Woodsum &
MacMahon (law firm) (1998 to 2000); Officer of various registered investment
companies for which Citigroup serves as fund accountant and administrator.
- --------------------------------------------------------------------------------------------------------------------------
Frederick Skillin Senior Vice President, Financial Control, Citigroup (2003 to present); Senior
5/27/58 Manager, Corporate Finance, Citigroup (1994 to 2004); Officer of various
Assistant Treasurer since 2004. registered investment companies for which Citigroup serves as fund accountant
and administrator.
- --------------------------------------------------------------------------------------------------------------------------
*Considered to be an "interested person" as defined in the Investment Company
Act, because of his employment with the Advisor and the Distributor.
/1/The mailing address of each Director and Executive Officer with respect to
Fund operations is 40 West 57/th/ Street, 18th Floor, New York, New York
10019.
/2/Thomas D. Stevens is an officer only for the ISI Strategy Fund, Inc.
Except for Mr. Stevens, each of the above named persons serves in the
capacity noted above for each Fund in the Fund Complex.
The Funds' Statements of Additional Information include additional
information about the Funds' directors and officers. To receive your free copy
of the Statements of Additional Information, call toll-free: (800) 955-7175.
45
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, 2005 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
The Funds file their complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. Each Funds' Form
N-Q is available on the SEC's website at http://www.sec.gov or may be reviewed
and copied at the SEC's Public Reference Room in Washington, DC. Information on
the operation of the Public Reference Room may be obtained by calling
800-SEC-0330.
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED OCTOBER 31, 2005:
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 $427,439 - - -
Managed Municipal - 97.97% - -
North American - - - -
Strategy - - 73.87% 73.79%
- -----------------------------------------------------------------------------------------
INVESTMENT ADVISORY AGREEMENT APPROVAL
At the September 22, 2005 Board meeting, the Board, including the Independent
Directors, considered the approval of the continuance of the Investment
Advisory Agreements between ISI and each of the Funds (the "Advisory
Agreements") as well as the Sub-Advisory Agreement between ISI and the
Sub-Advisor with respect to Strategy (the "Sub-Advisory Agreement"). In
evaluating the Advisory Agreements and the Sub-Advisory Agreement, the Board
reviewed materials furnished by ISI and the Sub-Advisor. Specifically, the
Board considered: (1) the nature, extent and quality of the services provided
to the Funds by ISI and the Sub-Advisor, including information on the
investment performance of the Funds, ISI and the Sub-Advisor; (2) the total
expense ratio of each Fund compared to its relevant peer group; (3) the
investment advisory fee schedule for each Fund; (4) the cost of the services
provided and profitability to ISI with respect to its relationship with the
Funds; (5) the extent to which economies of scale would be realized as each
Fund grows and whether the advisory fees reflect these economies of scale for
the benefit of shareholders of each Fund; and (6) other
46
NOTICE TO SHAREHOLDERS
benefits received by ISI and the Sub-Advisor from their relationship with the
Funds. In their deliberations, the Board did not identify any particular
information that was all-important or controlling, and the Board attributed
different weights to the various factors. In particular, the Board focused on
the factors discussed below.
NATURE, EXTENT AND QUALITY OF SERVICES. The Board met with senior management
of ISI and discussed ISI's management approach with respect to each Fund as
well as ISI's general economic outlook. The Board also considered the
background and quality of ISI's investment management team and the history of
the organization of the Funds and their relationship with ISI and the
Sub-Advisor. With respect to Strategy, the Board noted that, under the
Sub-Advisory Agreement, the Sub-Advisor managed the Fund's equity portfolio and
reviewed data provided by the Sub-Advisor regarding its general order execution
results. The Board also reviewed information provided by Lipper Inc. and
Thomson Financial regarding the investment performance of each Fund.
TOTAL RETURN FUND. ISI reported that for the fiscal quarter ended July 31,
2005, the yield curve dominated performance, i.e. 20-year and 30-year U.S.
Treasury bonds went down in yield while the yield for 2-year, 3-year, 5-year
and 10-year U.S. Treasuries went up. The Board noted that for the period,
the Fund outperformed the Lehman U.S. Treasury Index. ISI advised the Board
that this was because only 8.28% of the index was in issues with maturities
of 20 years or longer, while the Fund had 27.8% of its assets in issues in
that category. The Board also noted that the Fund was in the top quartile
for its Lipper Inc. and Thomson Financial universes, but was at the bottom
of the Morningstar universe because it was classified as a long maturity
fund, where the Fund is comparatively underweighted in long maturity U.S.
Treasuries. Finally, the Board noted that the Fund's expense ratio is the
lowest among like-size Treasury funds.
MANAGED MUNICIPAL FUND. ISI advised the Board that for the fiscal quarter
ended July 31, 2005, the yield curve had been a small influence but that
lower credit quality dominated performance. ISI reported further that during
the period lower quality bonds rated A or BBB typically outperformed AAA and
AA-rated bonds. As a result of the Fund's high quality orientation, the
Board noted that the Fund lagged in its Lipper Inc. and Thomson Financial
universes, where the comparisons were with general National Municipal Funds.
