-----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, MNxXXjgnGLJpu9vgHj8Cnzkf6iAgBkp6A8WxM3nxmrOKLY42Heb7V+SgMkpVaQ/Y huunDyVdrlK62Z/Z30XfbQ== 0001111830-09-000013.txt : 20090106 0001111830-09-000013.hdr.sgml : 20090106 20090106135127 ACCESSION NUMBER: 0001111830-09-000013 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20081031 FILED AS OF DATE: 20090106 DATE AS OF CHANGE: 20090106 EFFECTIVENESS DATE: 20090106 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: 09509300 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-1008.txt NORTH AMERICAN GOVERNMENT BOND FUND, INC. - N-CSR ------------------------- OMB APPROVAL ------------------------- OMB Number: 3235-0570 Expires: August 31, 2011 Estimated average burden hours per response: 18.9 ------------------------- 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, 2008 -------------------------- Date of reporting period: October 31, 2008 -------------------------- 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, 2008 ------------------------------------- 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 Management Discussion of Fund Performance ................................. 3 Performance Comparisons ................................................... 7 Shareholder Expense Example ............................................... 15 Portfolio Profiles ........................................................ 17 Schedules of Investments .................................................. 18 Statements of Assets and Liabilities ...................................... 31 Statements of Operations .................................................. 34 Statements of Changes in Net Assets ....................................... 36 Financial Highlights ...................................................... 41 Notes to Financial Statements ............................................. 46 Report of Independent Registered Public Accounting Firm ................... 54 Fund Directors and Officers ............................................... 55 Notice to Shareholders .................................................... 57 Investment Advisory Agreement Approval (Unaudited) ........................ 58 - -------------------------------------------------------------------------------- INVESTMENT ADVISOR'S MESSAGE - -------------------------------------------------------------------------------- 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, 2008 and includes commentary from the funds' portfolio managers at International Strategy & Investment, Inc. ("ISI") (see Management Discussion of Fund Performance that follows this letter), a complete list of holdings and the financial statements. Stocks recorded a negative return for the last year and a small positive return for the last five years. For example, the Dow Jones Wilshire 5000 Index was - -36.43% for the last year and averaged +0.81% for the past five years. U.S. Treasuries had a positive return the last year and were up over the last 5 years. For example, the Lehman Treasury Index was +7.76% for the past year and averaged +4.76% for the past five years. Top quality municipal indices were slightly down for the last year and slightly up for the last five years. For example, the Lehman Municipal State GO Index was -0.05% for the past year and averaged +3.18% 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, 2008, Total Return US Treasury Fund and North American Government Bond Fund continued their policy of paying distributions at a fixed rate, which resulted in a portion of such distributions consisting of net investment income, short-term capital gains and long-term capital gains. North American Government Bond Fund also had 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 fiscal year, the fund produced a one-year total return of +4.61% and a five-year average annual total return of +4.01%. From its inception on August 10, 1988 through October 31, 2008, the Fund has posted a cumulative total return of +284.24%, which translates into an average annual total return of +6.88%. The Fund's net assets totaled $119.97 million as of October 31, 2008. ISI 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 fiscal year, the Fund produced a one-year total return of -1.44% and a five-year average annual total return of +2.17%. From its inception on February 26, 1990 through October 31, 2008, the Fund has posted a cumulative total return of +154.01%, which translates into an average annual total return of +5.12%. The Fund's net assets totaled $75.07 million as of October 31, 2008. ISI 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 fiscal year, the ISI Class A Shares produced a one-year total return of +0.51% and a five year average annual total return of +4.23%. From its inception on January 15, 1993, through October 31, 2008, the ISI Class A Shares 1 - -------------------------------------------------------------------------------- MANAGEMENT DISCUSSION AND ANALYSIS (CONTINUED) - -------------------------------------------------------------------------------- have posted a cumulative total return of +138.47%, which translates into an average annual total return of +5.66%. For the fiscal year, the ISI Class C Shares produced a one-year total return of -0.12% and a five year average annual total return of +3.56%. From its inception on May 16, 2003, through October 31, 2008, the ISI Class C Shares have posted a cumulative total return of +15.98%, which translates into an average annual total return of +2.75%. The Fund's net assets totaled $160.96 million as of October 31, 2008. 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 -30.49% and a five-year average annual total return of +1.08%. From its inception on September 16, 1997, through October 31, 2008, the Fund has posted a cumulative total return of +33.22%, which translates into an average annual total return of +2.61%. The Fund's net assets totaled $53.24 million as of October 31, 2008. We would like to welcome new investors to the ISI Funds and thank those who have been with us for some time. We appreciate your confidence. Sincerely, /S/ R. Alan Medaugh R. Alan Medaugh President November 18, 2008 2 - -------------------------------------------------------------------------------- MANAGEMENT DISCUSSION OF FUND PERFORMANCE - -------------------------------------------------------------------------------- TOTAL RETURN US TREASURY FUND This fiscal year, the Treasury market experience much of its movement based on anticipation of an economic slowdown caused by the financial crisis. The Treasury market moved 10-year rates down modestly from roughly 4.50% at the beginning of the year to 3.95% yield at fiscal year end. The sharpest yield change was in the short term area where Treasuries were viewed as a safe haven in the financial storm. During the year, the yield on the 3-month Treasury bill fell from 3.91% at the beginning of the fiscal year to 0.43% at the end of the fiscal year. During the fiscal year, the Federal Reserve cut its benchmark Federal Funds rate from 4.50% to 1.00%. ISI expected the economy would slow and rates fall because of the lagged effects of high short rates and high energy prices. The Fund maintained a longer duration than the Index for the fiscal year, ending with a 7.5 year duration at fiscal year end. By comparison, the Treasury Index was 5.1 years. The Fund's total return for the fiscal year was +4.61%. ----------------------------------------------------------- 3-MONTH TREASURY-BILL YIELD ----------------------------------------------------------- [LINE GRAPH OMITTED] 10/31/2007 3.916 11/1/2007 3.802 11/2/2007 3.604 11/5/2007 3.728 11/6/2007 3.741 11/7/2007 3.450 11/8/2007 3.409 11/9/2007 3.253 11/12/2007 3.252 11/13/2007 3.459 11/14/2007 3.399 11/15/2007 3.305 11/16/2007 3.418 11/19/2007 3.366 11/20/2007 3.285 11/21/2007 3.089 11/22/2007 3.088 11/23/2007 3.222 11/26/2007 3.108 11/27/2007 3.156 11/28/2007 3.037 11/29/2007 2.965 11/30/2007 3.150 12/3/2007 2.995 12/4/2007 3.053 12/5/2007 3.058 12/6/2007 3.078 12/7/2007 3.067 12/10/2007 3.036 12/11/2007 2.908 12/12/2007 2.862 12/13/2007 2.893 12/14/2007 2.871 12/17/2007 2.984 12/18/2007 3.043 12/19/2007 2.893 12/20/2007 2.934 12/21/2007 2.974 12/24/2007 3.283 12/25/2007 3.306 12/26/2007 3.316 12/27/2007 3.119 12/28/2007 3.150 12/31/2007 3.242 1/1/2008 3.332 1/2/2008 3.254 1/3/2008 3.223 1/4/2008 3.191 1/7/2008 3.242 1/8/2008 3.218 1/9/2008 3.233 1/10/2008 3.212 1/11/2008 3.098 1/14/2008 3.160 1/15/2008 3.156 1/16/2008 3.130 1/17/2008 2.996 1/18/2008 2.850 1/21/2008 2.850 1/22/2008 2.274 1/23/2008 2.208 1/24/2008 2.367 1/25/2008 2.254 1/28/2008 2.254 1/29/2008 2.290 1/30/2008 2.152 1/31/2008 1.946 2/1/2008 2.089 2/4/2008 2.223 2/5/2008 2.167 2/6/2008 2.090 2/7/2008 2.193 2/8/2008 2.223 2/11/2008 2.254 2/12/2008 2.290 2/13/2008 2.265 2/14/2008 2.285 2/15/2008 2.192 2/18/2008 2.192 2/19/2008 2.223 2/20/2008 2.229 2/21/2008 2.193 2/22/2008 2.192 2/25/2008 2.182 2/26/2008 2.105 2/27/2008 1.967 2/28/2008 1.905 2/29/2008 1.843 3/3/2008 1.648 3/4/2008 1.654 3/5/2008 1.495 3/6/2008 1.362 3/7/2008 1.444 3/10/2008 1.331 3/11/2008 1.480 3/12/2008 1.413 3/13/2008 1.362 3/14/2008 1.167 3/17/2008 1.004 3/18/2008 0.886 3/19/2008 0.565 3/20/2008 0.575 3/21/2008 0.575 3/24/2008 1.075 3/25/2008 1.285 3/26/2008 1.270 3/27/2008 1.270 3/28/2008 1.372 3/31/2008 1.321 4/1/2008 1.398 4/2/2008 1.372 4/3/2008 1.392 4/4/2008 1.372 4/7/2008 1.392 4/8/2008 1.377 4/9/2008 1.300 4/10/2008 1.239 4/11/2008 1.188 4/14/2008 1.075 4/15/2008 1.142 4/16/2008 1.127 4/17/2008 1.280 4/18/2008 1.351 4/21/2008 1.300 4/22/2008 1.275 4/23/2008 1.219 4/24/2008 1.249 4/25/2008 1.362 4/28/2008 1.372 4/29/2008 1.469 4/30/2008 1.382 5/1/2008 1.403 5/2/2008 1.505 5/5/2008 1.597 5/6/2008 1.633 5/7/2008 1.669 5/8/2008 1.659 5/9/2008 1.689 5/12/2008 1.792 5/13/2008 1.828 5/14/2008 1.823 5/15/2008 1.833 5/16/2008 1.843 5/19/2008 1.853 5/20/2008 1.864 5/21/2008 1.864 5/22/2008 1.864 5/23/2008 1.853 5/26/2008 1.853 5/27/2008 1.894 5/28/2008 1.885 5/29/2008 1.905 5/30/2008 1.884 6/2/2008 1.833 6/3/2008 1.849 6/4/2008 1.849 6/5/2008 1.849 6/6/2008 1.838 6/9/2008 1.889 6/10/2008 2.013 6/11/2008 1.941 6/12/2008 1.992 6/13/2008 1.971 6/16/2008 1.951 6/17/2008 1.982 6/18/2008 1.920 6/19/2008 1.910 6/20/2008 1.859 6/23/2008 1.889 6/24/2008 1.839 6/25/2008 1.798 6/26/2008 1.716 6/27/2008 1.664 6/30/2008 1.736 7/1/2008 1.869 7/2/2008 1.818 7/3/2008 1.848 7/4/2008 1.838 7/7/2008 1.817 7/8/2008 1.859 7/9/2008 1.798 7/10/2008 1.665 7/11/2008 1.583 7/14/2008 1.460 7/15/2008 1.338 7/16/2008 1.358 7/17/2008 1.399 7/18/2008 1.460 7/21/2008 1.429 7/22/2008 1.542 7/23/2008 1.552 7/24/2008 1.644 7/25/2008 1.726 7/28/2008 1.695 7/29/2008 1.716 7/30/2008 1.685 7/31/2008 1.665 8/1/2008 1.664 8/4/2008 1.695 8/5/2008 1.736 8/6/2008 1.644 8/7/2008 1.675 8/8/2008 1.695 8/11/2008 1.818 8/12/2008 1.859 8/13/2008 1.838 8/14/2008 1.859 8/15/2008 1.838 8/18/2008 1.766 8/19/2008 1.798 8/20/2008 1.685 8/21/2008 1.716 8/22/2008 1.695 8/25/2008 1.674 8/26/2008 1.706 8/27/2008 1.675 8/28/2008 1.736 8/29/2008 1.715 9/1/2008 1.715 9/2/2008 1.685 9/3/2008 1.685 9/4/2008 1.675 9/5/2008 1.777 9/8/2008 1.705 9/9/2008 1.665 9/10/2008 1.644 9/11/2008 1.613 9/12/2008 1.470 9/15/2008 0.813 9/16/2008 0.701 9/17/2008 0.061 9/18/2008 0.076 9/19/2008 0.920 9/22/2008 0.838 9/23/2008 0.721 9/24/2008 0.462 9/25/2008 0.757 9/26/2008 0.848 9/29/2008 0.350 9/30/2008 0.910 10/1/2008 0.808 10/2/2008 0.604 10/3/2008 0.472 10/6/2008 0.472 10/7/2008 0.767 10/8/2008 0.614 10/9/2008 0.523 10/10/2008 0.188 10/13/2008 0.188 10/14/2008 0.304 10/15/2008 0.218 10/16/2008 0.431 10/17/2008 0.797 10/20/2008 1.083 10/21/2008 1.073 10/22/2008 1.011 10/23/2008 0.971 10/24/2008 0.848 10/27/2008 0.757 10/28/2008 0.757 10/29/2008 0.584 10/30/2008 0.381 10/31/2008 0.438 * Source: Bloomberg 3 - -------------------------------------------------------------------------------- MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED) - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND During the fiscal year, municipal bonds reacted more to the burgeoning financial crisis than to the progress being made on reducing inflation. The result was 1) that municipal yields rose in comparison to U.S. Treasury yields as the flight to quality helped U.S. Treasuries; and 2) that lower grade municipal bonds rose in yield versus higher grade municipals. During the fiscal year, the yield on top quality AAA general obligation bonds moved up significantly as a percentage of Treasuries. Please see the table below: GENERAL OBLIGATION AAA MUNICIPALS AS A % OF CURRENT U.S. TREASURIES (10/31/07 - 10/31/08)* CHANGE IN MATURITY 10/31/07 10/31/08 % OF TREASURIES -------- -------- -------- --------------- 2 year 85.89 171.78 +85.89 5 year 84.14 124.01 +39.87 10 year 83.75 113.23 +29.48 20 year 89.90 113.14 +23.24 *Source: Bloomberg The weakening economy hurt municipal revenue and the market has pushed the yield on medium quality BBB general obligation bonds up versus AAA general obligation bonds. Please see chart below. ----------------------------------------------------------- BBB 10 YEAR GO BOND YIELD VERSUS AAA 10 YEAR GO YIELD (10/31/07 -- 10/31/08) ----------------------------------------------------------- [LINE GRAPH OMITTED] 10/31/2008 139 10/30/2008 137 10/29/2008 140 10/28/2008 138 10/27/2008 130 10/24/2008 124 10/23/2008 116 10/22/2008 105 10/21/2008 109 10/20/2008 103 10/17/2008 107 10/16/2008 106 10/15/2008 108 10/14/2008 110 10/13/2008 108 10/10/2008 108 10/9/2008 107 10/8/2008 108 10/7/2008 108 10/6/2008 108 10/3/2008 107 10/2/2008 115 10/1/2008 113 9/30/2008 114 9/29/2008 112 9/26/2008 108. 9/25/2008 105 9/24/2008 105 9/23/2008 99 9/22/2008 100 9/19/2008 99 9/18/2008 108 9/17/2008 108 9/16/2008 107 9/15/2008 105 9/12/2008 101 9/11/2008 101 9/10/2008 100 9/9/2008 96 9/8/2008 93 9/5/2008 91 9/4/2008 90 9/3/2008 91 9/2/2008 93 9/1/2008 89 8/29/2008 89 8/28/2008 90 8/27/2008 92 8/26/2008 92 8/25/2008 90 8/22/2008 88 8/21/2008 90 8/20/2008 91 8/19/2008 89 8/18/2008 84 8/15/2008 90 8/14/2008 92 8/13/2008 94 8/12/2008 94 8/11/2008 92 8/8/2008 91 8/7/2008 92 8/6/2008 91 8/5/2008 89 8/4/2008 89 8/1/2008 92 7/31/2008 84 7/30/2008 87 7/29/2008 88 7/28/2008 86 7/25/2008 85 7/24/2008 82 7/23/2008 79 7/22/2008 81 7/21/2008 79 7/18/2008 78 7/17/2008 73 7/16/2008 73 7/15/2008 73 7/14/2008 77 7/11/2008 80 7/10/2008 79 7/9/2008 76 7/8/2008 78 7/7/2008 77 7/4/2008 79 7/3/2008 79 7/2/2008 78 7/1/2008 87 6/30/2008 86 6/27/2008 86 6/26/2008 83 6/25/2008 85 6/24/2008 85 6/23/2008 87 6/20/2008 87 6/19/2008 89 6/18/2008 91 6/17/2008 90 6/16/2008 89 6/13/2008 91 6/12/2008 89 6/11/2008 88 6/10/2008 89 6/9/2008 87 6/6/2008 86 6/5/2008 85 6/4/2008 83 6/3/2008 83 6/2/2008 84 5/30/2008 79 5/29/2008 78 5/28/2008 80 5/27/2008 83 5/26/2008 82 5/23/2008 82 5/22/2008 81 5/21/2008 81 5/20/2008 80 5/19/2008 81 5/16/2008 79 5/15/2008 79 5/14/2008 74 5/13/2008 78 5/12/2008 81 5/9/2008 81 5/8/2008 81 5/7/2008 78 5/6/2008 77 5/5/2008 78 5/2/2008 77 5/1/2008 77 4/30/2008 81 4/29/2008 80 4/28/2008 79 4/25/2008 83 4/24/2008 82 4/23/2008 82 4/22/2008 83 4/21/2008 82 4/18/2008 80 4/17/2008 76 4/16/2008 76 4/15/2008 80 4/14/2008 79 4/11/2008 82 4/10/2008 84 4/9/2008 83 4/8/2008 84 4/7/2008 86 4/4/2008 88 4/3/2008 86 4/2/2008 88 4/1/2008 88 3/31/2008 86 3/28/2008 85 3/27/2008 81 3/26/2008 83 3/25/2008 84 3/24/2008 85 3/21/2008 84 3/20/2008 84 3/19/2008 83 3/18/2008 78 3/17/2008 79 3/14/2008 78 3/13/2008 78 3/12/2008 80 3/11/2008 80 3/10/2008 76 3/7/2008 76 3/6/2008 86 3/5/2008 96 3/4/2008 104 3/3/2008 106 2/29/2008 96 2/28/2008 98 2/27/2008 98 2/26/2008 102 2/25/2008 94 2/22/2008 96 2/21/2008 95 2/20/2008 94 2/19/2008 94 2/18/2008 94 2/15/2008 94 2/14/2008 94 2/13/2008 90 2/12/2008 90 2/11/2008 89 2/8/2008 86 2/7/2008 85 2/6/2008 84 2/5/2008 85 2/4/2008 84 2/1/2008 82 1/31/2008 82 1/30/2008 82 1/29/2008 79 1/28/2008 77 1/25/2008 74 1/24/2008 72 1/23/2008 74 1/22/2008 76 1/21/2008 76 1/18/2008 76 1/17/2008 78 1/16/2008 79 1/15/2008 78 1/14/2008 78 1/11/2008 79 1/10/2008 75 1/9/2008 72 1/8/2008 74 1/7/2008 76 1/4/2008 76 1/3/2008 79 1/2/2008 78 1/1/2008 75 12/31/2007 75 12/28/2007 75 12/27/2007 75 12/26/2007 74 12/25/2007 74 12/24/2007 74 12/21/2007 74 12/20/2007 74 12/19/2007 74 12/18/2007 74 12/17/2007 71 12/14/2007 73 12/13/2007 72 12/12/2007 74 12/11/2007 75 12/10/2007 74 12/7/2007 74 12/6/2007 74 12/5/2007 71 12/4/2007 67 12/3/2007 66 11/30/2007 64 11/29/2007 63 11/28/2007 62 11/27/2007 61 11/26/2007 58 11/23/2007 58 11/22/2007 58 11/21/2007 58 11/20/2007 58 11/19/2007 53 11/16/2007 51 11/15/2007 49 11/14/2007 46 11/13/2007 46 11/12/2007 46 11/9/2007 46 11/8/2007 48 11/7/2007 47 11/6/2007 47 11/5/2007 49 11/2/2007 48 11/1/2007 48 * Source: Bloomberg The Fund in this fiscal year extended its duration from 5.6 to 6.7, using issues with high quality ratings based on the municipality's underlying financial strength rather than bond insurance or medium quality grade issues. 