NORTH AMERICAN GOVERNMENT BOND FUND INC
N-30D, 1999-11-30
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                                      ISI
                                 North American
                          Government Bond Fund Shares
- --------------------------------------------------------------------------------
Directors and Officers

Edward S. Hyman                         Carrie L. Butler
Chairman                                Vice President

Joseph R. Hardiman                      Amy M. Olmert
Director                                Secretary

Louis E. Levy                           Daniel O. Hirsch
Director                                Assistant Secretary

Carl W. Vogt, Esq.                      Margaret M. Beeler
Director                                Assistant Vice President

R. Allan Medaugh                        Keith C. Reilly
President                               Assistant Vice President

Nancy Lazar                             Charles A. Rizzo
Vice President                          Treasurer

Investment Objective

An open-end mutual fund designed 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.

Investment Advisor

ISI Inc.
717 Fifth Avenue
New York, NY 10022
(800) 955-7175

Shareholder Servicing Agent

Investment Company Capital Corp.
P.O. Box 419426
Kansas City, MO 64141-6426
(800) 882-8585

Distributor

ISI Group, Inc.
717 Fifth Avenue
New York, NY 10022
(800) 955-7175

ISI
International Strategy & Investment

                                      ISI
                                 NORTH AMERICAN
                                GOVERNMENT BOND
                                  FUND SHARES

                     (A Class of North American Government
                                Bond Fund, Inc.)

                                 NORTH AMERICAN

                               SEMI-ANNUAL REPORT

                               September 30, 1999
<PAGE>

Investment Advisor's Report

     We are pleased to report on the progress of your Fund for the six months
ended September 30, 1999.

     The Fund seeks a high level of current income consistent with prudent
investment risk by investing in government fixed-income securities of the U.S.,
Canada and Mexico. We believe that by investing in all three North American
markets, the Fund can generate a higher return over the long term than is
possible from a portfolio of only U.S. Treasury securities.

     For the first half of this fiscal year, the Fund's total return was -0.22%.
By comparison, the Lehman 10 year Treasury Index had a total return of -3.06%
for the last six months because the yield on ten year Treasury rates rose during
the period. Please see chart below.

                          10-Year U.S. Treasury Yield

                               [GRAPHIC OMITTED]


GT10 Govt
Date          Yld Ytm Mid     Date          Yld Ytm Mid
3/31/1999           5.242     7/1/1999             5.84
4/1/1999            5.279     7/2/1999           5.8275
4/2/1999            5.187     7/5/1999            5.819
4/5/1999           5.1895     7/6/1999            5.868
4/6/1999            5.124     7/7/1999            5.892
4/7/1999            5.122     7/8/1999           5.8255
4/8/1999           5.0355     7/9/1999           5.8255
4/9/1999           5.0525     7/12/1999          5.7255
4/12/1999          5.0505     7/13/1999          5.7045
4/13/1999           5.103     7/14/1999           5.732
4/14/1999           5.127     7/15/1999          5.7235
4/15/1999           5.169     7/16/1999          5.6665
4/16/1999           5.221     7/19/1999           5.662
4/19/1999          5.1485     7/20/1999           5.633
4/20/1999           5.136     7/21/1999           5.656
4/21/1999          5.1805     7/22/1999           5.779
4/22/1999           5.247     7/23/1999           5.835
4/23/1999           5.252     7/26/1999          5.8415
4/26/1999           5.222     7/27/1999           5.807
4/27/1999           5.205     7/28/1999          5.7945
4/28/1999           5.263     7/29/1999           5.872
4/29/1999           5.216     7/30/1999          5.9025
4/30/1999           5.348     8/2/1999           5.9155
5/3/1999            5.359     8/3/1999            5.957
5/4/1999            5.405     8/4/1999           5.9375
5/5/1999            5.394     8/5/1999           5.8595
5/6/1999           5.5105     8/6/1999            6.038
5/7/1999            5.542     8/9/1999           6.1285
5/10/1999          5.5335     8/10/1999          6.1485
5/11/1999           5.578     8/11/1999          6.0915
5/12/1999          5.5695     8/12/1999           6.082
5/13/1999           5.412     8/13/1999           5.979
5/14/1999           5.628     8/16/1999           5.964
5/17/1999           5.636     8/17/1999           5.881
5/18/1999           5.661     8/18/1999          5.8745
5/19/1999           5.595     8/19/1999           5.895
5/20/1999           5.591     8/20/1999           5.876
5/21/1999           5.504     8/23/1999           5.889
5/24/1999           5.479     8/24/1999           5.816
5/25/1999           5.473     8/25/1999           5.719
5/26/1999           5.551     8/26/1999           5.768
5/27/1999           5.626     8/27/1999          5.8635
5/28/1999            5.62     8/30/1999           5.955
5/31/1999           5.622     8/31/1999            5.97
6/1/1999            5.758     9/1/1999            5.976
6/2/1999            5.781     9/2/1999            6.008
6/3/1999           5.8025     9/3/1999            5.888
6/4/1999            5.807     9/6/1999            5.892
6/7/1999            5.792     9/7/1999            5.938
6/8/1999            5.824     9/8/1999            5.926
6/9/1999            5.888     9/9/1999           5.9635
6/10/1999           5.931     9/10/1999           5.898
6/11/1999          6.0325     9/13/1999           5.898
6/14/1999          5.9655     9/14/1999           5.959
6/15/1999          5.9765     9/15/1999           5.919
6/16/1999           5.925     9/16/1999           5.898
6/17/1999           5.788     9/17/1999           5.871
6/18/1999           5.827     9/20/1999           5.906
6/21/1999          5.8845     9/21/1999           5.925
6/22/1999           5.923     9/22/1999           5.908
6/23/1999           6.029     9/23/1999           5.791
6/24/1999           6.029     9/24/1999          5.7725
6/25/1999           6.014     9/27/1999            5.82
6/28/1999           5.943     9/28/1999           5.906
6/29/1999           5.926     9/29/1999          5.9565
6/30/1999            5.78     9/30/1999           5.877





