-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BsP5p374Xh8vTluos9VkN+2dJSA43Bb5/oGKvRS20ASwknqd8wlNk4bfzkU6KUCL vH3yPEkpyv4Fk1yE680vuA== 0001111830-08-000016.txt : 20080103 0001111830-08-000016.hdr.sgml : 20080103 20080103155155 ACCESSION NUMBER: 0001111830-08-000016 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20071031 FILED AS OF DATE: 20080103 DATE AS OF CHANGE: 20080103 EFFECTIVENESS DATE: 20080103 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH AMERICAN GOVERNMENT BOND FUND INC CENTRAL INDEX KEY: 0000893566 IRS NUMBER: 521798921 STATE OF INCORPORATION: MD FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07292 FILM NUMBER: 08506368 BUSINESS ADDRESS: STREET 1: C/O ULTIMUS FUND SOLUTIONS, LLC STREET 2: 225 PICTORIA DRIVE, SUITE 450 CITY: CINCINNATI STATE: OH ZIP: 45246 BUSINESS PHONE: 513-587-3400 MAIL ADDRESS: STREET 1: C/O ULTIMUS FUND SOLUTIONS, LLC STREET 2: 225 PICTORIA DRIVE, SUITE 450 CITY: CINCINNATI STATE: OH ZIP: 45246 0000893566 S000004626 North American Government Bond Fund, Inc. C000012595 Class A Shares NOAMX C000012596 Class C Shares NORCX N-CSR 1 ncsr_na-1007.txt NORTH AMERICAN GOVERNMENT BOND FUND, INC. - N-CSR ------------------------ OMB APPROVAL ------------------------ OMB Number: 3235-0570 Expires: April 30, 2008 Estimated average burden hours per response: 19.4 ------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-07292 --------- North American Government Bond Fund, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 40 West 57th Street, 18th Floor New York, New York 10019 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) R. Alan Medaugh, President ISI, Inc. 40 West 57th Street, 18th Floor New York, New York 10019 - -------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (212) 446-5600 --------------------------- Date of fiscal year end: October 31, 2007 --------------------------------------------- Date of reporting period: October 31, 2007 --------------------------------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. - -------------------------------------------------------------------------------- ISI INTERNATIONAL STRATEGY & INVESTMENT - -------------------------------------------------------------------------------- ANNUAL REPORT OCTOBER 31, 2007 ------------------------------------------------------------- TOTAL RETURN US TREASURY FUND, INC. MANAGED MUNICIPAL FUND, INC. NORTH AMERICAN GOVERNMENT BOND FUND, INC. ISI STRATEGY FUND, INC. ------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ISI FUNDS ANNUAL REPORT -- TABLE OF CONTENTS - -------------------------------------------------------------------------------- Investment Advisor's Message .............................................. 1 Managment Discussion of Fund Performance .................................. 3 Performance Comparisons ................................................... 7 Shareholder Expense Example ............................................... 15 Portfolio Profiles ........................................................ 17 Schedules of Investments .................................................. 18 Statements of Assets and Liabilities ...................................... 28 Statments of Operations ................................................... 31 Statements of Changes in Net Assets ....................................... 33 Financial Highlights ...................................................... 38 Notes to Financial Statements ............................................. 43 Report of Independent Registered Public Accounting Firm ................... 51 Fund Directors and Officers ............................................... 52 Notice to Shareholders .................................................... 54 Investment Advisory Agreement Approval (Unaudited) ........................ 55 - -------------------------------------------------------------------------------- INVESTMENT ADVISOR'S MESSAGE - -------------------------------------------------------------------------------- OCTOBER 31, 2007 Dear Shareholder: I am pleased to present the Annual Report to Shareholders for the ISI Funds. This report covers the 12-month reporting period through October 31, 2007 and includes commentary from the Funds' portfolio managers at International Strategy & Investment, Inc. ("ISI") (see Management Discussion and Analysis that follows this letter for more details), a complete list of holdings and the financial statements. Stocks recorded positive returns for the last year and the last five years. For example, the Dow Jones Wilshire 5000 Index was +15.28% for the last year and averaged 15.31% for the past five years. U.S. Treasuries and top quality municipal indices increased over the last year and were up over the last 5 years. For example, the Lehman Treasury Index was +5.91% for the past year and averaged +3.79% for the past five years. The Lehman Municipal State GO Index was +3.09% for the past year and averaged +4.16% 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, 2007, 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 a combination of net investment income, short-term capital gains, long-term capital gains and return of capital. Total Return US Treasury Fund's investment objective is to achieve a high level of total return with relative stability of principal, and secondarily, high current income consistent with an investment in securities issued by the United States Treasury. For the reporting period, the Fund produced a one-year total return of +4.66% and a five-year average annual rate of return of +3.55%. From its inception on August 10, 1988 through October 31, 2007, the Fund has posted a cumulative total return of +267.31%, which translates into an average annual rate of return of +7.00%. The Fund's net assets totaled $124.8 million at the end of the reporting period. Managed Municipal Fund's investment objective is to provide a high level of total return with relative stability of principal and, secondarily, high current income exempt from federal income tax through investment in a portfolio consisting primarily of tax-free municipal obligations. For the reporting period, the Fund produced a one-year total return of +2.29% and a five-year average annual rate of return of +3.25%. From its inception on February 26, 1990 through October 31, 2007, the Fund has posted a cumulative total return of +157.72%, which translates into an average annual rate of return of +5.50%. The Fund's net assets totaled $73.0 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 primarily in a portfolio consisting of fixed income securities issued or guaranteed by the governments of the United States, Canada and Mexico. For the reporting period, the ISI Class A Shares produced a one- 1 year total return of +6.71% and a five-year average annual rate of return of +4.97%. From its inception on January 15, 1993, through October 31, 2007, the ISI Class A Shares have posted a cumulative total return of +137.25%, which translates into an average annual rate of return of +6.01%. For the reporting period, the ISI Class C Shares produced a one-year total return of +6.03% and from its inception on May 16, 2003, through October 31, 2007, have posted a cumulative total return of +16.11%, which translates into an average annual rate of return of +3.41%. The Fund's net assets totaled $148.6 million at the end of the reporting period. ISI Strategy Fund has an investment objective of maximizing total return through a combination of long-term growth of capital and current income by actively allocating the Fund's assets between common stocks of US issuers and US Treasury securities. For the reporting period, the Fund produced a one-year total return of +13.79% and a five-year average annual rate of return of +12.07%. From its inception on September 16, 1997, through October 31, 2007, the Fund has posted a cumulative total return of +91.65%, which translates into an average annual rate of return of +6.64%. The Fund's net assets totaled $80.5 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, R. Alan Medaugh President November 27, 2007 2 - -------------------------------------------------------------------------------- MANAGEMENT DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- TOTAL RETURN US TREASURY FUND Again this fiscal year, the Treasury market based much of its movement on anticipating Federal Reserve policy actions. The Treasury Market moved 10-year rates up from roughly 4.60% at the beginning of the year to almost 5.30% by mid-June 2007, expecting only modest actions by the Federal Reserve. That changed after June when a more aggressive rate cut regime was expected. As a result, 10-year rates then moved down to roughly 4.50% which is below the beginning of the fiscal year level. During the fiscal year, the Federal Reserve cut its benchmark Federal Funds rate from 5.25% to 4.50%. ISI expected the economy would slow and rates fall because of high short rates here and around the world, plus high energy prices. The Fund moved its duration longer as rates rose with the result that its average duration from April 30, 2007 to the end of the fiscal year was approximately 6.8 years which was longer than the Treasury market as a whole, which was approximately 5.3 years. The Fund's duration at the end of January, 2007, had been a relatively short 4.9 years. The Fund's total return for the fiscal year is +4.66%. - -------------------------------------------------------------------------------- 10-YEAR US TREASURY YIELD* - -------------------------------------------------------------------------------- [LINE CHART OMITTED] 10/31/2006 4.602 11/01/2006 4.568 11/02/2006 4.598 11/03/2006 4.719 11/06/2006 4.697 11/07/2006 4.661 11/08/2006 4.639 11/09/2006 4.629 11/10/2006 4.592 11/13/2006 4.613 11/14/2006 4.566 11/15/2006 4.621 11/16/2006 4.668 11/17/2006 4.603 11/20/2006 4.601 11/21/2006 4.574 11/22/2006 4.562 11/23/2006 4.562 11/24/2006 4.552 11/27/2006 4.532 11/28/2006 4.505 11/29/2006 4.524 11/30/2006 4.462 12/01/2006 4.437 12/04/2006 4.427 12/05/2006 4.444 12/06/2006 4.489 12/07/2006 4.485 12/08/2006 4.548 12/11/2006 4.522 12/12/2006 4.489 12/13/2006 4.583 12/14/2006 4.601 12/15/2006 4.597 12/18/2006 4.585 12/19/2006 4.593 12/20/2006 4.599 12/21/2006 4.549 12/22/2006 4.622 12/25/2006 4.622 12/26/2006 4.603 12/27/2006 4.654 12/28/2006 4.684 12/29/2006 4.706 01/01/2007 4.706 01/02/2007 4.684 01/03/2007 4.662 01/04/2007 4.606 01/05/2007 4.648 01/08/2007 4.656 01/09/2007 4.658 01/10/2007 4.688 01/11/2007 4.735 01/12/2007 4.779 01/15/2007 4.779 01/16/2007 4.751 01/17/2007 4.783 01/18/2007 4.747 01/19/2007 4.779 01/22/2007 4.763 01/23/2007 4.812 01/24/2007 4.812 01/25/2007 4.877 01/26/2007 4.877 01/29/2007 4.894 01/30/2007 4.873 01/31/2007 4.812 02/01/2007 4.839 02/02/2007 4.824 02/05/2007 4.806 02/06/2007 4.770 02/07/2007 4.747 02/08/2007 4.734 02/09/2007 4.784 02/12/2007 4.808 02/13/2007 4.812 02/14/2007 4.740 02/15/2007 4.710 02/16/2007 4.692 02/19/2007 4.692 02/20/2007 4.678 02/21/2007 4.694 02/22/2007 4.732 02/23/2007 4.674 02/26/2007 4.629 02/27/2007 4.515 02/28/2007 4.570 03/01/2007 4.554 03/02/2007 4.501 03/05/2007 4.499 03/06/2007 4.532 03/07/2007 4.491 03/08/2007 4.516 03/09/2007 4.591 03/12/2007 4.556 03/13/2007 4.495 03/14/2007 4.538 03/15/2007 4.540 03/16/2007 4.547 03/19/2007 4.567 03/20/2007 4.553 03/21/2007 4.540 03/22/2007 4.587 03/23/2007 4.615 03/26/2007 4.605 03/27/2007 4.601 03/28/2007 4.624 03/29/2007 4.646 03/30/2007 4.648 04/02/2007 4.644 04/03/2007 4.668 04/04/2007 4.652 04/05/2007 4.682 04/06/2007 4.753 04/09/2007 4.747 04/10/2007 4.722 04/11/2007 4.734 04/12/2007 4.739 04/13/2007 4.765 04/16/2007 4.739 04/17/2007 4.684 04/18/2007 4.654 04/19/2007 4.668 04/20/2007 4.674 04/23/2007 4.644 04/24/2007 4.624 04/25/2007 4.654 04/26/2007 4.700 04/27/2007 4.696 04/30/2007 4.626 05/01/2007 4.640 05/02/2007 4.646 05/03/2007 4.676 05/04/2007 4.642 05/07/2007 4.630 05/08/2007 4.638 05/09/2007 4.672 05/10/2007 4.642 05/11/2007 4.676 05/14/2007 4.698 05/15/2007 4.706 05/16/2007 4.714 05/17/2007 4.756 05/18/2007 4.804 05/21/2007 4.786 05/22/2007 4.829 05/23/2007 4.851 05/24/2007 4.843 05/25/2007 4.861 05/28/2007 4.861 05/29/2007 4.886 05/30/2007 4.872 05/31/2007 4.892 06/01/2007 4.956 06/04/2007 4.931 06/05/2007 4.995 06/06/2007 4.968 06/07/2007 5.134 06/08/2007 5.103 06/11/2007 5.156 06/12/2007 5.297 06/13/2007 5.202 06/14/2007 5.225 06/15/2007 5.167 06/18/2007 5.138 06/19/2007 5.086 06/20/2007 5.136 06/21/2007 5.191 06/22/2007 5.134 06/25/2007 5.084 06/26/2007 5.082 06/27/2007 5.084 06/28/2007 5.107 06/29/2007 5.029 07/02/2007 4.993 07/03/2007 5.041 07/04/2007 5.041 07/05/2007 5.144 07/06/2007 5.187 07/09/2007 5.142 07/10/2007 5.025 07/11/2007 5.090 07/12/2007 5.128 07/13/2007 5.097 07/16/2007 5.043 07/17/2007 5.053 07/18/2007 5.032 07/19/2007 5.020 07/20/2007 4.954 07/23/2007 4.952 07/24/2007 4.913 07/25/2007 4.902 07/26/2007 4.790 07/27/2007 4.761 07/30/2007 4.806 07/31/2007 4.743 08/01/2007 4.796 08/02/2007 4.769 08/03/2007 4.688 08/06/2007 4.741 08/07/2007 4.772 08/08/2007 4.881 08/09/2007 4.772 08/10/2007 4.812 08/13/2007 4.764 08/14/2007 4.728 08/15/2007 4.728 08/16/2007 4.661 08/17/2007 4.689 08/20/2007 4.630 08/21/2007 4.594 08/22/2007 4.649 08/23/2007 4.649 08/24/2007 4.620 08/27/2007 4.567 08/28/2007 4.510 08/29/2007 4.563 08/30/2007 4.510 08/31/2007 4.533 09/03/2007 4.533 09/04/2007 4.551 09/05/2007 4.471 09/06/2007 4.511 09/07/2007 4.385 09/10/2007 4.326 09/11/2007 4.372 09/12/2007 4.414 09/13/2007 4.468 09/14/2007 4.458 09/17/2007 4.470 09/18/2007 4.476 09/19/2007 4.550 09/20/2007 4.700 09/21/2007 4.624 09/24/2007 4.632 09/25/2007 4.628 09/26/2007 4.624 09/27/2007 4.567 09/28/2007 4.590 10/01/2007 4.549 10/02/2007 4.526 10/03/2007 4.563 10/04/2007 4.514 10/05/2007 4.640 10/08/2007 4.640 10/09/2007 4.651 10/10/2007 4.653 10/11/2007 4.640 10/12/2007 4.685 10/15/2007 4.681 10/16/2007 4.651 10/17/2007 4.556 10/18/2007 4.493 10/19/2007 4.395 10/22/2007 4.415 10/23/2007 4.407 10/24/2007 4.343 10/25/2007 4.381 10/26/2007 4.405 10/29/2007 4.385 10/30/2007 4.383 10/31/2007 4.475 *Source: Bloomberg 3 - -------------------------------------------------------------------------------- MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED) - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND This fiscal year, the long maturity portion of the municipal market saw yields rise until late August. Twenty year bond yields rose from roughly 4.15% at the start of the fiscal year to 4.70% by late August. Rates moved lower in reaction to rate cuts initiated by the Federal Reserve. At the end of the fiscal year, rates were 4.30% for long AAA Municipals, which was above the beginning of the year's level. Of major concern this fiscal year was the worry that insured bonds would suffer downgrades as bond insurers suffered losses tied to the Sub-Prime Mortgage crisis. Your Fund was not affected by these concerns because it holds no insured issues as a matter of investment policy. The Fund's total return this fiscal year is +2.29%. - -------------------------------------------------------------------------------- 20-YEAR AAA GENERAL OBLIGATION YIELDS* - -------------------------------------------------------------------------------- [LINE CHART OMITTED] 10/31/2006 4.16 11/01/2006 4.12 11/02/2006 4.09 11/03/2006 4.09 11/06/2006 4.17 11/07/2006 4.17 11/08/2006 4.13 11/09/2006 4.13 11/10/2006 4.13 11/13/2006 4.11 11/14/2006 4.12 11/15/2006 4.12 11/16/2006 4.11 11/17/2006 4.12 11/20/2006 4.10 11/21/2006 4.10 11/22/2006 4.10 11/23/2006 4.10 11/24/2006 4.10 11/27/2006 4.10 11/28/2006 4.10 11/29/2006 4.06 11/30/2006 4.05 12/01/2006 4.02 12/04/2006 3.99 12/05/2006 3.99 12/06/2006 3.99 12/07/2006 3.99 12/08/2006 4.00 12/11/2006 4.03 12/12/2006 4.03 12/13/2006 4.03 12/14/2006 4.07 12/15/2006 4.09 12/18/2006 4.08 12/19/2006 4.09 12/20/2006 4.10 12/21/2006 4.10 12/22/2006 4.09 12/25/2006 4.09 12/26/2006 4.10 12/27/2006 4.10 12/28/2006 4.12 12/29/2006 4.14 01/01/2007 4.14 01/02/2007 4.14 01/03/2007 4.14 01/04/2007 4.13 01/05/2007 4.10 01/08/2007 4.11 01/09/2007 4.11 01/10/2007 4.10 01/11/2007 4.12 01/12/2007 4.14 01/15/2007 4.14 01/16/2007 4.17 01/17/2007 4.19 01/18/2007 4.19 01/19/2007 4.19 01/22/2007 4.20 01/23/2007 4.20 01/24/2007 4.20 01/25/2007 4.20 01/26/2007 4.22 01/29/2007 4.23 01/30/2007 4.24 01/31/2007 4.24 02/01/2007 4.23 02/02/2007 4.23 02/05/2007 4.23 02/06/2007 4.23 02/07/2007 4.21 02/08/2007 4.20 02/09/2007 4.19 02/12/2007 4.19 02/13/2007 4.19 02/14/2007 4.19 02/15/2007 4.15 02/16/2007 4.11 02/19/2007 4.11 02/20/2007 4.10 02/21/2007 4.10 02/22/2007 4.11 02/23/2007 4.11 02/26/2007 4.08 02/27/2007 4.06 02/28/2007 4.02 03/01/2007 4.04 03/02/2007 4.04 03/05/2007 4.03 03/06/2007 4.03 03/07/2007 4.03 03/08/2007 4.03 03/09/2007 4.04 03/12/2007 4.08 03/13/2007 4.07 03/14/2007 4.05 03/15/2007 4.05 03/16/2007 4.05 03/19/2007 4.05 03/20/2007 4.06 03/21/2007 4.05 03/22/2007 4.06 03/23/2007 4.10 03/26/2007 4.11 03/27/2007 4.11 03/28/2007 4.13 03/29/2007 4.14 03/30/2007 4.16 04/02/2007 4.18 04/03/2007 4.18 04/04/2007 4.19 04/05/2007 4.20 04/06/2007 4.20 04/09/2007 4.23 04/10/2007 4.26 04/11/2007 4.25 04/12/2007 4.25 04/13/2007 4.25 04/16/2007 4.27 04/17/2007 4.27 04/18/2007 4.27 04/19/2007 4.23 04/20/2007 4.21 04/23/2007 4.21 04/24/2007 4.21 04/25/2007 4.20 04/26/2007 4.20 04/27/2007 4.21 04/30/2007 4.20 05/01/2007 4.18 05/02/2007 4.18 05/03/2007 4.18 05/04/2007 4.20 05/07/2007 4.18 05/08/2007 4.18 05/09/2007 4.17 05/10/2007 4.17 05/11/2007 4.18 05/14/2007 4.18 05/15/2007 4.20 05/16/2007 4.22 05/17/2007 4.23 05/18/2007 4.26 05/21/2007 4.28 05/22/2007 4.30 05/23/2007 4.32 05/24/2007 4.34 05/25/2007 4.34 05/28/2007 4.34 05/29/2007 4.34 05/30/2007 4.35 05/31/2007 4.35 06/01/2007 4.37 06/04/2007 4.41 06/05/2007 4.41 06/06/2007 4.43 06/07/2007 4.43 06/08/2007 4.50 06/11/2007 4.52 06/12/2007 4.53 06/13/2007 4.59 06/14/2007 4.60 06/15/2007 4.61 06/18/2007 4.58 06/19/2007 4.58 06/20/2007 4.58 06/21/2007 4.59 06/22/2007 4.59 06/25/2007 4.58 06/26/2007 4.56 06/27/2007 4.56 06/28/2007 4.56 06/29/2007 4.56 07/02/2007 4.54 07/03/2007 4.54 07/04/2007 4.54 07/05/2007 4.54 07/06/2007 4.54 07/09/2007 4.59 07/10/2007 4.58 07/11/2007 4.51 07/12/2007 4.50 07/13/2007 4.51 07/16/2007 4.50 07/17/2007 4.49 07/18/2007 4.50 07/19/2007 4.47 07/20/2007 4.46 07/23/2007 4.44 07/24/2007 4.44 07/25/2007 4.44 07/26/2007 4.43 07/27/2007 4.40 07/30/2007 4.39 07/31/2007 4.39 08/01/2007 4.38 08/02/2007 4.38 08/03/2007 4.38 08/06/2007 4.38 08/07/2007 4.41 08/08/2007 4.43 08/09/2007 4.49 08/10/2007 4.49 08/13/2007 4.49 08/14/2007 4.49 08/15/2007 4.51 08/16/2007 4.52 08/17/2007 4.60 08/20/2007 4.65 08/21/2007 4.65 08/22/2007 4.65 08/23/2007 4.67 08/24/2007 4.67 08/27/2007 4.70 08/28/2007 4.70 08/29/2007 4.66 08/30/2007 4.59 08/31/2007 4.59 09/03/2007 4.59 09/04/2007 4.59 09/05/2007 4.59 09/06/2007 4.53 09/07/2007 4.47 09/10/2007 4.35 09/11/2007 4.29 09/12/2007 4.29 09/13/2007 4.29 09/14/2007 4.32 09/17/2007 4.33 09/18/2007 4.34 09/19/2007 4.36 09/20/2007 4.38 09/21/2007 4.45 09/24/2007 4.46 09/25/2007 4.47 09/26/2007 4.46 09/27/2007 4.46 09/28/2007 4.44 10/01/2007 4.42 10/02/2007 4.41 10/03/2007 4.38 10/04/2007 4.38 10/05/2007 4.36 10/08/2007 4.36 10/09/2007 4.40 10/10/2007 4.41 10/11/2007 4.42 10/12/2007 4.43 10/15/2007 4.43 10/16/2007 4.43 10/17/2007 4.42 10/18/2007 4.37 10/19/2007 4.33 10/22/2007 4.29 10/23/2007 4.28 10/24/2007 4.28 10/25/2007 4.26 10/26/2007 4.27 10/29/2007 4.29 10/30/2007 4.30 10/31/2007 4.32 *Source: Bloomberg 4 - -------------------------------------------------------------------------------- MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED) - -------------------------------------------------------------------------------- NORTH AMERICAN GOVERNMENT BOND FUND The Fund's U.S. Treasury section followed the duration management similar to the Total Return U.S. Treasury Fund where the Fund's duration was longer as rates rose than it was in January, 2007. The Canadian dollar rose significantly in value versus the U.S. dollar this fiscal year. The Fund's total return was helped by this substantial change in relative value. Please see chart below. The Mexican peso gained modestly versus the U.S. dollar this fiscal year meaning that the higher rates in Mexico plus the currency change helped the Fund's performance. The Fund's total return for the fiscal year is +6.71% for ISI Class A Shares and +6.03% for ISI Class C Shares. - -------------------------------------------------------------------------------- CANADIAN DOLLAR COMPARED AGAINST US DOLLAR* - -------------------------------------------------------------------------------- [LINE CHART OMITTED] 10/31/2006 0.8913 11/01/2006 0.8832 11/02/2006 0.8824 11/03/2006 0.8850 11/06/2006 0.8849 11/07/2006 0.8852 11/08/2006 0.8856 11/09/2006 0.8853 11/10/2006 0.8832 11/13/2006 0.8790 11/14/2006 0.8792 11/15/2006 0.8782 11/16/2006 0.8753 11/17/2006 0.8720 11/20/2006 0.8723 11/21/2006 0.8724 11/22/2006 0.8760 11/23/2006 0.8758 11/24/2006 0.8813 11/27/2006 0.8823 11/28/2006 0.8845 11/29/2006 0.8785 11/30/2006 0.8768 12/01/2006 0.8742 12/04/2006 0.8768 12/05/2006 0.8754 12/06/2006 0.8710 12/07/2006 0.8698 12/08/2006 0.8701 12/11/2006 0.8714 12/12/2006 0.8677 12/13/2006 0.8644 12/14/2006 0.8639 12/15/2006 0.8637 12/18/2006 0.8641 12/19/2006 0.8676 12/20/2006 0.8703 12/21/2006 0.8658 12/22/2006 0.8630 12/25/2006 0.8643 12/26/2006 0.8611 12/27/2006 0.8605 12/28/2006 0.8617 12/29/2006 0.8576 01/01/2007 0.8577 01/02/2007 0.8580 01/03/2007 0.8522 01/04/2007 0.8493 01/05/2007 0.8525 01/08/2007 0.8509 01/09/2007 0.8497 01/10/2007 0.8516 01/11/2007 0.8490 01/12/2007 0.8543 01/15/2007 0.8559 01/16/2007 0.8503 01/17/2007 0.8527 01/18/2007 0.8516 01/19/2007 0.8530 01/22/2007 0.8458 01/23/2007 0.8470 01/24/2007 0.8482 01/25/2007 0.8453 01/26/2007 0.8476 01/29/2007 0.8454 01/30/2007 0.8479 01/31/2007 