4 - -------------------------------------------------------------------------------- MANAGEMENT DISCUSSION OF FUND PERFORMANCE (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 extended as of the fiscal year end compared with earlier periods. Both the Canadian dollar and the Mexican peso came under pressure this fiscal year. The financial crisis, while it helped the Treasury section of the Fund, hurt the Canadian and Mexican currencies. Please see Canada dollar chart below. During the fiscal year, the Fund modestly reduced its non-Treasury holdings from 23.6% of the Fund to 20.2% of the Fund. The mix between Mexico and Canada changed significantly during the year with Mexico representing 63% of the non-Treasury section at the beginning of the year and ending the year representing a reduced 33% of the non-Treasury section. ----------------------------------------------------------- CANADIAN DOLLAR COMPARED AGAINST US DOLLAR* ----------------------------------------------------------- [LINE GRAPH OMITTED] 10/31/2007 0.943 11/1/2007 0.951 11/2/2007 0.935 11/5/2007 0.933 11/6/2007 0.920 11/7/2007 0.931 11/8/2007 0.935 11/9/2007 0.945 11/12/2007 0.969 11/13/2007 0.959 11/14/2007 0.967 11/15/2007 0.985 11/16/2007 0.973 11/19/2007 0.984 11/20/2007 0.979 11/21/2007 0.987 11/22/2007 0.986 11/23/2007 0.988 11/26/2007 0.990 11/27/2007 0.996 11/28/2007 0.985 11/29/2007 0.998 11/30/2007 0.999 12/3/2007 0.999 12/4/2007 1.011 12/5/2007 1.012 12/6/2007 1.008 12/7/2007 1.005 12/10/2007 1.007 12/11/2007 1.015 12/12/2007 1.012 12/13/2007 1.021 12/14/2007 1.017 12/17/2007 1.005 12/18/2007 1.006 12/19/2007 1.003 12/20/2007 1.001 12/21/2007 0.992 12/24/2007 0.984 12/25/2007 0.985 12/26/2007 0.982 12/27/2007 0.980 12/28/2007 0.982 12/31/2007 0.998 1/1/2008 0.993 1/2/2008 0.994 1/3/2008 0.990 1/4/2008 1.003 1/7/2008 1.005 1/8/2008 1.006 1/9/2008 1.010 1/10/2008 1.010 1/11/2008 1.019 1/14/2008 1.017 1/15/2008 1.018 1/16/2008 1.025 1/17/2008 1.030 1/18/2008 1.027 1/21/2008 1.035 1/22/2008 1.029 1/23/2008 1.024 1/24/2008 1.004 1/25/2008 1.008 1/28/2008 1.004 1/29/2008 0.998 1/30/2008 0.993 1/31/2008 1.003 2/1/2008 0.995 2/4/2008 0.994 2/5/2008 1.008 2/6/2008 1.006 2/7/2008 1.009 2/8/2008 0.999 2/11/2008 1.002 2/12/2008 1.002 2/13/2008 0.997 2/14/2008 1.000 2/15/2008 1.007 2/18/2008 1.008 2/19/2008 1.017 2/20/2008 1.013 2/21/2008 1.011 2/22/2008 1.013 2/25/2008 0.996 2/26/2008 0.982 2/27/2008 0.980 2/28/2008 0.975 2/29/2008 0.988 3/3/2008 0.990 3/4/2008 0.994 3/5/2008 0.984 3/6/2008 0.986 3/7/2008 0.991 3/10/2008 0.996 3/11/2008 0.992 3/12/2008 0.990 3/13/2008 0.984 3/14/2008 0.989 3/17/2008 0.998 3/18/2008 0.992 3/19/2008 1.014 3/20/2008 1.024 3/21/2008 1.023 3/24/2008 1.017 3/25/2008 1.017 3/26/2008 1.018 3/27/2008 1.019 3/28/2008 1.023 3/31/2008 1.025 4/1/2008 1.021 4/2/2008 1.016 4/3/2008 1.005 4/4/2008 1.009 4/7/2008 1.014 4/8/2008 1.013 4/9/2008 1.018 4/10/2008 1.020 4/11/2008 1.024 4/14/2008 1.019 4/15/2008 1.018 4/16/2008 1.001 4/17/2008 1.011 4/18/2008 1.004 4/21/2008 1.005 4/22/2008 1.008 4/23/2008 1.017 4/24/2008 1.014 4/25/2008 1.014 4/28/2008 1.013 4/29/2008 1.013 4/30/2008 1.008 5/1/2008 1.020 5/2/2008 1.020 5/5/2008 1.013 5/6/2008 1.002 5/7/2008 1.009 5/8/2008 1.017 5/9/2008 1.005 5/12/2008 1.004 5/13/2008 1.004 5/14/2008 1.004 5/15/2008 1.000 5/16/2008 0.999 5/19/2008 0.992 5/20/2008 0.992 5/21/2008 0.984 5/22/2008 0.985 5/23/2008 0.990 5/26/2008 0.991 5/27/2008 0.994 5/28/2008 0.990 5/29/2008 0.988 5/30/2008 0.993 6/2/2008 1.001 6/3/2008 1.009 6/4/2008 1.017 6/5/2008 1.018 6/6/2008 1.020 6/9/2008 1.023 6/10/2008 1.022 6/11/2008 1.020 6/12/2008 1.024 6/13/2008 1.029 6/16/2008 1.024 6/17/2008 1.019 6/18/2008 1.017 6/19/2008 1.016 6/20/2008 1.016 6/23/2008 1.016 6/24/2008 1.011 6/25/2008 1.009 6/26/2008 1.014 6/27/2008 1.011 6/30/2008 1.022 7/1/2008 1.022 7/2/2008 1.012 7/3/2008 1.018 7/4/2008 1.020 7/7/2008 1.017 7/8/2008 1.019 7/9/2008 1.012 7/10/2008 1.009 7/11/2008 1.009 7/14/2008 1.006 7/15/2008 1.002 7/16/2008 1.002 7/17/2008 1.006 7/18/2008 1.006 7/21/2008 1.000 7/22/2008 1.008 7/23/2008 1.010 7/24/2008 1.015 7/25/2008 1.020 7/28/2008 1.023 7/29/2008 1.024 7/30/2008 1.023 7/31/2008 1.025 8/1/2008 1.027 8/4/2008 1.037 8/5/2008 1.043 8/6/2008 1.049 8/7/2008 1.053 8/8/2008 1.067 8/11/2008 1.069 8/12/2008 1.064 8/13/2008 1.063 8/14/2008 1.064 8/15/2008 1.059 8/18/2008 1.065 8/19/2008 1.061 8/20/2008 1.060 8/21/2008 1.043 8/22/2008 1.047 8/25/2008 1.051 8/26/2008 1.049 8/27/2008 1.046 8/28/2008 1.051 8/29/2008 1.064 9/1/2008 1.067 9/2/2008 1.067 9/3/2008 1.063 9/4/2008 1.070 9/5/2008 1.062 9/8/2008 1.065 9/9/2008 1.071 9/10/2008 1.071 9/11/2008 1.075 9/12/2008 1.060 9/15/2008 1.071 9/16/2008 1.068 9/17/2008 1.073 9/18/2008 1.061 9/19/2008 1.047 9/22/2008 1.036 9/23/2008 1.038 9/24/2008 1.039 9/25/2008 1.035 9/26/2008 1.034 9/29/2008 1.046 9/30/2008 1.064 10/1/2008 1.063 10/2/2008 1.079 10/3/2008 1.083 10/6/2008 1.099 10/7/2008 1.106 10/8/2008 1.128 10/9/2008 1.150 10/10/2008 1.173 10/13/2008 1.148 10/14/2008 1.162 10/15/2008 1.192 10/16/2008 1.178 10/17/2008 1.182 10/20/2008 1.191 10/21/2008 1.214 10/22/2008 1.254 10/23/2008 1.247 10/24/2008 1.278 10/27/2008 1.295 10/28/2008 1.273 10/29/2008 1.223 10/30/2008 1.200 10/31/2008 1.213 * Source: Bloomberg 5 - -------------------------------------------------------------------------------- MANAGEMENT DISCUSSION OF FUND PERFORMANCE (CONTINUED) - -------------------------------------------------------------------------------- ISI STRATEGY FUND During the fiscal year, the Fund's equity representation was reduced from 85% at the beginning of the year to 80% at year end. The heavy equities weighting hurt performance because the Dow Jones Wilshire 5000 Index was down -36.43% whereas the Lehman Treasury Index was up +8.21%. ISI expects that the current slowdown in the U.S. economy will extend into 2009 with modest growth returning in second half of 2009. The equity market seems to have priced in quite a bit of bad news and there is the possibility that the prospects of modest growth in late 2009 might be good news to the market. The equity and bond sections are actively managed. The equity section uses the Sub-advisor's Dynamic Alpha model to select individual investments. The bond section follows the duration management of the ISI Total Return US Treasury Fund. The Fund's total return over the fiscal year was -30.49%. Please see chart below showing the fall in the equity benchmark over the fiscal year. ----------------------------------------------------------- DOW JONES WILSHIRE 5000 INDEX* ----------------------------------------------------------- [LINE GRAPH OMITTED] 10/31/2008 9,769 10/30/2008 9,585 10/29/2008 9,314 10/28/2008 9,341 10/27/2008 8,502 10/24/2008 8,806 10/23/2008 9,111 10/22/2008 9,081 10/21/2008 9,651 10/20/2008 9,944 10/17/2008 9,514 10/16/2008 9,549 10/15/2008 9,160 10/14/2008 10,065 10/13/2008 10,161 10/10/2008 9,121 10/9/2008 9,188 10/8/2008 9,926 10/7/2008 10,057 10/6/2008 10,669 10/3/2008 11,123 10/2/2008 11,294 10/1/2008 11,809 9/30/2008 11,875 9/29/2008 11,323 9/26/2008 12,347 9/25/2008 12,339 9/24/2008 12,133 9/23/2008 12,173 9/22/2008 12,362 9/19/2008 12,882 9/18/2008 12,350 9/17/2008 11,824 9/16/2008 12,398 9/15/2008 12,184 9/12/2008 12,765 9/11/2008 12,716 9/10/2008 12,570 9/9/2008 12,477 9/8/2008 12,923 9/5/2008 12,703 9/4/2008 12,654 9/3/2008 13,027 9/2/2008 13,064 8/29/2008 13,124 8/28/2008 13,289 8/27/2008 13,092 8/26/2008 12,978 8/25/2008 12,931 8/22/2008 13,185 8/21/2008 13,038 8/20/2008 13,021 8/19/2008 12,950 8/18/2008 13,078 8/15/2008 13,272 8/14/2008 13,228 8/13/2008 13,146 8/12/2008 13,164 8/11/2008 13,308 8/8/2008 13,197 8/7/2008 12,906 8/6/2008 13,134 8/5/2008 13,073 8/4/2008 12,738 8/1/2008 12,888 7/31/2008 12,947 7/30/2008 13,103 7/29/2008 12,900 7/28/2008 12,613 7/25/2008 12,837 7/24/2008 12,771 7/23/2008 13,087 7/22/2008 13,048 7/21/2008 12,871 7/18/2008 12,844 7/17/2008 12,851 7/16/2008 12,704 7/15/2008 12,390 7/14/2008 12,517 7/11/2008 12,635 7/10/2008 12,746 7/9/2008 12,658 7/8/2008 12,936 7/7/2008 12,704 7/3/2008 12,815 7/2/2008 12,842 7/1/2008 13,108 6/30/2008 13,074 6/27/2008 13,081 6/26/2008 13,125 6/25/2008 13,507 6/24/2008 13,421 6/23/2008 13,496 6/20/2008 13,515 6/19/2008 13,759 6/18/2008 13,709 6/17/2008 13,841 6/16/2008 13,918 6/13/2008 13,890 6/12/2008 13,678 6/11/2008 13,639 6/10/2008 13,870 6/9/2008 13,917 6/6/2008 13,925 6/5/2008 14,340 6/4/2008 14,062 6/3/2008 14,062 6/2/2008 14,125 5/30/2008 14,261 5/29/2008 14,217 5/28/2008 14,131 5/27/2008 14,059 5/23/2008 13,954 5/22/2008 14,127 5/21/2008 14,084 5/20/2008 14,310 5/19/2008 14,423 5/16/2008 14,424 5/15/2008 14,404 5/14/2008 14,256 5/13/2008 14,207 5/12/2008 14,192 5/9/2008 14,040 5/8/2008 14,121 5/7/2008 14,067 5/6/2008 14,309 5/5/2008 14,199 5/2/2008 14,251 5/1/2008 14,220 4/30/2008 13,991 4/29/2008 14,033 4/28/2008 14,088 4/25/2008 14,089 4/24/2008 13,991 4/23/2008 13,900 4/22/2008 13,863 4/21/2008 13,995 4/18/2008 14,017 4/17/2008 13,777 4/16/2008 13,787 4/15/2008 13,473 4/14/2008 13,410 4/11/2008 13,455 4/10/2008 13,732 4/9/2008 13,656 4/8/2008 13,790 4/7/2008 13,845 4/4/2008 13,824 4/3/2008 13,802 4/2/2008 13,775 4/1/2008 13,786 3/31/2008 13,332 3/28/2008 13,255 3/27/2008 13,364 3/26/2008 13,518 3/25/2008 13,624 3/24/2008 13,571 3/20/2008 13,336 3/19/2008 13,037 3/18/2008 13,355 3/17/2008 12,828 3/14/2008 12,993 3/13/2008 13,267 3/12/2008 13,179 3/11/2008 13,287 3/10/2008 12,823 3/7/2008 13,052 3/6/2008 13,165 3/5/2008 13,473 3/4/2008 13,397 3/3/2008 13,451 2/29/2008 13,456 2/28/2008 13,817 2/27/2008 13,945 2/26/2008 13,965 2/25/2008 13,866 2/22/2008 13,663 2/21/2008 13,577 2/20/2008 13,758 2/19/2008 13,646 2/15/2008 13,653 2/14/2008 13,656 2/13/2008 13,843 2/12/2008 13,648 2/11/2008 13,562 2/8/2008 13,485 2/7/2008 13,528 2/6/2008 13,418 2/5/2008 13,536 2/4/2008 13,955 2/1/2008 14,091 1/31/2008 13,897 1/30/2008 13,657 1/29/2008 13,740 1/28/2008 13,661 1/25/2008 13,424 1/24/2008 13,608 1/23/2008 13,473 1/22/2008 13,190 1/18/2008 13,308 1/17/2008 13,390 1/16/2008 13,773 1/15/2008 13,842 1/14/2008 14,186 1/11/2008 14,043 1/10/2008 14,245 1/9/2008 14,121 1/8/2008 13,963 1/7/2008 14,230 1/4/2008 14,211 1/3/2008 14,588 1/2/2008 14,614 12/31/2007 14,820 12/28/2007 14,912 12/27/2007 14,896 12/26/2007 15,126 12/24/2007 15,111 12/21/2007 14,979 12/20/2007 14,736 12/19/2007 14,645 12/18/2007 14,651 12/17/2007 14,555 12/14/2007 14,793 12/13/2007 15,000 12/12/2007 14,994 12/11/2007 14,924 12/10/2007 15,311 12/7/2007 15,195 12/6/2007 15,203 12/5/2007 14,964 12/4/2007 14,752 12/3/2007 14,849 11/30/2007 14,933 11/29/2007 14,823 11/28/2007 14,817 11/27/2007 14,400 11/26/2007 14,209 11/23/2007 14,518 11/21/2007 14,288 11/20/2007 14,505 11/19/2007 14,463 11/16/2007 14,727 11/15/2007 14,664 11/14/2007 14,851 11/13/2007 14,951 11/12/2007 14,543 11/9/2007 14,709 11/8/2007 14,922 11/7/2007 14,926 11/6/2007 15,355 11/5/2007 15,174 11/2/2007 15,269 11/1/2007 15,261 * Source: Bloomberg 6 - -------------------------------------------------------------------------------- TOTAL RETURN US TREASURY FUND -- PERFORMANCE COMPARISON(1) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TOTAL RETURN US TREASURY FUND -- ISI SHARES, BARCLAYS CAPITAL TREASURY INDEX, BARCLAYS CAPITAL INTERMEDIATE TREASURY INDEX AND BARCLAYS CAPITAL LONG-TERM TREASURY INDEX: VALUE OF A $10,000 INVESTMENT (FOR 10 YEARS ENDED OCTOBER 31, 2008) - -------------------------------------------------------------------------------- [LINE GRAPH OMITTED] Barclays Capital Total Return Intermediate Barclays Capital US Treasury Barclays Capital Treasury Long-Term Fund Treasury Index Index Treasury Index ---------- -------------- ----- -------------- 10/31/1998 $ 9,700 $ 10,000 $ 10,000 $ 10,000 10/31/1999 9,328 9,845 10,066 9,380 10/31/2000 10,213 10,655 10,736 10,453 10/31/2001 11,600 12,248 12,172 12,308 10/31/2002 12,270 13,018 12,969 13,048 10/31/2003 12,551 13,385 13,266 13,538 10/31/2004 13,133 14,050 13,699 14,830 10/31/2005 13,315 14,173 13,698 15,335 10/31/2006 13,957 14,801 14,285 16,123 10/31/2007 14,608 15,677 15,158 16,951 10/31/2008 15,281 16,893 16,426 17,857 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, 2008 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 1.51% 11.31% 18.06% 52.81% 272.68% 1.51% 3.64% 3.38% 4.33% 6.72% - ------------------------------------------------------------------------------------------------------------------------------------ Barclays Capital Treasury Index(3) ......... 7.76% 19.19% 26.21% 68.93% 318.47% 7.76% 6.03% 4.77% 5.38% 7.36% - ------------------------------------------------------------------------------------------------------------------------------------ Barclays Capital Intermediate Treasury Index(3) ......... 8.36% 19.91% 23.82% 64.26% 274.34% 8.36% 6.24% 4.37% 5.09% 6.76% - ------------------------------------------------------------------------------------------------------------------------------------ Barclays Capital Long-Term Treasury Index(3) ......... 5.35% 16.44% 31.90% 78.57% 456.95% 5.35% 5.21% 5.69% 5.97% 8.89% - ------------------------------------------------------------------------------------------------------------------------------------
(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 11.03 years. (2) The Fund's inception date is August 10, 1988. Benchmark returns are for the periods beginning August 31, 1988. (3) The Barclays Capital 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 Barclays Capital Intermediate Treasury Index is an unmanaged index reflecting the performance of US Treasury securities in the intermediate-term Treasury sector. The Barclays Capital 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, BARCLAYS CAPITAL GENERAL OBLIGATION INDEX, BARCLAYS CAPITAL PREREFUNDED MUNICIPAL BOND INDEX AND CONSUMER PRICE INDEX: VALUE OF A $10,000 INVESTMENT (FOR 10 YEARS ENDED OCTOBER 31, 2008) - -------------------------------------------------------------------------------- [LINE GRAPH OMITTED] Barclays Barclays Capital Capital General Prerefunded Managed Obligation Municipal Consumer Municipal Fund Index Bond Index Price Index -------------- ---------- ---------- ----------- 10/31/1998 $ 9,700 $ 10,000 $ 10,000 $ 10,000 10/31/1999 9,350 9,875 10,142 10,256 10/31/2000 10,140 10,671 10,691 10,610 10/31/2001 11,129 11,756 11,680 10,835 10/31/2002 11,698 12,441 12,288 11,055 10/31/2003 12,152 13,064 12,835 11,280 10/31/2004 12,670 13,823 13,272 11,640 10/31/2005 12,821 14,065 13,352 12,146 10/31/2006 13,422 14,827 13,877 12,305 10/31/2007 13,729 15,300 14,407 12,782 10/31/2008 13,532 15,261 15,002 13,356 9 - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND -- PERFORMANCE COMPARISON(1) (CONTINUED) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Cumulative Total Returns (With Load) Average Annual Total Returns ------------------------------------------------ ------------------------------------------------ Periods Ended Since Since October 31, 2008 1 Year 3 Years 5 Years 10 Years Inception(2) 1 Year 3 Years 5 Years 10 Years Inception(2) - ------------------------------------------------------------------------------------------------------------------------------------ Managed Municipal Fund -4.41% 2.38% 7.98% 35.32% 146.37% -4.41% 0.79% 1.55% 3.07% 4.95% Barclays Capital General Obligation Index(3) -0.25% 8.50% 16.82% 52.61% 194.03% -0.25% 2.76% 3.16% 4.32% 5.95% Barclays Capital Prerefunded Municipal Bond Index(3) 4.13% 12.35% 16.89% 50.02% 165.94% 4.13% 3.96% 3.17% 4.14% 5.38% Consumer Price Index(4) 4.49% 9.96% 18.40% 33.56% 40.04% 4.49% 3.21% 3.44% 2.94% 1.82%