The Board also noted that the Fund outperformed the High Quality Index but
lagged the State General Obligation Index. Morningstar ranked the Fund in
the 30/th/ percentile, but had classified the Fund in the intermediate
category. Finally, the Board noted that the Fund's expense ratio was
somewhat below average among similar Municipal funds.
NORTH AMERICAN FUND. ISI reported that Mexico had been the star for the
fiscal quarter ended July 31, 2005 while Canada had been for the past 12
months. For the purpose of tracking performance of the North American
market, ISI had developed an index which tracked all three markets. The
Board noted that the Fund outperformed the index over the last quarter and
12 months and was slightly underperformed the 3-year and since inception
periods. ISI reported that the Fund was weighted more heavily in long
maturity U.S. Treasuries than the overall U.S. Treasury market. The Board
also noted that the Fund was in the top 10% for the quarter and 12 months in
its Lipper Inc. and Thomson Financial universes, and for 12 months in its
Morningstar universe because of its investments in Canada and Mexico. Over
longer periods, the Board noted, it was generally around the 35/th/
percentile for the Morningstar while in the top decile or 20/th/ percentile
for Lipper Inc. and Thomson Financial. Finally, the Board noted that the
Fund's expense ratio was below average among similar Government funds.
STRATEGY FUND. The Board noted that the Fund outperformed the 60%/40%
stock/bond benchmark for the quarter, 12 months and three years and that it
lagged marginally since inception. ISI reported that for these same
timeframes, the equity section generally outperformed or was quite close to
the Wilshire Index, while the bond
47
NOTICE TO SHAREHOLDERS
section, which included all the cash in the Fund, marginally underperformed
the Lehman Brothers U.S. Treasury Index. The Board noted that versus the
Morningstar Large Blend Universe, the equity section had outperformed the
median fund since the inception of the Sub-Advisor's "alpha model" enhanced
return method of management on May 14, 2001. The Board also noted that the
Fund was generally in the second quartile in its Lipper Inc. and Thomson
Financial universes, and that it was given 4 stars by Morningstar for its
superior long-term performance despite below average recent performance.
Finally, the Board noted that the Fund's expense ratio was below the average
among similar-sized funds.
Based on the above information, the Board concluded that the quality and
range of services provided by ISI have benefited, and should continue to
benefit, the Funds and their shareholders.
INVESTMENT ADVISORY FEE SCHEDULES FOR EACH FUND. The Board considered the
investment advisory fees paid by each Fund to ISI and the Sub-Advisor. The
Board noted that the sub-advisory fee is paid by ISI and not the Fund. The
Board concluded that the fee schedules under the Investment Advisory Agreements
provided fair compensation to ISI in light of the nature, extent and quality of
the services being provided to the Funds and the performance of the Funds.
COSTS OF SERVICES PROVIDED AND PROFITABILITY. The Board reviewed the costs
associated with ISI's portfolio management, research and corporate governance
and considered the profitability of ISI on its advisory services to the Funds.
The Board noted that the level of ISI's profits was within the range found in
the industry of comparable fund complexes. The Board also was advised that
ISI's profitability on advisory services rendered to the Funds had declined
over the past year due to a decrease in assets of the Funds. The Board also
considered whether the Funds would benefit from any economies of scale, noting
that the investment advisory fees for Managed Municipal, North American and
Strategy did not contain breakpoints. The Board considered the size of each of
these Funds and concluded that it would not be necessary to consider the
implementation of fee breakpoints.
OTHER BENEFITS REVIEWED. The Board considered the fact that ISI Group, an
affiliate of ISI, serves as the distributor of the Funds. The Board reviewed
the costs and profitability of ISI Group in rendering distribution services to
each of the Funds and noted that ISI Group operated at a loss with respect to
distribution services provided to the Funds.
Prior to voting, the Board reviewed a memorandum from counsel to the
Independent Directors discussing the legal standards applicable to its
consideration of the Advisory Agreements and the Sub-Advisory Agreement and
discussed the proposed continuance of the Advisory Agreements and the
Sub-Advisory Agreement. The Independent Trustees met their counsel without
management present to discuss the agreements further. Based upon its review,
the Board concluded that the overall arrangements between the ISI Funds and
ISI, and ISI and the Sub-Advisor (with respect to Strategy) as provided in the
Advisory and Sub-Advisory Agreements, were in the best interests of the Funds
and their respective shareholders.