Source: Bloomberg Inc.

     The Mexican section of the Fund provided the positive return that overcame
much of the interest rate rise in the U.S. For example, the Mexican 3-month
T-Bill (Cete) had a U.S. dollar total return of +7.8% for the last six months.

     Since its inception on January 15, 1993, the Fund's total cumulative return
has been 42.27%. Figures for the Fund's performance assume the reinvestment of
dividends and capital gains distributions and exclude the impact of any sales
charge.

Portfolio Management

     Our investment approach is to actively manage the portfolio, adjusting the
Fund's average maturity and percentage weighting across North America as we
anticipate changes in the market. Over the last six months, the Fund has
maintained a steady currency mix. The Fund raised reserves early in 1999 and has
kept the increased cash levels over the last six months. The following tables
illustrate the structure of the portfolio in these two critical areas.

                            Portfolio Mix--Currency
                               (% of Investments)

              9/30/98        3/31/99        9/30/99
              -------        -------        -------
U.S.           87.5%          87.3%          87.4%
Canada*          --             --             --
Mexico         12.5           12.7           12.6

*The Fund has U.S. $ denominated Canadian Global bonds which are 4.5% of the
 portfolio

                       Reserves in the U.S. Bond Section
                                  (% of Fund)

              9/30/98        3/31/99        9/30/99
              -------        -------        -------
                8.2%          26.4%          30.8%

                                                                               1
<PAGE>

Investment Advisor's Report (concluded)

     ISI is looking for an opportunity to put the Fund's high cash position to
work in long maturity U.S. and Canadian Treasuries and short maturity Mexican
Treasury Bills.

     For more in depth coverage of the North American markets, please see ISI's
Outlook for North America which follows this letter.

     We would like to welcome new investors to the Fund and thank those who have
been with us for some time. We appreciate your confidence.


Sincerely,

/s/ R. Alan Medaugh

Alan Medaugh
President

October 12, 1999

2
<PAGE>

Outlook for North America

Review of U.S.

Overview

     We believe the U.S. economy is slowing, but it doesn't appear to be slowing
fast enough to prevent a November Federal Reserve tightening, nor is it slowing
fast enough, given the strengthening in foreign economies, to push bond yields
much lower. We're also reluctant to forecast significantly higher rates because
our company surveys are pointing down, employment gains are in a slowing trend,
yields are already up almost 150 basis points, and our company surveys are
indicating that pricing power at the consumer level is still nonexistent. We're
also reluctant to project meaningfully lower interest rates with evidence of a
slowdown scarcer than we expected and the Fed now with a bias toward raising
short term rates. Our current outlook is for rates to hold in a trading range
around 6% for the next six months. Over the next few months, the U.S. Federal
Reserve, The Bank of England and the European Central Bank are all likely to
raise short term rates. We think the U.S. Federal Reserve will raise rates at
their November meeting by another 25 basis points. The bond market is likely to
view this as preemptive, a comfortable position for the markets, meaning that
the Fed is still ahead of the economy.

- --------------------------------------------------------------------------------
                             ISI ECONOMIC FORECAST
- --------------------------------------------------------------------------------
                        99:1Q     99:2Q     99:3Q     99:4Q     00:1Q     00:2Q
- --------------------------------------------------------------------------------
Nominal GDP              6.0%      3.0%      5.0%      4.5%      5.5%      4.5%
GDP Deflator             1.6%      1.3%      2.0%      1.5%      1.5%      1.5%
Real GDP                 4.3%      1.6%      3.0%      3.0%      4.0%      3.0%
30 Year Bond Yield*      5.6%      6.0%      6.1%      6.0%      6.2%      5.8%
Fed Funds Rate*          4.7%      5.0%      5.3%      5.5%      5.5%      5.5%
- --------------------------------------------------------------------------------
*End of quarter.