(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 Barclays Capital General Obligation Index is an unmanaged index reflecting general municipal bond market performance. The Barclays Capital Prerefunded Municipal Bond Index, an unmanaged index, is a subcomponent of the general Barclays Capital 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, BARCLAYS CAPITAL INTERMEDIATE TREASURY INDEX, BARCLAYS CAPITAL 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, 2008) - -------------------------------------------------------------------------------- [LINE GRAPH OMITTED] Barclays Capital Emerging Americas Index: Mexico North American Section/Citigroup Government Barclays Capital US Broad Investment- Consumer Bond Fund - ISI Intermediate Grade Bond Index Price Class A Shares Treasury Index Mexico Sector Index -------------- -------------- ----------------- ----- 10/31/1998 $ 9,700 $ 10,000 $ 10,000 $ 10,000 10/31/1999 9,678 10,066 11,522 10,256 10/31/2000 10,610 10,736 13,588 10,610 10/31/2001 12,164 12,172 15,465 10,835 10/31/2002 12,678 12,969 17,170 11,055 10/31/2003 13,202 13,266 19,710 11,280 10/31/2004 13,680 13,699 21,524 11,640 10/31/2005 14,281 13,698 22,815 12,146 10/31/2006 15,143 14,285 24,495 12,305 10/31/2007 16,160 15,158 26,351 12,782 10/31/2008 16,242 16,426 20,071 13,356 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, 2008 1 Year 3 Years 5 Years 10 Years Inception(2) 1 Year 3 Years 5 Years 10 Years Inception(2) - ------------------------------------------------------------------------------------------------------------------------------------ North American Government Bond Fund - ISI Class A Shares -2.47% 10.28% 19.33% 62.42% 131.30% -2.47% 3.31% 3.60% 4.97% 5.45% North American Government Bond Fund - ISI Class C Shares -1.08% 11.57% 19.10% -- 15.98% -1.08% 3.72% 3.56% -- 2.75% Barclays Capital Intermediate Treasury Index(4) 8.36% 19.91% 23.82% 64.26% 138.66% 8.36% 6.24% 4.37% 5.09% 5.68% Barclays Capital Emerging Americas Index: Mexico Section / Citigroup US Broad Investment-Grade Bond Index Mexico Sector(5) -23.83% -12.03% 1.83% 100.71% 242.85% -23.83% -4.18% 0.36% 7.22% 8.14% Consumer Price Index(6) 4.49% 9.96% 18.40% 33.56% 57.31% 4.49% 3.21% 3.44% 2.94% 2.92%
(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. (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 Barclays Capital Intermediate Treasury Index from May 31, 2003 through October 31, 2008 were 22.44% and 1.32%, respectively. (4) The Barclays Capital 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 Barclays Capital 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 Barclays Capital Global Aggregate Index: Mexico from October 31, 2006 through October 31, 2008. The Barclays Capital Emerging Americas Index: Mexico Section has been discontinued. Barclays Capital Emerging Americas Index: Mexico Section was an unmanaged sub-index of the Barclays Capital 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 Barclays Capital Global Aggregate Index: Mexico Section is an unmanaged sub-index of Barclays Capital 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, 2008) - -------------------------------------------------------------------------------- [LINE GRAPH OMITTED] Dow Jones Wilshire 5000 ISI Strategy (Full Cap) Consumer Price Fund Index Index ------------ ------------- -------------- 10/31/1998 $ 9,700 $ 10,000 $ 10,000 10/31/1999 10,941 13,946 10,256 10/31/2000 11,763 15,076 10,610 10/31/2001 10,171 11,226 10,835 10/31/2002 9,368 9,720 11,055 10/31/2003 10,911 12,096 11,280 10/31/2004 11,752 13,305 11,640 10/31/2005 12,879 14,738 12,146 10/31/2006 14,554 17,185 12,305 10/31/2007 16,562 19,812 12,782 10/31/2008 11,512 12,594 13,356 13 - -------------------------------------------------------------------------------- ISI STRATEGY FUND -- PERFORMANCE COMPARISON(1) (CONTINUED) - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Cumulative Total Returns (With Load) Average Annual Total Returns ------------------------------------------------ ------------------------------------------------ Periods Ended Since Since October 31, 2008 1 Year 3 Years 5 Years 10 Years Inception(2) 1 Year 3 Years 5 Years 10 Years Inception(2) - ------------------------------------------------------------------------------------------------------------------------------------ ISI Strategy Fund -32.58% -13.26% 2.39% 15.12% 29.21% -32.58% -4.63% 0.47% 1.42% 2.33% Dow Jones Wilshire 5000 (Full Cap) Index(3) -36.43% -14.55% 4.12% 25.94% 100.31% -36.43% -5.10% 0.81% 2.33% 6.47% Consumer Price Index(4) 4.49% 9.96% 18.40% 33.56% 185.55% 4.49% 3.21% 3.44% 2.94% 10.42% Lipper Flexible Portfolio Funds Average(5) -30.50% -8.68% 8.16% 18.36% 48.25% -30.50% -2.98% 1.58% 1.70% 3.62%
(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. 14 - -------------------------------------------------------------------------------- SHAREHOLDER EXPENSE EXAMPLES (UNAUDITED) - -------------------------------------------------------------------------------- As a shareholder of the Fund, you incur two types of cost: (1) transaction costs, 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 - "Actual Return" in the following table provides 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 - "Hypothetical Returns" in the following table provides 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, "Hypothetical Returns" 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, 2008 OCTOBER 31, 2008 DURING PERIOD(1) EXPENSE - ------------------------------------------------------------------------------------------------ Based on Actual Fund Return ... $1,000.00 $1,003.40 $4.03 0.80% Based on Hypothetical 5% Return $1,000.00 $1,021.12 $4.06 0.80% - ------------------------------------------------------------------------------------------------
MANAGED MUNICIPAL FUND
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED MAY 1, 2008 OCTOBER 31, 2008 DURING PERIOD(1) EXPENSE - ------------------------------------------------------------------------------------------------ Based on Actual Fund Return ... $1,000.00 $ 962.60 $4.79 0.97% Based on Hypothetical 5% Return $1,000.00 $1,020.26 $4.93 0.97% - ------------------------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND CLASS A
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED MAY 1, 2008 OCTOBER 31, 2008 DURING PERIOD(1) EXPENSE - ------------------------------------------------------------------------------------------------ Based on Actual Fund Return ... $1,000.00 $ 961.50 $5.29 1.07% Based on Hypothetical 5% Return $1,000.00 $1,019.17 $5.45 1.07% - ------------------------------------------------------------------------------------------------
NORTH AMERICAN GOVERNMENT BOND FUND CLASS C
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED MAY 1, 2008 OCTOBER 31, 2008 DURING PERIOD(1) EXPENSE - ------------------------------------------------------------------------------------------------ Based on Actual Fund Return ... $1,000.00 $ 958.40 $8.40 1.71% Based on Hypothetical 5% Return $1,000.00 $1,016.56 $8.65 1.71% - ------------------------------------------------------------------------------------------------
ISI STRATEGY FUND
BEGINNING ENDING ACCOUNT VALUE ACCOUNT VALUE EXPENSES PAID ANNUALIZED MAY 1, 2008 OCTOBER 31, 2008 DURING PERIOD(1) EXPENSE - ------------------------------------------------------------------------------------------------ Based on Actual Fund Return ... $1,000.00 $ 753.20 $4.37 0.99% Based on Hypothetical 5% Return $1,000.00 $1,020.15 $5.04 0.99% - ------------------------------------------------------------------------------------------------
(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 366 to reflect the half-year period. 16 - ------------------------------------------------------------- PORTFOLIO PROFILES (UNAUDITED) - ------------------------------------------------------------- PORTFOLIO PROFILES (AS A % OF NET ASSETS) OCTOBER 31, 2008 TOTAL RETURN US TREASURY FUND US Treasury Obligations 97.03% Repurchase Agreements 1.09% Other Assets and Liabilities 1.88% ---------- 100.00% MANAGED MUNICIPAL FUND Aaa* 71.51% Aa* 21.14% US Treasury Obligations 1.77% Repurchase Agreements 4.57% Other Assets and Liabilities 1.01% ---------- 100.00% * Ratings are from Moody's Investors Service, Inc. NORTH AMERICAN GOVERNMENT BOND FUND Canadian Securities 13.47% Mexican Securities 6.77% US Treasury Securities 75.61% Repurchase Agreements 3.02% Other Assets and Liabilities 1.13% ---------- 100.00% ISI STRATEGY FUND Consumer Discretionary 5.76% Consumer Staples 8.02% Energy 10.45% Financials 14.27% Health Care 13.22% Industrials 9.42% Information Technology 13.02% Materials 1.46% Telecommunications Services 0.92% Utilities 3.12% US Treasury Obligations 19.24% Repurchase Agreements 0.83% Other Assets and Liabilities 0.27% ---------- 100.00% 17 - -------------------------------------------------------------------------------- TOTAL RETURN US TREASURY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS OCTOBER 31, 2008 INTEREST MATURITY PRINCIPAL MARKET SECURITY RATE DATE AMOUNT VALUE - -------------------------------------------------------------------------------- US TREASURY OBLIGATIONS - 97.03% US Treasury Bonds 7.625% 02/15/25 $5,000,000 $ 6,659,375 US Treasury Bonds 6.000% 02/15/26 11,500,000 13,112,702 US Treasury Bonds 6.375% 08/15/27 16,000,000 19,167,504 US Treasury Bonds 5.000% 05/15/37 5,000,000 5,508,595 US Treasury Notes 5.500% 05/15/09 11,500,000 11,765,040 US Treasury Notes 4.875% 06/30/09 1,700,000 1,740,775 US Treasury Notes 4.625% 07/31/09 9,000,000 9,217,269 US Treasury Notes 4.000% 08/31/09 1,000,000 1,021,719 US Treasury Notes 4.000% 09/30/09 5,000,000 5,117,190 US Treasury Notes 4.875% 08/15/16 1,000,000 1,065,703 US Treasury Notes 3.875% 05/15/18 2,370,000 2,366,853 US Treasury Notes 4.000% 08/15/18 37,500,000 37,561,538 US Treasury Notes 7.875% 02/15/21 1,650,000 2,112,645 ------------ TOTAL US TREASURY OBLIGATIONS (COST $118,287,982)........................................... $116,416,908 ------------ REPURCHASE AGREEMENT - 1.09% JPMORGAN CHASE, N.A. Dated 10/31/08, 0.15%, principal and interest in the amount of $1,303,016 due 11/3/08, collateralized by US Treasury Bond, par value of $1,230,000 due 2/15/37 with a value of $1,329,100 (Cost $1,303,000) .............................. $ 1,303,000 $ 1,303,000 ------------ TOTAL INVESTMENTS - 98.12% (COST $119,590,982)*........................................... $117,719,908 OTHER ASSETS IN EXCESS OF LIABILITIES - 1.88%.................... 2,252,790 ------------ NET ASSETS - 100.00%............................................. $119,972,698 ============ * Cost for Federal income tax purpose is $119,590,982 and net unrealized appreciation (depreciation) on a tax basis consists of: Gross Unrealized Appreciation .......... $ 452,125 Gross Unrealized Depreciation .......... (2,323,199) ------------ Net Unrealized Depreciation. ........... $ (1,871,074) ============ See Notes to Financial Statements. 18 - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS OCTOBER 31, 2008
RATINGS INTEREST MATURITY (MOODY'S/ PRINCIPAL MARKET SECURITY RATE DATE S&P)(1) AMOUNT VALUE - ------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS - 92.65% GENERAL OBLIGATIONS - 59.77% Alexandria, VA, Capital Improvements ... 4.250% 06/15/21 Aaa/AAA $ 3,300,000 $ 3,117,246 Arlington County, VA, State Aid Withholding ................ 4.500% 01/15/28 Aaa/AAA 2,000,000 1,819,740 Arlington County, VA, State Aid Withholding ................ 5.000% 10/01/14 Aaa/AAA 1,080,000 1,092,787 Cary, NC ............................... 5.000% 03/01/18 Aaa/AAA 2,000,000 2,070,940 Dallas, TX ............................. 4.000% 02/15/16 Aa1/AA+ 2,450,000 2,442,674 Delaware State, Series A ............... 4.200% 01/01/20 Aaa/AAA 1,675,000 1,594,098 Du Page County, IL, Jail Project ....... 5.600% 01/01/21 Aaa/AAA 1,600,000 1,684,656 Florida State, Board of Education, Public Education, Series I ........... 4.125% 06/01/21 Aa1/AAA 3,000,000 2,621,850 Georgia State, Series G ................ 4.125% 10/01/23 Aaa/AAA 2,000,000 1,781,580 Georgia State, Series B ................ 3.000% 04/01/27 Aaa/AAA 1,000,000 698,500 Gwinnett County, GA, School District, .. 5.000% 02/01/36 Aaa/AAA 1,500,000 1,435,380 Henrico County, VA, Public Improvement ................... 4.250% 07/15/24 Aaa/AAA 2,830,000 2,549,009 Maryland State, Capital Improvements, Series A ............................. 4.000% 02/15/20 Aaa/AAA 4,000,000 3,663,720 Mecklenburg County, NC, Public Improvements, Series A ........ 4.000% 02/01/20 Aaa/AAA 3,000,000 2,763,300 Missouri State, Fourth State Building, Series A ................... 4.125% 10/01/19 Aaa/AAA 2,000,000 1,919,120 Montgomery County, MD, Public Improvements, Series A ........ 4.000% 05/01/21 Aaa/AAA 2,450,000 2,201,056 Prince Georges County, MD, Public Improvements ......................... 4.125% 07/15/26 Aa1/AAA 2,000,000 1,636,000 Salt Lake City, UT, School District, School Board Guaranty, Series A ...... 4.500% 03/01/20 Aaa/NR 2,240,000 2,190,653 South Carolina State, Highway, Series B .................... 5.000% 04/01/19 Aaa/AA+ 1,000,000 1,016,580 Virginia State, Series B ............... 4.250% 06/01/26 Aaa/AAA 2,500,000 2,186,425 Washington State, Series F ............. 4.500% 07/01/27 Aa1/AA+ 2,500,000 2,199,725 Washington, MD, Suburban Sanitation District, Water Supply .... 4.250% 06/01/26 Aaa/AAA 2,500,000 2,186,425 ------------ $ 44,871,464 ------------
See Notes to Financial Statements. 19 - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008
RATINGS INTEREST MATURITY (MOODY'S/ PRINCIPAL MARKET SECURITY RATE DATE S&P)(1) AMOUNT VALUE - ------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS - 92.65% (CONTINUED) OTHER REVENUE - 6.97% Fairfax County, VA, Water Authority Water Revenue ........................ 4.500% 04/01/27 Aaa/AAA $ 2,500,000 $ 2,234,025 Texas, Water Development Board Revenue, State Revolving Fund-Senior Lien, Series A ....................... 4.750% 07/15/20 Aaa/AAA 3,000,000 2,999,790 ------------ $ 5,233,815 ------------ PREREFUNDED ISSUES - 25.91% Charlotte, NC, Water & Sewer System Revenue, 06/01/09 @ 101 .............. 5.250% 06/01/24 Aa1/AAA 1,600,000 1,649,616 Chesterfield County, VA, 01/15/10 @ 100 5.625% 01/15/14 Aaa/AAA 1,350,000 1,405,647 Chesterfield County, VA, 01/15/11 @ 100 5.000% 01/15/20 Aaa/AAA 1,000,000 1,050,050 Florida State, Board of Education, Public Education Capital Outlay, Series A, 06/01/10 @ 101 ............. 5.125% 06/01/21 Aaa/AAA 1,000,000 1,052,030 Georgia State, Series D, Refundable Balance, 10/01/10 @ 100 .............. 5.000% 10/01/17 Aaa/AAA 390,000 409,137 Guilford County, NC, Series B, 10/01/10 @ 102 ....................... 5.250% 10/01/16 Aa1/AAA 3,000,000 3,219,150 Gwinnett County, GA, Water & Sewer Authority, 08/01/12 @ 100 ...... 5.250% 08/01/24 Aaa/AAA 1,500,000 1,615,365 Minnesota State, 06/01/10 @ 100 ........ 5.500% 06/01/18 Aa1/AAA 2,000,000 2,098,940 North Carolina State, Public School Building, 04/01/09 @ 102 ............. 4.600% 04/01/17 Aaa/AAA 5,000,000 5,161,600 South Carolina State, State Institutional, Series A, 03/01/10 @ 101 ............. 5.300% 03/01/17 Aaa/AA+ 1,700,000 1,785,153 ------------ $ 19,446,688 ------------ TOTAL MUNICIPAL BONDS (COST $71,393,988) ................... $ 69,551,967 ------------ US TREASURY OBLIGATIONS - 1.77% US Treasury Notes ...................... 4.625% 07/31/09 $ 500,000 $ 511,914 US Treasury Notes ...................... 4.000% 08/31/09 800,000 817,375 ------------ TOTAL US TREASURY NOTES (COST $1,328,548)..................... $ 1,329,289 ------------