0.8498 02/01/2007 0.8485 02/02/2007 0.8443 02/05/2007 0.8456 02/06/2007 0.8461 02/07/2007 0.8442 02/08/2007 0.8454 02/09/2007 0.8530 02/12/2007 0.8508 02/13/2007 0.8571 02/14/2007 0.8577 02/15/2007 0.8599 02/16/2007 0.8597 02/19/2007 0.8590 02/20/2007 0.8547 02/21/2007 0.8620 02/22/2007 0.8606 02/23/2007 0.8623 02/26/2007 0.8616 02/27/2007 0.8568 02/28/2007 0.8547 03/01/2007 0.8528 03/02/2007 0.8493 03/05/2007 0.8466 03/06/2007 0.8498 03/07/2007 0.8486 03/08/2007 0.8473 03/09/2007 0.8531 03/12/2007 0.8534 03/13/2007 0.8509 03/14/2007 0.8503 03/15/2007 0.8494 03/16/2007 0.8503 03/19/2007 0.8495 03/20/2007 0.8609 03/21/2007 0.8653 03/22/2007 0.8640 03/23/2007 0.8616 03/26/2007 0.8609 03/27/2007 0.8641 03/28/2007 0.8628 03/29/2007 0.8629 03/30/2007 0.8664 04/02/2007 0.8648 04/03/2007 0.8630 04/04/2007 0.8625 04/05/2007 0.8687 04/06/2007 0.8686 04/09/2007 0.8674 04/10/2007 0.8716 04/11/2007 0.8775 04/12/2007 0.8813 04/13/2007 0.8789 04/16/2007 0.8837 04/17/2007 0.8843 04/18/2007 0.8866 04/19/2007 0.8853 04/20/2007 0.8899 04/23/2007 0.8912 04/24/2007 0.8914 04/25/2007 0.8970 04/26/2007 0.8914 04/27/2007 0.8957 04/30/2007 0.9011 05/01/2007 0.9001 05/02/2007 0.9018 05/03/2007 0.9030 05/04/2007 0.9028 05/07/2007 0.9074 05/08/2007 0.9051 05/09/2007 0.9048 05/10/2007 0.9000 05/11/2007 0.9003 05/14/2007 0.9043 05/15/2007 0.9102 05/16/2007 0.9053 05/17/2007 0.9091 05/18/2007 0.9185 05/21/2007 0.9220 05/22/2007 0.9204 05/23/2007 0.9240 05/24/2007 0.9228 05/25/2007 0.9256 05/28/2007 0.9259 05/29/2007 0.9314 05/30/2007 0.9309 05/31/2007 0.9355 06/01/2007 0.9426 06/04/2007 0.9446 06/05/2007 0.9403 06/06/2007 0.9446 06/07/2007 0.9391 06/08/2007 0.9427 06/11/2007 0.9434 06/12/2007 0.9365 06/13/2007 0.9377 06/14/2007 0.9358 06/15/2007 0.9365 06/18/2007 0.9336 06/19/2007 0.9413 06/20/2007 0.9378 06/21/2007 0.9304 06/22/2007 0.9358 06/25/2007 0.9343 06/26/2007 0.9350 06/27/2007 0.9341 06/28/2007 0.9441 06/29/2007 0.9385 07/02/2007 0.9471 07/03/2007 0.9422 07/04/2007 0.9455 07/05/2007 0.9469 07/06/2007 0.9529 07/09/2007 0.9524 07/10/2007 0.9486 07/11/2007 0.9485 07/12/2007 0.9562 07/13/2007 0.9546 07/16/2007 0.9581 07/17/2007 0.9580 07/18/2007 0.9581 07/19/2007 0.9587 07/20/2007 0.9535 07/23/2007 0.9553 07/24/2007 0.9654 07/25/2007 0.9599 07/26/2007 0.9492 07/27/2007 0.9397 07/30/2007 0.9370 07/31/2007 0.9374 08/01/2007 0.9468 08/02/2007 0.9503 08/03/2007 0.9462 08/06/2007 0.9500 08/07/2007 0.9479 08/08/2007 0.9536 08/09/2007 0.9449 08/10/2007 0.9495 08/13/2007 0.9488 08/14/2007 0.9369 08/15/2007 0.9271 08/16/2007 0.9292 08/17/2007 0.9432 08/20/2007 0.9477 08/21/2007 0.9413 08/22/2007 0.9416 08/23/2007 0.9493 08/24/2007 0.9506 08/27/2007 0.9484 08/28/2007 0.9397 08/29/2007 0.9434 08/30/2007 0.9446 08/31/2007 0.9474 09/03/2007 0.9498 09/04/2007 0.9529 09/05/2007 0.9489 09/06/2007 0.9504 09/07/2007 0.9477 09/10/2007 0.9505 09/11/2007 0.9593 09/12/2007 0.9646 09/13/2007 0.9670 09/14/2007 0.9708 09/17/2007 0.9732 09/18/2007 0.9873 09/19/2007 0.9851 09/20/2007 0.9976 09/21/2007 0.9993 09/24/2007 0.9979 09/25/2007 0.9963 09/26/2007 0.9962 09/27/2007 0.9984 09/28/2007 1.0075 10/01/2007 1.0083 10/02/2007 1.0025 10/03/2007 1.0017 10/04/2007 1.0031 10/05/2007 1.0197 10/08/2007 1.0134 10/09/2007 1.0189 10/10/2007 1.0187 10/11/2007 1.0238 10/12/2007 1.0284 10/15/2007 1.0239 10/16/2007 1.0214 10/17/2007 1.0261 10/18/2007 1.0271 10/19/2007 1.0345 10/22/2007 1.0220 10/23/2007 1.0346 10/24/2007 1.0322 10/25/2007 1.0344 10/26/2007 1.0392 10/29/2007 1.0482 10/30/2007 1.0494 10/31/2007 1.0607 *Source: Bloomberg 5 - -------------------------------------------------------------------------------- MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED) - -------------------------------------------------------------------------------- ISI STRATEGY FUND During the fiscal year, the Fund's equity representation moved up from 77% at the beginning of the year to 83% at year end. The present allocation is neutral, with 75% in equities. The overweighting in equities helped performance because the Dow Jones Wilshire 5000 Index was up 15.28% whereas the Lehman Treasury Index was up only 5.91%. ISI expects that the current slowdown in the U.S. economy will end with an equity-friendly Mid-cycle slowdown, as was the case in 1995. The equity and bond portions of the Fund's portfolio are actively managed. The equity portion uses the Sub-advisor's Dynamic Alpha model to select individual investments. The bond portion follows the duration management of the Total Return US Treasury Fund. The Fund's total return over the fiscal year is +13.79%. Please see chart below showing the rise in the equity benchmark over the fiscal year. - -------------------------------------------------------------------------------- DOW JONES WILSHIRE 5000 INDEX* - -------------------------------------------------------------------------------- [LINE CHART OMITTED] 10/31/2006 13829.07 11/01/2006 13709.18 11/02/2006 13698.29 11/03/2006 13683.52 11/06/2006 13843.39 11/07/2006 13871.53 11/08/2006 13914.28 11/09/2006 13837.86 11/10/2006 13876.47 11/13/2006 13913.90 11/14/2006 14017.69 11/15/2006 14067.79 11/16/2006 14090.95 11/17/2006 14098.12 11/20/2006 14103.85 11/21/2006 14136.22 11/22/2006 14174.47 11/24/2006 14136.25 11/27/2006 13918.86 11/28/2006 13961.22 11/29/2006 14094.77 11/30/2006 14116.71 12/01/2006 14077.72 12/04/2006 14217.70 12/05/2006 14272.06 12/06/2006 14257.78 12/07/2006 14199.99 12/08/2006 14221.88 12/11/2006 14247.70 12/12/2006 14222.03 12/13/2006 14234.87 12/14/2006 14347.53 12/15/2006 14356.88 12/18/2006 14289.29 12/19/2006 14311.75 12/20/2006 14300.45 12/21/2006 14244.89 12/22/2006 14177.66 12/26/2006 14240.98 12/27/2006 14346.85 12/28/2006 14324.84 12/29/2006 14257.55 01/02/2007 14257.55 01/03/2007 14246.71 01/04/2007 14269.90 01/05/2007 14164.80 01/08/2007 14197.15 01/09/2007 14204.71 01/10/2007 14242.55 01/11/2007 14350.24 01/12/2007 14426.00 01/16/2007 14432.49 01/17/2007 14417.26 01/18/2007 14350.88 01/19/2007 14405.79 01/22/2007 14329.75 01/23/2007 14391.57 01/24/2007 14517.85 01/25/2007 14358.67 01/26/2007 14354.90 01/29/2007 14359.45 01/30/2007 14438.68 01/31/2007 14531.92 02/01/2007 14615.38 02/02/2007 14642.45 02/05/2007 14626.09 02/06/2007 14646.91 02/07/2007 14681.86 02/08/2007 14667.55 02/09/2007 14556.05 02/12/2007 14502.87 02/13/2007 14611.92 02/14/2007 14712.55 02/15/2007 14731.90 02/16/2007 14733.65 02/20/2007 14796.54 02/21/2007 14786.12 02/22/2007 14778.71 02/23/2007 14729.83 02/26/2007 14703.66 02/27/2007 14203.20 02/28/2007 14271.61 03/01/2007 14236.03 03/02/2007 14060.13 03/05/2007 13896.55 03/06/2007 14125.36 03/07/2007 14093.24 03/08/2007 14194.19 03/09/2007 14213.27 03/12/2007 14257.14 03/13/2007 13966.01 03/14/2007 14046.11 03/15/2007 14111.75 03/16/2007 14054.38 03/19/2007 14209.13 03/20/2007 14302.24 03/21/2007 14536.94 03/22/2007 14540.44 03/23/2007 14556.46 03/26/2007 14563.65 03/27/2007 14474.79 03/28/2007 14369.35 03/29/2007 14413.23 03/30/2007 14409.27 04/02/2007 14448.18 04/03/2007 14581.15 04/04/2007 14595.10 04/05/2007 14640.38 04/09/2007 14648.08 04/10/2007 14685.52 04/11/2007 14593.06 04/12/2007 14682.38 04/13/2007 14736.44 04/16/2007 14891.70 04/17/2007 14910.93 04/18/2007 14909.05 04/19/2007 14875.89 04/20/2007 15009.91 04/23/2007 14983.87 04/24/2007 14972.49 04/25/2007 15110.41 04/26/2007 15108.03 04/27/2007 15092.75 04/30/2007 14952.35 05/01/2007 14983.85 05/02/2007 15102.16 05/03/2007 15158.85 05/04/2007 15194.08 05/07/2007 15222.62 05/08/2007 15203.03 05/09/2007 15259.58 05/10/2007 15046.36 05/11/2007 15194.52 05/14/2007 15150.93 05/15/2007 15108.31 05/16/2007 15223.89 05/17/2007 15206.93 05/18/2007 15304.99 05/21/2007 15355.90 05/22/2007 15372.80 05/23/2007 15348.10 05/24/2007 15181.68 05/25/2007 15269.21 05/29/2007 15315.69 05/30/2007 15441.26 05/31/2007 15462.16 06/01/2007 15532.67 06/04/2007 15569.19 06/05/2007 15484.29 06/06/2007 15343.15 06/07/2007 15070.12 06/08/2007 15233.07 06/11/2007 15246.02 06/12/2007 15085.67 06/13/2007 15297.52 06/14/2007 15373.07 06/15/2007 15481.89 06/18/2007 15464.40 06/19/2007 15490.24 06/20/2007 15291.15 06/21/2007 15376.04 06/22/2007 15203.32 06/25/2007 15139.53 06/26/2007 15089.30 06/27/2007 15232.80 06/28/2007 15235.32 06/29/2007 15210.65 07/02/2007 15378.66 07/03/2007 15430.48 07/05/2007 15449.03 07/06/2007 15507.34 07/09/2007 15523.85 07/10/2007 15303.67 07/11/2007 15382.73 07/12/2007 15652.94 07/13/2007 15700.95 07/16/2007 15655.13 07/17/2007 15655.54 07/18/2007 15621.04 07/19/2007 15695.74 07/20/2007 15506.48 07/23/2007 15558.28 07/24/2007 15244.07 07/25/2007 15291.75 07/26/2007 14938.47 07/27/2007 14710.78 07/30/2007 14852.75 07/31/2007 14682.66 08/01/2007 14755.40 08/02/2007 14829.82 08/03/2007 14432.34 08/06/2007 14723.12 08/07/2007 14823.49 08/08/2007 15046.23 08/09/2007 14640.32 08/10/2007 14641.03 08/13/2007 14633.36 08/14/2007 14360.33 08/15/2007 14146.41 08/16/2007 14190.36 08/17/2007 14531.52 08/20/2007 14544.56 08/21/2007 14570.97 08/22/2007 14750.78 08/23/2007 14720.75 08/24/2007 14896.21 08/27/2007 14769.33 08/28/2007 14425.63 08/29/2007 14734.31 08/30/2007 14677.24 08/31/2007 14847.70 09/04/2007 15007.28 09/05/2007 14846.39 09/06/2007 14905.01 09/07/2007 14655.52 09/10/2007 14613.53 09/11/2007 14809.35 09/12/2007 14802.86 09/13/2007 14909.06 09/14/2007 14927.60 09/17/2007 14839.44 09/18/2007 15271.80 09/19/2007 15371.29 09/20/2007 15271.69 09/21/2007 15338.93 09/24/2007 15262.88 09/25/2007 15254.08 09/26/2007 15338.03 09/27/2007 15411.42 09/28/2007 15362.02 10/01/2007 15575.76 10/02/2007 15595.11 10/03/2007 15517.40 10/04/2007 15551.90 10/05/2007 15723.69 10/08/2007 15680.29 10/09/2007 15806.69 10/10/2007 15798.23 10/11/2007 15706.85 10/12/2007 15789.30 10/15/2007 15648.21 10/16/2007 15544.94 10/17/2007 15577.43 10/18/2007 15567.27 10/19/2007 15174.49 10/22/2007 15247.75 10/23/2007 15386.29 10/24/2007 15337.70 10/25/2007 15310.88 10/26/2007 15518.12 10/29/2007 15581.48 10/30/2007 15482.01 10/31/2007 15673.36 *Source: Bloomberg 6 - -------------------------------------------------------------------------------- TOTAL RETURN US TREASURY FUND - PERFORMANCE COMPARISON(1) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2007) - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Lehman Brothers Total Return Intermediate Lehman Brothers US Treasury Lehman Brothers Treasury Long-Term Fund Treasury Index Index Treasury Index ---------- -------------- ----- -------------- 10/31/1997 $9,700 $10,000 $10,000 $10,000 11/30/1997 9,771 10,052 10,023 10,133 12/31/1997 9,909 10,158 10,105 10,303 1/31/1998 10,059 10,314 10,241 10,512 2/28/1998 10,013 10,283 10,227 10,437 3/31/1998 10,035 10,311 10,258 10,458 4/30/1998 10,058 10,357 10,306 10,498 5/31/1998 10,201 10,464 10,378 10,698 6/30/1998 10,364 10,585 10,448 10,947 7/31/1998 10,347 10,602 10,489 10,901 8/31/1998 10,755 10,890 10,696 11,393 9/30/1998 11,063 11,193 10,954 11,810 10/31/1998 10,913 11,157 10,976 11,631 11/30/1998 10,988 11,155 10,935 11,720 12/31/1998 10,980 11,177 10,976 11,696 1/31/1999 11,046 11,242 11,024 11,801 2/28/1999 10,665 10,955 10,864 11,221 3/31/1999 10,669 10,997 10,936 11,195 4/30/1999 10,704 11,023 10,966 11,211 5/31/1999 10,577 10,920 10,897 11,035 6/30/1999 10,504 10,897 10,916 10,918 7/31/1999 10,464 10,888 10,926 10,865 8/31/1999 10,423 10,889 10,949 10,823 9/30/1999 10,504 10,973 11,034 10,903 10/31/1999 10,496 10,985 11,048 10,910 11/30/1999 10,443 10,964 11,053 10,836 12/31/1999 10,357 10,891 11,022 10,674 1/31/2000 10,473 10,919 10,991 10,826 2/29/2000 10,694 11,084 11,077 11,153 3/31/2000 10,972 11,304 11,219 11,534 4/30/2000 10,941 11,268 11,211 11,442 5/31/2000 10,910 11,285 11,258 11,400 6/30/2000 11,088 11,476 11,420 11,647 7/31/2000 11,233 11,594 11,497 11,848 8/31/2000 11,437 11,764 11,617 12,118 9/30/2000 11,346 11,773 11,707 11,971 10/31/2000 11,492 11,888 11,784 12,158 11/30/2000 11,748 12,132 11,955 12,542 12/31/2000 11,993 12,363 12,153 12,837 1/31/2001 12,021 12,464 12,297 12,859 2/28/2001 12,195 12,614 12,410 13,079 3/31/2001 12,162 12,655 12,508 13,013 4/30/2001 11,919 12,498 12,458 12,659 5/31/2001 11,948 12,537 12,510 12,675 6/30/2001 11,989 12,604 12,555 12,784 7/31/2001 12,343 12,918 12,783 13,260 8/31/2001 12,548 13,089 12,894 13,544 9/30/2001 12,641 13,297 13,160 13,645 10/31/2001 13,052 13,666 13,360 14,315 11/30/2001 12,621 13,327 13,209 13,635 12/31/2001 12,496 13,197 13,145 13,378 1/31/2002 12,578 13,286 13,181 13,507 2/28/2002 12,660 13,406 13,290 13,708 3/31/2002 12,363 13,083 13,087 13,154 4/30/2002 12,682 13,409 13,321 13,654 5/31/2002 12,738 13,484 13,413 13,697 6/30/2002 12,953 13,674 13,576 13,942 7/31/2002 13,276 13,998 13,847 14,373 8/31/2002 13,667 14,301 13,992 15,000 9/30/2002 14,033 14,687 14,261 15,625 10/31/2002 13,806 14,524 14,235 15,176 11/30/2002 13,673 14,380 14,102 15,008 12/31/2002 14,003 14,754 14,365 15,623 1/31/2003 13,951 14,709 14,323 15,570 2/28/2003 14,201 14,962 14,478 16,042 3/31/2003 14,121 14,900 14,477 15,840 4/30/2003 14,193 14,969 14,506 16,001 5/31/2003 14,640 15,401 14,731 16,901 6/30/2003 14,545 15,306 14,708 16,643 7/31/2003 13,889 14,634 14,386 15,154 8/31/2003 13,963 14,721 14,406 15,396 9/30/2003 14,347 15,165 14,704 16,198 10/31/2003 14,123 14,934 14,560 15,747 11/30/2003 14,154 14,952 14,557 15,823 12/31/2003 14,253 15,085 14,667 16,011 1/31/2004 14,374 15,213 14,739 16,286 2/29/2004 14,549 15,402 14,876 16,610 3/31/2004 14,664 15,546 14,981 16,863 4/30/2004 14,179 15,046 14,642 15,917 5/31/2004 14,144 14,994 14,600 15,838 6/30/2004 14,215 15,055 14,631 15,983 7/31/2004 14,317 15,198 14,731 16,254 8/31/2004 14,618 15,512 14,946 16,857 9/30/2004 14,644 15,552 14,953 16,999 10/31/2004 14,778 15,675 15,035 17,249 11/30/2004 14,572 15,465 14,881 16,865 12/31/2004 14,738 15,618 14,964 17,245 1/31/2005 14,920 15,732 14,980 17,680 2/28/2005 14,794 15,604 14,883 17,451 3/31/2005 14,745 15,553 14,851 17,335 4/30/2005 15,011 15,826 15,032 17,928 5/31/2005 15,230 16,020 15,148 18,393 6/30/2005 15,371 16,118 15,195 18,669 7/31/2005 15,115 15,899 15,054 18,179 8/31/2005 15,400 16,152 15,227 18,709 9/30/2005 15,143 15,938 15,102 18,171 10/31/2005 14,982 15,813 15,035 17,837 11/30/2005 15,044 15,890 15,101 17,948 12/31/2005 15,284 16,054 15,197 18,366 1/31/2006 15,202 16,006 15,181 18,198 2/28/2006 15,249 16,030 15,177 18,327 3/31/2006 14,971 15,857 15,124 17,702 4/30/2006 14,839 15,791 15,131 17,357 5/31/2006 14,821 15,797 15,137 17,358 6/30/2006 14,836 15,847 15,167 17,491 7/31/2006 15,097 16,043 15,326 17,827 8/31/2006 15,410 16,279 15,498 18,316 9/30/2006 15,607 16,430 15,610 18,616 10/31/2006 15,705 16,513 15,679 18,753 11/30/2006 15,887 16,685 15,802 19,120 12/31/2006 15,703 16,548 15,729 18,705 1/31/2007 15,685 16,522 15,729 18,561 2/28/2007 15,935 16,796 15,937 19,113 3/31/2007 15,866 16,788 15,975 18,902 4/30/2007 15,949 16,875 16,047 19,050 5/31/2007 15,777 16,723 15,944 18,694 6/30/2007 15,725 16,716 15,970 18,536 7/31/2007 16,031 16,994 16,193 19,033 8/31/2007 16,252 17,261 16,434 19,387 9/30/2007 16,302 17,352 16,533 19,442 10/31/2007 16,438 17,489 16,638 19,717 7 - -------------------------------------------------------------------------------- TOTAL RETURN US TREASURY FUND - PERFORMANCE COMPARISON(1) (CONTINUED) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ CUMULATIVE TOTAL RETURNS (WITH LOAD) AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SINCE SINCE OCTOBER 31, 2007 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(2) 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(2) - ------------------------------------------------------------------------------------------------------------------------------------ Total Return US Treasury Fund 1.54% 7.85% 15.54% 64.38% 256.26% 1.54% 2.55% 2.93% 5.10% 6.83% - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Treasury Index(3) 5.91% 11.57% 20.41% 74.89% 288.37% 5.91% 3.72% 3.79% 5.75% 7.34% - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Intermediate Treasury Index(3) 6.11% 10.66% 16.88% 66.38% 245.46% 6.11% 3.43% 3.17% 5.22% 6.68% - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Long-Term Treasury Index(3) 5.14% 14.31% 29.92% 97.17% 428.67% 5.14% 4.56% 5.37% 7.03% 9.08% - ------------------------------------------------------------------------------------------------------------------------------------
(1) PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The performance information presented in the graph and table above does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. All performance assumes the reinvestment of dividends and capital gain distributions and includes the Fund's maximum 3.00% sales charge. Distributions of the Fund's capital gains and non-US Treasury income may be subject to state and local taxes. Management is not aware of any single index that is truly representative of the Fund since its active maturity management policy allows the manager to adjust the weighted average maturity throughout each US Treasury sector. Currently the Fund's weighted average maturity is approximately 10.3 years. Performance would have been lower during the period if certain of the Fund's fees and expenses had not been waived. (2) The Fund's inception date is August 10, 1988. Benchmark returns are for the periods beginning August 31, 1988. (3) The Lehman Brothers Treasury Index is an unmanaged index reflecting the performance of all public Treasury obligations and does not focus on one particular segment of the Treasury market. The Lehman Brothers Intermediate Treasury Index is an unmanaged index reflecting the performance of US Treasury securities in the intermediate-term Treasury sector. The Lehman Brothers Long-Term Treasury Index is an unmanaged index reflecting the performance of US Treasury securities in the long-term Treasury sector. Benchmark returns do not reflect expenses or sales charges that have been deducted from the Fund's returns. 8 - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND - PERFORMANCE COMPARISON(1) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND, 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, 2007) - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Lehman Brothers Lehman Brothers Prerefunded Managed General Municipal Bond Consumer Price Municipal Fund Obligation Index Index Index -------------- ---------------- ----- ----- 10/31/1997 $ 9,700 $ 10,000 $ 10,000 $ 10,000 11/30/1997 9,741 10,047 10,022 9,994 12/31/1997 9,895 10,190 10,109 9,981 1/31/1998 9,995 10,295 10,197 10,000 2/28/1998 9,973 10,303 10,225 10,019 3/31/1998 9,977 10,312 10,223 10,037 4/30/1998 9,917 10,257 10,191 10,056 5/31/1998 10,098 10,427 10,318 10,074 6/30/1998 10,121 10,464 10,355 10,087 7/31/1998 10,135 10,489 10,394 10,099 8/31/1998 10,319 10,655 10,505 10,111 9/30/1998 10,446 10,798 10,592 10,124 10/31/1998 10,432 10,800 10,631 10,149 11/30/1998 10,456 10,836 10,665 10,149 12/31/1998 10,494 10,870 10,682 10,142 1/31/1999 10,618 11,013 10,798 10,167 2/28/1999 10,546 10,957 10,798 10,179 3/31/1999 10,532 10,961 10,796 10,210 4/30/1999 10,566 10,992 10,828 10,285 5/31/1999 10,459 10,930 10,789 10,285 6/30/1999 10,293 10,769 10,695 10,285 7/31/1999 10,332 10,812 10,759 10,316 8/31/1999 10,223 10,749 10,759 10,340 9/30/1999 10,174 10,758 10,793 10,390 10/31/1999 10,055 10,665 10,782 10,408 11/30/1999 10,185 10,773 10,836 10,415 12/31/1999 10,095 10,706 10,806 10,415 1/31/2000 10,024 10,666 10,820 10,446 2/29/2000 10,186 10,773 10,863 10,507 3/31/2000 10,439 10,989 10,956 10,594 4/30/2000 10,337 10,933 10,950 10,600 5/31/2000 10,266 10,875 10,950 10,613 6/30/2000 10,563 11,155 11,108 10,668 7/31/2000 10,717 11,302 11,207 10,693 8/31/2000 10,862 11,464 11,306 10,693 9/30/2000 10,768 11,405 11,296 10,749 10/31/2000 10,904 11,525 11,366 10,767 11/30/2000 11,008 11,606 11,424 10,774 12/31/2000 11,334 11,880 11,584 10,767 1/31/2001 11,386 12,009 11,748 10,835 2/28/2001 11,428 12,045 11,791 10,879 3/31/2001 11,513 12,151 11,875 10,903 4/30/2001 11,343 12,025 11,821 10,947 5/31/2001 11,460 12,147 11,934 10,996 6/30/2001 11,546 12,222 11,997 11,015 7/31/2001 11,708 12,396 12,114 10,984 8/31/2001 11,891 12,596 12,261 10,984 9/30/2001 11,816 12,569 12,308 11,033 10/31/2001 11,968 12,697 12,418 10,996 11/30/2001 11,859 12,585 12,333 10,978 12/31/2001 11,782 12,484 12,280 10,934 1/31/2002 11,937 12,689 12,459 10,959 2/28/2002 12,081 12,844 12,594 11,002 3/31/2002 11,836 12,599 12,338 11,064 4/30/2002 12,037 12,858 12,574 11,126 5/31/2002 12,127 12,929 12,653 11,126 6/30/2002 12,217 13,074 12,781 11,132 7/31/2002 12,364 13,235 12,919 11,145 8/31/2002 12,535 13,386 13,030 11,182 9/30/2002 12,796 13,657 13,218 11,200 10/31/2002 12,579 13,436 13,064 11,219 11/30/2002 12,522 13,370 13,021 11,219 12/31/2002 12,810 13,632 13,290 11,194 1/31/2003 12,741 13,609 13,274 11,244 2/28/2003 12,915 13,797 13,423 11,330 3/31/2003 12,926 13,823 13,402 11,399 4/30/2003 13,020 13,913 13,470 11,374 5/31/2003 13,266 14,219 13,696 11,355 6/30/2003 13,148 14,151 13,658 11,368 7/31/2003 12,652 13,681 13,340 11,380 8/31/2003 12,795 13,808 13,419 11,423 9/30/2003 13,152 14,204 13,714 11,460 10/31/2003 13,068 14,109 13,645 11,448 11/30/2003 13,200 14,225 13,709 11,417 12/31/2003 13,308 14,326 13,787 11,405 1/31/2004 13,308 14,397 13,837 11,460 2/29/2004 13,546 14,623 14,007 11,522 3/31/2004 13,431 14,584 13,927 11,597 4/30/2004 13,073 14,255 13,670 11,634 5/31/2004 12,982 14,236 13,611 11,702 6/30/2004 13,039 14,292 13,649 11,739 7/31/2004 13,231 14,465 13,788 11,720 8/31/2004 13,486 14,741 14,017 11,726 9/30/2004 13,530 14,813 14,036 11,751 10/31/2004 13,625 14,929 14,110 11,813 11/30/2004 13,495 14,799 14,008 11,819 12/31/2004 13,653 14,961 14,120 11,776 1/31/2005 13,761 15,073 14,147 11,801 2/28/2005 13,695 15,014 14,091 11,869 3/31/2005 13,566 14,910 13,990 11,962 4/30/2005 13,792 15,141 14,161 12,042 5/31/2005 13,879 15,245 14,205 12,030 6/30/2005 13,965 15,327 14,282 12,036 7/31/2005 13,873 15,239 14,207 12,092 8/31/2005 14,012 15,391 14,301 12,153 9/30/2005 13,906 15,287 14,257 12,302 10/31/2005 13,788 15,191 14,195 12,327 11/30/2005 13,837 15,262 14,235 12,228 12/31/2005 13,982 15,387 14,304 12,178 1/31/2006 14,018 15,430 14,339 12,271 2/28/2006 14,107 15,519 14,364 12,296 3/31/2006 13,961 15,407 14,301 12,364 4/30/2006 13,892 15,397 14,326 12,469 5/31/2006 13,982 15,467 14,386 12,531 6/30/2006 13,874 15,410 14,329 12,556 7/31/2006 14,056 15,586 14,462 12,593 8/31/2006 14,292 15,818 14,609 12,618 9/30/2006 14,383 15,925 14,694 12,556 10/31/2006 14,433 16,013 14,753 12,488 11/30/2006 14,516 16,140 14,820 12,469 12/31/2006 14,439 16,083 14,796 12,488 1/31/2007 14,422 16,038 14,774 12,526 2/28/2007 14,610 16,239 14,908 12,594 3/31/2007 14,539 16,208 14,932 12,709 4/30/2007 14,591 16,256 14,964 12,791 5/31/2007 14,520 16,187 14,926 12,877 6/30/2007 14,421 16,107 14,905 12,902 7/31/2007 14,542 16,249 15,020 12,917 8/31/2007 14,512 16,246 15,109 12,899 9/30/2007 14,730 16,468 15,246 12,934 10/31/2007 14,769 16,511 15,316 12,971 9 - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND - PERFORMANCE COMPARISON(1) (CONTINUED) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ CUMULATIVE TOTAL RETURNS (WITH LOAD) AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SINCE SINCE OCTOBER 31, 2007 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(2) 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(2) - ------------------------------------------------------------------------------------------------------------------------------------ Managed Municipal Fund -0.74% 5.09% 13.85% 47.69% 149.97% -0.74% 1.67% 2.63% 3.98% 5.32% - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers General Obligation Index(3) 3.09% 10.60% 22.89% 65.11% 194.77% 3.09% 3.41% 4.21% 5.14% 6.26% - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Prerefunded Municipal Bond Index(3) 3.81% 8.55% 17.24% 53.16% 155.39% 3.81% 2.77% 3.23% 4.36% 5.41% - ------------------------------------------------------------------------------------------------------------------------------------ Consumer Price Index(4) 3.87% 9.81% 15.62% 29.71% 34.01% 3.87% 3.17% 2.95% 2.64% 1.67% - ------------------------------------------------------------------------------------------------------------------------------------