48
[LOGO] ISI
INTERNATIONAL STRATEGY & INVESTMENT
DIRECTORS AND OFFICERS
EDWARD S. HYMAN STEPHEN V. KILLORIN
CHAIRMAN VICE PRESIDENT
TREASURER
R. ALAN MEDAUGH CHIEF COMPLIANCE OFFICER
PRESIDENT CHIEF FINANCIAL OFFICER
JOSEPH R. HARDIMAN MARGARET M. BEELER
DIRECTOR VICE PRESIDENT
SECRETARY
W. MURRAY JACQUES
DIRECTOR HEENA DHRUV
ASSISTANT VICE PRESIDENT
LOUIS E. LEVY
DIRECTOR ASHLEIGH MITCHELL
ASSISTANT VICE PRESIDENT
NANCY R. LAZAR
VICE PRESIDENT FREDERICK SKILLIN
ASSISTANT TREASURER
CARRIE L. BUTLER
VICE PRESIDENT DANA A. LUKENS
ASSISTANT SECRETARY
EDWARD J. VEILLEUX
VICE PRESIDENT
THOMAS D. STEVENS* *Thomas D. Stevens is an officer
VICE PRESIDENT for only the ISI Strategy Fund.
INVESTMENT ADVISOR
ISI, INC.
40 WEST 57TH STREET, 18TH FLOOR
NEW YORK, NY 10019
(800) 955-7175
SHAREHOLDER SERVICING AGENT
CITIGROUP FUND SERVICES, LLC
TWO PORTLAND SQUARE
PORTLAND, ME 04101
(800) 882-8585
DISTRIBUTOR
ISI GROUP, INC.
40 WEST 57TH STREET, 18TH FLOOR
NEW YORK, NY 10019
(800) 955-7175
ITEM 2. CODE OF ETHICS
As of the end of the period covered by this report, the registrant has adopted a
code of ethics as defined in Item 2 of Form N-CSR, which applies to its Chief
Financial Officer and Principal Accounting Officer. A copy of the code is filed
as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The registrant's Board has determined that Louis E. Levy is an "audit committee
financial expert". Mr. Levy is "independent" for purposes of this Item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees - The aggregate fees accrued for each of the last two fiscal
years (the "Reporting Periods") for professional services rendered by the
Registrant's principal accountant for the audit of the Registrant's annual
financial statements, or services that are normally provided by the principal
accountant in connection with the statutory and regulatory filings or
engagements for the Reporting Periods, were $25,300 in 2004 and $26,475 in 2005.
(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 $3,150 in 2004 and $3,300 in
2005. These services consisted of review or preparation of U.S. federal, state
and local 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 Audit Committee reviews and approves in advance all audit and
"permissible non-audit services" (as defined under Rule 2-01(c)(4)) for the
Registrant. In addition, the Audit Committee reviews and approves in advance all
"permissible non-audit services" (as defined under Rule 2-01(c)(4)) to be
provided to the Registrant's investment adviser ("Adviser") by the Registrant's
independent auditor if the engagement relates to the operations and financial
reporting of the Registrant. Pre-approval of any permissible non-audit services
provided to the Registrant is not required so long as: (i) the aggregate amount
of all such permissible non-audit services provided to the Registrant
constitutes not more than 5% of the total amount of revenues paid by the
Registrant to its auditor during the fiscal year in which the permissible
non-audit services are provided; (ii) the permissible non-audit services were
not recognized by the Registrant at the time of the engagement to be non-audit
services; and (iii) such services are promptly brought to the attention of the
Audit Committee and approved prior to the completion of the audit by the Audit
Committee or its authorized delegate(s). Pre-approval of permissible non-audit
services rendered to the Adviser is not required if such services constitute not
more than 5% of the total amount of revenues paid by the Registrant and the
Adviser collectively to the Registrant's independent auditor during the fiscal
year in which such services are provided. The Audit Committee may delegate to
one or more of its members authority to pre-approve permissible non-audit
services to be provided to the Registrant.
(e) (2) 0.00%
(f) Not applicable
(g) The aggregate non-audit fees billed by the principal accountant for services
rendered to the Registrant for the Reporting Periods were $3,150 in 2004 and
$3,300 in 2005. There were no fees billed in each of the Reporting Periods for
non-audit services rendered by the principal accountant to the investment
adviser.
(h) If the Registrant's investment adviser has engaged the Registrant's auditor
for non-audit services and the engagement relates directly to the operations and
financial reporting of the Registrant, the Audit Committee does consider such
engagement in evaluating the independence of the Registrant's auditor.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES
(a) The registrant's President and Treasurer have concluded that the
registrant's disclosure controls and procedures (as defined in rule 30a-3(c)
under the Investment Company Act of 1940 (the "Act")) are effective, based on
their evaluation of these disclosure controls and procedures required by Rule
30a-3(b) as of a date within 90 days of the filing date of this report.
(b) There were no changes in the registrant's internal control over financial
reporting (as defined in rule 30a-3(d) under the Act) that occurred during the
registrant's last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of Ethics (Exhibit filed herewith).
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
(a)(3) Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Exhibit filed herewith).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant NORTH AMERICAN GOVERNMENT BOND FUND, INC.
By /s/ R. Alan Medaugh
---------------------------
R. Alan Medaugh, President
Date January 4, 2006
---------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ R. Alan Medaugh
-----------------------------------
R. Alan Medaugh, President
Date January 4, 2006
-----------------------------------
By /s/ Stephen V. Killorin
-----------------------------------
Stephen V. Killorin, Treasurer
Date January 3, 2006
-----------------------------------