See Notes to Financial Statements. 20 - -------------------------------------------------------------------------------- MANAGED MUNICIPAL FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008 MARKET SECURITY VALUE - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 4.57% JPMORGAN CHASE, N.A. Dated 10/31/08, 0.15%, principal and interest in the amount of $3,435,043 due 11/3/08, collateralized by US Treasury Bond, par value of $3,245,000 due 2/15/37 with a value of $3,506,446 (Cost $3,435,000) ................... $ 3,435,000 $ 3,435,000 ----------- TOTAL INVESTMENTS - 98.99% (COST $76,157,536)*............................... $74,316,256 OTHER ASSETS IN EXCESS OF LIABILITIES - 1.01%....... 755,703 ----------- NET ASSETS - 100.00%................................ $75,071,959 =========== - -------------------------------------------------------------------------------- (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 determinded to posses very strong safety characteristics are denoted with a plus (+) sign. NR Bond is not rated by this Agency. Prerefunded: Bonds which are prerefunded are collateralized 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 $76,157,536 and net unrealized appreciation (depreciation) on a tax basis consists of: Gross Unrealized Appreciation .......... $ 1,610,123 Gross Unrealized Depreciation .......... (3,451,403) ------------ Net Unrealized Depreciation. ........... $ (1,841,280) ============ See Notes to Financial Statements. 21 - -------------------------------------------------------------------------------- NORTH AMERICAN GOVERNMENT BOND FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS OCTOBER 31, 2008
INTEREST MATURITY PRINCIPAL MARKET SECURITY RATE DATE AMOUNT(1) VALUE - ------------------------------------------------------------------------------------- CANADIAN SECURITIES - 13.47% Canadian Government Bonds 3.750% 06/01/10 CAD 2,300,000 $ 1,959,181 Canadian Government Bonds 3.750% 06/01/12 7,500,000 6,457,794 Canadian Government Bonds 3.500% 06/01/13 3,100,000 2,649,718 Canadian Government Bonds 4.000% 06/01/17 12,500,000 10,620,954 ------------ TOTAL CANADIAN SECURITIES (COST $25,175,003) .................................................. $ 21,687,647 ------------ MEXICAN SECURITIES - 6.77% Mexican Bono(2) 9.000% 12/22/11 MXP 40,322,900 $ 3,217,889 Mexican Bono(2) 9.000% 12/20/12 31,782,400 2,522,867 Mexican Bono(2) 8.000% 12/17/15 49,017,000 3,656,043 Mexican Bono(2) 7.250% 12/15/16 21,000,000 1,496,549 ------------ TOTAL MEXICAN SECURITIES (COST $13,160,156) .................................................. $ 10,893,348 ------------ US TREASURY OBLIGATIONS - 75.61% US Treasury Bonds 7.625% 02/15/25 $10,100,000 $ 13,451,937 US Treasury Bonds 6.000% 02/15/26 2,000,000 2,280,470 US Treasury Bonds 6.375% 08/15/27 9,600,000 11,500,502 US Treasury Bonds 6.250% 05/15/30 7,200,000 8,705,254 US Treasury Notes 4.875% 05/15/09 12,500,000 12,746,100 US Treasury Notes 4.875% 06/30/09 6,000,000 6,143,910 US Treasury Notes 4.625% 07/31/09 600,000 614,485 US Treasury Notes 4.000% 08/31/09 4,000,000 4,086,876 US Treasury Notes 4.000% 09/30/09 9,000,000 9,210,942 US Treasury Notes 4.875% 08/15/16 10,600,000 11,296,452 US Treasury Notes 3.875% 05/15/18 2,500,000 2,496,680 US Treasury Notes 4.000% 08/15/18 37,000,000 37,060,717 US Treasury Notes 7.875% 02/15/21 1,650,000 2,112,645 ------------ TOTAL US TREASURY OBLIGATIONS (COST $123,342,789)................................................. $121,706,970 ------------
See Notes to Financial Statements. 22 - -------------------------------------------------------------------------------- NORTH AMERICAN GOVERNMENT BOND FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS OCTOBER 31, 2008 MARKET SECURITY VALUE - -------------------------------------------------------------------------------- REPURCHASE AGREEMENT - 3.02% JPMORGAN CHASE, N.A. Dated 10/31/08, 0.15%, principal and interest in the amount of $4,852,061 due 11/3/08, collateralized by US Treasury Bond, par value of $4,585,000 due 2/15/37 with a value of $4,954,408 (Cost $4,852,000) ................... $ 4,852,000 $ 4,852,000 ------------ TOTAL INVESTMENTS - 98.87% (COST $166,529,948)* ............................ $159,139,965 OTHER ASSETS IN EXCESS OF LIABILITIES - 1.13%...... 1,822,376 ------------ NET ASSETS - 100.00%............................... $160,962,341 ============ - -------------------------------------------------------------------------------- CAD Canadian dollar MXP Mexican peso (1) Principal Amount is shown in US dollars unless otherwise noted. (2) Bonos are fixed rate, local currency-denominated coupon bonds issued by the Mexican government. * Cost for Federal income tax purpose is $166,529,948 and net unrealized appreciation (depreciation) on a tax basis consists of: Gross Unrealized Appreciation .......... $ 173,778 Gross Unrealized Depreciation .......... (7,563,761) ------------ Net Unrealized Depreciation. ........... $ (7,389,983) ============ See Notes to Financial Statements. 23 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS OCTOBER 31, 2008 MARKET SECURITY SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK - 79.66% AEROSPACE & DEFENSE - 2.08% Goodrich Corp. 1,100 $ 40,216 Honeywell International, Inc. 3,500 106,575 L-3 Communications Holdings, Inc. 4,000 324,680 Northrop Grumman Corp. 10,000 468,900 United Technologies Corp. 3,000 164,880 ------------ 1,105,251 ------------ AIR FREIGHT & LOGISTICS - 0.61% FedEx Corp. 5,000 326,850 ------------ AIRLINES - 0.88% Southwest Airlines Co. 40,000 471,200 ------------ AUTO COMPONENTS - 0.32% Cooper Tire & Rubber Co. 5,000 38,150 Johnson Controls, Inc. 7,560 134,039 ------------ 172,189 ------------ AUTOMOBILES - 0.01% Fleetwood Enterprises, Inc.* 13,500 6,075 ------------ BEVERAGES - 0.55% Coca-Cola Co. 5,000 220,300 Pepsico, Inc. 1,284 73,201 ------------ 293,501 ------------ BIOTECHNOLOGY - 2.86% Amgen, Inc.* 7,300 437,197 Biogen Idec, Inc.* 4,000 170,200 Genentech, Inc.* 6,324 524,513 Genzyme Corp.* 5,000 364,400 Savient Pharmaceuticals, Inc.* 5,300 25,228 ------------ 1,521,538 ------------ CAPITAL MARKETS - 2.73% BGC Partners, Inc. 1,544 6,315 Bank of New York Mellon Corp. (The) 842 27,449 Blackrock, Inc. Class A 2,240 294,202 Calamos Asset Management, Inc. - Class A 5,000 41,050 Charles Schwab Corp. 14,100 269,592 E*TRADE Financial Corp.* 5,600 10,192 MARKET SECURITY SHARES VALUE - -------------------------------------------------------------------------------- CAPITAL MARKETS - 2.73% (CONTINUED) FCStone Group, Inc.* 9,700 $ 57,715 Goldman Sachs Group, Inc. 1,000 92,500 Knight Capital Group, Inc. - Class A* 5,000 72,300 Merrill Lynch & Co. 6,120 113,771 Penson Worldwide, Inc.* 5,000 35,700 SEI Investments Co. 6,400 113,152 SWS Group, Inc. 5,000 92,800 State Street Corp. 5,300 229,755 ------------ 1,456,493 ------------ CHEMICALS - 1.12% Ashland, Inc. 5,000 112,950 FMC Corp. 2,700 117,558 International Flavors & Fragrance, Inc. 11,500 366,620 ------------ 597,128 ------------ COMMERCIAL BANKS - 3.47% Associated Banc-Corp 5,000 110,300 Boston Private Financial Holdings, Inc. 4,000 35,360 Colonial BancGroup, Inc. (The) 5,800 23,722 Columbia Banking System, Inc. 4,400 70,048 Cullen/Frost Bankers, Inc. 5,000 279,850 F.N.B. Corp. 5,100 66,810 First Commonwealth Financial Corp. 9,400 103,964 First Financial Bancorp. 4,000 53,800 Frontier Financial Corp. 10,000 66,600 Glacier Bancorp, Inc. 5,000 100,850 Hancock Holding Co. 5,000 220,800 Prosperity Bancshares, Inc. 5,000 166,050 Provident Bankshares Corp. 4,000 42,680 Regions Financial Corp. 546 6,055 Sterling Financial Corp. 4,000 33,960 Susquehanna Bancshares, Inc. 5,000 77,450 UCBH Holdings, Inc. 4,000 21,120 UMB Financial Corp. 5,000 226,650 US Bancorp 2,473 73,720 United Community Banks, Inc. 4,800 62,976 Zions Bancorp. 100 3,811 ------------ 1,846,576 ------------ See Notes to Financial Statements. 24 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008 MARKET SECURITY SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK - 79.66% (CONTINUED) COMMERCIAL SERVICES & SUPPLIES - 0.53% Copart, Inc.* 5,000 $ 174,500 Herman Miller, Inc. 5,000 110,000 ------------ 284,500 ------------ COMMUNICATIONS EQUIPMENT - 1.43% Cisco Systems, Inc.* 40,857 726,029 Juniper Networks, Inc.* 1,795 33,638 ------------ 759,667 ------------ COMPUTERS & PERIPHERALS - 4.70% Apple, Inc.* 5,848 629,186 Hewlett-Packard Co. 10,000 382,800 International Business Machines Corp. 13,422 1,247,843 NCR Corp.* 5,000 91,400 Teradata Corp.* 10,000 153,900 ------------ 2,505,129 ------------ CONSTRUCTION & ENGINEERING - 0.25% Layne Christensen Co.* 5,000 131,400 ------------ CONSUMER FINANCE - 0.50% AmeriCredit Corp.* 9,000 52,740 Discover Financial Services, LLC 6,240 76,440 First Cash Financial Services, Inc.* 5,000 76,850 SLM Corp.* 5,600 59,752 ------------ 265,782 ------------ DISTRIBUTORS - 0.11% Genuine Parts Co. 1,450 57,058 ------------ DIVERSIFIED CONSUMER SERVICES - 0.40% Career Education Corp.* 4,000 63,240 Corinthian Colleges, Inc.* 4,000 57,120 Jackson Hewitt Tax Service, Inc. 4,000 55,120 Sotheby's 4,000 37,240 ------------ 212,720 ------------ MARKET SECURITY SHARES VALUE - -------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES - 1.77% CIT Group, Inc. 4,100 $ 16,974 CME Group, Inc. 800 225,720 Citigroup, Inc. 12,702 173,382 Financial Federal Corp. 15,000 347,250 Moody's Corp. 6,974 178,534 ------------ 941,860 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES - 0.68% AT&T, Inc. 11,039 295,514 Fairpoint Communications, Inc. 771 3,069 Globalstar, Inc.* 13,500 7,425 PAETEC Holding Corp.* 9,300 8,370 Qwest Communications International, Inc. 9,900 28,314 Verizon Communications, Inc. 688 20,413 ------------ 363,105 ------------ ELECTRIC UTILITIES - 2.05% Alleghany Energy, Inc. 7,200 217,080 DPL, Inc. 31,100 709,391 PPL Corp. 5,000 164,100 ------------ 1,090,571 ------------ ELECTRICAL EQUIPMENT - 0.25% Advanced Battery Technologies, Inc.* 14,300 40,755 Rockwell Automation, Inc. 3,439 95,157 ------------ 135,912 ------------ ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.21% Agilent Technologies, Inc.* 5,105 113,280 ------------ ENERGY EQUIPMENT & SERVICES - 1.34% Halliburton Co. 5,000 98,950 National Oilwell Varco, Inc.* 5,000 149,450 Superior Energy Services, Inc.* 3,500 74,620 Transocean, Inc.* 4,757 391,644 ------------ 714,664 ------------ FOOD & STAPLES RETAILING - 2.04% Costco Wholesale Corp. 2,860 163,049 Wal-Mart Stores, Inc. 14,266 796,185 Walgreen Co. 5,000 127,300 ------------ 1,086,534 ------------ See Notes to Financial Statements. 25 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008 MARKET SECURITY SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK - 79.66% (CONTINUED) FOOD PRODUCTS - 1.83% General Mills, Inc. 5,000 $ 338,700 Hershey Co. (The) 5,000 186,200 Hormel Foods Corp. 10,000 282,600 McCormick & Co. - Non-Voting Shares 5,000 168,300 ------------ 975,800 ------------ GAS UTILITIES - 0.79% Energen Corp. 7,100 238,347 National Fuel Gas Co. 5,000 180,950 ------------ 419,297 ------------ HEALTH CARE EQUIPMENT & SUPPLIES - 1.53% AngioDynamics, Inc.* 5,000 63,000 Baxter International, Inc. 500 30,245 Beckman Coulter, Inc. 100 4,992 DENTSPLY International, Inc. 4,000 121,520 IDEXX Laboratories, Inc.* 5,000 175,950 Immucor, Inc.* 4,000 106,200 Medtronic, Inc. 2,670 107,681 Meridian Bioscience, Inc. 5,000 122,900 Sirona Dental Systems, Inc.* 5,000 79,850 ------------ 812,338 ------------ HEALTH CARE PROVIDERS & SERVICES - 2.51% Aetna, Inc. 5,400 134,298 AmerisourceBergen Corp. 10,000 312,700 CIGNA Corp. 8,046 131,150 Express Scripts, Inc.* 5,000 303,050 Health Net, Inc.* 10,000 128,800 McKesson Corp. 4,700 172,913 Unitedhealth Group, Inc. 6,548 155,384 ------------ 1,338,295 ------------ HOTELS, RESTAURANTS & LEISURE - 1.28% Burger King Holdings, Inc. 5,000 99,400 McDonald's Corp. 10,000 579,300 ------------ 678,700 ------------ HOUSEHOLD DURABLES - 0.02% Harman International Industries, Inc. 600 11,022 ------------ MARKET SECURITY SHARES VALUE - -------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS - 1.29% Procter & Gamble Co. 10,644 $ 686,964 ------------ INDUSTRIAL CONGLOMERATES - 1.23% 3M Co. 2,400 154,320 General Electric Co. 20,834 406,471 Textron, Inc. 5,400 95,580 ------------ 656,371 ------------ INSURANCE - 3.06% Aon Corp. 6,800 287,640 eHealth, Inc.* 4,600 58,512 LandAmerica Financial Group, Inc. 9,000 88,650 Loews Corp. 13,000 431,730 MBIA, Inc. 6,200 60,946 Marsh & McLennan Cos., Inc. 5,363 157,243 MetLife, Inc. 10,000 332,200 Prudential Financial, Inc. 5,000 150,000 Torchmark Corp. 200 8,354 Travelers Cos., Inc. (The) 100 4,255 XL Capital Ltd. - Class A 5,000 48,500 ------------ 1,628,030 ------------ INTERNET & CATALOG RETAIL - 0.37% Amazon.com, Inc.* 1,000 57,240 drugstore.com, Inc.* 5,000 8,900 Expedia, Inc.* 2,543 24,184 NutriSystem, Inc. 4,000 56,600 Stamps.com, Inc.* 5,000 48,800 ------------ 195,724 ------------ INTERNET SOFTWARE & SERVICES - 1.82% Akamai Technologies, Inc.* 5,000 71,900 eBay, Inc.* 2,840 43,367 Google, Inc. - Class A* 2,200 790,592 Yahoo!, Inc.* 5,000 64,100 ------------ 969,959 ------------ See Notes to Financial Statements. 26 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008 MARKET SECURITY SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK - 79.66% (CONTINUED) IT SERVICES - 0.27% Fidelity National Information Services, Inc. 279 $ 4,210 Heartland Payment Systems, Inc. 3,000 52,230 Hewitt Associates, Inc. - A* 2,940 81,997 Lender Processing Services, Inc. 139 3,207 ------------ 141,644 ------------ LIFE SCIENCES TOOLS & SERVICES - 1.09% Affymetrix, Inc.* 4,000 14,760 Covance, Inc.* 5,000 250,000 Invitrogen Corp.* 10,000 287,900 PerkinElmer, Inc. 1,000 17,940 Pharmanet Development Group, Inc.* 5,000 8,000 ------------ 578,600 ------------ MACHINERY - 0.70% Flow International Corp.* 5,000 19,200 Illinois Tool Works, Inc. 1,138 37,998 Joy Global, Inc. 5,000 144,900 Manitowoc Company, Inc. 14,000 137,760 Mueller Water Products, Inc. - Class B 4,000 26,320 Timken Co. 300 4,764 ------------ 370,942 ------------ MEDIA - 1.29% DIRECTV Group, Inc. (The)* 10,000 218,900 DreamWorks Animation SKG* 3,439 96,636 Interpublic Group of Companies, Inc.* 1,900 9,861 Marvel Entertainment, Inc.* 5,000 160,950 McGraw-Hill Companies, Inc. 600 16,104 New York Times Co. - Class A 5,000 50,000 News Corp. - Class A 604 6,427 Walt Disney Co. (The) 5,000 129,500 ------------ 688,378 ------------ MARKET SECURITY SHARES VALUE - -------------------------------------------------------------------------------- METALS & MINING - 0.34% Newmont Mining Corp. 5,000 $ 131,700 Titanium Metals Corp. 5,000 46,550 ------------ 178,250 ------------ MULTILINE RETAIL - 0.22% Sears Holdings Corp.* 1,200 69,288 Target Corp. 1,198 48,064 ------------ 117,352 ------------ MULTI-UTILITIES - 0.28% MDU Resources Group, Inc. 5,000 91,050 TECO Energy, Inc. 5,000 57,700 ------------ 148,750 ------------ OIL, GAS & CONSUMABLE FUELS - 9.11% Chevron Corp. 9,328 695,869 ConocoPhillips 8,650 449,973 Denbury Resources, Inc.* 5,000 63,550 EXCO Resources, Inc.* 5,200 47,788 Exxon Mobil Corp. 26,424 1,958,547 Hess Corp. 3,439 207,062 Kinder Morgan Management, LLC* 5,384 268,947 Marathon Oil Corp. 9,000 261,900 Mariner Energy, Inc.* 94 1,353 Newfield Exploration Co.* 5,000 114,900 Plains Exploration & Production Co.* 10,000 282,000 Quicksilver Resources, Inc.* 15,000 157,050 Williams Companies, Inc. 7,600 159,372 XTO Energy, Inc. 5,000 179,750 ------------ 4,848,061 ------------ PERSONAL PRODUCTS - 0.23% Avon Products, Inc. 5,000 124,150 ------------ PHARMACEUTICALS - 5.24% Abbott Laboratories 4,335 239,075 Allergan, Inc. 420 16,661 Bristol-Myers Squibb Co. 2,247 46,176 Cypress Bioscience, Inc.* 4,800 26,112 Eli Lilly & Co. 2,396 81,033 Forest Laboratories, Inc.* 10,000 232,300 Johnson & Johnson 12,606 773,252 See Notes to Financial Statements. 27 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008 MARKET SECURITY SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK - 79.66% (CONTINUED) PHARMACEUTICALS - 5.24% (CONTINUED) King Pharmaceuticals, Inc.* 7,400 $ 65,046 Pfizer, Inc. 56,763 1,005,273 Salix Pharmaceuticals, Ltd.* 6,300 57,960 Schering-Plough Corp. 4,500 65,205 ViroPharma, Inc.* 5,000 62,700 Wyeth 3,630 116,813 ------------ 2,787,606 ------------ REAL ESTATE INVESTMENT TRUSTS - 1.60% Boston Properties, Inc. 5,100 361,488 ProLogis 5,000 70,000 Public Storage, Inc. 5,186 422,659 ------------ 854,147 ------------ REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.14% Forestar Real Estate Group, Inc.* 7,900 69,125 Meruelo Maddux Properties, Inc.