(1) PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The performance information presented in the graph and table above does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. All performance assumes the reinvestment of dividends and capital gain distributions and includes the Fund's maximum 3.00% sales charge. Distributions of the Fund's income and capital gains may be subject to state and local taxes. (2) The Fund's inception date is February 26, 1990. Benchmark returns are for the periods beginning February 28, 1990. (3) The Lehman Brothers General Obligation Index is an unmanaged index reflecting general municipal bond market performance. The Lehman Brothers Prerefunded Municipal Bond Index, an unmanaged index, is a subcomponent of the general Lehman Brothers Municipal Bond Index, and contains only bonds from that index that have been prerefunded or escrowed to maturity. Benchmark returns do not reflect expenses or sales charges that have been deducted from the Fund's returns. (4) The Consumer Price Index is a widely used measure of inflation. 10 - -------------------------------------------------------------------------------- NORTH AMERICAN GOVERNMENT BOND FUND - ISI CLASS A PERFORMANCE COMPARISON(1) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NORTH AMERICAN GOVERNMENT BOND FUND - ISI CLASS A SHARES, 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, 2007) - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Lehman Brothers Emerging Americas Index: Mexico North American Section/Citigroup Government Lehman Brothers US Broad Investment- Consumer Bond Fund - ISI Intermediate Grade Bond Index Price Class A Shares Treasury Index Mexico Sector Index -------------- -------------- ----------------- ----- 10/31/1997 $ 9,700 $ 10,000 $ 10,000 $ 10,000 11/30/1997 9,790 10,023 10,253 9,994 12/31/1997 9,959 10,105 10,467 9,981 1/31/1998 10,050 10,241 10,688 10,000 2/28/1998 10,027 10,227 10,784 10,019 3/31/1998 10,074 10,258 10,869 10,037 4/30/1998 10,120 10,306 10,900 10,056 5/31/1998 10,178 10,378 10,804 10,074 6/30/1998 10,295 10,448 10,753 10,087 7/31/1998 10,307 10,489 10,856 10,099 8/31/1998 10,486 10,696 9,148 10,111 9/30/1998 10,738 10,954 9,459 10,124 10/31/1998 10,665 10,976 9,782 10,149 11/30/1998 10,763 10,935 10,422 10,149 12/31/1998 10,799 10,976 10,392 10,142 1/31/1999 10,837 11,024 10,280 10,167 2/28/1999 10,586 10,864 10,333 10,179 3/31/1999 10,674 10,936 10,815 10,210 4/30/1999 10,763 10,966 11,153 10,285 5/31/1999 10,584 10,897 10,668 10,285 6/30/1999 10,597 10,916 10,813 10,285 7/31/1999 10,584 10,926 10,698 10,316 8/31/1999 10,571 10,949 10,809 10,340 9/30/1999 10,651 11,034 11,065 10,390 10/31/1999 10,638 11,048 11,270 10,408 11/30/1999 10,664 11,053 11,593 10,415 12/31/1999 10,624 11,022 11,896 10,415 1/31/2000 10,706 10,991 11,808 10,446 2/29/2000 10,926 11,077 12,364 10,507 3/31/2000 11,189 11,219 12,691 10,594 4/30/2000 11,133 11,211 12,517 10,600 5/31/2000 11,119 11,258 12,273 10,613 6/30/2000 11,246 11,420 12,756 10,668 7/31/2000 11,431 11,497 13,065 10,693 8/31/2000 11,618 11,617 13,393 10,693 9/30/2000 11,574 11,707 13,424 10,749 10/31/2000 11,662 11,784 13,291 10,767 11/30/2000 11,912 11,955 13,493 10,774 12/31/2000 12,120 12,153 13,693 10,767 1/31/2001 12,180 12,297 13,948 10,835 2/28/2001 12,330 12,410 13,850 10,879 3/31/2001 12,391 12,508 13,907 10,903 4/30/2001 12,299 12,458 13,989 10,947 5/31/2001 12,375 12,510 14,311 10,996 6/30/2001 12,453 12,555 14,595 11,015 7/31/2001 12,718 12,783 14,627 10,984 8/31/2001 12,907 12,894 14,925 10,984 9/30/2001 12,924 13,160 14,551 11,033 10/31/2001 13,371 13,360 15,128 10,996 11/30/2001 13,033 13,209 15,198 10,978 12/31/2001 12,952 13,145 15,404 10,934 1/31/2002 13,033 13,181 15,650 10,959 2/28/2002 13,132 13,290 16,132 11,002 3/31/2002 12,933 13,087 15,889 11,064 4/30/2002 13,117 13,321 16,253 11,126 5/31/2002 13,133 13,413 16,262 11,126 6/30/2002 13,232 13,576 16,001 11,132 7/31/2002 13,484 13,847 15,822 11,145 8/31/2002 13,840 13,992 16,489 11,182 9/30/2002 14,077 14,261 16,458 11,200 10/31/2002 13,935 14,235 16,795 11,219 11/30/2002 13,879 14,102 17,155 11,219 12/31/2002 14,101 14,365 17,616 11,194 1/31/2003 14,009 14,323 17,533 11,244 2/28/2003 14,219 14,478 17,878 11,330 3/31/2003 14,215 14,477 18,222 11,399 4/30/2003 14,463 14,506 18,859 11,374 5/31/2003 14,985 14,731 19,434 11,355 6/30/2003 14,926 14,708 19,361 11,368 7/31/2003 14,245 14,386 18,541 11,380 8/31/2003 14,241 14,406 18,753 11,423 9/30/2003 14,664 14,704 19,497 11,460 10/31/2003 14,511 14,560 19,279 11,448 11/30/2003 14,432 14,557 19,361 11,417 12/31/2003 14,581 14,667 19,626 11,405 1/31/2004 14,731 14,739 19,831 11,460 2/29/2004 14,885 14,876 20,238 11,522 3/31/2004 15,002 14,981 20,624 11,597 4/30/2004 14,435 14,642 19,682 11,634 5/31/2004 14,337 14,600 19,561 11,702 6/30/2004 14,357 14,631 19,627 11,739 7/31/2004 14,536 14,731 20,023 11,720 8/31/2004 14,815 14,946 20,706 11,726 9/30/2004 14,895 14,953 20,766 11,751 10/31/2004 15,037 15,035 21,054 11,813 11/30/2004 14,956 14,881 20,910 11,819 12/31/2004 15,180 14,964 21,272 11,776 1/31/2005 15,303 14,980 21,615 11,801 2/28/2005 15,179 14,883 21,600 11,869 3/31/2005 15,117 14,851 21,063 11,962 4/30/2005 15,367 15,032 21,400 12,042 5/31/2005 15,701 15,148 22,059 12,030 6/30/2005 15,931 15,195 22,278 2,036 7/31/2005 15,742 15,054 22,215 12,092 8/31/2005 16,038 15,227 22,594 12,153 9/30/2005 15,889 15,102 22,580 12,302 10/31/2005 15,698 15,035 22,317 12,327 11/30/2005 15,869 15,101 22,734 12,228 12/31/2005 16,126 15,197 22,951 12,178 1/31/2006 16,126 15,181 22,987 12,271 2/28/2006 16,191 15,177 23,275 12,296 3/31/2006 15,822 15,124 22,519 12,364 4/30/2006 15,735 15,131 22,419 12,469 5/31/2006 15,713 15,137 22,080 12,531 6/30/2006 15,713 15,167 22,196 12,556 7/31/2006 16,044 15,326 22,878 12,593 8/31/2006 16,355 15,498 23,478 12,618 9/30/2006 16,489 15,610 23,636 12,556 10/31/2006 16,645 15,679 23,960 12,488 11/30/2006 16,756 15,802 24,204 12,469 12/31/2006 16,644 15,729 24,478 12,488 1/31/2007 16,508 15,729 24,343 12,526 2/28/2007 16,712 15,937 24,444 12,594 3/31/2007 16,781 15,975 24,888 12,709 4/30/2007 16,918 16,047 24,917 12,791 5/31/2007 16,849 15,944 25,190 12,877 6/30/2007 16,803 15,970 25,257 12,902 7/31/2007 17,035 16,193 25,408 12,917 8/31/2007 17,268 16,434 25,510 12,899 9/30/2007 17,455 16,533 25,624 12,934 10/31/2007 17,761 16,638 25,776 12,971 11 - -------------------------------------------------------------------------------- NORTH AMERICAN GOVERNMENT BOND FUND - PERFORMANCE COMPARISON(1) (CONTINUED) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ CUMULATIVE TOTAL RETURNS (WITH LOAD) AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SINCE SINCE OCTOBER 31, 2007 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 3.50% 14.57% 23.62% 77.61% 130.12% 3.50% 4.64% 4.33% 5.91% 5.80% - ------------------------------------------------------------------------------------------------------------------------------------ North American Government Bond Fund - ISI Class C Shares 5.03% 15.87% -- -- 16.11%(3) 5.03% 5.03% -- -- 3.41%(3) - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Intermediate Treasury Index(4) 6.11% 10.66% 16.88% 66.38% 120.15% 6.11% 3.43% 3.17% 5.22% 5.50% - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Emerging Americas Index: Mexico Section / Citigroup US Broad Investment-Grade Bond Index Mexico Sector(5) 7.58% 22.42% 53.47% 157.76% 324.55% 7.58% 6.98% 8.94% 9.93% 48.03% - ------------------------------------------------------------------------------------------------------------------------------------ Consumer Price Index(6) 3.87% 9.81% 15.62% 29.71% 50.55% 3.87% 3.17% 2.95% 2.64% 2.81% - ------------------------------------------------------------------------------------------------------------------------------------
(1) PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The performance information presented in the graph and table above does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. All performance assumes the reinvestment of dividends and capital gain distributions and includes sales charges, if applicable. ISI Class A shares have a maximum 3.00% sales charge. ISI Class C Shares have a maximum 1.00% contingent deferred sales charge in the first year, which is eliminated thereafter. Performance would have been lower during the period if certain of the Fund's fees and expenses had not been waived. (2) ISI Class A Shares inception date is January 15, 1993. Benchmark returns are for the periods beginning January 31, 1993. (3) ISI Class C Shares inception date is May 16, 2003. Cumulative and annualized returns for the Lehman Brothers Intermediate Treasury Index from May 31, 2003 through October 31, 2007 were 12.94% and 2.79%, respectively. (4) The Lehman Brothers Intermediate Treasury Index is an unmanaged index reflecting the performance of US Treasury securities in the intermediate-term Treasury sector. Benchmark returns do not reflect expenses or sales charges that have been deducted from the Fund's returns. (5) Reflects the performance of the Lehman Brothers Emerging Americas Index: Mexico Section through October 31, 2004 and the Citigroup US Broad Investment-Grade Bond Index Mexico Sector from that date through October 31, 2006 and the Lehman Brothers Global Aggregate Index: Mexico from October 31, 2006 through October 31, 2007. 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. The Lehman Brothers Global Aggregate Index: Mexico Section is an unmanaged sub-index of Lehman Brothers Global Aggregate Index which provides broad-based measure of global investment-grade fixed income markets. The Mexico Section reflects the US dollar performance of selected Mexican government peso-denominated debt instruments with maturities of one year or more. Benchmark returns do not reflect expenses or sales charges that have been deducted from the Fund's returns. (6) The Consumer Price Index is a widely used measure of inflation. 12 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - PERFORMANCE COMPARISON(1) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ISI STRATEGY FUND - DOW JONES WILSHIRE 5000 (FULL CAP) INDEX AND CONSUMER PRICE INDEX: VALUE OF A $10,000 INVESTMENT (FOR 10 YEARS ENDED OCTOBER 31, 2007) - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Dow Jones Wilshire 5000 ISI Strategy (Full Cap) Consumer Price Fund Index Index ---- ----- ----- 10/31/1997 $ 9,700 $ 10,000 $ 10,000 11/30/1997 9,917 10,518 9,994 12/31/1997 10,085 10,575 9,981 1/31/1998 10,174 11,345 10,000 2/28/1998 10,619 11,912 10,019 3/31/1998 10,975 12,054 10,037 4/30/1998 11,044 11,733 10,056 5/31/1998 10,925 12,145 10,074 6/30/1998 11,213 11,879 10,087 7/31/1998 11,053 10,029 10,099 8/31/1998 10,145 10,684 10,111 9/30/1998 10,644 11,479 10,124 10/31/1998 11,055 12,202 10,149 11/30/1998 11,511 12,983 10,149 12/31/1998 11,956 13,461 10,142 1/31/1999 12,263 12,974 10,167 2/28/1999 11,812 13,475 10,179 3/31/1999 12,120 14,120 10,210 4/30/1999 12,490 13,811 10,285 5/31/1999 12,253 14,526 10,285 6/30/1999 12,634 14,060 10,285 7/31/1999 12,334 13,929 10,316 8/31/1999 12,230 13,566 10,340 9/30/1999 12,044 14,428 10,390 10/31/1999 12,470 14,912 10,408 11/30/1999 12,688 16,044 10,415 12/31/1999 13,151 15,378 10,415 1/31/2000 12,842 15,722 10,446 2/29/2000 13,066 16,656 10,507 3/31/2000 13,705 15,788 10,594 4/30/2000 13,256 15,237 10,600 5/31/2000 12,999 15,909 10,613 6/30/2000 13,385 15,585 10,668 7/31/2000 13,299 16,716 10,693 8/31/2000 13,944 15,936 10,693 9/30/2000 13,492 15,598 10,749 10/31/2000 13,407 14,046 10,767 11/30/2000 12,682 14,296 10,774 12/31/2000 12,930 14,843 10,767 1/31/2001 13,263 13,436 10,835 2/28/2001 12,529 12,532 10,879 3/31/2001 12,047 13,563 10,903 4/30/2001 12,487 13,699 10,947 5/31/2001 12,568 13,469 10,996 6/30/2001 12,441 13,247 11,015 7/31/2001 12,447 12,445 10,984 8/31/2001 11,995 11,328 10,984 9/30/2001 11,277 11,615 11,033 10/31/2001 11,591 12,504 10,996 11/30/2001 12,056 12,729 10,978 12/31/2001 12,190 12,571 10,934 1/31/2002 12,085 12,312 10,959 2/28/2002 11,945 12,851 11,002 3/31/2002 12,272 12,224 11,064 4/30/2002 11,995 12,080 11,126 5/31/2002 11,948 11,231 11,126 6/30/2002 11,364 10,324 11,132 7/31/2002 10,780 10,385 11,145 8/31/2002 10,909 9,344 11,182 9/30/2002 10,194 10,058 11,200 10/31/2002 10,676 10,665 11,219 11/30/2002 11,052 10,074 11,219 12/31/2002 10,660 9,820 11,194 1/31/2003 10,448 9,654 11,244 2/28/2003 10,377 9,763 11,330 3/31/2003 10,484 10,564 11,399 4/30/2003 11,099 11,209 11,374 5/31/2003 11,654 11,375 11,355 6/30/2003 11,746 11,650 11,368 7/31/2003 11,770 11,929 11,380 8/31/2003 12,030 11,797 11,423 9/30/2003 11,960 12,517 11,460 10/31/2003 12,434 12,693 11,448 11/30/2003 12,552 13,263 11,417 12/31/2003 12,917 13,558 11,405 1/31/2004 13,154 13,756 11,460 2/29/2004 13,321 13,609 11,522 3/31/2004 13,245 13,319 11,597 4/30/2004 12,984 13,503 11,634 5/31/2004 13,043 13,784 11,702 6/30/2004 13,245 13,257 11,739 7/31/2004 12,947 13,301 11,720 8/31/2004 13,078 13,538 11,726 9/30/2004 13,284 13,769 11,751 10/31/2004 13,392 14,414 11,813 11/30/2004 13,738 14,937 11,819 12/31/2004 14,074 14,540 11,776 1/31/2005 13,810 14,842 11,801 2/28/2005 14,074 14,579 11,869 3/31/2005 13,915 14,250 11,962 4/30/2005 13,686 14,806 12,042 5/31/2005 14,107 14,939 12,030 6/30/2005 14,272 15,565 12,036 7/31/2005 14,646 15,412 12,092 8/31/2005 14,779 15,520 12,153 9/30/2005 14,918 15,250 12,302 10/31/2005 14,676 15,865 12,327 11/30/2005 15,100 15,881 12,228 12/31/2005 15,190 16,448 12,178 1/31/2006 15,687 16,439 12,271 2/28/2006 15,651 16,758 12,296 3/31/2006 15,887 16,936 12,364 4/30/2006 15,887 16,407 12,469 5/31/2006 15,473 16,437 12,531 6/30/2006 15,542 16,378 12,556 7/31/2006 15,444 16,763 12,593 8/31/2006 15,725 17,147 12,618 9/30/2006 16,071 17,783 12,556 10/31/2006 16,586 18,195 12,488 11/30/2006 16,924 18,401 12,469 12/31/2006 17,004 18,774 12,488 1/31/2007 17,294 18,472 12,526 2/28/2007 17,194 18,674 12,594 3/31/2007 17,323 19,396 12,709 4/30/2007 17,906 20,096 12,791 5/31/2007 18,502 19,791 12,877 6/30/2007 18,234 19,122 12,902 7/31/2007 17,687 19,374 12,917 8/31/2007 17,814 20,074 12,899 9/30/2007 18,398 20,501 12,934 10/31/2007 18,822 20,495 12,971 13 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - PERFORMANCE COMPARISON(1) (CONTINUED) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ CUMULATIVE TOTAL RETURNS (WITH LOAD) AVERAGE ANNUAL TOTAL RETURNS PERIODS ENDED SINCE SINCE OCTOBER 31, 2007 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(2) 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(2) - ------------------------------------------------------------------------------------------------------------------------------------ ISI Strategy Fund 10.37% 36.66% 71.50% 88.82% 85.89% 10.37% 10.97% 11.39% 6.56% 6.32% - ------------------------------------------------------------------------------------------------------------------------------------ Dow Jones Wilshire 5000 (Full Cap) Index(3) 15.28% 48.91% 103.83% 104.95% 98.13% 15.28% 14.19% 15.31% 7.44% 57.75% - ------------------------------------------------------------------------------------------------------------------------------------ Consumer Price Index(4) 3.87% 9.81% 15.62% 29.71% 173.28% 3.87% 3.17% 2.95% 2.64% 10.48% - ------------------------------------------------------------------------------------------------------------------------------------ Lipper Flexible Portfolio Funds Average(5) 16.40% 43.70% 83.27% 89.14% 93.46% 16.40% 12.85% 12.88% 6.58% 6.76% - ------------------------------------------------------------------------------------------------------------------------------------
(1) PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. The performance information presented in the graph and table above does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. All performance assumes the reinvestment of dividends and capital gain distributions and includes the Fund's maximum 3.00% sales charge. (2) The Fund's inception date is September 16, 1997. Benchmark returns are for the periods beginning September 30, 1997. (3) The Dow Jones Wilshire 5000 (Full Cap) Index is an unmanaged index that represents the broadest measure of the US equity market. Benchmark returns do not reflect expenses or sales charges that have been deducted from the Fund's returns. (4) The Consumer Price Index is a widely used measure of inflation. (5) Lipper figures represent the average total returns by all mutual funds designated by Lipper as falling into the category indicated. The Lipper Flexible Portfolio Funds category includes funds that allocate their investment across various asset classes, including domestic common stocks, bonds and money market instruments with a focus on total return. Benchmark returns do not reflect expenses or sales charges that have been deducted from the Fund's returns. 14 - -------------------------------------------------------------------------------- SHAREHOLDER EXPENSE EXAMPLES (UNAUDITED) - -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of cost: (1) transaction costs for certain share classes, including sales charges (loads); and (2) ongoing costs, including management fees, Rule 12b-1 distribution/shareholder service fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in each Fund and to compare these costs with the ongoing costs of investing in other mutual funds. A mutual fund's ongoing costs are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The expenses in the tables below are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. ACTUAL EXPENSES - The "Actual Return" rows in the following table provide information about actual account values and actual expenses. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the "Expenses Paid During Period" column to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES - 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 tables 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. 15 - -------------------------------------------------------------------------------- SHAREHOLDER EXPENSE EXAMPLE (UNAUDITED) (CONTINUED) - --------------------------------------------------------------------------------
TOTAL RETURN US TREASURY FUND BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED MAY 1, 2007 OCTOBER 31, 2007 DURING PERIOD(1) EXPENSE - ----------------------------------------------------------------------------------------------------------------------- Based on Actual Fund Return ............ $1,000.00 $1,030.70 $4.23 0.83% Based on Hypothetical 5% Return ........ $1,000.00 $1,021.04 $4.21 0.83% - -----------------------------------------------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED MAY 1, 2007 OCTOBER 31, 2007 DURING PERIOD(1) EXPENSE - ----------------------------------------------------------------------------------------------------------------------- Based on Actual Fund Return ............ $1,000.00 $1,012.20 $4.87 0.96% Based on Hypothetical 5% Return ........ $1,000.00 $1,020.37 $4.89 0.96% - -----------------------------------------------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND CLASS A BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED MAY 1, 2007 OCTOBER 31, 2007 DURING PERIOD(1) EXPENSE - ----------------------------------------------------------------------------------------------------------------------- Based on Actual Fund Return ............ $1,000.00 $1,049.80 $5.77 1.12% Based on Hypothetical 5% Return ........ $1,000.00 $1,019.58 $5.68 1.12% - -----------------------------------------------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND CLASS C BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED MAY 1, 2007 OCTOBER 31, 2007 DURING PERIOD(1) EXPENSE - ----------------------------------------------------------------------------------------------------------------------- Based on Actual Fund Return ............ $1,000.00 $1,046.50 $9.16 1.78% Based on Hypothetical 5% Return ........ $1,000.00 $1,016.25 $9.03 1.78% - -----------------------------------------------------------------------------------------------------------------------