Employment and Inflation

     The U.S. labor pool, which covers the short-term unemployed plus the
long-term unemployed who are still looking for a job, has been declining since
1992. Alan Greenspan is concerned that a small labor pool will lead to wage
inflation. Growth of average hourly earnings have increased modestly from 2.5%
in 1992 to 3.7% today. Wage gains have been modest because companies have been
fighting labor market pressure using many forms of cost cutting. Their two
principal weapons right now are labor saving capital spending and mergers.
Mergers have resulted in layoffs as overlapping departments and functions are
eliminated. Recently, the pace of mergers has increased significantly. The value
of mergers so far this year is running at a heavy $2 trillion pace but recently
the rate has spiked to a $9 trillion annual rate. Cost cutting has been the
answer, (not price increases), because competition is fierce. In general, cost
increases in oil for example, have not been passed on to the consumer. As a
result, the "core" inflation rates are at historic low readings while overall
inflation numbers are up recently. ISI thinks inflation will remain low because
of global price competition and technology advances. This better inflation
picture seems sustainable as long as the U.S. economy slows from its recent
growth rate of 4% to a pace of 3% or less.

                                                                               3

<PAGE>

Outlook for North American (continued)

Mexico: The Economy and the Presidential Election

Overview

     Recently released data on industrial production, plus the second quarter's
real GDP data, show that the economy is on an upswing. The ruling party in
Mexico now enjoys a strong election position because President Zedillo's
popularity rating is high and the party is pursuing an open primary election to
select its Presidential candidate for 2000. The Peso is likely to weaken a bit
over the balance of 1999 because inflation in Mexico is higher than in the U.S.,
ISI thinks the currency weakness will not be enough to eliminate the attractive
20% Mexican Treasury Bill rates.

The Economy and Currency

     Real GDP during the second quarter grew an estimated 3.2% year on year - up
from only 1.9% in the first quarter, and 2.6% in the final quarter of last year.
Much of the strength is linked to the export sector. On the domestic side,
though, retail sales have improved gradually, moving from a year-on-year rate of
expansion of only 1% during April to almost 3% in June. Higher oil prices, the
absence of major macroeconomic imbalances, and continued U.S. economic strength
have helped buffer Mexico from the recession that has engulfed most of Latin
America. ISI expects real GDP growth of roughly 3.2% this year. In 2000,
Mexico's economic expansion should experience an acceleration (to just under
4%). The reason is that the Presidential election in late 2000 will lead to a
moderately expansive fiscal policy over the next 12 months. It is even possible
that the shift may be sustainable, given the relatively healthy state of
public-sector finances and persistent central bank efforts to bring inflation
down to the single digits. There is a danger, that short-term political gain
will push spending significantly as has happened in the past. The ruling party's
strong election position and the conservative measures taken earlier this year
reduce the danger of a spending blow out.

     Despite rising U.S. interest rates, the peso has been in a 6 month trading
range around 9.4 pesos to the U.S. dollar. There continues to be notable market
support for the currency, aided by the perception that the economy is picking up
speed. Further good news on inflation, and sharply rising export revenues, have
also helped keep the peso stable. We believe, that pressures on the currency
will likely pick up in the next few months as the inflation differential, i.e.
Mexico 14% vs. U.S. 3%, weighs on the currency. ISI expects only mild Peso
weakness.

The Presidential Election

Overview

     The breakup of the alliance negotiations between the right wing National
Action Party (Spanish initials PAN) and the left wing Revolutionary Democratic
Party (Spanish initials PRD) will benefit the center governing party, the
Institutional Revolutionary Party (Spanish initials PRI). The biggest challenge
the PRI now faces is its first ever open primary election to be held this
November that will determine its Presidential candidate. Traditionally, the PRI
has underemphasized positions on issues because it was formed from diverse
interest groups that converge primarily to access and use power. The PRI stands
ready to achieve what seemed impossible

4
<PAGE>

Outlook for North America (continued)

only one year ago: winning in an open democratic general election to be held
next Fall. The election had been seen as the repudiation of the PRI's 70 year
hold on power. All kinds of outcomes are possible, especially when it involves
volatile Mexican politics but the results so far for the financial markets are
much better than expected.

The PRI

     What seemed impossible two years ago, in the wake of Cuauhtemoc Cardenas'
overwhelming electoral victory in Mexico City, is now quite probable: a victory
by the PRI in the Presidential elections in 2000. The party's biggest political
challenge is how to keep the PRI together, combining the technocratic and
progressive forces of the Zedillo era (imperfectly captured in Francisco
Labastida) with the dangerous populist-nationalist ideas embodied in the
candidacy of another PRI candidate, Roberto Madrazo. With a divided opposition,
it's the PRI's election to lose. The PRI's recent victory in the state of
Cuahuila's gubernatorial election is an indication of the power of a united PRI
when faced with a disorganized opposition. The results only confirmed the
pre-election polls, so they seem valid. More importantly, Cuahuila is neither
rural nor poor. It is a small northern state that, with a population of about
2.2 million, exports goods worth about U.S. $5.5 billion annually. It has one of
the most educated labor forces in Mexico and a relatively low incidence of
poverty. Yet the PRI won in Cuahuila with a 60% majority; in key urban
municipalities, it displaced the "urban middle-class" PAN which had won the
previous election with over 50% of the vote.