* 4,000 3,920 ------------ 73,045 ------------ ROAD & RAIL - 2.88% Burlington Northern Santa Fe Corp. 5,000 445,300 CSX Corp. 5,000 228,600 Kansas City Southern* 5,000 154,350 Ryder Systems, Inc. 1,000 39,620 Union Pacific Corp. 10,000 667,700 ------------ 1,535,570 ------------ SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.61% Broadcom Corp.- Class A* 6,950 118,706 Entegris, Inc.* 1,444 3,884 Integrated Device Technology, Inc.* 1,400 8,904 Intel Corp. 3,674 58,784 International Rectifier Corp.* 1,000 15,440 LSI Logic Corp.* 15,000 57,750 Linear Technology Corp. 5,600 127,008 Marvell Technology Group Ltd.* 7,400 51,504 MARKET SECURITY SHARES VALUE - -------------------------------------------------------------------------------- SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.61% (CONTINUED) MEMC Electronic Materials, Inc.* 5,000 $ 91,900 Micron Technology, Inc.* 5,000 23,550 NVIDIA Corp.* 5,000 43,800 Skyworks Solutions, Inc.* 800 5,704 Teradyne, Inc.* 5,000 25,500 Texas Instruments, Inc. 10,000 195,600 Volterra Semiconductor Corp.* 3,000 28,320 ------------ 856,354 ------------ SOFTWARE - 2.98% Adobe Systems, Inc.* 5,000 133,200 ANSYS, Inc.* 5,000 143,150 Electronic Arts, Inc* 10,000 227,800 Macrovision Solutions Corp.* 1,631 18,072 Microsoft Corp. 30,146 673,160 Oracle Corp.* 13,100 239,599 Sonic Solutions* 5,000 10,200 Symantec Corp.* 5,600 70,448 Symyx Technologies, Inc.* 5,000 22,050 Synchronoss Technologies, Inc.* 5,000 38,850 Synopsys, Inc.* 630 11,516 ------------ 1,588,045 ------------ SPECIALTY RETAIL - 1.85% Aaron Rents, Inc. 4,000 99,160 American Eagle Outfitters, Inc. 6,700 74,504 Bed Bath & Beyond, Inc.* 5,300 136,581 Best Buy Co., Inc. 456 12,225 Borders Group, Inc. 5,100 17,289 Cato Corp. (The) - Class A 5,500 85,360 Christopher & Banks Corp. 5,000 26,100 Eddie Bauer Holdings, Inc.* 4,000 13,720 Foot Locker, Inc. 5,300 77,486 Home Depot, Inc. 5,000 117,950 Hot Topic, Inc.* 5,000 32,400 Office Depot, Inc.* 100 360 O'Reilly Automotive, Inc.* 4,000 108,440 See Notes to Financial Statements. 28 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008 MARKET SECURITY SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK - 79.66% (CONTINUED) SPECIALTY RETAIL - 1.85% (CONTINUED) Pacific Sunwear of California, Inc.* 7,700 $ 26,334 Stage Stores, Inc. 5,600 43,176 Systemax, Inc. 4,000 56,640 Tween Brands, Inc.* 6,500 55,380 ------------ 983,105 ------------ THRIFTS & MORTGAGE FINANCE - 1.00% Bank Mutual Corp. 5,200 59,956 Brookline Bancorp, Inc. 5,000 58,500 CORUS Bankshares, Inc. 17,100 37,620 First Niagara Financial Group, Inc. 5,000 78,850 Flagstar Bancorp, Inc. 6,700 12,730 MGIC Investment, Inc. 6,300 24,444 PMI Group, Inc. (The) 1,200 2,988 Provident Financial Services, Inc. 5,000 73,300 TrustCo Bank Corp. 15,000 182,550 ------------ 530,938 ------------ TOBACCO - 1.97% Altria Group, Inc. 12,171 233,561 Philip Morris International, Inc. 6,871 298,682 Reynolds America, Inc. 5,000 244,800 UST, Inc. 4,000 270,360 ------------ 1,047,403 ------------ WIRELESS TELECOMMUNICATIONS SERVICES - 0.24% American Tower Corp.- Class A* 4,000 129,240 ------------ TOTAL COMMON STOCK (COST $50,702,590) $ 42,413,063 ------------ See Notes to Financial Statements. 29 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2008
INTEREST MATURITY PRINCIPAL MARKET SECURITY RATE DATE AMOUNT VALUE - ----------------------------------------------------------------------------------- US TREASURY OBLIGATIONS - 19.24% US Treasury Bonds 6.000% 02/15/26 $1,000,000 $ 1,140,235 US Treasury Bonds 6.750% 08/15/26 3,050,000 3,758,887 US Treasury Bonds 6.375% 08/15/27 200,000 239,594 US Treasury Bonds 5.000% 05/15/37 500,000 550,859 US Treasury Notes 4.875% 05/15/09 1,300,000 1,325,594 US Treasury Notes 4.625% 07/31/09 600,000 614,485 US Treasury Notes 3.875% 10/31/12 1,000,000 1,066,954 US Treasury Notes 3.875% 05/15/18 550,000 549,270 US Treasury Notes 4.000% 08/15/18 1,000,000 1,001,641 ----------- TOTAL US TREASURY OBLIGATIONS (COST $9,965,326)................................................... $10,247,519 ----------- REPURCHASE AGREEMENT - 0.83% JPMORGAN CHASE, N.A. Dated 10/31/08, 0.15%, principal and interest in the amount of $441,006 due 11/3/08, collateralized by US Treasury Bond, par value of $420,000 due 2/15/37 with a value of $453,839 (Cost $441,000) ............................ $ 441,000 $ 441,000 ----------- TOTAL INVESTMENTS - 99.73% (COST $61,108,916)**................................................ $53,101,582 OTHER ASSETS IN EXCESS OF LIABILITIES - 0.27%......................... 143,235 ----------- NET ASSETS - 100.00%.................................................. $53,244,817 ===========
* Non-income producing ** Cost for Federal income tax purpose is $61,188,435 and net unrealized appreciation (depreciation) on a tax basis consists of: Gross Unrealized Appreciation .......... $ 4,312,907 Gross Unrealized Depreciation .......... (12,396,070) ------------ Net Unrealized Depreciation. ........... $ (8,086,853) ============ See Notes to Financial Statements. 30 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2008
TOTAL RETURN MANAGED US TREASURY MUNICIPAL FUND FUND - ---------------------------------------------------------------------------------------- ASSETS Investments in securities: At cost .......................................... $ 119,590,982 $ 76,157,536 ============= ============= At value (Note 1) ................................ $ 117,719,908 $ 74,316,256 Cash ............................................... -- 892 Interest receivable ................................ 1,406,866 866,181 Receivable for capital shares sold ................. 1,028,503 108,392 Other assets ....................................... 25,343 21,812 ------------- ------------- TOTAL ASSETS ..................................... 120,180,620 75,313,533 ------------- ------------- LIABILITIES Bank overdraft ..................................... 329 -- Distributions payable .............................. 95,152 165,076 Payable for capital shares redeemed ................ 18,788 -- Accrued investment advisory fees (Note 2) .......... 26,523 24,770 Accrued distribution expenses (Note 2) ............. 25,597 15,481 Accrued administration fees (Note 2) ............... 12,500 7,500 Accrued transfer agent fees (Note 2) ............... 2,800 1,000 Other accrued expenses ............................. 26,233 27,747 ------------- ------------- TOTAL LIABILITIES ................................ 207,922 241,574 ------------- ------------- NET ASSETS ............................................ $ 119,972,698 $ 75,071,959 ============= ============= NET ASSETS CONSIST OF: Paid-in capital .................................... $ 121,938,924 $ 76,788,963 Distributions in excess of net investment income. .. (95,152) -- Accumulated net realized gains from security transactions ....................... -- 124,276 Net unrealized depreciation on investments ......... (1,871,074) (1,841,280) ------------- ------------- Net assets ............................................ $ 119,972,698 $ 75,071,959 ============= ============= Shares of capital stock outstanding of $0.001 par value ISI Shares (115,000,000 and 55,000,000 shares authorized, respectively) .......................... 12,510,639 7,533,774 ============= ============= Net asset value and redemption price per share ........ $ 9.59 $ 9.96 ============= ============= Maximum offering price value per share (100/97) x Net asset value per share ............... $ 9.89 $ 10.27 ============= =============
See Notes to Financial Statements. 31 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES OCTOBER 31, 2008
NORTH AMERICAN ISI GOVERNMENT BOND STRATEGY FUND FUND - ------------------------------------------------------------------------------------- ASSETS Investments in securities: At cost ....................................... $ 166,529,948 $ 61,108,916 ------------- ------------- At value (Note 1) ............................. $ 159,139,965 $ 53,101,582 Cash ............................................ 241 851 Dividends and interest receivable, at value ..... 2,121,731 157,115 Receivable for capital shares sold .............. 497,365 18,388 Other assets .................................... 34,751 24,517 ------------- ------------- TOTAL ASSETS .................................. 161,794,053 53,302,453 ------------- ------------- LIABILITIES Distributions payable ........................... 292,278 -- Payable for capital shares redeemed ............. 353,535 2,409 Accrued investment advisory fees (Note 2) ....... 55,123 18,361 Accrued distribution expenses (Note 2) .......... 61,220 11,476 Accrued shareholder servicing fees (Note 2) ..... 4,355 -- Accrued administration fees (Note 2) ............ 16,800 5,600 Accrued transfer agent fees (Note 2) ............ 5,300 2,100 Other accrued expenses .......................... 43,101 17,690 ------------- ------------- TOTAL LIABILITIES ............................. 831,712 57,636 ------------- ------------- NET ASSETS ......................................... $ 160,962,341 $ 53,244,817 ============= ============= NET ASSETS CONSIST OF: Paid-in capital ................................. $ 168,751,243 $ 62,296,402 Undistributed (distributions in excess of) net investment income ............................. (292,278) 34,455 Accumulated net realized gains (losses) from security and foreign currency transactions -- (1,078,706) Net unrealized depreciation on investments and foreign currencies ......... (7,496,624) (8,007,334) ------------- ------------- Net assets ......................................... $ 160,962,341 $ 53,244,817 ============= =============
See Notes to Financial Statements. 32 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED) OCTOBER 31, 2008
NORTH AMERICAN ISI GOVERNMENT BOND STRATEGY FUND FUND - ------------------------------------------------------------------------------------------- SHARES OF CAPITAL STOCK OUTSTANDING OF $0.001 PAR VALUE ISI Class A Shares (50,000,000 shares authorized) ...... 19,438,474 -- ============= ============= ISI Class C Shares (5,000,000 shares authorized) ....... 2,862,727 -- ============= ============= ISI Shares (25,000,000 shares authorized) .............. -- 5,527,708 ============= ============= NET ASSET VALUE AND REDEMPTION PRICE PER SHARE ISI Class A Shares (based on net assets of $140,326,116) $ 7.22 $ -- ============= ============= ISI Class C Shares (based on net assets of $20,636,225)* $ 7.21 $ -- ============= ============= ISI Shares ............................................. $ -- $ 9.63 ============= ============= MAXIMUM OFFERING PRICE VALUE PER SHARE (100/97) X NET ASSET VALUE PER SHARE ISI Class A Shares ..................................... $ 7.44 $ -- ============= ============= ISI Shares ............................................. $ -- $ 9.93 ============= =============
* Contingent deferred sales charge of 1.00% is imposed on the sale of shares if redeemed within the first year of purchase. See Notes to Financial Statements. 33 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 TOTAL RETURN MANAGED US TREASURY MUNICIPAL FUND FUND - -------------------------------------------------------------------------------- INVESTMENT INCOME Interest ..................................... $ 4,478,777 $ 3,313,834 ------------ ------------ EXPENSES Investment advisory fees (Note 2) ............ 309,096 298,782 Distribution fees (Note 2) ................... 307,331 186,738 Administration fees (Note 2) ................. 143,909 87,454 Professional fees ............................ 71,271 37,784 Transfer agent fees (Note 2) ................. 35,396 12,035 Registration fees ............................ 21,880 22,724 Compliance consulting fees (Note 2) .......... 23,704 13,594 Custodian fees ............................... 22,291 11,726 Directors' fees and expenses ................. 19,430 13,570 Other expenses ............................... 16,143 34,723 ------------ ------------ TOTAL EXPENSES ............................. 970,451 719,130 ------------ ------------ NET INVESTMENT INCOME ........................... 3,508,326 2,594,704 ------------ ------------ REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Net realized gains from: Security transactions ...................... 1,336,175 124,614 Net change in unrealized appreciation/ depreciation on investments ................ 713,946 (3,752,876) ------------ ------------ NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS ................ 2,050,121 (3,628,262) ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ................... $ 5,558,447 $ (1,033,558) ============ ============ See Notes to Financial Statements. 34 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS YEAR ENDED OCTOBER 31, 2008 NORTH AMERICAN ISI GOVERNMENT BOND STRATEGY FUND FUND - -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends .................................... $ -- $ 944,439 Interest ..................................... 6,393,051 508,865 ------------ ------------ TOTAL INVESTMENT INCOME .................. 6,393,051 1,453,304 ------------ ------------ EXPENSES Investment advisory fees (Note 2) ............ 627,088 290,246 Distribution fees: ISI Class A Shares ......................... 550,191 ISI Class C Shares ......................... 144,182 ISI Shares ................................. 181,404 Administration fees (Note 2) ................. 183,715 84,823 Transfer agent fees: ISI Class A Shares ......................... 54,808 ISI Class C Shares ......................... 7,965 ISI Shares ................................. 26,705 Professional fees ............................ 74,356 43,246 Shareholder servicing fees: ISI Class C Shares ......................... 48,061 -- Registration fees ............................ 33,548 26,929 Custodian fees ............................... 26,492 13,166 Directors' fees and expenses ................. 24,213 12,850 Compliance consulting fees (Note 2) .......... 29,256 11,033 Other expenses ............................... 53,552 26,678 ------------ ------------ TOTAL EXPENSES ............................. 1,857,427 717,080 ------------ ------------ NET INVESTMENT INCOME ........................... 4,535,624 736,224 ------------ ------------ REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES (NOTE 3) Net realized gains (losses) from: Security transactions ...................... 2,005,283 (971,359) Foreign currency transactions .............. 91,663 -- Net change in unrealized appreciation/ depreciation on: Investments ................................ (6,318,663) (23,945,840) Foreign currency translation ............... (128,543) -- ------------ ------------ NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS AND FOREIGN CURRENCIES ........... (4,350,260) (24,917,199) ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .............................. $ 185,364 $(24,180,975) ============ ============ See Notes to Financial Statements. 35 - -------------------------------------------------------------------------------- ISI TOTAL RETURN US TREASURY FUND - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED OCTOBER 31, OCTOBER 31, 2008 2007 - ------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ................................. $ 3,508,326 $ 4,947,388 Net realized gains (losses) on security transactions .. 1,336,175 (533,469) Net change in unrealized appreciation/ depreciation on investments ......................... 713,946 1,546,328 ------------- ------------- Net increase in net assets from operations ............... 5,558,447 5,960,247 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income ............................ (3,593,392) (4,897,087) From net realized gains from security transactions .... (802,706) (12,992) From return of capital ................................ -- (104,188) ------------- ------------- Net decrease in net assets from distributions to shareholders ......................... (4,396,098) (5,014,267) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ............................. 9,736,141 6,319,187 Net asset value of shares issued in reinvestment of distributions to shareholders .................... 3,006,912 3,348,275 Payments for shares redeemed .......................... (18,700,781) (39,629,589) ------------- ------------- Net decrease in net assets from capital share transactions (5,957,728) (29,962,127) ------------- ------------- TOTAL DECREASE IN NET ASSETS ............................. (4,795,379) (29,016,147) NET ASSETS Beginning of year ..................................... 124,768,077 153,784,224 ------------- ------------- End of year ........................................... $ 119,972,698 $ 124,768,077 ============= ============= DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME ................................. $ (95,152) $ (117,726) ============= ============= CAPITAL SHARE ACTIVITY Sold .................................................. 994,698 675,464 Reinvested ............................................ 309,350 356,856 Redeemed .............................................. (1,921,166) (4,234,096) ------------- ------------- Net decrease in shares outstanding .................... (617,118) (3,201,776) Shares outstanding, beginning of year ................. 13,127,757 16,329,533 ------------- ------------- Shares outstanding, end of year ....................... 12,510,639 13,127,757 ============= =============