ISI STRATEGY FUND BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED MAY 1, 2007 OCTOBER 31, 2007 DURING PERIOD(1) EXPENSE - ----------------------------------------------------------------------------------------------------------------------- Based on Actual Fund Return ............ $1,000.00 $1,054.50 $5.05 0.98% Based on Hypothetical 5% Return ........ $1,000.00 $1,020.29 $4.97 0.98% - -----------------------------------------------------------------------------------------------------------------------
(1) Equals the Fund's annualized expense ratio for the period, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, divided by 365 to reflect the half-year period. 16 - -------------------------------------------------------------------------------- ISI FUNDS (UNAUDITED) - -------------------------------------------------------------------------------- PORTFOLIO PROFILES (AS A % OF NET ASSETS) OCTOBER 31, 2007 TOTAL RETURN US TREASURY FUND US Treasury Obligations 97.35% Repurchase Agreements 1.07% Other Assets in Excess of Liabilities 1.58% -------- 100.00% MANAGED MUNICIPAL FUND Aaa* 76.49% Aa* 20.28% Repurchase Agreements 2.56% Other Assets in Excess of Liabilities 0.67% -------- 100.00% * Ratings are based on Moody's Investors, Inc. NORTH AMERICAN GOVERNMENT BOND FUND Canadian Securities 8.68% Mexican Securities 14.87% US Treasury Securities 75.32% Repurchase Agreements 0.68% Other Assets in Excess of Liabilities 0.45% -------- 100.00% ISI STRATEGY FUND Consumer Discretionary 5.14% Consumer Staples 4.40% Energy 9.65% Financials 14.14% Health Care 11.41% Industrials 10.55% Information Technology 16.22% Materials 3.62% Telecommunications Services 7.16% Utilities 3.15% US Treasury Obligations 12.37% Repurchase Agreements 5.21% Liabilities in excess of other Assets -3.02% -------- 100.00% 17 - -------------------------------------------------------------------------------- TOTAL RETURN US TREASURY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS OCTOBER 31, 2007
INTEREST MATURITY PAR MARKET SECURITY RATE DATE VALUE VALUE - -------------------------------------------------------------------------------------------- US TREASURY OBLIGATIONS - 97.35% US Treasury Bill 4.070%(1) 3/20/08 $ 8,800,000 $ 8,668,757 US Treasury Bond(2) 10.375% 11/15/12 14,250,000 14,283,402 US Treasury Bond 7.625% 2/15/25 11,500,000 15,299,496 US Treasury Bond 6.000% 2/15/26 11,500,000 13,171,100 US Treasury Bond 6.750% 8/15/26 8,250,000 10,226,782 US Treasury Bond 6.375% 8/15/27 21,000,000 25,204,935 US Treasury Note 4.625% 2/29/08 5,000,000 5,010,550 US Treasury Note 5.500% 5/15/09 25,000,000 25,585,950 US Treasury Note 4.125% 8/15/10 3,000,000 3,015,471 US Treasury Note 4.125% 5/15/15 1,000,000 986,172 ------------ TOTAL US TREASURY OBLIGATIONS (COST $ 124,037,635) .................................................. 121,452,615 ------------ REPURCHASE AGREEMENT - 1.07% JPMORGAN CHASE, N.A. $1,338,000, Dated 10/31/07, 4.100%, principal and interest in the amount of $1,338,152 due 11/1/07, collaterized by US Treasury Bond, par value of $995,000 due 5/15/17 with a value of $1,367,143 (Cost $1,338,000) ....................................................... 1,338,000 ------------ TOTAL INVESTMENTS - 98.42% (COST $ 125,375,635)*.................................................. 122,790,615 OTHER ASSETS IN EXCESS OF LIABILITIES - 1.58%.................................. 1,977,462 ------------ NET ASSETS - 100.00%........................................................... $124,768,077 ============
- -------------------------------------------------------------------------------- (1) Annualized yield at time of purchase, not a coupon rate. (2) Bond callable at par on 11/15/2007. * Cost for Federal income tax purpose is $125,375,635 and net unrealized appreciation (depreciation) on a tax basis consists of: Gross Unrealized Appreciation...................... $ 257,195 Gross Unrealized Depreciation...................... (2,842,215) ----------- Net Unrealized Depreciation........................ $(2,585,020) =========== See Notes to Financial Statements. 18 - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS OCTOBER 31, 2007
RATINGS INTEREST MATURITY (MOODY'S/ PAR MARKET SECURITY RATE DATE S&P)(1) VALUE VALUE - ------------------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS - 96.77% GENERAL OBLIGATIONS - 64.82% Alexandria, VA, Capital Improvements ............. 4.250% 6/15/21 Aaa/AAA $ 3,300,000 $ 3,314,058 Arlington County, VA, State Aid Withholding .......................... 4.500% 1/15/28 Aaa/AAA 2,000,000 2,007,720 Arlington County, VA, State Aid Withholding .......................... 5.000% 10/1/14 Aaa/AAA 1,080,000 1,104,818 Cary, NC ......................................... 5.000% 3/1/18 Aaa/AAA 2,000,000 2,111,920 Dallas, TX ....................................... 4.000% 2/15/16 Aa1/AA+ 2,450,000 2,461,687 Delaware State, Series A ......................... 4.200% 1/1/20 Aaa/AAA 1,675,000 1,680,326 Du Page County, Il, Jail Project ................. 5.600% 1/1/21 Aaa/AAA 1,600,000 1,794,496 Florida State, Board of Education, Public Education, Series I ..................... 4.125% 6/1/21 Aa1/AAA 3,000,000 2,919,510 Georgia State, Series G .......................... 4.125% 10/1/23 Aaa/AAA 2,000,000 1,958,320 Henrico County, VA, Public Improvement ............................. 4.250% 7/15/24 Aaa/AAA 2,830,000 2,806,766 Maryland State, Capital Improvements, Series A ....................................... 4.000% 2/15/20 Aaa/AAA 4,000,000 3,959,600 Mecklenburg County, NC, Public Improvements, Series A .................. 4.000% 2/1/20 Aaa/AAA 3,000,000 2,966,910 Mecklenburg County, NC, Public Improvements, Series A .................. 4.250% 2/1/19 Aaa/AAA 2,000,000 2,019,120 Minnesota State .................................. 5.500% 6/1/18 Aa1/AAA 2,000,000 2,092,620 Missouri State, Fourth State Building, Series A ....................................... 4.125% 10/1/19 Aaa/AAA 2,000,000 2,007,900 Montgomery County, MD, Public Improvements, Series A .................. 4.000% 5/1/21 Aaa/AAA 2,450,000 2,408,571 Salt Lake City, UT, School District, School Board Guaranty, Series A ................ 4.500% 3/1/20 Aaa/NR 2,240,000 2,276,512 South Carolina State, Highway, Series B ....................................... 5.000% 4/1/19 Aaa/AA+ 1,000,000 1,047,920 Virginia State, Series B ......................... 4.250% 6/1/26 Aaa/AAA 1,500,000 1,472,520 Washington State, Series F ....................... 4.500% 7/1/27 Aa1/AA+ 2,500,000 2,472,525 Washington, MD, Suburban Sanitation District, Water Supply ......................... 4.250% 6/1/26 Aaa/AAA 2,500,000 2,457,325 ----------- 47,341,144 ----------- OTHER REVENUE - 4.13% Texas, Water Development Board Revenue, State Revolving Fund - Senior Lien, Series A ................................. 4.750% 7/15/20 Aaa/AAA 3,000,000 3,017,940 -----------
See Notes to Financial Statements. 19 - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2007
RATINGS INTEREST MATURITY (MOODY'S/ PAR MARKET SECURITY RATE DATE S&P)(1) VALUE VALUE - ------------------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS - 96.77% (CONTINUED) PREREFUNDED ISSUES - 27.82% Arlington County, VA, 10/1/08 @ 101, State Aid Withholding ............................. 5.000% 10/1/14 Aaa/AAA $ 920,000 $ 942,190 Charlotte, NC, Water & Sewer System Revenue, 6/1/09 @ 101 ...................... 5.250% 6/1/24 Aa1/AAA 1,600,000 1,660,240 Chesterfield County, VA, 1/15/10 @ 100 ..................................... 5.625% 1/15/14 Aaa/AAA 1,350,000 1,413,085 Chesterfield County, VA, 1/15/11 @ 100 ..................................... 5.000% 1/15/20 Aaa/AAA 1,000,000 1,045,830 Florida State, Board of Education, Public Education Capital Outlay, Series A, 6/1/10 @ 101 ............................ 5.125% 6/1/21 Aaa/AAA 1,000,000 1,050,820 Georgia State, Series D, Refundable Balance, 10/01/10 @ 100 ........................... 5.000% 10/1/17 Aaa/AAA 390,000 407,012 Guilford County, NC, Series B, 10/1/10 @ 102 ..................................... 5.250% 10/1/16 Aa1/AAA 3,000,000 3,206,730 Gwinnett County, GA, Water & Sewer Authority, 8/1/12 @ 100...................... 5.250% 8/1/24 Aaa/AAA 1,500,000 1,612,170 Missouri State, Fourth State Building, Series A, 6/1/08 @ 100 ............................ 5.000% 6/1/23 Aaa/AAA 2,000,000 2,018,220 North Carolina State, Public School Building, 4/1/09 @ 102 ............................ 4.600% 4/1/17 Aaa/AAA 5,000,000 5,177,150 South Carolina State, State Institutional, Series A, 3/1/10 @ 101 ............................ 5.300% 3/1/17 Aaa/AA+ 1,700,000 1,787,295 ----------- 20,320,742 ----------- TOTAL MUNICIPAL BONDS COST ($68,768,230) .................................................................................. $70,679,826 ----------- REPURCHASE AGREEMENT - 2.56% JPMORGAN CHASE, N.A. $1,868,000, Dated 10/31/07, 4.100%, principal and interest in the amount of $ 1,868,213 due 11/1/07, collaterized by US Treasury Bond, par value of $1,390,000 due 5/15/17 with a value of $1,909,879 (Cost $ 1,868,000) ............................................ $ 1,868,000 ----------- TOTAL INVESTMENTS - 99.33% (COST $ 70,636,230)* ................................................................................. $72,547,826 OTHER ASSETS IN EXCESS OF LIABILITIES - 0.67% .............................................................. 490,117 ----------- NET ASSETS - 100.00% ....................................................................................... $73,037,943 ===========
See Notes to Financial Statements. 20 - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2007 - -------------------------------------------------------------------------------- (1) Moody's Municipal Bond Ratings: Aaa Judged to be of the best quality Aa Judged to be of high quality by all standards. Issues are sometimes denoted with a 1, 2 or 3, which denote a high, medium or low ranking within the rating. S&P Municipal Bond Ratings: AAA Of the highest quality. AA The second strongest capacity for payment of debt services. Those issues determined to possess very strong safety characteristics are denoted with a plus (+) sign. NR Not rated Prerefunded: Bonds which are prerefunded are collateralized usually by US Treasury securities which are held in escrow and are used to pay principal and interest on tax-exempt issues and to retire the bonds in full at the earliest refunding date. * Cost for Federal income tax purpose is $70,636,230 and net unrealized appreciation (depreciation) on a tax basis consists of: Gross Unrealized Appreciation..................... $ 2,089,238 Gross Unrealized Depreciation..................... (177,642) ----------- Net Unrealized Appreciation ...................... $ 1,911,596 =========== 21 - -------------------------------------------------------------------------------- NORTH AMERICAN GOVERNMENT BOND FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS OCTOBER 31, 2007
INTEREST MATURITY PAR/NOMINAL MARKET SECURITY RATE DATE VALUE(1) VALUE - ----------------------------------------------------------------------------------------------- CANADIAN SECURITIES - 8.68% Canadian Government Bond 4.000% 6/1/17 C 12,500,000 $ 12,899,555 ------------ TOTAL CANADIAN SECURITIES (COST $12,599,747) ..................................................... $ 12,899,555 ------------ MEXICAN SECURITIES - 14.87% Mexican Bono(2) 9.000% 12/22/11 P 80,322,900 $ 7,884,255 Mexican Bono(2) 9.000% 12/20/12 31,782,400 3,129,949 Mexican Bono(2) 8.000% 12/24/08 47,062,400 4,429,480 Mexican Bono(2) 8.000% 12/17/15 48,717,000 4,602,345 Mexican Bono(2) 7.250% 12/15/16 22,700,000 2,043,468 ------------ TOTAL MEXICAN SECURITIES (COST $21,296,293) ..................................................... $ 22,089,497 ------------ US TREASURY SECURITIES - 75.32% US Treasury Bill 4.070%(3) 3/20/08 $ 14,500,000 $ 14,283,747 US Treasury Bond 3.250% 8/15/08 5,500,000 5,463,480 US Treasury Bond 3.125% 9/15/08 2,000,000 1,984,376 US Treasury Bond 7.625% 2/15/25 10,100,000 13,436,949 US Treasury Bond 6.000% 2/15/26 2,000,000 2,290,626 US Treasury Bond 6.750% 8/15/26 10,250,000 12,706,003 US Treasury Bond 6.375% 8/15/27 15,600,000 18,723,666 US Treasury Note 3.000% 2/15/08 9,100,000 9,075,121 US Treasury Note 4.625% 2/29/08 500,000 501,055 US Treasury Note 5.000% 2/15/11 19,500,000 20,139,854 US Treasury Note 4.125% 5/15/15 10,500,000 10,354,806 US Treasury Note 4.750% 8/15/17 2,900,000 2,964,798 ------------ TOTAL US TREASURY SECURITIES (COST $114,088,813) .................................................... $111,924,481 ------------
See Notes to Financial Statements. 22 - -------------------------------------------------------------------------------- NORTH AMERICAN GOVERNMENT BOND FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2007
MARKET SECURITY VALUE - -------------------------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 0.68% JPMORGAN CHASE, N.A. $1,011,000, Dated 10/31/07, 4.100%, principal and interest in the amount of $1,011,115 due 11/1/07, collaterized by US Treasury Bond, par value of $755,000 due 5/15/17 with a value of $1,037,380 (Cost $1,011,000) ......................................................... $ 1,011,000 ------------ TOTAL INVESTMENTS -99.55% (COST $ 148,995,853)* ..................................................... $147,924,533 OTHER ASSETS IN EXCESS OF LIABILITIES - 0.45% ..................................... 671,952 ------------ NET ASSETS - 100.00% .............................................................. $148,596,485 ============
- -------------------------------------------------------------------------------- (1) Par Value is shown in local currency: Canadian dollars (C), Mexican pesos (P) and US dollars ($). (2) Bonos are fixed rate, local currency-denominated coupon bonds issued by the Mexican government. (3) Annualized yield at time of purchase, not a coupon rate. * Cost for Federal income tax purpose is $148,995,853 and net unrealized appreciation (depreciation) on a tax basis consists of: Gross Unrealized Appreciation.................... $ 1,453,416 Gross Unrealized Depreciation.................... (2,524,736) ----------- Net Unrealized Depreciation...................... $(1,071,320) =========== See Notes to Financial Statements. 23 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS OCTOBER 31, 2007 MARKET SECURITY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS - 85.44% CONSUMER DISCRETIONARY - 5.14% Acco Brands Corp.* 2,908 $ 62,348 Amazon.com, Inc.* 6,000 534,900 Bed Bath & Beyond, Inc.* 200 6,788 Best Buy Co., Inc. 456 22,125 Copart, Inc.* 5,000 191,900 DreamWorks Animation SKG* 3,439 111,974 Expedia, Inc.* 2,543 83,054 Genuine Parts Co. 1,450 71,151 Johnson Controls, Inc. 9,360 409,219 Liz Claiborne, Inc. 1,600 45,552 McDonald's Corp. 10,000 597,000 Nexcen Brands, Inc.* 5,000 30,700 Office Depot, Inc.* 100 1,876 Regis Corp. 4,211 141,490 Rent-A-Center, Inc.* 4,460 71,360 Revlon, Inc. - Class A* 30,000 34,500 Sears Holdings Corp.* 11,200 1,509,648 Target Corp. 1,198 73,509 WABCO Holdings, Inc. 649 32,982 WESCO International, Inc.* 1,093 50,988 Weight Watchers International, Inc. 160 8,198 Whirlpool Corp. 600 47,508 ----------- 4,138,770 ----------- CONSUMER STAPLES - 4.40% Altria Group, Inc. 2,171 158,331 Bunge, Ltd. 4,276 492,552 Burger King Holdings, Inc. 5,000 132,200 Coca-Cola Co. 5,000 308,800 Costco Wholesale Corp. 2,860 192,364 Hansen Natural Corp.* 5,000 340,000 Pepsico, Inc. 1,284 94,656 Pilgrim's Pride Corp. 9,119 270,834 Procter & Gamble Co. 10,644 739,971 Sally Beauty Holdings, Inc.* 10,000 92,500 Sara Lee Corp. 300 4,962 Smithfield Foods, Inc.* 2,373 68,034 Wal-Mart Stores, Inc. 14,266 644,966 Williams Scotsman International* 39 1,101 ----------- 3,541,271 ----------- ENERGY - 9.65% Chevron Corp. 9,328 853,605 ConocoPhillips 8,650 734,904 Exterran Holdings, Inc.* 1,000 84,200 Exxon Mobil Corp. 26,424 2,430,744 GlobalSantaFe Corp. 10,000 810,300 Halliburton Co. 5,000 197,100 Hess Corp. 3,439 246,267 Marathon Oil Corp. 9,000 532,170 Mariner Energy, Inc.* 94 2,350 National Oilwell Varco, Inc.* 10,000 732,400 Reliant Resources, Inc.* 4,417 121,556 Williams Cos., Inc. 28,100 1,025,369 ----------- 7,770,965 ----------- FINANCIALS - 14.14% American International Group, Inc. 10,500 662,760 Aon Corp. 17,000 770,440 Bank of America Corp. 4,722 227,978 Bank of New York Mellon Corp. (The) 842 41,132 Bear Stearns Cos. 220 24,992 Blackrock, Inc.- Class A 2,240 463,568 Boston Properties, Inc. 5,100 552,534 Charles Schwab Corp. 14,100 327,684 Citigroup, Inc. 12,702 532,214 CME Group, Inc. 800 533,000 Commerce Bancorp, Inc. 4,540 185,005 Discover Financial Services, LLC 6,240 120,432 E*TRADE Financial Corp.* 600 6,684 Fidelity National Financial, Inc. 635 9,773 Goldman Sachs Group, Inc. 5,000 1,239,600 Heartland Payment Systems, Inc. 8,000 240,000 Host Hotels & Resorts, Inc. 5,200 115,232 Lehman Brothers Holdings, Inc. 10,800 684,072 Liberty Media Corp - Series A* 379 47,367 Loews Corp. 13,000 638,170 Marsh & McLennan Cos., Inc. 26,363 682,538 Merrill Lynch & Co. 6,120 404,042 MetLife, Inc. 10,000 688,500 Moody's Corp. 6,974 304,903 Old Republic International Corp. 187 2,867 See Notes to Financial Statements. 24 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2007 MARKET SECURITY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS - 85.44% (CONTINUED) FINANCIALS - 14.14% (CONTINUED) PMI Group, Inc. 1,200 $ 19,236 Prudential Financial, Inc. 5,000 483,600 Public Storage, Inc. 5,186 419,910 Radian Group, Inc. 200 2,518 Regions Financial Corp. 546 14,808 SEI Investments Co. 6,400 202,368 State Street Corp. 300 23,931 Torchmark Corp. 200 13,032 Travelers Cos., Inc. (The) 100 5,221 US Bancorp 2,473 82,005 UnionBanCal Corp. 3,582 193,464 UnumProvident Corp. 18,038 421,007 Zions Bancorp. 100 5,911 ----------- 11,392,498 ----------- HEALTH CARE - 11.41% Abbott Laboratories 4,335 236,778 Aetna, Inc. 5,400 303,318 Allergan, Inc. 420 28,384 Amerisourcebergen Corp. 10,000 471,100 Amgen, Inc.* 7,300 424,203 Baxter International, Inc. 500 30,005 Beckman Coulter, Inc. 100 7,082 Biogen Idec, Inc.* 1,000 74,440 Bristol-Myers Squibb Co. 2,247 67,388 CIGNA Corp. 8,046 422,335 Covance, Inc.* 5,000 412,500 CV Therapeutics, Inc.* 5,000 51,200 Eli Lilly & Co. 2,396 129,743 Express Scripts, Inc.* 5,000 315,500 Forest Laboratories, Inc.* 10,000 390,700 Genentech, Inc.* 6,324 468,798 Genzyme Corp.* 5,000 379,850 Indevus Pharmaceuticals, Inc.* 5,000 38,500 Johnson & Johnson 12,606 821,533 Landauer, Inc. 700 34,489 McKesson Corp. 4,700 310,670 Medtronic, Inc. 2,670 126,665 OSI Pharmaceuticals, Inc.* 5,000 207,850 Owens & Minor, Inc. 10,000 405,400 PerkinElmer, Inc. 1,000 27,520 Pfizer, Inc. 56,763 1,396,937 PharMerica Corp.* 833 13,286 Schering-Plough Corp. 4,500 137,340 Sirona Dental Systems, Inc.* 5,000 168,200 Unitedhealth Group, Inc. 6,548 321,834 WellPoint, Inc.* 10,000 792,300 Wyeth 3,630 176,527 ----------- 9,192,375 ----------- INDUSTRIALS - 10.55% 3M Co. 2,400 207,264 AGCO Corp.* 5,800 346,144 Boeing Corp. 7,730 762,101 Briggs & Stratton Corp. 2,925 65,842 Caterpillar, Inc. 3,220 240,244 EDO Corp. 17,000 986,000 Entegris, Inc.* 1,444 13,184 FTI Consulting, Inc.* 1,000 54,300 General Electric Co. 25,234 1,038,631 Goodrich Corp. 1,100 76,626 Hewitt Associates. Inc. Class - A* 2,940 103,723 Honeywell International, Inc. 3,500 211,435 Illinois Tool Works, Inc. 4,438 254,120 International Rectifier Corp.* 1,000 33,380 Manitowoc Co., Inc. 14,000 689,640 Northrop Grumman Corp. 10,000 836,200 Owens-Illinois, Inc.* 9,500 421,990 ProLogis 5,000 358,700 Rockwell Automation, Inc. 3,439 236,878 Textron, Inc. 9,600 664,416 Timken Co. 12,900 429,054 TRW Automotive Holdings Corp.* 8,000 237,520 United Technologies Corp. 3,000 229,770 ----------- 8,497,162 ----------- INFORMATION TECHNOLOGY - 16.22% Agilent Technologies, Inc.* 5,105 188,119 Akamai Technologies, Inc.* 5,000 195,950 Apple, Inc.* 5,848 1,110,828 Broadcom Corp. - Class A* 6,950 226,223 Checkfree Corp.* 1,800 85,554 Cisco Systems, Inc.* 40,857 1,350,732 See Notes to Financial Statements. 25 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2007 MARKET SECURITY SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS - 85.44% (CONTINUED) INFORMATION TECHNOLOGY - 16.22% (CONTINUED) Computer Sciences Corp.* 15,000 $ 875,850 Diebold, Inc. 10,000 418,400 eBay, Inc.* 2,840 102,524 Electronic Arts, Inc* 10,000 611,200 Electronic Data Systems Corp. 33,000 712,470 Electronics for Imaging, Inc.* 5,000 114,000 eSpeed, Inc.* 1,544 15,687 Fidelity National Information Services, Inc. 279 12,868 Google, Inc.* 2,200 1,555,400 Hewlett-Packard Co. 10,000 516,800 Integrated Device Technology, Inc.* 10,000 134,300 Intel Corp. 3,674 98,831 International Business Machines Corp. 13,422 1,558,563 Juniper Networks, Inc.* 1,795 64,620 LSI Logic Corp.* 20,000 132,000 Microsoft Corp. 30,146 1,109,674 MIPS Technologies, Inc.* 3,000 23,700 Move, Inc.* 20,000 50,800 NCR Corp.* 10,000 275,900 Seagate Technology 2,700 75,168 Skyworks Solutions, Inc.* 7,900 72,838 Sun Microsystems, Inc.* 43,560 248,728 Synopsys, Inc.* 630 17,804 Teradata Corp.* 10,000 285,300 Texas Instruments, Inc. 10,000 326,000 VeriSign, Inc.* 1,400 47,726 Volterra Semiconductor Corp.* 3,000 36,870 Yahoo!, Inc.* 9,481 294,859 Zoran Corp.* 4,600 117,300 ----------- 13,063,586 ----------- MATERIALS - 3.62% AK Steel Holding Corp.* 30,448 1,526,358 Ashland, Inc. 10,000 587,200 FMC Corp. 2,700 155,250 International Flavors & Fragrance, Inc. 11,500 600,415 Symyx Technologies, Inc.* 5,000 46,050 ----------- 2,915,273 ----------- TELECOMMUNICATIONS SERVICES - 7.16% Alaska Communications Systems Group, Inc. 2,449 39,845 Alltel Corp. 5,377 382,574 AT&T, Inc. 31,439 1,313,836 Cablevision System, Inc.- NY* 7,000 205,310 Centennial Communications Corp.* 5,000 51,200 Charter Communications, Inc.* 19,000 39,330 DirecTV Group, Inc.* 5,000 132,400 Dobson Communications Corp.* 3,000 38,820 FiberTower Corp.* 5,000 15,800 Getty Images, Inc.* 10,000 282,500 IAC/InterActive Corp.* 9,600 282,816 Interpublic Group of Cos., Inc.* 1,900 19,665 McGraw-Hill Companies 600 30,024 New York Times Co.(The) 10,000 195,600 News Corp. - Class A 604 13,089 Qwest Communications International, Inc.* 19,900 142,882 R.H. Donnelly Corp.* 1,400 76,790 Time Warner, Inc. 23,844 435,391 Verizon Communications, Inc. 40,888 1,883,711 Vonage Holdings Corp.* 15,000 30,600 XM Satellite Radio Holdings, Inc.* 11,323 150,369 ----------- 5,762,552 ----------- UTILITIES - 3.15% AES Corp.* 5,000 107,050 Alleghany Energy, Inc. 7,200 436,752 American Electric Power Co., Inc. 5,345 257,682 CMS Energy Corp. 4,060 68,898 Consolidated Edison, Inc. 4,200 197,778 Dominion Resources, Inc. VA 3,400 311,542 Exelon Corp. 6,711 555,537 Integrys Energy Group, Inc. 10,987 591,210 PPL Corp. 186 9,616 ----------- 2,536,065 ----------- TOTAL COMMON STOCKS (COST $53,131,587) $68,810,517 ----------- See Notes to Financial Statements. 26 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2007