The PAN

     Back in March, Vincent Fox (the PAN candidate for President) had a
commanding lead in the opinion polls while Cuauhtemoc Cardenas (the PRD
candidate) trailed far behind, damaged by his failure to curb violence in Mexico
City and by his party's unconvincing attempt to introduce more democratic forms
of internal governance. But PAN leaders know that, without an appeal to the
left, the party cannot win in a country where the middle class is relatively
small and both the elite and the organized working class typically support the
PRI. The PAN election victories have been concentrated in relatively well-to-do
urban areas of prosperous states. The more ideologically "pure" leadership fears
the populist tendencies of its candidate Vincent Fox. The alliance of left and
right seemed the best way to convert a majority aggregate support for the
combined opposition parties into a victory over the PRI. The alliance failed
because ideological differences and leadership egos could not be satisfied. This
leaves the PAN headed for the same second place finish as it had in the 1994
election.

The PRD

     The PRD continues to be vulnerable in its roots. As a splinter group from
the PRI, it carries many of the ruling party's defects, such as a tradition of
turmoil built around the party's main figure, Cuauhtemoc Cardenas. The PRD also
lacks a political and economic agenda. It is defined reactively as "to the left
of the Salinas-defined PRI". The Salinas benchmark was useful in its time,
pitching Mr. Cardenas as a man of integrity who stood firm against the abuses of
the corrupt and ill-fated administration. It was a centrist position attracting
those who had lost out, or who thought they had lost out, in the cataclysmic
events of year end-1994. But it could not stand the test of time. Its
reactionary stance failed when the Zedillo administration managed to distance
itself from the Salinas PRI, and to

                                                                               5
<PAGE>

Outlook for North America (concluded)

produce undisputed economic and social progress. Recall that Mexico's recession,
although deep, was short-lived, ending in 1996. Since 1997, the economic
performance has been remarkable, albeit at the cost of a worsening income
distribution. President Zedillo has also delivered on his promise to open and
democratize the political system. All this leaves the PRD with the same also ran
image it had during the last Presidential election.

Canada

Overview

     Canada has enjoyed an export driven economic recovery. Good economic
performance has helped maintain the Canadian dollar value. There is still a
sizable employment gap in Canada because of its 7.8% unemployment rate. The gap
on its own tends to hold down inflation but because higher energy prices and low
interest rates are also at work, the outlook for Canadian inflation is no better
than in the U.S. Since bond yields in Canada are somewhat lower than the U.S.,
the market opportunities currently seem better in the U.S. than in Canada.

The Economy and Inflation

     Capital spending has been pivotal to the turnaround in the domestic
economy. The outlook for corporate earnings has improved rapidly, evident in the
sharp gains during the first half of the year, and rising sales, supported by
the steady global recovery. The result is rising capacity utilization. Prospects
for the household sector have not been nearly as encouraging as in the export
sector. Employment growth has been virtually nonexistent since February and
growth in real income remains modest. The question is can improvements in the
business/export sector find their way to households? If the answer is yes, the
route will be through an increase in the pace of job creation. An improved
outlook for the domestic economy would add a second leg to the expansion but so
far the expansion has just been export driven. The sharp, negative terms of
trade shock that hit the Canadian economy during the crisis period in 1998 have
reversed. In fact, the ratio of export-to-import prices is now trending
comfortably above year-ago levels. Foreign financing requirements have
dissipated in short order, and a shift to a sustained current account surplus is
highly likely this year. A less rosy inflation outlook is one consequence of
improved economic conditions. Mostly the result of a sharp rise in energy
prices, headline consumer-price inflation is quickly approaching the upper
boundary of the bank of Canada's 1% - 3% target range. Trends in core inflation
are far more subdued, but some feed-through to a broader basket of goods prices
from higher energy costs is possible because the Canadian energy section is
relatively big when compared to the U.S. These economic conditions have not yet
prompted a shift toward tighter monetary conditions. Instead, the bank of Canada
has indicated that higher short rates should only follow once the economy begins
to produce at full capacity, which is still some time away. This policy strategy
hopes to replicate the U.S. growth experience of the late 1990s, based partly on
a view that productivity growth will keep inflationary pressures at bay. But
with the U.S. Federal reserve on a late cycle expansion watch, the run in the
Canadian economy may be cut short, resulting in Canadian rates moving above
rates in the U.S.

6
<PAGE>

North American Government Bond Fund, Inc.