See Notes to Financial Statements. 36 - -------------------------------------------------------------------------------- ISI MANAGED MUNICIPAL FUND - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED OCTOBER 31, OCTOBER 31, 2008 2007 - ------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ................................. $ 2,594,704 $ 2,768,327 Net realized gains on security transactions ........... 124,614 302,012 Net change in unrealized appreciation/ depreciation on investments ......................... (3,752,876) (1,359,099) ------------- ------------- Net increase (decrease) in net assets from operations .... (1,033,558) 1,711,240 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income ............................ (3,320,777) (2,444,322) From net realized gains from security transactions .... (302,252) (720,919) ------------- ------------- Net decrease in net assets from distributions to shareholders ......................... (3,623,029) (3,165,241) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ............................. 14,259,928 3,715,876 Net asset value of shares issued in reinvestment of distributions to shareholders .................... 1,901,352 1,836,701 Payments for shares redeemed .......................... (9,470,677) (13,940,935) ------------- ------------- Net increase (decrease) in net assets from capital share transactions ........................... 6,690,603 (8,388,358) ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS .................. 2,034,016 (9,842,359) NET ASSETS Beginning of year ..................................... 73,037,943 82,880,302 ------------- ------------- End of year ........................................... $ 75,071,959 $ 73,037,943 ============= ============= UNDISTRIBUTED (DISTRIBUTIONS IN EXCESS OF) NET INVESTMENT INCOME ................................. $ -- $ 726,011 ============= ============= CAPITAL SHARE ACTIVITY Sold .................................................. 1,370,154 350,339 Reinvested ............................................ 181,645 172,566 Redeemed .............................................. (903,279) (1,310,969) ------------- ------------- Net increase (decrease) in shares outstanding ......... 648,520 (788,064) Shares outstanding, beginning of year ................. 6,885,254 7,673,318 ------------- ------------- Shares outstanding, end of year ....................... 7,533,774 6,885,254 ============= =============
See Notes to Financial Statements. 37 - -------------------------------------------------------------------------------- ISI NORTH AMERICAN GOVERNMENT BOND FUND - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED OCTOBER 31, OCTOBER 31, 2008 2007 - ------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ................................. $ 4,535,624 $ 5,210,288 Net realized gains on security and foreign currency transactions ....................... 2,096,946 1,593,508 Net change in unrealized appreciation/depreciation on investments and foreign currencies ............... (6,447,206) 2,654,081 ------------- ------------- Net increase in net assets from operations ............... 185,364 9,457,877 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income ISI Class A Shares .................................. (3,389,286) (6,373,815) ISI Class C Shares .................................. (348,008) (652,731) From net realized gains from security transaction ISI Class A Shares .................................. (2,557,037) -- ISI Class C Shares .................................. (357,527) -- From return of capital ISI Class A Shares .................................. (569,757) (156,882) ISI Class C Shares .................................. (79,664) (16,066) ------------- ------------- NET DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS ......................... (7,301,279) (7,199,494) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ISI Class A Shares .................................. 43,826,856 17,184,282 ISI Class C Shares .................................. 8,998,180 3,349,326 Net asset value of shares issued in reinvestment of distributions to shareholders ISI Class A Shares .................................. 3,405,028 3,218,998 ISI Class C Shares .................................. 531,357 397,242 Payments for shares redeemed ISI Class A Shares .................................. (32,470,695) (37,507,806) ISI Class C Shares .................................. (4,808,955) (2,737,227) ------------- ------------- Net increase (decrease) in net assets from capital share transactions ............................ 19,481,771 (16,095,185) ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS .................. 12,365,856 (13,836,802) NET ASSETS Beginning of year ..................................... 148,596,485 162,433,287 ------------- ------------- End of year ........................................... $ 160,962,341 $ 148,596,485 ============= ============= DISTRIBUTIONS IN EXCESS OF NET INVESTMENT INCOME ................................. $ (292,278) $ (272,991) ============= =============
See Notes to Financial Statements. 38 - -------------------------------------------------------------------------------- ISI NORTH AMERICAN GOVERNMENT BOND FUND - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
YEAR YEAR ENDED ENDED OCTOBER 31, OCTOBER 31, 2008 2007 - ------------------------------------------------------------------------------------------- CAPITAL SHARE ACTIVITY Sold ISI Class A Shares .................................. 5,760,050 2,336,309 ISI Class C Shares .................................. 1,176,213 454,890 Reinvested ISI Class A Shares .................................. 447,131 437,899 ISI Class C Shares .................................. 69,882 54,106 Redeemed ISI Class A Shares .................................. (4,273,002) (5,097,813) ISI Class C Shares .................................. (624,903) (374,116) Net increase (decrease) in shares outstanding ISI Class A Shares .................................. 1,934,179 (2,323,605) ISI Class C Shares .................................. 621,192 134,880 Shares outstanding, beginning of year ISI Class A Shares .................................. 17,504,295 19,827,900 ISI Class C Shares .................................. 2,241,535 2,106,655 Shares outstanding, end of year ISI Class A Shares .................................. 19,438,474 17,504,295 ISI Class C Shares .................................. 2,862,727 2,241,535
See Notes to Financial Statements. 39 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED OCTOBER 31, OCTOBER 31, 2008 2007 - ------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income ................................. $ 736,224 $ 913,806 Net realized gains (losses) on security transactions .. (971,359) 4,355,339 Net change in unrealized appreciation/ depreciation on investments ......................... (23,945,840) 4,419,629 ------------- ------------- Net increase (decrease) in net assets from operations .... (24,180,975) 9,688,774 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS From net investment income ............................ (738,026) (913,710) From net realized gains from security transactions .... (4,289,022) (1,880,666) ------------- ------------- Net decrease in net assets from distributions to shareholders ......................... (5,027,048) (2,794,376) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS Proceeds from shares sold ............................. 11,373,856 11,950,032 Net asset value of shares issued in reinvestment of distributions to shareholders .................... 4,465,374 2,410,919 Payments for shares redeemed .......................... (13,921,636) (10,158,032) ------------- ------------- Net increase in net assets from capital share transactions 1,917,594 4,202,919 ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS .................. (27,290,429) 11,097,317 NET ASSETS Beginning of year ..................................... 80,535,246 69,437,929 ------------- ------------- End of year ........................................... $ 53,244,817 $ 80,535,246 ============= ============= UNDISTRIBUTED NET INVESTMENT INCOME ...................... $ 34,455 $ 36,257 ============= ============= CAPITAL SHARE ACTIVITY Sold .................................................. 882,661 850,502 Reinvested ............................................ 334,700 175,991 Redeemed .............................................. (1,122,582) (723,124) ------------- ------------- Net increase in shares outstanding .................... 94,779 303,369 Shares outstanding, beginning of year ................. 5,432,929 5,129,560 ------------- ------------- Shares outstanding, end of year ....................... 5,527,708 5,432,929 ============= =============
See Notes to Financial Statements. 40 - -------------------------------------------------------------------------------- ISI TOTAL RETURN US TREASURY FUND FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31, ------------------------------------------------------------------ 2008 2007 2006 2005 2004 - --------------------------------------------------------------------------------------------------------------- Net asset value at beginning of year .................... $ 9.50 $ 9.42 $ 9.33 $ 9.57 $ 9.92 ---------- ---------- ---------- ---------- ---------- Income (loss) from investment operations: Net investment income(a) ............. 0.28 0.35 0.32 0.29 0.24 Net realized and unrealized gains (losses) on investments ........... 0.16 0.08 0.12 (0.16) 0.19 ---------- ---------- ---------- ---------- ---------- Total from investment operations ........ 0.44 0.43 0.44 0.13 0.43 ---------- ---------- ---------- ---------- ---------- Less distributions: Dividends from net investment income ................. (0.28) (0.34) (0.35) (0.25) (0.23) Distributions from net realized gains .................... (0.07) (0.00)* -- (0.03) (0.33) Distributions from return of capital ................. -- (0.01) -- (0.09) (0.22) ---------- ---------- ---------- ---------- ---------- Total distributions ..................... (0.35) (0.35) (0.35) (0.37) (0.78) ---------- ---------- ---------- ---------- ---------- Net asset value at end of year .......... 9.59 9.50 9.42 9.33 9.57 ========== ========== ========== ========== ========== Total return(b) ......................... 4.61% 4.66% 4.83% 1.38% 4.64% ========== ========== ========== ========== ========== Net assets at end of year (000's) ....... $ 119,973 $ 124,768 $ 153,784 $ 165,974 $ 194,790 ========== ========== ========== ========== ========== Ratio of expenses to average net assets ................... 0.79% 0.79% 0.76%(c) 0.70% 0.69% Ratio of net investment income to average net assets ................... 2.86% 3.68% 3.44%(c) 3.01% 2.56% Portfolio turnover rate ................. 70% 29% 51% 16% 31% - ---------------------------------------------------------------------------------------------------------------
(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 October 31, 2006 ratios of expenses and net investment income to average net assets were unaffected by the waiver of distribution fees during the year. * Amount less than $0.005 per share. See Notes to Financial Statements. 41 - -------------------------------------------------------------------------------- ISI MANAGED MUNICIPAL FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31, ------------------------------------------------------------------ 2008 2007 2006 2005 2004 - --------------------------------------------------------------------------------------------------------------- Net asset value at beginning of year .................... $ 10.61 $ 10.80 $ 10.68 $ 10.91 $ 10.89 ---------- ---------- ---------- ---------- ---------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income(a) ............. 0.36 0.38 0.39 0.40 0.38 Net realized and unrealized gains (losses) on investments ........... (0.50) (0.14) 0.10 (0.27) 0.08 ---------- ---------- ---------- ---------- ---------- Total from investment operations ........ (0.14) 0.24 0.49 0.13 0.46 ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Dividends from net investment income ................. (0.47) (0.34) (0.34) (0.36) (0.44) Distributions from net realized gains .................... (0.04) (0.09) (0.03) -- -- ---------- ---------- ---------- ---------- ---------- Total distributions ..................... (0.51) (0.43) (0.37) (0.36) (0.44) ---------- ---------- ---------- ---------- ---------- Net asset value at end of year .......... $ 9.96 $ 10.61 $ 10.80 $ 10.68 $ 10.91 ========== ========== ========== ========== ========== TOTAL RETURN(b) ......................... (1.44%) 2.29% 4.68% 1.19% 4.26% ========== ========== ========== ========== ========== Net assets at end of year (000's) ....... $ 75,072 $ 73,038 $ 82,880 $ 94,027 $ 113,844 ========== ========== ========== ========== ========== Ratio of expenses to average net assets ................... 0.96% 0.94% 0.91% 0.86% 0.88% Ratio of net investment income to average net assets ................ 3.48% 3.57% 3.63% 3.64% 3.53% Portfolio turnover rate ................. 7% 5% 7% 7% 17% - ---------------------------------------------------------------------------------------------------------------
(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. 42 - -------------------------------------------------------------------------------- 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, ------------------------------------------------------------------ 2008 2007 2006 2005 2004 - --------------------------------------------------------------------------------------------------------------- Net asset value at beginning of year .... $ 7.53 $ 7.41 $ 7.34 $ 7.41 $ 7.73 ---------- ---------- ---------- ---------- ---------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income(a) .............. 0.23 0.26 0.25 0.26 0.24 Net realized and unrealized gains (losses) on investments and foreign currencies .............. (0.18) 0.22 0.18 0.06 0.03 ---------- ---------- ---------- ---------- ---------- Total from investment operations ........ 0.05 0.48 0.43 0.32 0.27 ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Dividends from net investment income ................... (0.19) (0.35) (0.30) (0.31) (0.16) Distributions from net realized gains .................. (0.14) -- (0.01) (0.03) (0.08) Distributions from return of capital ................... (0.03) (0.01) (0.05) (0.05) (0.35) ---------- ---------- ---------- ---------- ---------- Total distributions ..................... (0.36) (0.36) (0.36) (0.39) (0.59) ---------- ---------- ---------- ---------- ---------- Net asset value at end of year .......... $ 7.22 $ 7.53 $ 7.41 $ 7.34 $ 7.41 ========== ========== ========== ========== ========== TOTAL RETURN(b) ......................... 0.51% 6.71% 6.04% 4.39% 3.62% ========== ========== ========== ========== ========== Net assets at end of year (000's) ....... $ 140,326 $ 131,748 $ 146,854 $ 177,101 $ 204,266 ========== ========== ========== ========== ========== Ratio of expenses to average net assets .................... 1.11% 1.11% 1.06%(c) 1.04% 1.05% Ratio of net investment income to average net assets ................ 2.97% 3.54% 3.47%(c) 3.55% 3.22% Portfolio turnover rate ................. 108% 49% 53% 66% 47% - ---------------------------------------------------------------------------------------------------------------