INTEREST MATURITY PAR MARKET SECURITY RATE DATE VALUE VALUE - -------------------------------------------------------------------------------------------------- US TREASURY OBLIGATIONS - 12.37% US Treasury Bill 4.070%(1) 3/20/08 $ 700,000 $ 689,560 US Treasury Bill 4.030%(1) 5/1/08 2,500,000 2,450,165 US Treasury Bond 9.250% 2/15/16 500,000 666,915 US Treasury Bond 6.000% 2/15/26 1,000,000 1,145,313 US Treasury Bond 6.750% 8/15/26 3,050,000 3,780,810 US Treasury Bond 6.375% 8/15/27 200,000 240,047 US Treasury Note 3.875% 10/31/12 1,000,000 987,188 ----------- TOTAL US TREASURY OBLIGATIONS (COST $9,700,422) $ 9,959,998 ----------- REPURCHASE AGREEMENT - 5.21% JPMORGAN CHASE, N.A. $4,197,000, Dated 10/31/07, 4.100%, principal and interest in the amount of $4,197,478 due 11/1/07, collaterized by US Treasury Bond, par value of $3,120,000 due 5/15/17 with a value of $4,286,922 (Cost $4,197,000) ............................................................ $ 4,197,000 ----------- TOTAL INVESTMENTS - 103.02% (COST $ 67,029,009)** ........................................................ $82,967,515 LIABILITIES IN EXCESS OF OTHER ASSETS - (3.02%) .................................... (2,432,269) ----------- NET ASSETS - 100.00% ............................................................... $80,535,246 ===========
- ------------------------------------------------------------------------------- (1) Annualized yield at time of purchase, not a coupon rate. * Non-income producing. ** Cost for Federal income tax purpose is $67,126,717 and net unrealized appreciation (depreciation) on a tax basis consists of: Gross Unrealized Appreciation.................... $18,294,717 Gross Unrealized Depreciation.................... (2,453,919) ----------- Net Unrealized Appreciation...................... $15,840,798 =========== See Notes to Financial Statements. 27 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2007
TOTAL RETURN MANAGED US TREASURY MUNICIPAL FUND FUND - ---------------------------------------------------------------------------------------------- ASSETS Investments in securities: At cost ............................................ $ 125,375,635 $ 70,636,230 ============= ============= At value (Note 1) .................................. $ 122,790,615 $ 72,547,826 Cash ................................................. 792 715 Interest receivable .................................. 2,136,890 847,713 Receivable for capital shares sold ................... 157,263 833 Other assets ......................................... 10,592 7,492 ------------- ------------- TOTAL ASSETS ....................................... 125,096,152 73,404,579 ------------- ------------- LIABILITIES Distributions payable ................................ 117,726 101,318 Payable for capital shares redeemed .................. 90,877 179,180 Accrued investment advisory fees (Note 3) ............ 27,718 24,970 Accrued distribution expenses (Note 3) ............... 25,566 15,606 Accrued administration fees (Note 3) ................. 12,500 7,300 Accrued transfer agent fees (Note 3) ................. 3,200 1,000 Accrued compliance fees (Note 3) ..................... 600 900 Other accrued expenses ............................... 49,888 36,362 ------------- ------------- TOTAL LIABILITIES .................................. 328,075 366,636 ------------- ------------- NET ASSETS .............................................. $ 124,768,077 $ 73,037,943 ============= ============= NET ASSETS CONSIST OF: Paid-in capital ...................................... $ 128,004,292 $ 70,098,330 Undistributed (distributions in excess of) net investment income .............................. (117,726) 726,011 Accumulated net realized gains (losses) from security transactions ......................... (533,469) 302,006 Net unrealized appreciation (depreciation) on investments ..................................... (2,585,020) 1,911,596 ------------- ------------- Net assets .............................................. $ 124,768,077 $ 73,037,943 ============= ============= Shares of capital stock outstanding $0.001 par value ISI Shares (115,000,000 and 55,000,000 shares authorized, respectively) ............................ 13,127,757 6,885,254 ============= ============= Net asset value per share ............................... $ 9.50 $ 10.61 ============= ============= Maximum offering price per share (100/97) x Net asset value per share .................... $ 9.79 $ 10.94 ============= =============
See Notes to Financial Statements. 28 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2007
NORTH AMERICAN ISI GOVERNMENT BOND STRATEGY FUND FUND - ---------------------------------------------------------------------------------------------- ASSETS Investments in securities: At cost ............................................ $ 148,995,853 $ 67,029,009 ============= ============= At value (Note 1) .................................. $ 147,924,533 $ 82,967,515 Cash ................................................. 126 1,481 Dividends and interest receivable .................... 1,917,316 123,370 Receivable for capital shares sold ................... 287,855 28,151 Other assets ......................................... 11,065 13,239 ------------- ------------- TOTAL ASSETS ....................................... 150,140,895 83,133,756 ------------- ------------- LIABILITIES Distributions payable ................................ 272,991 -- Payable for securities purchased ..................... -- 2,450,898 Payable for capital shares redeemed .................. 1,078,393 56,184 Accrued investment advisory fees (Note 3) ............ 50,474 26,939 Accrued distribution expenses (Note 3) ............... 55,399 16,837 Accrued shareholder servicing fees (Note 3) .......... 3,518 -- Accrued administration fees (Note 3) ................. 14,800 7,900 Accrued transfer agent fees (Note 3) ................. 5,200 2,400 Accrued compliance fees (Note 3) ..................... 1,100 600 Other accrued expenses ............................... 62,535 36,752 ------------- ------------- TOTAL LIABILITIES .................................. 1,544,410 2,598,510 ------------- ------------- NET ASSETS .............................................. $ 148,596,485 $ 80,535,246 ============= ============= NET ASSETS CONSIST OF: Paid-in capital ...................................... $ 150,199,037 $ 60,378,808 Undistributed (distributions in excess of) net investment income .............................. (272,991) 36,257 Accumulated net realized gains (losses) from security and foreign currency transactions .... (280,143) 4,181,675 Net unrealized appreciation (depreciation) on investments and foreign currencies .............. (1,049,418) 15,938,506 ------------- ------------- Net assets .............................................. $ 148,596,485 $ 80,535,246 ============= =============
See Notes to Financial Statements. 29 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) OCTOBER 31, 2007
NORTH AMERICAN ISI GOVERNMENT BOND STRATEGY FUND FUND - ---------------------------------------------------------------------------------------------------- SHARES OF CAPITAL STOCK OUTSTANDING $0.001 PAR VALUE ISI Class A Shares (50,000,000 shares authorized) ........... 17,504,295 -- ============= ============= ISI Class C Shares (5,000,000 shares authorized) ............ 2,241,535 -- ============= ============= ISI Shares (25,000,000 shares authorized) ................... -- 5,432,929 ============= ============= NET ASSET VALUE PER SHARE ISI Class A Shares (based on net assets of $131,748,269) .... $ 7.53 $ -- ============= ============= ISI Class C Shares (based on net assets of $16,848,216) ..... $ 7.52 $ -- ============= ============= ISI Shares .................................................. $ -- $ 14.82 ============= ============= MAXIMUM OFFERING PRICE VALUE PER SHARE (100/97) X NET ASSET VALUE PER SHARE ISI Class A Shares .......................................... $ 7.76 $ -- ============= ============= ISI Shares .................................................. $ -- $ 15.28 ============= =============
See Notes to Financial Statements. 30 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2007 TOTAL RETURN MANAGED US TREASURY MUNICIPAL FUND FUND - ------------------------------------------------------------------------------- INVESTMENT INCOME Interest .................................. $ 6,011,257 $ 3,495,975 ------------- ------------- EXPENSES Investment advisory fees (Note 3) ......... 353,437 310,424 Distribution fees (Note 3) ................ 335,922 194,015 Administration fees (Note 3) .............. 152,223 88,190 Professional fees ......................... 89,573 71,113 Transfer agent fees (Note 3) .............. 35,005 10,749 Registration fees ......................... 24,304 23,756 Directors' fees and expenses .............. 17,077 9,686 Custodian fees ............................ 15,115 12,898 Compliance consulting fees (Note 3) ....... 8,892 6,039 Other expenses ............................ 32,321 778 ------------- ------------- TOTAL EXPENSES .......................... 1,063,869 727,648 ------------- ------------- NET INVESTMENT INCOME ........................ 4,947,388 2,768,327 ------------- ------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains (losses) from security transactions ................... (533,469) 302,012 Net change in unrealized appreciation/ depreciation on investments ............. 1,546,328 (1,359,099) ------------- ------------- NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS ............. 1,012,859 (1,057,087) ------------- ------------- NET INCREASE IN NET ASSETS FROM OPERATIONS .......................... $ 5,960,247 $ 1,711,240 ============= ============= See Notes to Financial Statements. 31 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2007
NORTH AMERICAN ISI GOVERNMENT BOND STRATEGY FUND FUND - -------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends ................................................. $ -- $ 942,817 Interest .................................................. 6,970,232 696,896 ------------- ------------- TOTAL INVESTMENT INCOME ............................... 6,970,232 1,639,713 ------------- ------------- EXPENSES Investment advisory fees (Note 3) ......................... 599,920 301,428 Distribution fees: ISI Class A Shares ...................................... 537,109 -- ISI Class C Shares ...................................... 117,770 -- ISI Shares .............................................. -- 188,392 Administration fees (Note 3) .............................. 170,217 85,700 Transfer agent fees: ISI Class A Shares ...................................... 48,323 -- ISI Class C Shares ...................................... 5,933 -- ISI Shares .............................................. -- 23,423 Professional fees ......................................... 106,400 65,369 Shareholder servicing fees: ISI Class C Shares ...................................... 39,257 -- Registration fees ......................................... -- 21,567 ISI Class A Shares ...................................... 21,961 -- ISI Class C Shares ...................................... 9,616 -- Custodian fees ............................................ 20,213 9,313 Directors' fees and expenses .............................. 18,740 9,392 Compliance consulting fees (Note 3) ....................... 10,961 5,350 Other expenses ............................................ 53,524 15,973 ------------- ------------- TOTAL EXPENSES ........................................ 1,759,944 725,907 ------------- ------------- NET INVESTMENT INCOME ........................................ 5,210,288 913,806 ------------- ------------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES (NOTE 5) Net realized gains from: Security transactions ................................. 1,459,162 4,355,339 Foreign currency transactions ......................... 134,346 -- Net change in unrealized appreciation/depreciation on: Investments ........................................... 2,639,640 4,419,629 Foreign currency translation .......................... 14,441 -- ------------- ------------- NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS AND FOREIGN CURRENCIES ...................... 4,247,589 8,774,968 ------------- ------------- NET INCREASE IN NET ASSETS FROM OPERATIONS ........................................... $ 9,457,877 $ 9,688,774 ============= =============
See Notes to Financial Statements. 32 - -------------------------------------------------------------------------------- ISI TOTAL RETURN US TREASURY FUND - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED OCTOBER 31, OCTOBER 31, 2007 2006 - ---------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ...................................... $ 4,947,388 $ 5,290,628 Net realized gains (losses) on security transactions .................................... (533,469) 520,514 Net change in unrealized appreciation/ depreciation on investments .............................. 1,546,328 1,328,795 ------------- ------------- Net increase in net assets from operations .................... 5,960,247 7,139,937 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income ................................. (4,897,087) (5,796,709) From net realized gains from security transactions ......... (12,992) -- From return of capital ..................................... (104,188) -- ------------- ------------- Net decrease in net assets from distributions to shareholders .............................. (5,014,267) (5,796,709) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold .................................. 6,319,187 21,219,446 Net asset value of shares issued in reinvestment. of distributions to shareholders ......................... 3,348,275 3,868,677 Payments for shares redeemed ............................... (39,629,589) (38,620,829) ------------- ------------- Net decrease in net assets from capital share transactions .... (29,962,127) (13,532,706) ------------- ------------- TOTAL DECREASE IN NET ASSETS .................................. (29,016,147) (12,189,478) NET ASSETS Beginning of year .......................................... 153,784,224 165,973,702 ------------- ------------- End of year ................................................ $ 124,768,077 $ 153,784,224 ============= ============= DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME ...................................... $ (117,726) $ (168,027) ============= ============= CAPITAL SHARE ACTIVITY Shares sold ................................................ 675,464 2,295,735 Shares reinvested .......................................... 356,856 417,867 Shares redeemed ............................................ (4,234,096) (4,176,347) ------------- ------------- Net decrease in shares outstanding ......................... (3,201,776) (1,462,745) Shares outstanding, beginning of year ...................... 16,329,533 17,792,278 ------------- ------------- Shares outstanding, end of year ............................ 13,127,757 16,329,533 ============= =============
See Notes to Financial Statements. 33 - -------------------------------------------------------------------------------- ISI MANAGED MUNICIPAL FUND - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED OCTOBER 31, OCTOBER 31, 2007 2006 - -------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ...................................... $ 2,768,327 $ 3,148,701 Net realized gains on security transactions ................ 302,012 720,970 Net change in unrealized appreciation/ depreciation on investments .............................. (1,359,099) 57,308 ------------ ------------ Net increase in net assets from operations .................... 1,711,240 3,926,979 ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS From net investment income ................................. (2,444,322) (2,715,401) From net realized gains from security transactions ......... (720,919) (289,342) ------------ ------------ Net decrease in net assets from distributions to shareholders .............................. (3,165,241) (3,004,743) ------------ ------------ FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold .................................. 3,715,876 3,859,303 Net asset value of shares issued in reinvestment of distributions to shareholders ......................... 1,836,701 1,631,474 Payments for shares redeemed ............................... (13,940,935) (17,559,432) ------------ ------------ Net decrease in net assets from capital share transactions .... (8,388,358) (12,068,655) ------------ ------------ TOTAL DECREASE IN NET ASSETS .................................. (9,842,359) (11,146,419) NET ASSETS Beginning of year .......................................... 82,880,302 94,026,721 ------------ ------------ End of year ................................................ $ 73,037,943 $ 82,880,302 ============ ============ UNDISTRIBUTED NET INVESTMENT INCOME ........................... $ 726,011 $ 402,006 ============ ============ CAPITAL SHARE ACTIVITY Shares sold ................................................ 350,339 361,229 Shares reinvested .......................................... 172,566 152,711 Shares redeemed ............................................ (1,310,969) (1,645,396) ------------ ------------ Net decrease in shares outstanding ......................... (788,064) (1,131,456) Shares outstanding, beginning of year ...................... 7,673,318 8,804,774 ------------ ------------ Shares outstanding, end of year ............................ 6,885,254 7,673,318 ============ ============
See Notes to Financial Statements. 34 - -------------------------------------------------------------------------------- ISI NORTH AMERICAN GOVERNMENT BOND FUND - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED OCTOBER 31, OCTOBER 31, 2007 2006 - ------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ................................... $ 5,210,288 $ 6,117,369 Net realized gains on security and foreign currency transactions ........................ 1,593,508 1,386,451 Net change in unrealized appreciation/ depreciation on investments and foreign currencies .... 2,654,081 2,411,650 ------------- ------------- Net increase in net assets from operations ................. 9,457,877 9,915,470 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income ISI Class A Shares .................................... (6,373,815) (6,717,243) ISI Class C Shares .................................... (652,731) (523,270) From net realized gains from security transactions ISI Class A Shares .................................... -- (203,699) ISI Class C Shares .................................... -- (21,643) From return of capital ISI Class A Shares .................................... (156,882) (1,071,732) ISI Class C Shares .................................... (16,066) (113,868) ------------- ------------- Net decrease in net assets from distributions to shareholders ........................... (7,199,494) (8,651,455) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ISI Class A Shares .................................... 17,184,282 23,115,736 ISI Class C Shares .................................... 3,349,326 3,159,574 Net asset value of shares issued in reinvestment of distributions to shareholders ISI Class A Shares .................................... 3,218,998 4,001,123 ISI Class C Shares .................................... 397,242 345,590 Payments for shares redeemed ISI Class A Shares .................................... (37,507,806) (58,492,446) ISI Class C Shares .................................... (2,737,227) (4,005,443) ------------- ------------- NET DECREASE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS .............................. (16,095,185) (31,875,866) ------------- ------------- TOTAL DECREASE IN NET ASSETS ............................... (13,836,802) (30,611,851) NET ASSETS Beginning of year ....................................... 162,433,287 193,045,138 ------------- ------------- End of year ............................................. $ 148,596,485 $ 162,433,287 ============= ============= DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME ................................... $ (272,991) $ (330,384) ============= =============