Statement of Net Assets
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
                                          Interest        Maturity    Par/Nominal         Market
Security                                    Rate            Date        Value/6           Value
- -------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>         <C>              <C>
CANADIAN SECURITIES - 4.5%
U.S. Canadian Global Bond                   6.750%        08/28/06    $  2,750,000      $ 2,782,505
                                                                                       ------------
   Total Canadian Securities
      (Cost $2,997,726) ..........................................................        2,782,505
                                                                                       ------------
MEXICAN SECURITIES - 12.6%
Mexican Treasury Cete/1                    23.330%/3      04/13/00    P 35,118,640        3,339,497
Mexican Treasury Cete/1                    23.243%/3      07/13/00       8,414,030          757,803
Mexican Udibonos/2                          6.000%        11/23/00      93,033,000        2,525,633
Mexican Udibonos/2                          6.500%        05/24/01      42,196,000        1,141,520
                                                                                       ------------
   Total Mexican Securities
      (Cost $7,397,817) ..........................................................        7,764,453
                                                                                       ------------
U.S. SECURITIES - 52.1%
U.S. Treasury Bond                         10.375%        11/15/12    $  4,500,000        5,647,500
U.S. Treasury Bond                          8.875%        02/15/19       5,000,000        6,322,655
U.S. Treasury Bond                          8.125%        08/15/19       8,550,000       10,129,082
U.S. Treasury Bond                          7.875%        02/15/21       2,750,000        3,202,031
U.S. Treasury Bond                          8.125%        08/15/21       1,700,000        2,031,765
U.S. Treasury STRIP                         6.585%/5      05/15/17      14,500,000        4,628,545

   Total U.S. Securities
      (Cost $35,259,547) .........................................................       31,961,578
                                                                                       ------------
Repurchase Agreements - 29.9%
Goldman Sachs & Co., 5.10%
   Dated 09/30/99, to be repurchased
   on 10/1/99, collateralized by U.S.
   Treasury Bond with a par value of
   $5,880,000, coupon rate of 6.875%,
   due 8/15/25, with a market value of
   $6,231,954 (Cost $6,109,000)             5.100%         10/1/99    $  6,109,000        6,109,000
</TABLE>

                                                                               7
<PAGE>

North American Government Bond Fund, Inc.

Statement of Net Assets
September 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
                                          Interest        Maturity    Par/Nominal         Market
Security                                    Rate            Date        Value/6           Value
- ---------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>         <C>              <C>
J.P. Morgan Securities Inc., 5.15%
   Dated 09/30/99, to be repurchased
   on 10/1/99, collateralized by U.S.
   Treasury Note with a par value of
   $6,064,000, coupon rate of 6.50%,
   due 8/15/05, with a market value of
   $6,231,303 (Cost $6,109,000)             5.150%         10/1/99    $  6,109,000     $  6,109,000

Morgan Stanley & Co., 5.15%
   Dated 09/30/99, to be repurchased
   on 10/1/99, collateralized by U.S.
   Treasury Bill with a par value of
   $6,290,000, due 10/28/99, with a
   market value of $6,268,677
   (Cost $6,109,000)                        5.150%         10/1/99       6,109,000        6,109,000
                                                                                       ------------
   Total Repurchase Agreements
      (Cost $18,327,000) .........................................................       18,327,000
                                                                                       ============

Total Investments -- 99.1%
      (Cost $63,982,090)/4 .......................................................       60,835,536
Other Assets Less Liabilities, Net -- 0.9% .......................................          555,164
                                                                                       ------------
Net Assets-- 100.0% ..............................................................     $ 61,390,700
                                                                                       ============
Net Asset Value and Redemption Price Per Share
   ($61,390,700 O 7,633,502 shares outstanding) ..................................            $8.04
                                                                                              =====
Offering Price Per Share
   ($8.04 O .970) ................................................................            $8.29
                                                                                              =====
</TABLE>
- --------------------------------------------------------------------------------
1/ Cetes are short-term Mexican government debt securities.
2/ Udibonos are securities issued by the Mexican Government with a nominal face
   value of 100 Investment Units (UDIs) per security. The Udibonos are redeemed
   at face value at maturity. Face value is adjusted for changes in the Mexican
   Consumer Price Index. The interest rate is fixed and payable every 182 days.
3/ Yield as of September 30, 1999.
4/ Also aggregate cost for federal tax purposes.
5/ Zero Coupon, Security Yield as of September 30, 1999.
6/ Par value is shown in local currency: Mexican pesos (P) and U.S. dollars ($).
See accompanying Notes to Financial Statements.

8
<PAGE>

North American Government Bond Fund, Inc.