(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 October 31, 2006 ratios of expenses and net investment income to average net assets were unaffected by the waiver of distribution fees during the year. See Notes to Financial Statements. 43 - -------------------------------------------------------------------------------- ISI NORTH AMERICAN GOVERNMENT BOND FUND - CLASS C - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31, ------------------------------------------------------------------ 2008 2007 2006 2005 2004 - --------------------------------------------------------------------------------------------------------------- Net asset value at beginning of year .... $ 7.52 $ 7.40 $ 7.33 $ 7.40 $ 7.72 ---------- ---------- ---------- ---------- ---------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income (a) ............ 0.18 0.21 0.21 0.21 0.19 Net realized and unrealized gains (losses) on investments and foreign currencies............... (0.18) 0.22 0.17 0.06 0.02 ---------- ---------- ---------- ---------- ---------- Total from investment operations ........ 0.00 0.43 0.38 0.27 0.21 ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Dividends from net investment income ................... (0.14) (0.30) (0.25) (0.26) (0.14) Distributions from net realized gains .................. (0.14) -- (0.01) (0.03) (0.08) Distributions from return of capital ................... (0.03) (0.01) (0.05) (0.05) (0.31) ---------- ---------- ---------- ---------- ---------- Total distributions ..................... (0.31) (0.31) (0.31) (0.34) (0.53) ---------- ---------- ---------- ---------- ---------- Net asset value at end of year .......... $ 7.21 $ 7.52 $ 7.40 $ 7.33 $ 7.40 ========== ========== ========== ========== ========== TOTAL RETURN(b) ......................... (0.12%) 6.03% 5.35% 3.73% 2.91% ========== ========== ========== ========== ========== Net assets at end of year (000's) ....... $ 20,636 $ 16,848 $ 15,579 $ 15,944 $ 18,616 ========== ========== ========== ========== ========== Ratio of expenses to average net assets .................... 1.73% 1.74% 1.72% 1.69% 1.77% Ratio of net investment income to average net assets ................ 2.34% 2.93% 2.81% 2.89% 2.50% Portfolio turnover rate ................. 108% 49% 53% 66% 47% - ---------------------------------------------------------------------------------------------------------------
(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. 44 - -------------------------------------------------------------------------------- ISI STRATEGY FUND - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEARS ENDED OCTOBER 31, ------------------------------------------------------------------ 2008 2007 2006 2005 2004 - --------------------------------------------------------------------------------------------------------------- Net asset value at beginning of year ..................... $ 14.82 $ 13.54 $ 12.12 $ 11.21 $ 10.50 ---------- ---------- ---------- ---------- ---------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income(a) ............. 0.13 0.17 0.15 0.16 0.10 Net realized and unrealized gains (losses) on investments and foreign currencies .............. (4.39) 1.65 1.42 0.91 0.70 ---------- ---------- ---------- ---------- ---------- Total from investment operations ........ (4.26) 1.82 1.57 1.07 0.80 ---------- ---------- ---------- ---------- ---------- LESS DISTRIBUTIONS: Dividends from net investment income ................... (0.13) (0.17) (0.15) (0.16) (0.09) Distributions from net realized gains .................. (0.80) (0.37) -- -- -- ---------- ---------- ---------- ---------- ---------- Total distributions ..................... (0.93) (0.54) (0.15) (0.16) (0.09) ---------- ---------- ---------- ---------- ---------- Net asset value at end of year .......... $ 9.63 $ 14.82 $ 13.54 $ 12.12 $ 11.21 ========== ========== ========== ========== ========== TOTAL RETURN(b) ......................... (30.49%) 13.79% 13.01% 9.59% 7.71% ========== ========== ========== ========== ========== Net assets at end of year (000's) ....... $ 53,245 $ 80,535 $ 69,438 $ 60,205 $ 44,920 ========== ========== ========== ========== ========== Ratio of net expenses to average net assets ................. 0.99% 0.96% 0.95% 0.94% 1.12% Ratio of net investment income to average net assets ................ 1.02% 1.21% 1.17% 1.33% 0.92% Portfolio turnover rate ................. 42% 62% 41% 30% 66% - ---------------------------------------------------------------------------------------------------------------
(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. 45 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2008 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 each currently offer a single class of shares (ISI Shares) to investors. North American offers two classes of shares - 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. 46 - -------------------------------------------------------------------------------- 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 calculation of the net asset value per share, 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, 2008, there were no fair valued securities. The Financial Accounting Standards Boards ("FASB") Statement on Financial Accounting Standards No. 157, "Fair Value Measurements" establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below: Level 1 - quoted prices in active markets for identical securities Level 2 - other significant observable inputs Level 3 - significant unobservable inputs The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The Funds' adopted Financial Accounting Standards No. 157 early. The following is a summary of the inputs used to value the Funds' net assets as of October 31, 2008: MANAGED NORTH TOTAL RETURN MUNICIPAL AMERICAN STRATEGY - --------------------------------------------------------------------------------------- Level 1 - Quoted prices $ 1,303,000 $ 3,435,000 $ 4,852,000 $ 42,854,063 Level 2 - Other significant observable inputs 116,416,908 70,881,256 154,287,965 10,247,519 ------------ ------------ ------------ ------------ Total $117,719,908 $ 74,316,256 $159,139,965 $ 53,101,582 ------------ ------------ ------------ ------------
47 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 distributions daily, and North American declares monthly distributions at fixed rates approved by the Board. These distributions are paid monthly. To the extent that a Fund's net investment income is less than an approved fixed rate, some of its distributions be designated as a return of capital. Managed Municipal declares and pays dividends monthly from its net investment income. 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. As provided therein in any fiscal year in which a fund so qualifies and distributes at least 90% of all of its net taxable income, the Fund (but not its shareholders) will be relieved of Federal income tax on the income distributed. 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 or excise taxes have been accrued. 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 in net realized gains (losses) from security transactions. That portion of unrealized gains and losses on investments that results from 48 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) fluctuations in foreign currency exchange rates is not separately disclosed but is included in the 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, 2008, 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 U.S. government 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. 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 - 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 1.50% of the Fund's gross 49 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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, 2009 to the extent necessary to limit the annual ordinary operating 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, 2008, ISI was not required to 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, 2008, North American Class A shares did not pay any shareholder servicing fees. During the year ended October 31, 2008, ISI Group earned commissions on sales of ISI Shares of Total Return, Managed Municipal, and Strategy of $7,076, $10,000 and $14,583, respectively, and $25,682 on sales of ISI Class A Shares of North American. ISI Group retained $17,946 contingent deferred sales charges on the sale of ISI Class C Shares of North American. Ultimus Fund Solutions, LLC ("Ultimus") is the administrator and fund accountant for the Funds pursuant to the terms of a Mutual Fund Services Agreement. Ultimus supplies non-investment related statistical and research data, internal regulatory compliance services and executive and administrative services. Ultimus supervises the preparation of tax returns, reports to shareholders of the Funds, reports to and filings with the SEC and state securities commissions, and materials for meetings of the Board of Directors. Ultimus also calculates the net asset value per share of each Fund and provides information necessary to prepare the Funds' financial statements and tax returns. For the performance of these services, the Funds pay Ultimus a fee at the annual rate of 0.10% of the combined average value of their daily net assets up to $500 million, 0.075% of such assets from $500 million to $1 billion, and 0.06% of such assets in excess of $1 billion, subject to an annual minimum fee of $500,000. Ultimus also maintains the records of each shareholder's account, answers shareholders' inquiries concerning their accounts, processes purchases and redemptions of each Fund's shares, acts as dividend and distribution disbursing agent and performs 50 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) other shareholder service functions. For these services, Ultimus receives a monthly fee from each Fund at an annual rate of $20 for each direct account and $15 for certain accounts established through financial intermediaries; provided, however, that the minimum monthly fee is $1,000. In addition, the Funds reimburse Ultimus for its out-of-pocket expenses including, but not limited to, postage and supplies. EJV Financial Services, LLC provides certain compliance services to the Funds. Edward J. Veilleux, Vice President and Chief Compliance Officer of the Funds, is also a principal of EJV Financial Services, LLC. NOTE 3 - FEDERAL INCOME TAX AND INVESTMENT TRANSACTIONS The Funds may periodically make reclassifications among certain capital accounts as a result of differences in the characterization and allocation of certain income and capital gain distributions determined annually in accordance with Federal tax regulations, which may differ from 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. 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. During the year ended October 31, 2008, Total Return reclassified $107,640 from undistributed income to paid-in capital. Managed Municipal reclassified $92 from undistributed capital gains to undistributed income of $62 and paid-in capital of $30. North American reclassified $1,097,761 from undistributed capital gains to ordinary income of $817,617 and paid-in capital of $280,144. During the years ended October 31, 2008 and 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, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2008 2007 2008 2007 2008 2007 2008 2007 Total Return $3,921,060 $4,910,079 $ -- $ -- $ 475,038 $ -- $ -- $ 104,188 Managed Municipal 94,841 72,962 3,241,083 2,371,360 287,105 720,919 -- -- North American 5,382,558 7,026,546 -- -- 1,269,300 -- 649,421 172,948 Strategy 809,371 913,710 -- -- 4,217,677 1,880,666 -- --
FASB's Interpretation No. 48 ("FIN 48") "Accounting for Uncertainty in Income Taxes" 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 each Fund's tax returns to 51 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) 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 booked as a tax benefit or expense in the current year. As required by FIN 48, management has concluded that no provision for income tax is required in these financial statements. The statute of limitations on each Fund's tax returns remains open for the years ended October 31, 2006 and October 31, 2007. As of October 31, 2008, the components of distributable earnings (accumulated losses) on a tax basis were as follows: CAPITAL UNDISTRIBUTED UNREALIZED UNDISTRIBUTED LONG-TERM CAPITAL LOSS APPRECIATION OTHER BOOK/TAX ORDINARY INCOME GAINS CARRYFORWARD (DEPRECIATION) DIFFERENCES TOTAL - -------------------------------------------------------------------------------------------------------------- Total Return $ (95,152) $ -- $ -- $(1,871,074) $ -- $(1,966,226) Managed Municipal -- 124,276 -- (1,841,280) -- (1,717,004) North American -- -- -- (7,496,624) (292,278) (7,788,902) Strategy 24,815 -- (989,548) (8,086,852) -- (9,051,585)
As of October 31, 2008, Strategy had capital loss carryforwards available to offset future realized gains. The losses for Strategy expire in 2016. Total Return and North American utilized capital loss carryforwards of $533,469 and $280,143, respectively, during the year ended October 31, 2008. 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, 2008, were as follows: NON-US GOVERNMENT OBLIGATIONS US GOVERNMENT OBLIGATIONS ----------------------------- ------------------------- PURCHASES SALES PURCHASES SALES - -------------------------------------------------------------------------------- Total Return $ -- $ -- $62,194,269 $ 71,675,789 Managed Municipal 7,420,300 4,969,200 -- -- North American 15,577,472 2,968,986 93,384,538 104,529,152 Strategy 24,678,053 25,992,226 3,078,686 1,679,556 NOTE 4 - MARKET AND CREDIT RISK North American invests in Canadian and Mexican government securities. Investing in Canadian and Mexican government securities may have different risks than investing in 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. 52 - -------------------------------------------------------------------------------- ISI FUNDS - -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE 5 - CONTRACTUAL OBLIGATIONS In the ordinary course of business, the Funds enter into contracts that contain a variety of indemnifications. Each Fund's maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these indemnification provisions and believe the risk of loss thereunder to be remote. NOTE 6 - OTHER INFORMATION On October 31, 2008, 1 shareholder account held approximately 10% of North American. This shareholder is an omnibus account, which is held on behalf of several individual shareholders. 