See Notes to Financial Statements. 35 - -------------------------------------------------------------------------------- ISI NORTH AMERICAN GOVERNMENT BOND FUND - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR YEAR ENDED ENDED OCTOBER 31, OCTOBER 31, 2007 2006 - ------------------------------------------------------------------------------------------- CAPITAL SHARE ACTIVITY Shares sold ISI Class A Shares ............................. 2,336,309 3,159,317 ISI Class C Shares ............................. 454,890 431,786 Shares reinvested ISI Class A Shares ............................. 437,899 546,407 ISI Class C Shares ............................. 54,106 47,323 Shares redeemed ISI Class A Shares ............................. (5,097,813) (8,017,963) ISI Class C Shares ............................. (374,116) (549,102) Net increase (decrease) in shares outstanding ISI Class A Shares ............................. (2,323,605) (4,312,239) ISI Class C Shares ............................. 134,880 (69,993) Shares outstanding, beginning of year ISI Class A Shares ............................. 19,827,900 24,140,139 ISI Class C Shares ............................. 2,106,655 2,176,648 Shares outstanding, end of year ISI Class A Shares ............................. 17,504,295 19,827,900 ISI Class C Shares ............................. 2,241,535 2,106,655
See Notes to Financial Statements. 36 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED OCTOBER 31, OCTOBER 31, 2007 2006 - ---------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ...................................... $ 913,806 $ 773,684 Net realized gains on security transactions ................ 4,355,339 3,910,226 Net change in unrealized appreciation/ depreciation on investments .............................. 4,419,629 3,289,965 ------------- ------------- Net increase in net assets from operations .................... 9,688,774 7,973,875 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income ................................. (913,710) (765,946) From net realized gains from security transactions ......... (1,880,666) -- ------------- ------------- Net decrease in net assets from distributions to shareholders .............................. (2,794,376) (765,946) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold .................................. 11,950,032 13,419,552 Net asset value of shares issued in reinvestment of distributions to shareholders ......................... 2,410,919 651,658 Payments for shares redeemed ............................... (10,158,032) (12,046,141) ------------- ------------- Net increase in net assets from capital share transactions .... 4,202,919 2,025,069 ------------- ------------- TOTAL INCREASE IN NET ASSETS .................................. 11,097,317 9,232,998 NET ASSETS Beginning of year .......................................... 69,437,929 60,204,931 ------------- ------------- End of year ................................................ $ 80,535,246 $ 69,437,929 ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME ........................... $ 36,257 $ 36,161 ============= ============= CAPITAL SHARE ACTIVITY Shares sold ................................................ 850,502 1,052,202 Shares reinvested .......................................... 175,991 50,673 Shares redeemed ............................................ (723,124) (941,380) ------------- ------------- Net increase in shares outstanding ......................... 303,369 161,495 Shares outstanding, beginning of year ...................... 5,129,560 4,968,065 ------------- ------------- Shares outstanding, end of year ............................ 5,432,929 5,129,560 ============= =============
See Notes to Financial Statements. 37 - -------------------------------------------------------------------------------- ISI TOTAL RETURN US TREASURY FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31, --------------------------------------------------------------------------------------- 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of year .................. $ 9.42 $ 9.33 $ 9.57 $ 9.92 $ 10.18 ----------- ----------- ----------- ----------- ----------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income .............. 0.35(a) 0.32(a) 0.29(a) 0.24(a) 0.23 Net realized and unrealized gains (losses) on investments .......... 0.08 0.12 (0.16) 0.19 0.01 ----------- ----------- ----------- ----------- ----------- Total from investment operations ..... 0.43 0.44 0.13 0.43 0.24 ----------- ----------- ----------- ----------- ----------- LESS DISTRIBUTIONS: Dividends from net investment income ................ (0.34) (0.35) (0.25) (0.23) (0.25) Distributions from net realized gains ................... (0.00)* -- (0.03) (0.33) (0.25) Distributions from return of capital ................ (0.01) -- (0.09) (0.22) -- ----------- ----------- ----------- ----------- ----------- Total distributions .................. (0.35) (0.35) (0.37) (0.78) (0.50) ----------- ----------- ----------- ----------- ----------- Net asset value at end of year ....... $ 9.50 $ 9.42 $ 9.33 $ 9.57 $ 9.92 =========== =========== =========== =========== =========== TOTAL RETURN (b) ..................... 4.66% 4.83% 1.38% 4.64% 2.30% =========== =========== =========== =========== =========== Net assets at end of year (000's) .... $ 124,768 $ 153,784 $ 165,974 $ 194,790 $ 229,027 =========== =========== =========== =========== =========== Ratio of expenses to average net assets ................. 0.79% 0.76%(c) 0.70% 0.69% 0.67% Ratio of net investment income to average net assets ................. 3.68% 3.44%(c) 3.01% 2.56% 2.50% Portfolio turnover rate .............. 29% 51% 16% 31% 125% - --------------------------------------------------------------------------------------------------------------------------------
(a) Calculated using the average shares outstanding for the year. (b) Total return is a measure of the change in value of an investment in the Fund over the period covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) The ratios of expenses and net investment income to average net assets were unaffected by the waiver of distribution fees during the fiscal year ended October 31, 2006. * Amount less than $0.005 per share. See Notes to Financial Statements. 38 - -------------------------------------------------------------------------------- ISI MANAGED MUNICIPAL FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31, ------------------------------------------------------------------------------------- 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of year .................... $ 10.80 $ 10.68 $ 10.91 $ 10.89 $ 11.00 ----------- ----------- ----------- ----------- ----------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income ................ 0.38(a) 0.39(a) 0.40(a) 0.38(a) 0.40 Net realized and unrealized gains (losses) on investments. ........... (0.14) 0.10 (0.27) 0.08 0.01 ----------- ----------- ----------- ----------- ----------- Total from investment operations ....... 0.24 0.49 0.13 0.46 0.41 ----------- ----------- ----------- ----------- ----------- LESS DISTRIBUTIONS: Dividends from net investment income .................. (0.34) (0.34) (0.36) (0.44) (0.47) Distributions from net realized gains ..................... (0.09) (0.03) -- -- (0.05) ----------- ----------- ----------- ----------- ----------- Total distributions .................... (0.43) (0.37) (0.36) (0.44) (0.52) ----------- ----------- ----------- ----------- ----------- Net asset value at end of year ......... $ 10.61 $ 10.80 $ 10.68 $ 10.91 $ 10.89 =========== =========== =========== =========== =========== TOTAL RETURN(b) ........................ 2.29% 4.68% 1.19% 4.26% 3.89% =========== =========== =========== =========== =========== Net assets at end of year (000's) ...... $ 73,038 $ 82,880 $ 94,027 $ 113,844 $ 107,078 =========== =========== =========== =========== =========== Ratio of expenses to average net assets ................... 0.94% 0.91% 0.86% 0.88% 0.89% Ratio of net investment income to average net assets ............... 3.57% 3.63% 3.64% 3.53% 3.66% Portfolio turnover rate ................ 5% 7% 7% 17% 11% - --------------------------------------------------------------------------------------------------------------------------------
(a) Calculated using the average shares outstanding for the year. (b) Total return is a measure of the change in value of an investment in the Fund over the period covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. See Notes to Financial Statements. 39 - -------------------------------------------------------------------------------- ISI NORTH AMERICAN GOVERNMENT BOND FUND - CLASS A - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31, ------------------------------------------------------------------------------------- 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of year ................... $ 7.41 $ 7.34 $ 7.41 $ 7.73 $ 8.03 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income ............... 0.26(a) 0.25(a) 0.26(a) 0.24(a) 0.25 Net realized and unrealized gains on investments and foreign currencies.. .......... 0.22 0.18 0.06 0.03 0.07 ----------- ----------- ----------- ----------- ----------- Total from investment operations ...... 0.48 0.43 0.32 0.27 0.32 ----------- ----------- ----------- ----------- ----------- LESS DISTRIBUTIONS: Dividends from net investment income ................. (0.35) (0.30) (0.31) (0.16) (0.29) Distributions from net realized gains .................... -- (0.01) (0.03) (0.08) (0.33) Distributions from return of capital ................. (0.01) (0.05) (0.05) (0.35) -- ----------- ----------- ----------- ----------- ----------- Total distributions ................... (0.36) (0.36) (0.39) (0.59) (0.62) ----------- ----------- ----------- ----------- ----------- Net asset value at end of year ........ $ 7.53 $ 7.41 $ 7.34 $ 7.41 $ 7.73 =========== =========== =========== =========== =========== Total return(b) ....................... 6.71% 6.04% 4.39% 3.62% 4.14% =========== =========== =========== =========== =========== Net assets at end of year (000's) ..... $ 131,748 $ 146,854 $ 177,101 $ 204,266 $ 267,756 =========== =========== =========== =========== =========== Ratio of expenses to average net assets .................. 1.11% 1.06%(c) 1.04% 1.05% 1.09% Ratio of net investment income to average net assets .............. 3.54% 3.47%(c) 3.55% 3.22% 3.03% Portfolio turnover rate ............... 49% 53% 66% 47% 152% - --------------------------------------------------------------------------------------------------------------------------------
(a) Calculated using the average shares outstanding for the year. (b) Total return is a measure of the change in value of an investment in the Fund over the period covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) The ratios of expense and net investment income to average net assets were unaffected by the waiver of distribution fees during the fiscal year ended October 31, 2006. See Notes to Financial Statements. 40 - -------------------------------------------------------------------------------- ISI NORTH AMERICAN GOVERNMENT BOND FUND - CLASS C - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
MAY 16, 2003(a) YEARS ENDED OCTOBER 31, THROUGH ----------------------------------------------------------------- OCTOBER 31, 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value at beginning of period .................. $ 7.40 $ 7.33 $ 7.40 $ 7.72 $ 8.20 ----------- ----------- ----------- ----------- ----------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income ................ 0.21(b) 0.21(b) 0.21(b) 0.19(b) 0.17 Net realized and unrealized gains (losses) on investments and foreign currencies.. ........... 0.22 0.17 0.06 0.02 (0.38) ----------- ----------- ----------- ----------- ----------- Total from investment operations ....... 0.43 0.38 0.27 0.21 (0.21) ----------- ----------- ----------- ----------- ----------- LESS DISTRIBUTIONS: Dividends from net investment income .................. (0.30) (0.25) (0.26) (0.14) (0.21) Distributions from net realized gains ..................... -- (0.01) (0.03) (0.08) (0.06) Distributions from return of capital .................. (0.01) (0.05) (0.05) (0.31) -- ----------- ----------- ----------- ----------- ----------- Total distributions .................... (0.31) (0.31) (0.34) (0.53) (0.27) ----------- ----------- ----------- ----------- ----------- Net asset value at end of period ....... $ 7.52 $ 7.40 $ 7.33 $ 7.40 $ 7.72 =========== =========== =========== =========== =========== TOTAL RETURN(c) ........................ 6.03% 5.35% 3.73% 2.91% (2.62)%(d) =========== =========== =========== =========== =========== Net assets at end of period (000's) .... $ 16,848 $ 15,579 $ 15,944 $ 18,616 $ 13,565 =========== =========== =========== =========== =========== Ratio of net expenses to average net assets ................ 1.74% 1.72% 1.69% 1.77% 1.85%(e)(f) Ratio of net investment income to average net assets ............... 2.93% 2.81% 2.89% 2.50% 3.32%(e) Portfolio turnover rate ................ 49% 53% 66% 47% 152%(d) - ------------------------------------------------------------------------------------------------------------------------------------
(a) Commencement of operations. (b) Calculated using the average shares outstanding for the year. (c) Total return is a measure of the change in value of an investment in the Fund over the period covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. (d) Not annualized. (e) Annualized. (f) Absent fee waivers by the investment advisor, the annualized ratio of expenses to average net assets would have been 2.12% for the year ended October 31, 2003. See Notes to Financial Statements. 41 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31, -------------------------------------------------------------------------------------- 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value at beginning of year .................. $ 13.54 $ 12.12 $ 11.21 $ 10.50 $ 9.08 ----------- ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income .............. 0.17(a) 0.15(a) 0.16(a) 0.10(a) 0.08 Net realized and unrealized gains on investments and foreign currencies.. ......... 1.65 1.42 0.91 0.70 1.42 ----------- ----------- ----------- ----------- ----------- Total from investment operations ..... 1.82 1.57 1.07 0.80 1.50 ----------- ----------- ----------- ----------- ----------- LESS DISTRIBUTIONS: Dividends from net investment income ................ (0.17) (0.15) (0.16) (0.09) (0.08) Distributions from net realized gains ............... (0.37) -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total distributions .................. (0.54) (0.15) (0.16) (0.09) (0.08) ----------- ----------- ----------- ----------- ----------- Net asset value at end of year ....... $ 14.82 $ 13.54 $ 12.12 $ 11.21 $ 10.50 =========== =========== =========== =========== =========== TOTAL RETURN(b) ...................... 13.79% 13.01% 9.59% 7.71% 16.47% =========== =========== =========== =========== =========== Net assets at end of year (000's) .... $ 80,535 $ 69,438 $ 60,205 $ 44,920 $ 30,262 =========== =========== =========== =========== =========== Ratio of net expenses to average net assets .............. 0.96% 0.95% 0.94% 1.12% 1.30%(c) Ratio of net investment income to average net assets ............. 1.21% 1.17% 1.33% 0.92% 0.77% Portfolio turnover rate .............. 62% 41% 30% 66% 60% - -------------------------------------------------------------------------------------------------------------------------------
(a) Calculated using the average shares outstanding for the year. (b) Total return is a measure of the change in value of an investment in the Fund over the period covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares. (c) Absent fee waivers by the investment advisor, the ratio of expenses to average net assets would have been 1.79% for the year ended October 31, 2003. See Notes to Financial Statements. 42 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2007 NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES A. ORGANIZATION Total Return US Treasury Fund, Inc. ("Total Return"), Managed Municipal Fund, Inc. ("Managed Municipal"), North American Government Bond Fund, Inc. ("North American") and ISI Strategy Fund, Inc. ("Strategy") (each a "Fund" and collectively, the "Funds") are registered under the Investment Company Act of 1940 as open-end management investment companies. The Funds are organized as corporations under the laws of the State of Maryland. Total Return's investment objective is to achieve a high level of total return with relative stability of principal and, secondarily, high current income consistent with an investment in securities issued by the United States Treasury. Managed Municipal's investment objective is to provide a high level of total return with relative stability of principal and, secondarily, high current income exempt from Federal income tax through investment in a portfolio consisting primarily of tax-free municipal obligations. North American's investment objective is designed to provide a high level of current income, consistent with prudent investment risk. Strategy's investment objective is to maximize total return through a combination of long-term growth of capital and current income. Total Return, Managed Municipal and Strategy currently offer a single class of shares (ISI Shares) to investors. North American offers ISI Class A Shares and ISI Class C Shares. ISI Shares and ISI Class A Shares are subject to a maximum front-end sales charge equal to 3.00%. A contingent deferred sales charge of 1.00% is imposed on the sale of ISI Class C Shares if redeemed within the first year after purchase. Total Return, Managed Municipal and Strategy are authorized to issue 115,000,000, 55,000,000 and 25,000,000 shares, respectively, of ISI Shares at $0.001 par value. North American is authorized to issue 50,000,000 ISI Class A Shares and 5,000,000 ISI Class C Shares at $0.001 par value. B. VALUATION OF SECURITIES Exchange traded securities and over-the-counter securities listed on the NASDAQ National Market System for which market quotations are readily available are valued each Fund business day using the last reported sales price or the NASDAQ Official Closing Price ("NOCP") provided by independent pricing services as of the close of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time). In the absence of a sale price or NOCP, such securities are valued at the mean of the last bid and the last asked prices. Non-exchange traded securities for which quotations are readily available are generally valued at the mean between the last bid and the last asked prices. Money market instruments that mature in 60 days or less may be valued at amortized cost unless the Fund's investment advisor believes another valuation is more appropriate. 43 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) When valuing securities for which market quotations are not readily available or for which the market quotations that are readily available are considered unreliable, the Funds determine a fair value in good faith under procedures established by and under the general supervision of the Funds' Boards of Directors (the "Board"). The Funds may use these procedures to establish the fair value of securities when, for example, a significant event occurs between the time the market closes, and the event is likely to affect the Fund's net asset value per share. Fair valuation may also be used for securities that are subject to legal or contractual restrictions on resale, securities for which no or limited trading activity has occurred for a period of time, or securities that are otherwise deemed to be illiquid (i.e., securities that cannot be disposed of within seven days at approximately the price at which the security is currently priced by the Funds). If a fair value is required, the investment advisor, or the sub-advisor in the case of Strategy, determines the value of the security until the Board meets to establish the fair value of the security. As of October 31, 2007, 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 dividends daily, and Managed Municipal and North American declare monthly dividends at fixed rates approved by the Board. These dividends are paid monthly. To the extent that a Fund's net investment income is less than an approved fixed rate, some of its dividends may be designated as a return of shareholder capital. Strategy declares and pays dividends quarterly from its net investment income. Net realized capital gains, if any, are distributed at least annually. The Funds record dividends and distributions on the ex-dividend date. E. FEDERAL INCOME TAXES Each Fund has a policy to qualify as a regulated investment company under subchapter M of the Internal Revenue Code and to distribute all of its taxable income. In addition, by distributing in each calendar year substantially all of its net investment income and net realized capital gains, a Fund will not be subject to Federal excise taxes. Accordingly, no Federal income taxes have been accrued. 