Statement of Operations
For the Six Months Ended September 30, 1999
(Unaudited)
<TABLE>
<S>                                                                                    <C>
- --------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME:
     Interest ....................................................................     $ 2,014,717
                                                                                       -----------

EXPENSES:
     Investment advisory fee .....................................................         118,153
     Distribution fee ............................................................         118,153
     Administration fee ..........................................................          38,366
     Professional fees ...........................................................          32,411
     Accounting fee ..............................................................          27,860
     Transfer agent fee ..........................................................          22,743
     Custodian fees ..............................................................          10,540
     Printing and postage ........................................................           8,738
     Miscellaneous ...............................................................          18,558
                                                                                       -----------
        Total expenses ...........................................................         395,522
     Less: Fees waived ...........................................................         (26,301)
                                                                                       -----------
        Net expenses .............................................................         369,221
                                                                                       -----------
     Net investment income .......................................................       1,645,496
                                                                                       -----------

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
     Net realized loss from security transactions ................................         (78,105)
     Net realized gain from foreign currency transactions ........................         256,646
     Change in unrealized depreciation of investments ............................      (1,924,223)
     Change in unrealized appreciation on translation
       of other assets and liabilities denominated in foreign currencies .........             170
                                                                                       -----------
     Net realized and unrealized loss on investments .............................      (1,745,512)
                                                                                       -----------

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .............................     $  (100,016)
                                                                                       ===========

- --------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>

                                                                               9
<PAGE>

North American Government Bond Fund, Inc.

Statements of Changes in Net Assets
<TABLE>
<CAPTION>
                                                                For the Six           For the Year
                                                               Months Ended               Ended
                                                           September 30, 1999/1      March 31, 1999
- ---------------------------------------------------------------------------------------------------
<S>                                                             <C>                    <C>
INCREASE IN NET ASSETS:

Operations:
     Net investment income ................................     $ 1,645,496            $ 3,202,208
     Net realized gain from investments and
        foreign currency transactions .....................         178,541              1,406,544
     Change in unrealized depreciation of investments .....      (1,924,223)            (1,424,417)
     Change in net unrealized appreciation/
        depreciation on translation of other assets and
        liabilities denominated in foreign currencies .....             170                 (1,266)
                                                                -----------            -----------
     Net increase (decrease) in net assets resulting
        from operations ...................................        (100,016)             3,183,069
                                                                -----------            -----------
DIVIDENDS TO SHAREHOLDERS FROM:
     Net investment income ................................      (1,645,496)            (3,202,208)
     Distribution in excess of net investment income ......        (928,142)                    --
     Short-term capital gains .............................              --               (552,530)
     Long-term capital gains ..............................              --             (1,533,918)
                                                                -----------            -----------
     Total distributions ..................................      (2,573,638)            (5,288,656)
                                                                -----------            -----------
CAPITAL SHARE TRANSACTIONS:
     Proceeds from sale of 1,432,320 and 1,527,556
        shares, respectively ..............................      11,728,131             13,255,729
     Value of 133,932 and 224,638 shares issued in
        reinvestment of dividends, respectively ...........       1,091,411              1,948,979
     Cost of 569,111 and 1,065,714 shares
        repurchased, respectively .........................      (4,645,765)            (9,226,947)
                                                                -----------            -----------
     Increase in net assets derived from
        capital share transactions ........................       8,173,777              5,977,761
                                                                -----------            -----------
     Total increase in net assets .........................       5,500,123              3,872,174

NET ASSETS:
     Beginning of period ..................................      55,890,577             52,018,403
                                                                -----------            -----------
     End of period ........................................     $61,390,700            $55,890,577
                                                                ===========            ===========
- ---------------------------------------------------------------------------------------------------
</TABLE>
1/ Unaudited.
See accompanying Notes to Financial Statements.

10
<PAGE>

North American Government Bond Fund, Inc.