53 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - -------------------------------------------------------------------------------- TO THE BOARD OF DIRECTORS AND SHAREHOLDERS 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, 2008, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the 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 two years or periods ended October 31, 2005 were audited by other auditors whose report dated December 23, 2005 expressed an unqualified opinion on such financial 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, 2008 by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Total Return U.S. Treasury Fund, Inc., Managed Municipal Fund, Inc., North American Government Bond Fund, Inc., and ISI Strategy Fund, Inc., as of October 31, 2008, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the three years in the 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 23, 2008 54 - -------------------------------------------------------------------------------- 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 None (age 72) Consulting, LLC (real estate investment management company) (1999 to present). - -------------------------------------------------------------------------------- Louis E. Levy since 1994 Retired Partner, None (age 76) KPMG Peat Marwick (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 Director or Trustee (age 59) Accountant and of 12 funds in the Partner of Hays & Reich & Tang Fund Company LLP Complex; Trustee of (accounting firm). Empire Builder Tax Free Bond Fund. - -------------------------------------------------------------------------------- INTERESTED DIRECTORS AND EXECUTIVE OFFICERS - -------------------------------------------------------------------------------- R. Alan Medaugh since 1991 President, None (age 65) International President and Strategy & Director since 2007 Investment, Inc. (registered investment advisor) (1991 to present). Director, International Strategy & Investment Group, Inc. (registered broker-dealer) (1991 to present). - -------------------------------------------------------------------------------- Nancy Lazar since 1997 Executive Vice None (age 51) President, Assistant Vice President Treasurer, and Secretary of International 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). - -------------------------------------------------------------------------------- 55 - -------------------------------------------------------------------------------- FUND DIRECTORS AND OFFICERS (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- LENGTH BUSINESS OF TIME EXPERIENCE DURING NAME AND AGE SERVED THE PAST FIVE YEARS - -------------------------------------------------------------------------------- INTERESTED DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED) - -------------------------------------------------------------------------------- Thomas D. Stevens* since 1997 Chairman and President, Los (age 59) Angeles Capital Management and Vice President Equity Research, Inc. (registered investment advisor) (March 2002 to present). - -------------------------------------------------------------------------------- Carrie L. Butler since 1991 Managing Director, International (age 41) Strategy & Investment, Inc. Vice President (registered investment advisor) (2000 to present). - -------------------------------------------------------------------------------- Edward J. Veilleux since 1992 President, EJV Financial Services, (age 65) LLC (2002 to present); Officer of Vice President and various investment companies for Chief Compliance which EJV Financial Services Officer provides consulting and compliance services. - -------------------------------------------------------------------------------- Stephen V. Killorin since 2002 Executive Managing Director and (age 55) Chief Financial Officer, Vice President International Strategy & Investment, Inc. (registered investment advisor) (December 2000 to present); Executive Managing Director and Chief Financial Officer, International Strategy & Investment Group, Inc. (registered broker-dealer) (December 2000 to present). - -------------------------------------------------------------------------------- Margaret M. Beeler since 1996 Managing Director, International (age 41) (Secretary since Strategy & Investment, Inc. Vice President and 2004) (registered investment advisor) Secretary (July 2004 to present). Formerly, Associate Managing Director (2000 - July 2004) of International Strategy & Investment, Inc. (registered investment advisor). - -------------------------------------------------------------------------------- Mark J. Seger since 2008 Managing Director, Ultimus Fund (age 46) Solutions, LLC and Ultimus Fund Treasurer Distributions, LLC. - -------------------------------------------------------------------------------- Heena Dhruv since 2005 Managing Director, International (age 32) Strategy & Investment, Inc. Assistant Vice (registered investment advisor) President (July 2005 to present), Associate Managing Director, International Strategy & Investment, Inc. (January 2003 to July 2005). - -------------------------------------------------------------------------------- * Thomas D. Stevens is an officer for only the ISI Strategy Fund. 56 - -------------------------------------------------------------------------------- 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 Strategy 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 Security and Exchange Commission's ("SEC") website at http://www.sec.gov. AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULE The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Each Fund's Form N-Q is available on the SEC's website at http://www.sec.gov or may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. ISI INTERNATIONAL STRATEGY AND INVESTMENT PRIVACY NOTICE FOR ISI MUTUAL FUNDS PRIVACY POLICY The mutual funds in the ISI Fund Complex ("the Funds") believe that your privacy is extremely important. We are firmly committed to protecting any personal or financial information you provide to us as well as information about your transactions with us, such as transaction amounts, account balance and account holdings ("Personal Information"). We use Personal Information only to develop and deliver products and services that you request and to fulfill any applicable legal and regulatory requirements. We do not disclose Personal Information about you or our former customers except to our affiliates and service providers. We require our employees, affiliates and service providers to maintain appropriate safeguards to ensure the security of your non-public information. LIMITS OF USE OF PERSONAL INFORMATION We limit the use, collection and retention of customer information to what is necessary to provide personal financial services and related products. We have security practices and procedures in place to ensure the confidentiality and security of your Personal Information. ACCURACY OF PERSONAL INFORMATION We strive to keep your personal and financial information accurate. If our records are incorrect or out-of-date, please notify us immediately by contacting the Service Center listed on your account statement. CHANGE TO OUR POLICIES If you have any privacy or security questions, please contact us at 800-882-8585. We may, at our discretion, change this Privacy Policy at any time. If we make material changes to the policy, we will provide you with notice of these changes. 57 - -------------------------------------------------------------------------------- INVESTMENT ADVISORY AGREEMENT APPROVAL (UNAUDITED) - -------------------------------------------------------------------------------- At a Board meeting held on September 10, 2008, the Board, including the Independent Directors, unanimously approved the continuance of the Investment Advisory Agreement between ISI and each of the Funds as well as the Sub-Advisory Agreement between ISI and the Sub-Advisor with respect to Strategy. In evaluating the Investment 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. 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 provides the Board with 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 returns of relevant indices for selected periods ended July 31, 2008. The Board was advised by ISI that the Fund generally maintained a longer duration than such indices during the most recent year and as a result lagged the returns of the indices. The Board also compared the Fund's performance with the performance of its peer group and found that the Fund placed within the top quartile of its Morningstar peer group for the 1, 5 and 10 year periods. o MANAGED MUNICIPAL. The Board reviewed the Fund's performance for selected periods ended July 31, 2008 against the returns of relevant indices and the averages of its Lipper, Morningstar and CDA/Thomson peer groups. The Board was advised by ISI that the indices and peer groups do not provide a precise comparison since they include investment grade bonds of varying credit quality, while the Fund had 87% of its assets invested in AAA rated municipal securities at the end of the period. The Board was mindful of the emphasis placed by ISI on selecting high quality, liquid issues and was advised that none of the Fund's securities have been assigned a higher rating by virtue of being insured by a third party. The Board was further advised that the Fund has recently benefited from the lack of insured issues 58 - -------------------------------------------------------------------------------- INVESTMENT ADIVSORY AGREEMENT APPROVAL (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- in its portfolio and from the narrowing spread between AAA and BBB issues. The Board noted that the Fund placed roughly in the top quartile of its Morningstar and CDA/Thompson category averages and slightly above its Lipper average for periods ended July 31, 2008. o NORTH AMERICAN. The Board reviewed the Fund's performance for selected periods ended July 31, 2008 and found that it trailed the blended North American benchmark during the 1 and 3 year periods, but was ahead of its Lipper, Morningstar and CDA/Thomson peer group averages during those periods. The Board was advised of the positioning of the currency and maturity mix in the Fund's portfolio and noted that the combination of long bond duration in the U.S. and a 25% weighting outside of the U.S. had produced good relative results. The Board was advised that the Fund had a five-star rating from Morningstar as of July 31, 2008. o STRATEGY. The Board was reminded that the balance between the Fund's equity and bond holdings is actively managed based on ISI's analysis of economic growth, interest rate trends and corporate earnings outlook. The Board was advised that the Fund had approximately an 80% weighting in equities and a 20% weighting in bonds as of July 31, 2008. The Board reviewed separately the performance of both the equity section and the bond section of the Fund's portfolio for selected periods ended July 31, 2008. The Board found that although the heavy equity weighting hurt performance over the past year, it was the major contributor towards the Fund's relative outperformance of the Wilshire 5000 Index and the S&P 500 Index during all of the reporting periods. The Board reviewed the Fund's performance relative to a blended benchmark consisting of the Wilshire 5000 and the Lehman Treasury Index and found that the Fund placed ahead of its benchmark for all reporting periods. The Board also reviewed information comparing the Fund's relative performance against its peer groups for periods ended July 31, 2008. It found that the Fund placed in the top quartile of the Morningstar stock fund universe for the one and three year periods and placed in the 44th percentile of the CDA/Thomson universe for the one year period and in the top quartile for the three year period. 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. 59 - -------------------------------------------------------------------------------- INVESTMENT ADIVSORY AGREEMENT APPROVAL (UNAUDITED) (CONTINUED) - -------------------------------------------------------------------------------- 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 although ISI's revenues for advisory services rendered to the Funds were down slightly over the past year, expenses were down also, which resulted in ISI maintaining approximately the same profit margin as last year. EXPENSE RATIOS AND ECONOMIES OF SCALE. The Board discussed economy of scale considerations and the expense ratios of the Funds. The Board noted that the investment advisory fees for Managed Municipal, North American and Strategy do not contain breakpoints and contemplated the extent to which economies of scale would be realized as the Funds grow. The Board concluded that due to the declining asset levels in all Funds except North American, economy of scale considerations were not relevant at this time. The Board also reviewed information which compared each Fund's expense ratio as of July 31, 2008 with the average of comparably managed funds and made the following determinations: o TOTAL RETURN. The Board found that Total Return's 0.80% expense ratio was below the 0.96% average of comparably managed funds. o MANAGED MUNICIPAL. The Board found that Managed Municipal's expense ratio (0.97%) was slightly above the average (0.95%) of comparably managed funds, partly because the average municipal bond fund has roughly two times the assets of the Fund. o NORTH AMERICAN. The Board found that the 1.12% expense ratio for North American's Class A shares is slightly above the 1.09% average for other government bond funds. The Board noted, however, that there are no other mutual funds that invest exclusively in North American bonds that can be used for comparative purposes at this time. o STRATEGY. The Board found that Strategy's expense ratio as of July 31, 2008 was 1.00%, which is below the 1.17% 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. 60 This page intentionally left blank. - -------------------------------------------------------------------------------- ISI International Strategy & Investment - -------------------------------------------------------------------------------- LOUIS E. LEVY EDWARD J. VEILLEUX CHAIRMAN VICE PRESIDENT CHIEF COMPLIANCE OFFICER W. MURRAY JACQUES DIRECTOR THOMAS P. STEVENS* VICE PRESIDENT EDWARD A. KUCZMARSKI DIRECTOR STEPHEN V. KILLORIN VICE PRESIDENT R. ALAN MEDAUGH PRESIDENT MARGARET M. BEELER DIRECTOR VICE PRESIDENT SECRETARY NANCY LAZAR VICE PRESIDENT MARK J. SEGER TREASURER CARRIE L. BUTLER VICE PRESIDENT EDWARD S. HYMAN 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 $18,500 with respect to the registrant's fiscal years ended October 31, 2008 and 2007, 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 $2,000 with respect to the registrant's fiscal years ended October 31, 2008 and 2007, 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, 2008 and 2007, aggregate non-audit fees of $2,000 and $2,000, 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 Meduagh, President Date December 31, 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 December 31, 2008 ------------------------------- By (Signature and Title)* /s/ Mark J. Seger -------------------------------------------------- Mark J. Seger, Treasurer Date December 31, 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: January 1, 2008 -6- EXHIBIT A --------- PERSONS COVERED BY THIS CODE OF ETHICS - -------------------------------------- - -------------------------------------------------------------------------------- PRINCIPAL PRINCIPAL PRINCIPAL ACCOUNTING EXECUTIVE FINANCIAL OFFICER FUND OFFICER OFFICER - -------------------------------------------------------------------------------- Total Return R. Alan Medaugh Mark J. Seger Mark J. Seger - -------------------------------------------------------------------------------- Managed Municipal R. Alan Medaugh Mark J. Seger Mark J. Seger - -------------------------------------------------------------------------------- North American R. Alan Medaugh Mark J. Seger Mark J. Seger - -------------------------------------------------------------------------------- Strategy R. Alan Medaugh Mark J. Seger Mark J. Seger - -------------------------------------------------------------------------------- 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: December 31, 2008 /s/ R. Alan Medaugh -------------------------------------------- R. Alan Medaugh, President CERTIFICATIONS -------------- I, Mark J. Seger, 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: December 31, 2008 /s/ Mark J. Seger -------------------------------------------- Mark J. Seger, 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 Mark J. Seger, 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, 2008 (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 Bond North American Government Bond Fund, Inc. Fund, Inc. /s/ R. Alan Medaugh /s/ Mark J. Seger - -------------------------------- ------------------------------- R. Alan Medaugh, President Mark J. Seger, Treasurer Date: December 31, 2008 Date: December 31, 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-----