44 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) F. FOREIGN CURRENCY TRANSLATION The Funds maintain their accounting records in U.S. dollars. North American determines the U.S. dollar value of foreign currency-denominated assets, liabilities and transactions by using prevailing exchange rates. In valuing security transactions, the receipt of income and the payment of expenses, North American uses the prevailing exchange rate on the transaction date. Net realized gains and losses on foreign currency transactions shown on North American's financial statements result from the sale of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and from the difference between the amounts of interest recorded on North American's books and the U.S. dollar equivalent of the amounts actually received or paid. That portion of realized gains (losses) from security transactions that results from fluctuation in foreign currency exchange rates relating to the sale of foreign securities is not separately disclosed but is included with net realized gains (losses) from security transactions. That portion of unrealized gains and losses on investments that results from fluctuations in foreign currency exchange rates is not separately disclosed but is included with net change in unrealized appreciation/depreciation on investments. G. FORWARD FOREIGN CURRENCY CONTRACTS North American may use forward foreign currency contracts to manage foreign exchange rate risk. The Fund may use these contracts to fix the U.S. dollar value of securities transactions for the period between the date of the transaction and the date the security is received or delivered or to hedge the U.S. dollar value of securities that it already owns. The use of forward foreign currency contracts does not eliminate fluctuations in the prices of the underlying securities, but does establish a rate of exchange that can be achieved in the future. North American determines the net U.S. dollar value of the forward foreign currency contracts using prevailing exchange rates. As of October 31, 2007, there were no open forward currency contracts. H. REPURCHASE AGREEMENTS Each Fund may make short-term investments in repurchase agreements that are fully collateralized by U.S. government securities. Under the terms of a repurchase agreement, a financial institution sells fixed-income securities to a Fund and agrees to buy them back on a specified day in return for the principal amount of the original sale plus accrued interest. The custodial bank holds the collateral in a separate account until the agreement matures. If the value of the securities falls below the principal amount of the repurchase agreement plus accrued interest, the financial institution deposits additional collateral by the following business day. If the financial institution either fails to deposit the required additional collateral or fails to repurchase the securities as agreed, a Fund has the right to sell the securities and recover any resulting loss from the financial institution. If the financial institution enters into bankruptcy, a Fund's claim on the collateral may be subject to legal proceedings. 45 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) I. ESTIMATES In preparing its financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results may be different. NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 (FIN 48) "Accounting for Uncertainty in Income Taxes." FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Funds' tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Recent SEC guidance allows implementing FIN 48 in fund NAV calculations as late as a fund's last NAV calculation in the first required financial statement reporting period. As a result, the Funds will incorporate FIN 48 in their Semi-Annual Report on April 30, 2008. Management is in the process of determining the impact of the adoption of FIN 48. In September 2006, the Financial Accounting Standards Board issued Statement on Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements." This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of SFAS No. 157 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. As of October 31, 2007, the Funds do not believe the adoption of SFAS No. 157 will impact the amounts reported in the financial statements. However, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements reported on the statement of changes in net assets for a fiscal period. 46 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - FEES AND TRANSACTIONS WITH AFFILIATES International Strategy & Investment, Inc. ("ISI") is the Funds' investment advisor. As compensation for its advisory services, Total Return pays ISI an annual fee based on the Fund's average daily net assets, which is calculated daily and paid monthly at the following annual rates: 0.20% of the first $100 million, 0.18% of the next $100 million, 0.16% of the next $100 million, 0.14% of the next $200 million and 0.12% of the amount over $500 million. In addition, Total Return pays ISI 0.50% of the Fund's gross interest income. Managed Municipal, North American and Strategy each pay ISI a fee, which is calculated daily and paid monthly, at the annual rate of 0.40% of such Fund's average daily net assets. ISI has contractually agreed to waive its advisory fees and/or reimburse expenses of North American through February 28, 2008 to the extent necessary to limit the expenses of ISI Class C Shares to 1.85% of the average daily net assets attributable to such shares. During the year ended October 31, 2007, ISI did not waive any advisory fees. Los Angeles Capital Management and Equity Research, Inc. is Strategy's Sub-Advisor and is responsible for managing the common stocks in Strategy's portfolio. The Sub-Advisor is paid by ISI, not Strategy. ISI Group, Inc. ("ISI Group"), an affiliate of ISI, is the distributor for the Funds. Total Return, Managed Municipal and Strategy each pay ISI Group a distribution/shareholder service fee, pursuant to Rule 12b-1, that is calculated daily and paid monthly at the annual rate up to 0.25% of their average daily net assets. North American's ISI Class A Shares and ISI Class C Shares pay ISI Group a distribution/shareholder service fee, pursuant to Rule 12b-1, that is calculated daily and paid monthly at the annual rate up to 0.40% and 1.00% (which may include up to 0.25% for shareholder servicing fees for each class) of their average daily net assets, respectively. During the year ended October 31, 2007, North American Class A shares did not pay any shareholder servicing fees. During the year ended October 31, 2007, ISI Group earned commissions on sales of ISI Shares of Total Return, Managed Municipal, and Strategy of $5,157, $4,633 and $16,500, respectively, and $13,118 on sales of ISI Class A Shares of North American. ISI Group retained $623 of contingent deferred sales charges on the sale of ISI Class C Shares of North American. EJV Financial Services, LLC provides certain compliance support services to the Funds' Chief Compliance Officer. Edward J. Veilleux, Vice President of the Funds, is also a principal of EJV Financial Services, LLC. Until September 24, 2007, Citigroup Fund Services, LLC ("Citigroup") served as the Funds' administrator, fund accountant, and transfer agent. For its services, Citigroup received an asset-based fee, calculated daily and paid monthly, based on the aggregate average net assets of the Funds (subject to a minimum monthly fee) and monthly fees per open shareholder account. Effective September 24, 2007, Ultimus Fund Solutions, 47 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) LLC ("Ultimus") replaced Citigroup as the Funds' administrator, fund accountant and transfer agent. For its services, Ultimus receives an asset-based fee, calculated daily and paid monthly, based on the aggregate net assets of the Funds (subject to a minimum monthly fee) and monthly fees per open shareholder account. NOTE 4 - FEDERAL INCOME TAX AND INVESTMENT TRANSACTIONS The Funds may periodically make reclassifications among certain capital accounts as a result of differences in the characterization and allocation of certain income and capital gain distributions determined annually in accordance with Federal tax regulations, which may differ from U.S. generally accepted accounting principles. These book/tax differences may be either temporary or permanent in nature. To the extent they are permanent, they are charged or credited to paid-in-capital, undistributed net investment income or accumulated net realized gains, as appropriate, in the period that the differences arose. The reclassifications have no impact on the net assets or net asset value per share of the Funds. As of October 31, 2007, the following reclassifications were made to the statements of assets and liabilities: UNDISTRIBUTED NET INVESTMENT PAID-IN INCOME CAPITAL - -------------------------------------------------------------------------------- North American $ 1,873,651 $ (1,873,651) The Funds determine their net investment income and capital gain distributions in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. As of October 31, 2007, the components of distributions on a tax basis were as follows:
ORDINARY TAX-EXEMPT LONG-TERM RETURN OF INCOME INCOME CAPITAL GAINS CAPITAL ------------------------- ------------------------- ------------------------- ------------------------ OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2007 2006 2007 2006 2007 2006 2007 2006 - -------------------------------------------------------------------------------------------------------------------------------- Total Return $ 4,910,079 $ 5,796,709 $ -- $ -- $ -- $ -- $ 104,188 $ -- Managed Municipal 72,962 45,169 2,371,360 2,670,232 720,919 286,342 -- -- North American 7,026,546 7,465,855 -- -- -- -- 172,948 1,185,600 Strategy 913,710 765,946 -- -- 1,880,666 -- -- --
48 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) As of October 31, 2007, the components of distributable earnings (accumulated losses) on a tax basis were as follows:
CAPITAL UNDISTRIBUTED UNDISTRIBUTED UNDISTRIBUTED LOSS UNREALIZED TAX-EXEMPT ORDINARY LONG-TERM CARRY- APPRECIATION INCOME INCOME CAPITAL GAINS FORWARD (DEPRECIATION) TOTAL - -------------------------------------------------------------------------------------------------------------------- Total Return $ -- $ -- $ -- $ (533,469) $ (2,585,020) $ (3,118,489) Managed Municipal 817,824 24,744 286,767 -- 1,911,596 3,040,931 North American -- -- -- (280,143) (1,049,418) (1,329,561) Strategy -- 97,962 4,217,678 ~~ 15,840,798 20,156,438
As of October 31, 2007, Total Return and North American had capital loss carryforwards available to offset future realized gains. These losses expire in 2015. The difference between book and tax basis unrealized appreciation (depreciation) for strategy was primarily due to wash sales. The aggregate cost of purchases and proceeds from sales of investments, other than short-term obligations, for the year ended October 31, 2007, were as follows: NON-US GOVERNMENT OBLIGATIONS US GOVERNMENT OBLIGATIONS ------------------------------------------------------------- PURCHASES SALES PURCHASES SALES - -------------------------------------------------------------------------------- Total Return $ -- $ -- $33,671,094 $68,418,852 Managed Municipal 3,923,020 13,026,814 -- -- North American 24,273,787 25,249,520 39,028,024 66,690,766 Strategy 39,006,391 32,253,976 6,242,176 15,110,742 NOTE 5 - MARKET AND CREDIT RISK North American invests in Canadian and Mexican government securities. Investing in Canadian and Mexican government securities may have different risks than investing in U.S. government securities. An investment in Canada or Mexico may be affected by developments unique to those countries. These developments may not affect the U.S. economy or the prices of U.S. government securities in the same manner. In addition, the value of bonds issued by non-U.S. governments may be affected by adverse international political and economic developments that may not impact the value of U.S. government securities. NOTE 6 - CONTRACTUAL OBLIGATIONS In the ordinary course of business, the Funds enter into contracts that contain a variety of indemnifications. Each Fund's maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these indemnification provisions and believe the risk of loss thereunder to be remote. 49 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 7 - OTHER INFORMATION On October 31, 2007, 1 shareholder(s) held approximately 10% of North American. This shareholder is an omnibus account, which is held on behalf of several individual shareholders. NOTE 8 - CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Effective December 14, 2005, the Funds replaced Ernst & Young, LLP ("E&Y") with Briggs, Bunting & Dougherty, LLP as the Funds' independent registered public accounting firm by action of the Board, and upon the recommendation of the Audit and Compliance Committee of the Board. E&Y's reports on each Fund's financial statements for the years ended October 31, 2003, October 31, 2004, and October 31, 2005 contained no adverse opinion or disclaimer of opinion nor were they qualified or modified as to the uncertainty, audit scope, or accounting principles. During the Funds' fiscal years ended October 31, 2003, October 31, 2004 and October 31, 2005, (i) there were no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of E&Y, would have caused it to make reference to the subject matter of disagreements in connection with its report on each Fund's financial statements for such year, and (ii) there were no "reportable events" of the kind described in Item 304 (a) (1) (v) of Regulation S-K under the Securities Exchange Act of 1934. 50 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------------------------------- TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF TOTAL RETURN U.S. TREASURY FUND, INC., MANAGED MUNICIPAL FUND, INC., NORTH AMERICAN GOVERNMENT BOND FUND, INC., AND ISI STRATEGY FUND, INC. We have audited the accompanying statements of assets and liabilities of the Total Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., North American Government Bond Fund, Inc., and ISI Strategy Fund, Inc., including the schedules of investments, as of October 31, 2007, and the related statements of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the years in the two year period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for each of the three years ended October 31, 2005 were audited by other auditors whose report dated December 23, 2005 expressed an unqualified opinion on such financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2007 by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Total Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., North American Government Bond Fund, Inc., and ISI Strategy Fund, Inc. as of October 31, 2007, the results of their operations for the year then ended, and the changes in their net assets, and their financial highlights for each of the years in the two year period then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ BRIGGS, BUNTING & DOUGHERTY, LLP BRIGGS, BUNTING & DOUGHERTY, LLP Philadelphia, Pennsylvania December 27 , 2007 51 - -------------------------------------------------------------------------------- FUND DIRECTORS AND OFFICERS (UNAUDITED) - --------------------------------------------------------------------------------
OTHER LENGTH BUSINESS DIRECTORSHIPS OF TIME EXPERIENCE DURING HELD BY NAME AND AGE SERVED THE PAST FIVE YEARS DIRECTOR - --------------------------------------------------------------------------------------------------------------------- INDEPENDENT DIRECTORS - --------------------------------------------------------------------------------------------------------------------- W. Murray Jacques since 2002 President, WMJ Consulting, None (age 71) LLC (real estate investment management company) (1999 to present). - --------------------------------------------------------------------------------------------------------------------- Louis E. Levy since 1994 Retired Partner, KPMG Peat Marwick, None (age 75) (retired 1990); Formerly a Director of Kimberly-Clark Corp., (personal consumer products) (retired 2001), Household International, Inc. (consumer finance) (retired 2004), and Scudder Group of Mutual Funds (retired 2005). - --------------------------------------------------------------------------------------------------------------------- Edward A. Kuczmarski since 2007 Certified Public Accountant and Partner of Director or Trustee (age 58) Hays & Company LLP (accounting firm). of 12 funds in the Reich & Tang Fund Complex; Trustee of Empire Builder Tax Free Bond Fund. - --------------------------------------------------------------------------------------------------------------------- FUND DIRECTORS AND EXECUTIVE OFFICERS - --------------------------------------------------------------------------------------------------------------------- R. Alan Medaugh since 1991 President, International Strategy & None (age 64) Investment, Inc. (registered investment President and advisor) (1991 to present). Director, Director since 2007 International Strategy & Investment Group, Inc. (registered broker-dealer) (1991 to present). - --------------------------------------------------------------------------------------------------------------------- Nancy Lazar since 1997 Executive Vice President, Assistant None (age 50) Treasurer, and Secretary of International Vice President Strategy & Investment, Inc. (registered investment advisor) (1991 to present); Executive Vice President, Assistant Treasurer and Secretary of International Strategy & Investment Group, Inc. (registered broker-dealer) (1991 to present). - ---------------------------------------------------------------------------------------------------------------------
52 - -------------------------------------------------------------------------------- FUND DIRECTORS AND OFFICERS (UNAUDITED) (CONTINUED) - --------------------------------------------------------------------------------
LENGTH OF BUSINESS EXPERIENCE DURING NAME AND AGE TIME SERVED THE PAST FIVE YEARS - --------------------------------------------------------------------------------------------------------------------- FUND DIRECTORS AND EXECUTIVE OFFICERS - --------------------------------------------------------------------------------------------------------------------- Thomas D. Stevens since 1997 Chairman and President, Los Angeles Capital Management and (age 58) Equity Research, Inc. (registered investment advisor) (March Vice President 2002 to present). - --------------------------------------------------------------------------------------------------------------------- Carrie L. Butler since 1991 Managing Director, International Strategy & Investment, Inc. (age 40) (registered investment advisor) (2000 to present). Vice President - --------------------------------------------------------------------------------------------------------------------- Edward J. Veilleux since 1992 President, EJV Financial Services, LLC (2002 to present); (age 64) Officer of various investment companies for which EJV Vice President Financial Services provides consulting and compliance services. - --------------------------------------------------------------------------------------------------------------------- Stephen V. Killorin since 2002 (Chief Executive Managing Director and Chief Financial Officer, (age 54) Compliance Officer International Strategy & Investment, Inc. (registered Vice President since September, 2004 investment advisor) (December 2000 to present); Executive and Chief Financial Managing Director and Chief Financial Officer, International Officer since Strategy & Investment Group, Inc. (registered broker-dealer) December, 2004) (December 2000 to present). - --------------------------------------------------------------------------------------------------------------------- Margaret M. Beeler since 2005 Managing Director, International Strategy & Investment, Inc. (age 40) (Secretary since (registered investment advisor) (July 2004 to present). Vice President 2004) Formerly, Associate Managing Director (2000 - July 2004) of International Strategy & Investment, Inc. (registered investment advisor). Assistant Vice President (1996 to 2000) - --------------------------------------------------------------------------------------------------------------------- Heena Dhruv since 2005 Managing Director, International Strategy & Investment, Inc. (age 31) (registered investment advisor) (July 2005 to present), Assistant Vice President Associate Managing Director, International Strategy & Investment, Inc. (January 2003 to July 2005). - ---------------------------------------------------------------------------------------------------------------------
53 - -------------------------------------------------------------------------------- NOTICE TO SHAREHOLDERS (UNAUDITED) - -------------------------------------------------------------------------------- PROXY VOTING POLICIES AND PROCEDURES A description of the policies and procedures that Strategy uses to determine how to vote proxies relating to securities held in Strategy's Portfolio is available, without charge and upon request, by calling (800) 955-7175. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available, without charge, upon request, by calling (800) 955-7175 or on the SEC's website at http://www.sec.gov. AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULE The Funds file their completed 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 t he Public Reference Room may be obtained by calling 800-SEC-0330. TAX INFORMATION FOR THE TAX YEAR ENDED OCTOBER 31, 2007: The amounts may differ from those elsewhere in this report because of differences between tax and financial reporting requirements.