Financial Highlights
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
                                                       For the
                                                    Period Ended
                                                    September 30,            For the Years Ended March 31,
                                                                      --------------------------------------------
                                                        1999/5         1999     1998      1997    1996      1995
- ------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>           <C>      <C>       <C>     <C>       <C>
  Per Share Operating Performance:
   Net asset value at beginning of period ..........   $  8.42       $  8.74  $  8.29   $  8.37  $  8.06   $  9.53
                                                       -------       -------  -------   -------  -------   -------
Income from Investment Operations:
   Net investment income ...........................      0.24          0.60     0.61      0.75     0.81      0.63
   Net realized and unrealized gain/(loss)
     on investments ................................     (0.26)        (0.09)    0.56     (0.11)    0.22     (1.38)
                                                       -------       -------  -------   -------  -------   -------
   Total from Investment Operations ................     (0.02)         0.51     1.17      0.64     1.03     (0.75)
                                                       -------       -------  -------   -------  -------   -------
Less Distributions:
   Dividends from net investment income
     and short-term gains ..........................     (0.26)        (0.60)   (0.67)    (0.26)      --     (0.45)
   Distribution in excess of net investment
     income ........................................     (0.10)           --    (0.05)       --       --        --
   Distribution from long-term gains ...............        --         (0.23)      --        --       --        --
   Return of capital ...............................        --            --       --     (0.46)   (0.72)    (0.27)
                                                       -------       -------  -------   -------  -------   -------
   Total distributions .............................     (0.36)        (0.83)   (0.72)    (0.72)   (0.72)    (0.72)
                                                       -------       -------  -------   -------  -------   -------
   Net asset value, end of period ..................   $  8.04       $  8.42   $ 8.74    $ 8.29   $ 8.37   $  8.06
                                                       =======       =======  =======   =======  =======   =======
Total Return1
   Based on net asset value per share ..............     (0.22)%        5.96%   14.65%     7.90%   12.97%    (8.31)%
Ratios to Average Daily Net Assets:
   Expenses/2 ......................................      1.25%/4       1.25%    1.25%     1.25%    1.25%     1.25%
   Net investment income/3 .........................      5.57%/4       5.79%    7.17%     8.99%    9.49%     7.04%
Supplemental Data:
   Net assets at end of period (000) ...............   $61,391       $55,891  $52,018   $51,966  $60,860   $66,292
   Portfolio turnover rate .........................        14%          173%     125%       46%     125%      104%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
1/ Total return excludes the effect of sales charges.
2/ Without the waiver of advisory and administration fees (Note B), the ratio of
   expenses to average net assets would have been 1.34%, 1.42%,1.28%, 1.58%,
   1.47%, and 1.45% for the period ended September 30, 1999 and the years ended
   March 31, 1999,1998, 1997, 1996, and 1995, respectively.
3/ Without the waiver of advisory and administration fees (Note B), the ratio of
   net investment income to average net assets would have been 5.48%, 5.62%,
   7.14%, 8.66%, 9.27%, and 6.84% for the period ended September 30, 1999 and
   the years ended March 31, 1999, 1998, 1997, 1996, and 1995, respectively.
4/ Annualized.
5/ Unaudited.
See accompanying Notes to Financial Statements.

                                                                              11
<PAGE>

Notes to Financial Statements


A.   Significant Accounting Policies -- North American Government Bond Fund,
     Inc. ("the Fund"), which was organized as a Maryland Corporation on October
     19, 1992, began operations January 15, 1993. The Fund is registered under
     the Investment Company Act of 1940 as a diversified, open-end Investment
     Management Company. It is designed 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.

     The Fund consists of one share class, the ISI Shares, which are subject to
     a 3.00% maximum front-end sales charge and a 0.40% distribution fee.

     When preparing the Fund's financial statements, management has to make
     estimates and assumptions to comply with generally accepted accounting
     principles. These estimates affect 1) the assets and liabilities that we
     report at the date of the financial statements; 2) the contingent assets
     and liabilities that we disclose at the date of the financial statements;
     and 3) the revenues and expenses that we report for the period. Our
     estimates could be different from the actual results. The Fund's
     significant accounting policies are:

     Security Valuation -- Debt securities are generally traded in the
     over-the-counter market. When there is an available market quotation, the
     Fund values a debt security by using the most recent price provided by an
     investment dealer. The Fund may also value a debt security by using a price
     from an independent pricing service that the Investment Advisor has
     determined reflects the obligation's fair market value. When a market
     quotation is unavailable, the Investment Advisor determines a fair value
     using procedures that the Board of Directors establishes and monitors. The
     Fund values short-term obligations with maturities of 60 days or less at
     amortized cost.

     Repurchase Agreements -- The Fund may enter into tri-party repurchase
     agreements with broker-dealers and domestic banks. A repurchase agreement
     is a short-term investment in which the Fund buys a debt security that the
     broker agrees to repurchase at a set time and price. The third party, which
     is the broker's custodial bank, holds the collateral in a separate account
     until the repurchase agreement matures. The agreement ensures that the
     collateral's market value, including any accrued interest, is sufficient if
     the broker defaults. The Fund's access to the collateral may be delayed or
     limited if the broker defaults and the value of the collateral declines or
     if the broker enters into an insolvency proceeding.

     Foreign Currency Transaction and Translation -- The Fund separates realized
     gains or losses resulting from foreign exchange rate changes and realized
     gains or losses resulting from market price changes.

     Net realized foreign exchange rate gains or losses occur due to 1) sales of
     portfolio securities; 2) sales and maturities of short-term securities; 3)
     sales of foreign currencies; 4) currency gains or losses realized between
     the trade and settlement dates on securities transactions; and 5)
     differences between interest recorded on the Fund's books and the U.S.
     dollar equivalent of interest that the Fund actually receives or pays.

     The Fund does not separate its unrealized appreciation or depreciation
     resulting from foreign exchange rate changes and its unrealized
     appreciation or depreciation resulting from market price changes.

     Federal Income Tax -- The Fund is organized as a regulated investment
     company. As long as it maintains this status and distributes to its
     shareholders substantially all of its taxable net investment income and net
     realized capital gains, it

12
<PAGE>

Notes to Financial Statements (continued)

     will be exempt from most, if not all, federal income and excise taxes. As a
     result, the Fund has made no provisions for federal income taxes.