ORDINARY % OF % OF INCOME % OF ORDINARY SHORT-TERM DISTRIBUTIONS ORDINARY INCOME CAPITAL GAIN THAT QUALIFY INCOME DISTRIBUTIONS DISTRIBUTIONS FOR THE DISTRIBUTIONS THAT ARE THAT ARE LONG-TERM % OF CORPORATE THAT QUALIFY EXEMPT FROM EXEMPT FROM CAPITAL TAX-EXEMPT DIVIDENDS AS QUALIFIED US TAX FOR US TAX FOR GAIN INCOME RECEIVED DIVIDEND FOREIGN FOREIGN DISTRIBUTIONS DISTRIBUTIONS DEDUCTION INCOME SHAREHOLDERS SHAREHOLDERS - --------------------------------------------------------------------------------------------------------------------------------- Total Return $ -- -- -- -- 100% 100% Managed Municipal 720,919 97.10% -- -- 1.88% -- North American -- -- -- 67.70% -- Strategy 1,880,666 -- 53.94% 53.91% 42.51% --
54 - -------------------------------------------------------------------------------- INVESTMENT ADVISORY AGREEMENT APPROVAL (UNAUDITED) - -------------------------------------------------------------------------------- At the Board meeting held on September 20, 2007, the Board, including the Independent Directors, approved 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. 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; (2) the total expense ratio of each Fund compared to its relevant peer group; (3) the investment advisory fee schedule for each Fund; (4) the cost of the services provided and profitability to ISI with respect to its relationship with the Funds; (5) the extent to which economies of scale would be realized as each Fund grows and whether the advisory fees reflect these economies of scale for the benefit of shareholders of each Fund; and (6) other benefits received by ISI and the Sub-Advisor from their relationship with the Funds. In their deliberations, the Board did not identify any particular information that was all-important or controlling, and the Board attributed different weights to the various factors. In particular, the Board focused on the factors discussed below. NATURE, EXTENT AND QUALITY OF SERVICES. The Directors reviewed information provided by ISI which included statistics on each Fund's performance as compared to other funds in its peer group, comparative expense ratios and profitability. The Board noted that it receives detailed reports at each quarterly Board meeting from senior management of ISI that provides information about ISI's management approach with respect to each Fund as well as ISI's general economic outlook. With respect to Strategy, the Board noted that, under the Sub-Advisory Agreement, the Sub-Advisor manages the Fund's equity portfolio and that the Sub-Advisor had presented to the Board detailed information about its operations and investment process. The Board also considered the background and quality of the investment management team of ISI and the Sub-Advisor. o TOTAL RETURN. The Board reviewed information comparing the Fund's performance to the performance of its benchmark and peers for selected periods ended July 31, 2007, which indicated that the Fund placed within the top quartile of its Morningstar average for all periods. o MANAGED MUNICIPAL. The Board reviewed the Fund's performance for selected periods ended July 31, 2007 against the performance of the Lehman High Quality Index and noted that the Fund performed below the Lehman Index for all stated periods. The Board was advised by ISI that the Fund's relative underperformance against its benchmark index was due to the fact that a large proportion of the index is in short maturity, pre-refunded issues, while the Fund has a longer duration. The Board compared the Fund's performance against its Lipper, Morningstar and CDA/Thomson peers which indicates that the Fund was generally in the top half of its peers for both the quarter and the one-year period ended July 31, 2007. The Board was advised by ISI that the peer groups do not provide an exact comparison since they include bonds of all credit qualities, while the Fund invests primarily in AA or higher rated municipals on their own merit; none of the Fund's securities have been assigned a higher ratio by virtue of being insured by a third party. 55 - -------------------------------------------------------------------------------- INVESTMENT ADIVSORY AGREEMENT APPROVAL (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- o NORTH AMERICAN. The Board reviewed the Fund's performance for selected periods ended July 31, 2007, which indicated that the Fund outperformed the North American benchmark during all review periods, due to its underweighting of Canadian bonds and the successful trading of its 10-year Mexican bonds. The Board was advised by ISI that the Fund's peer group comparisons remain favorable and the Board reviewed the Fund's Lipper, Morningstar and CDA/Thompson rankings. o STRATEGY FUND. The Board reviewed the Fund's performance for selected periods ended July 31, 2007. The Board was advised that the Fund had an 85% weighting in equities, versus a 75% weighting by its benchmark (the Wilshire 5000/Lehman Treasury), which caused the Fund to underperform against its benchmark during the July 31, 2007 quarter. The Board was further advised that the overweighting in equities resulted in the Fund outperforming its benchmark during the one-year and three-year periods ended July 31, 2007. The Board reviewed separately the performance of both the equity section and the bond section of the Fund's portfolio and was advised that during all review periods, the equity section had outperformed and the bond section had underperformed their respective indices. The Board then reviewed information comparing the Fund's performance to its peers and was advised that the Fund is below the Lipper Flexible Portfolio Funds average and the CDA/Thomson average for the July 31, 2007 quarter, but above the Lipper average for the one-year period ended July 31, 2007. Based on the above information, the Board concluded that the quality and range of services provided by ISI and the Sub-Advisor have benefited, and should continue to benefit, each Fund and its shareholders. INVESTMENT ADVISORY FEE SCHEDULES FOR EACH FUND. The Board considered the investment advisory fees paid by each Fund to ISI. The Board noted that the sub-advisory fee for Strategy is paid by ISI and not the Fund. The Board concluded that the fee schedules under the Investment Advisory Agreements provide fair compensation to ISI in light of the nature, extent and quality of the services being provided to the Funds and the performance of the Funds. COSTS OF SERVICES PROVIDED AND PROFITABILITY. The Board reviewed the costs associated with ISI's portfolio management, research and corporate governance and considered the profitability of ISI from the advisory and other services provided to the Funds. The Board was advised by ISI of the methodology it used to assign its costs associated with the portfolio management, research and corporate governance services provided to the Funds. The Board was also provided with a report from the Sub-Advisor showing its profitability with respect to its management of Strategy and the methodology used by the Sub-Advisor to prepare its profitability analysis. The Board also was advised that ISI's overall 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 56 - -------------------------------------------------------------------------------- INVESTMENT ADIVSORY AGREEMENT APPROVAL (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- and Strategy did not contain breakpoints. The Board considered whether the Funds would benefit from any economies of scale and concluded that due to the declining asset levels in all Funds except Strategy, economy of scale considerations were not relevant at this time. o TOTAL RETURN. The Board was provided information that compares the Fund's expense ratio as of July 31, 2007 with the average of its peers and noted that its 0.81% expense ratio was below the 0.90% average of its peers. o MANAGED MUNICIPAL. The Board reviewed an expense ratio comparison chart and noted that the Fund's expenses were 2 basis points below the average for municipal bond funds of similar size. o NORTH AMERICAN. The Board reviewed a list of expense ratios for North American, which indicated that the Fund's 1.11% expense ratio is slightly below the 1.14% average for its peer group. The Board was advised by ISI that there are no other mutual funds that invest exclusively in North American bonds that can be used for comparative purposes, as two others that did have closed during the year. o STRATEGY. The Board was advised by ISI that the Fund's expense ratio as of July 31, 2007 was 0.97%, which is below the 1.18% average for comparably managed funds. OTHER BENEFITS REVIEWED. The Board considered the fact that ISI Group, an affiliate of ISI, serves as the distributor of the Funds. The Board reviewed the costs and profitability of ISI Group in rendering distribution services to each of the Funds and noted that ISI Group operates at a loss with respect to distribution services provided to the Funds. The Board also considered other benefits received by ISI from its relationship with the Funds. It noted that ISI benefits from the shared costs of its two primary lines of business, but that ISI's profit margins are higher for its institutional line of business than from its mutual fund business. 57 - -------------------------------------------------------------------------------- ISI INTERNATIONAL STRATEGY & INVESTMENT - -------------------------------------------------------------------------------- LOUIS E. LEVY EDWARD J. VEILLEUX CHAIRMAN VICE PRESIDENT W. MURRAY JACQUES THOMAS P. STEVENS* DIRECTOR VICE PRESIDENT EDWARD A. KUCZMARSKI STEPHEN V. KILLORIN DIRECTOR VICE PRESIDENT TREASURER R. ALAN MEDAUGH CHIEF COMPLIANCE OFFICER PRESIDENT CHIEF FINANCIAL OFFICER DIRECTOR MARGARET M. BEELER NANCY LAZAR VICE PRESIDENT VICE PRESIDENT SECRETARY CARRIE L. BUTLER EDWARD S. HYMAN VICE PRESIDENT SENIOR ECONOMIC ADVISOR * Thomas D. Stevens is an officer 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 - -------------------------------------------------------------------------------- ULTIMUS FUND SOLUTIONS, LLC P.O. BOX 460707 CINCINNATI, OH 45246-0707 - -------------------------------------------------------------------------------- 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 that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. Pursuant to Item 12(a)(1), a copy of registrant's code of ethics is filed as an exhibit to this Form N-CSR. During the period covered by this report, the code of ethics has not been amended, and the registrant has not granted any waivers, including implicit waivers, from the provisions of the code of ethics. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's board of directors has determined that the registrant has at least one audit committee financial expert serving on its audit committee. The name of the audit committee financial expert is Louis E. Levy. Mr. Levy is "independent" for purposes of this Item. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) AUDIT FEES. The aggregate fees billed for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $19,500 and $18,000 with respect to the registrant's fiscal years ended October 31, 2007 and 2006, respectively. (b) AUDIT-RELATED FEES. No fees were billed in either of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item. (c) TAX FEES. The aggregate fees billed for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning were $2,000 and $1,500 with respect to the registrant's fiscal years ended October 31, 2007 and 2006, respectively. The services comprising these fees are the preparation of the registrant's federal income and excise tax returns. (d) ALL OTHER FEES. No fees were billed in either of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item. (e)(1) The audit committee has not adopted pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. (e)(2) None of the services described in paragraph (b) through (d) of this Item were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. (f) Less than 50% of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant's full-time, permanent employees. (g) During the fiscal years ended October 31, 2007 and 2006, aggregate non-audit fees of $2,000 and $1,500, respectively, were billed by the registrant's accountant for services rendered to the registrant. No non-audit fees were billed in either of the last two fiscal years by the registrant's accountant for services rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant. (h) The principal accountant has not provided any non-audit services that were not previously approved to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable ITEM 6. SCHEDULE OF INVESTMENTS. Not applicable [schedule filed with Item 1] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The registrant has not adopted procedures by which shareholders may recommend nominees to the registrant's board of directors. ITEM 11. CONTROLS AND PROCEDURES. (a) Based on their evaluation of the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) as of a date within 90 days of the filing date of this report, the registrant's principal executive officer and principal financial officer have concluded that such disclosure controls and procedures are reasonably designed and are operating effectively to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to them by others within those entities, particularly during the period in which this report is being prepared, and that the information required in filings on Form N-CSR is recorded, processed, summarized, and reported on a timely basis. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Attached hereto (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)): Attached hereto (a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons: Not applicable (b) Certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)): Attached hereto Exhibit 99.CODE ETH Code of Ethics Exhibit 99.CERT Certifications required by Rule 30a-2(a) under the Act Exhibit 99.906CERT Certifications required by Rule 30a-2(b) under the Act SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) North American Government Bond Fund, Inc. By (Signature and Title)* /s/ R. Alan Medaugh ------------------------------ R. Alan Medaugh, President Date January 3, 2008 --------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ R. Alan Medaugh ------------------------------ R. Alan Medaugh, President Date January 3, 2008 --------------- By (Signature and Title)* /s/ Stephen V. Killorin ------------------------------ Stephen V. Killorin, Treasurer Date January 3, 2008 --------------- * Print the name and title of each signing officer under his or her signature. EX-99.CODE ETH 2 ex99codeeth-na.txt CODE OF ETHICS TOTAL RETURN U.S. TREASURY FUND, INC. MANAGED MUNICIPAL FUND, INC. NORTH AMERICAN GOVERNMENT BOND FUND, INC. ISI STRATEGY FUND, INC. CODE OF ETHICS PURSUANT TO SECTION 406 OF THE SARBANES-OXLEY ACT OF 2002 I. COVERED OFFICERS/PURPOSE OF THE CODE This Code of Ethics ("Code") has been adopted by TOTAL RETURN U.S. 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, together, the "ISI FUNDS") pursuant to Section 406 of the Sarbanes-Oxley Act of 2002 (the "ACT"). This Code applies to each Fund's Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer (or others serving in a similar capacity) (the "COVERED OFFICERS," as identified in EXHIBIT A). This Code has been adopted for the purpose of promoting: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by the Fund; o compliance with applicable laws and governmental rules and regulations; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to conflicts of interest. II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his or her service to, a Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of the Covered Officer's family, receives improper personal benefits as a result of the Covered Officer's position with the Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and the Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (including the regulations thereunder, the "1940 ACT") and the Investment Advisers Act of 1940 (including the regulations thereunder, the "INVESTMENT ADVISERS ACT"). For example, Covered Officers may not engage in certain transactions (such as the purchase or sale of portfolio securities or other property) with the Fund because of their status as "affiliated persons" of the Fund. The compliance programs and procedures of each Fund and its investment advisor and any sub-advisor (the "ADVISOR") are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. SEE ALSO Section V of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between the Funds and the Advisor or a Fund's administrator or fund accounting agent ("OTHER SERVICE PROVIDERS"), of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether for the Fund or for the Advisor or other service providers, or for any of them), be involved in establishing policies and implementing decisions that will have different effects on the Advisor and other service providers and the Fund. The participation of the Covered Officers in such activities is inherent in the contractual relationships between the Fund and the Advisor and such other service providers and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Thus, if performed in conformity with the provisions of the 1940 Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, the Funds' Board of Directors ("BOARD") recognize that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes and that such service, by itself, does not give rise to a conflict of interest. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not the subject of provisions of the 1940 Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Fund. * * * * With respect to each Fund, each Covered Officer must not: o use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally to the detriment of the Fund; o cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Fund; or -2- o retaliate against any other Covered Officer or any employee of the Funds or their service providers for reports of potential violations that are made in good faith. There are some conflict of interest situations that should always be approved by the President of the Fund (or, with respect to activities of the President, by the chairman of the Fund's audit committee). These conflict of interest situations are listed below: o service on the board of directors or governing board of a publicly traded entity; o the receipt of any non-nominal gifts from persons or entities who have or are seeking business relationships with any Fund; o the receipt of any entertainment from any company with which the Fund has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; o any ownership interest in, or any consulting or employment relationship with, any entities doing business with the Fund, other than the Advisor or another service provider or their respective affiliates. [This restriction shall not apply to or otherwise limit the ownership of publicly traded securities so long as the Covered Person's ownership does not exceed more than 2% of the outstanding securities of the relevant class.] o a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment with the Advisor, the Fund's principal underwriter or their respective affiliates. [This restriction shall not apply to or otherwise limit (i) the ownership of publicly traded securities so long as the Covered Person's ownership does not exceed more than 2% of the particular class of security outstanding or (ii) the receipt by the Advisor or an affiliate of research or other benefits in exchange for "soft dollars."] III. DISCLOSURE AND COMPLIANCE o Each Covered Officer should familiarize himself or herself with the disclosure requirements generally applicable to the Fund; o each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Board and auditors, and to governmental regulators and self-regulatory organizations; -3- o each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and the Advisor and, as applicable, other service providers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY With respect to each Fund, each Covered Officer must: o upon adoption of this Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Fund that he or she has received, read and understands the Code; o annually thereafter affirm to the Fund that he or she has complied with the requirements of the Code; o provide full and fair responses to all questions asked in the Fund's periodic Director and Officer Questionnaire as well as with respect to any supplemental request for information; and o notify the President of the Fund promptly if he or she knows of any violation of this Code (with respect to violations by a President, the Covered Officer shall report to the chairman of the Fund's Audit and Compliance Committee (the "COMMITTEE")). Failure to do so is itself a violation of this Code. The President of the Fund is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. However, any approvals or waivers sought by the President will be considered by the Committee. The Funds will follow these procedures in investigating and enforcing this Code (in the case of a suspected violation of this Code by the President, the actions specified below to be taken by the President will instead be the responsibility of the chairman of the Committee): o the President will take all appropriate action to investigate any potential violations reported to him, which may include the use of internal or external counsel, accountants or other personnel; -4- o if, after such investigation, the President believes that no violation has occurred, the President is not required to take any further action; o any matter that the President believes is a violation will be reported to the Committee; o if the Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the Advisor or its board; or a recommendation to dismiss the Covered Officer; o the Committee will be authorized to grant waivers, as it deems appropriate; and o any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the ISI Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the ISI Funds or the Advisor or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they conflict with the provisions of this Code. The ISI Funds' and their Advisors' and service providers' codes of ethics under Rule 17j-1 under the 1940 Act and the Advisors' and other service providers' more detailed compliance policies and procedures are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to EXHIBIT A, must be approved or ratified by a majority vote of the Board, including a majority of independent directors. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone except as authorized by the Board. -5- VIII. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance or legal conclusion. Date: _______________________ -6- EXHIBIT A --------- PERSONS COVERED BY THIS CODE OF ETHICS - --------------------------------------
- ------------------------- ------------------------- ------------------------- -------------------------- PRINCIPAL PRINCIPAL EXECUTIVE FINANCIAL PRINCIPAL ACCOUNTING FUND OFFICER OFFICER OFFICER - ------------------------- ------------------------- ------------------------- -------------------------- Total Return R. Alan Medaugh Stephen V. Killorin Stephen V. Killorin - ------------------------- ------------------------- ------------------------- -------------------------- Managed Municipal R. Alan Medaugh Stephen V. Killorin Stephen V. Killorin - ------------------------- ------------------------- ------------------------- -------------------------- North American R. Alan Medaugh Stephen V. Killorin Stephen V. Killorin - ------------------------- ------------------------- ------------------------- -------------------------- Strategy R. Alan Medaugh Stephen V. Killorin Stephen V. Killorin - ------------------------- ------------------------- ------------------------- --------------------------
Note that a listed officer is only a "Covered Officer" of the Fund(s) for which he or she serves as a Principal Executive Officer, Principal Financial Officer or Principal Accounting Officer. -A1- EX-99.CERT 3 ex99cert-na.txt CERTIFICATIONS REQUIRED BY RULE 30A-2(A) EX-99.CERT CERTIFICATIONS -------------- I, R. Alan Medaugh, certify that: 1. I have reviewed this report on Form N-CSR of North American Government Bond Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 3, 2008 /s/ R. Alan Medaugh -------------------------- R. Alan Medaugh, President CERTIFICATIONS -------------- I, Stephen V. Killorin, certify that: 1. I have reviewed this report on Form N-CSR of North American Government Bond Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: January 3, 2008 /s/ Stephen V. Killorin ------------------------------ Stephen V. Killorin, Treasurer EX-99.906 CERT 4 ex99906cert-na.txt CERTIFICATIONS REQUIRED BY RULE 30A-2(B) EX-99.906CERT CERTIFICATIONS -------------- R. Alan Medaugh, Chief Executive Officer, and Stephen V. Killorin, Chief Financial Officer, of North American Government Bond Fund, Inc. (the "Registrant"), each certify to the best of his knowledge that: 1. The Registrant's periodic report on Form N-CSR for the period ended October 31, 2007 (the "Form N-CSR") fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, as amended; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER North American Government North American Government Bond Fund, Inc. Bond Fund, Inc. /s/ R. Alan Medaugh /s/ Stephen V. Killorin - ----------------------------------- ----------------------------------- R. Alan Medaugh, President Stephen V. Killorin, Treasurer Date: January 3, 2008 Date: January 3, 2008 A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT AUTHENTICATING, ACKNOWLEDGING OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO NORTH AMERICAN GOVERNMENT BOND FUND, INC. AND WILL BE RETAINED BY NORTH AMERICAN GOVERNMENT BOND FUND, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST. This certification is being furnished to the Securities and Exchange Commission solely pursuant to 18 U.S.C. 1350 and is not being filed as part of the Form N-CSR filed with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----