     The Fund determines its distributions according to income tax regulations,
     which may be different from generally accepted accounting principles. As a
     result, the Fund occasionally makes reclassifications within its capital
     accounts to reflect income and gains that are available for distribution
     under income tax regulations.

     Security Transactions, Investment Income, Distributions and Other -- The
     Fund uses the trade date to account for security transactions and the
     specific identification method for financial reporting and income tax
     purposes to determine the cost of investments sold or redeemed. Income and
     expenses are recorded on an accrual basis. Income includes scientific
     amortization of premiums and accretion of discounts when appropriate.
     Dividend distributions to shareholders are recorded on the exdividend date.

     B. Investment Advisory Fees, Transactions with Affiliates and Other Fees --
     International Strategy and Investment Inc. ("ISI") is the Fund's investment
     advisor. As compensation for its advisory services, the Fund pays ISI an
     annual fee based on the Fund's average daily net assets. This fee is
     calculated daily and paid monthly at the annual rate of 0.40%. ISI has
     agreed to waive a portion of its fee and reimburse expenses so that the
     Fund's total operating expenses for any fiscal year do not exceed 1.00% of
     the Fund's average daily net assets. For the period ended September 30,
     1999, the Fund paid ISI $118,153 (net of fee waivers of $26,301) of which
     $20,078 was payable at the end of the period.

     Investment Company Capital Corp. ("ICC"), a subsidiary of Deutsche Bank AG,
     is the Fund's administrator. As compensation for its administrative
     services, the Fund pays ICC an annual fee based on the Fund's average daily
     net assets. This fee is calculated daily and paid monthly at the following
     annual rates: 0.20% of the first $75 million, 0.15% of the next $75
     million, 0.10% of the next $75 million, 0.05% of the next $275 million, and
     0.03% of the amount over $500 million. For the period ended September 30,
     1999, ICC's fee was $38,366 of which $4,884 was payable at the end of the
     period.

     Certain officers and directors of the Fund are also officers or directors
     of ISI or ICC.

     ICC also provides accounting services, to the Fund for which the Fund pays
     ICC an annual fee that is calculated daily and paid monthly based on the
     Fund's average daily net assets. For the period ended September 30, 1999,
     ICC's fee was $27,860 of which $4,638 was payable at the end of the period.

     ICC also provides transfer agent services to the Fund for which the Fund
     pays ICC a per account fee that is calculated and paid monthly. For the
     period ended September 30, 1999, ICC's fee was $22,743, of which $4,167 was
     payable at the end of the period.

     ISI Group, Inc., an affiliate of ISI, provides distribution services to the
     Fund for which the Fund pays ISI Group Inc., an annual fee that is
     calculated daily and paid monthly at an annual rate equal to 0.40% of the
     Fund's average daily net assets. For the period ended September 30, 1999,
     ISI Group's fee was $118,153, of which $20,078 was payable at the end of
     the period.

     The Fund's complex offers a retirement plan for eligible Directors. The
     actuarially computed pension expense allocated to the Fund for the period
     ended September 30, 1999 was $705 and the accrued liability was $12,207.

                                                                              13
<PAGE>

Notes to Financial Statements (concluded)


C.   Capital Share Transactions -- The Fund is authorized to issue up to 25
     million shares of $.001 par value capital stock.

D.   Investment Transactions -- Excluding short-term and U.S. government
     obligations, purchases of investment securities aggregated $3,730,364 and
     sales of investment securities aggregated $2,408,784 for the period ended
     September 30, 1999. Purchases of U.S. government obligations aggregated
     $5,090,527 and sales of U.S. government obligations aggregated $2,408,784
     for the period.

     At September 30, 1999, aggregate gross unrealized appreciation for all
     securities in which there is an excess of value over tax cost was $437,782
     and aggregate gross unrealized depreciation of all securities in which
     there is an excess of tax cost over value was $3,584,336.

E.   Forward Currency Exchange Contracts --Forward currency exchange contracts
     carry certain risks. These risks include the counterparties' possible
     inability to meet the contract terms and the movements in currency values.
     There were no outstanding contracts as of September 30, 1999.

F.   Net Assets -- On September 30, 1999, net assets consisted of

     Paid-in capital ....................   $65,293,458
     Accumulated net realized gain
       from security and foreign
       currency transactions ............       178,541
     Distribution in excess
       of net investment income .........      (934,060)
     Unrealized depreciation of
       investments ......................    (3,146,554)
     Unrealized loss on translation of
       other assets and liabilities
       denominated in foreign
       currencies .......................          (685)
                                            -----------
                                            $61,390,700
                                            ===========

- --------------------------------------------------------------------------------
     This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by an effective prospectus.

     For more complete information regarding any of the ISI Funds, including
charges and expenses, obtain a prospectus from your investment representative or
directly from the Fund at 1-800-955-7175. Read it carefully before you invest.
- --------------------------------------------------------------------------------

14
<PAGE>














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