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Third Quarter Report
For the Period Ended July 31, 1996
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Chairman's Letter
-----------------
Dear Stockholder,
The Irish equity market declined by 3.0% in Irish Pound terms during the
quarter ended July 31, 1996. After adjusting for the weakness of the U.S.
Dollar, the market loss converted into an increase of 0.9% in U.S. Dollar terms.
The Irish Investment Fund, Inc.'s (the "Fund's") net asset value was unchanged
at $15.31 over the same period.
ECONOMIC ENVIRONMENT
Irish economic growth continues to be robust, with the Central Bank of
Ireland forecasting a 5.25% expansion in Gross National Product ("GNP") for
1996. Official statistics for 1995 confirmed that GNP growth in that year was
7.7%, following a rise of 7.2% in 1994. The deceleration in the current year is
attributable largely to an expected slowdown in export growth from unsustainably
high levels.
A notable feature of the Irish economic statistics in the first half of
1996 has been a shift in the momentum of economic growth from the export-
oriented industrial sector towards domestic demand-driven segments of the
economy. Retail sales over the first five months of 1996 increased by 6.6% in
nominal terms over the previous year's level. In particular, new car sales have
been exceptionally buoyant, with the motor industry estimating growth of 35% in
the first six months of 1996 over year-earlier levels. This strength in consumer
spending is not surprising given that, according to a European Union survey,
Irish consumer confidence is now at a ten-year high.
The BSE beef crisis in the United Kingdom and the resulting fall in
European beef consumption has had a negative impact on the Irish agricultural
sector where cattle production accounts for 37% of gross output. As a result, it
is likely that farm incomes on aggregate will decline in 1996 after four years
of steady increases.
Due to the economic buoyancy, Government tax receipts in the first seven
months of 1996 rose by 12.2% year-on-year which was well ahead of the
Government's budgeted increase of 6.5%. It is likely that the Government target
for an Exchequer Borrowing Requirement in 1996 of 2.0% of GNP will be attained.
Inflation remains remarkably subdued with consumer price inflation standing
at 1.4% for the year to mid-May 1996, down from an average of 2.5% in 1995.
While the current inflationary environment remains benign, the Central Bank of
Ireland is concerned by the continued expansion of credit within the economy.
This is evident particularly in the mortgage sector where loan demand increased
by 14.7% in the second quarter of 1996 as compared with the same period last
year. While official Irish three-month interest rates remained unchanged at
6.25% at the end of the quarter, money market interest rates increased by almost
0.5%, putting modest upward pressure on official rates.
STOCK MARKET REVIEW
As already mentioned, the Irish equity market declined by 3.0% over the
quarter ended July 31, 1996. A comparison with major international markets is
shown below:
LOCAL CURRENCY U.S. $
-------------- ------
U.S. Equities -2.2% -2.2%
U.K. Equities -4.1% -0.5%
Japanese Equities -6.1% -7.8%
Irish Equities -3.0% +0.9%
Smurfit (Jefferson) Group declined by 7.0% over the quarter as the company
indicated that conditions in European paper and packaging markets had
deteriorated over the first half of 1996. While investors will require a clear
indication of an upturn in the global paper cycle before the company's share
price can begin to outperform the Irish market, there is limited downside risk
at current levels.
The supply of new equity was a feature of the market over the quarter, with
both Independent Newspapers and Green Property raising US$169 million and US$48
million, respectively, by way of rights issues. In the case of Independent
Newspapers, the company is using the cash to strengthen its balance sheet, while
Green Property announced an acquisition of a property portfolio in the United
Kingdom. The Fund subscribed to both offerings. Irish companies were active on
the acquisitions front with CRH, Clondalkin Group, Greencore, and I.W.P.,
International announcing sizeable purchases during the quarter. This highlights
the strength of Irish company balance sheets and underpins further earnings
growth for the market into 1997.
The Fund's investments in Northern Ireland-based companies enjoyed mixed
fortunes during the quarter. Powerscreen International's announcement of a
22% increase in earnings for the year to March 31 last, led to an upgrade in
earnings expectations for the current fiscal year. In contrast, Northern
Ireland Electricity was affected negatively by larger-than-expected
electricity price reductions recommended by the electricity industry
regulatory body. The company has decided to appeal the regulator's ruling.
OUTLOOK
Ireland's status as Europe's fastest-growing economy remains intact and,
while economic growth rates are moderating from 1994/1995 levels, the
medium-term outlook remains excellent. The key risks to this scenario are
primarily external in nature such as sharp movements in international interest
rates and currencies or slower global economic growth. While the valuation of
the market has moved higher as investors have discovered the Irish growth story,
the market stands on a price-to-earnings ratio of 12.1 times 1996 earnings and
offers a dividend yield of 3.2%. These ratings are hardly demanding relative to
international equity markets, or indeed, historic Irish market levels, and it is
the current intention of the Fund to remain fully invested.
Sincerely,
/s/ Peter Hooper
Peter Hooper
Chairman of the Board
September 27, 1996
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Investments (unaudited)
-----------------------
July 31, 1996
Shares Value
IRISH COMMON STOCKS (93.9%)
Abbey 745,000 U.S. $ 2,048,312
Allied Irish Bank 1,917,688 10,420,970
Anglo Irish Bank Corporation 1,405,720 1,409,553
Barlo Group 1,000,356 582,436
Boxmore International 468,000 1,952,794
Clondalkin Group 298,850 2,295,820
Crean (James) 347,625 1,040,097
CRH 1,048,036 9,746,192
FBD Holdings 260,000 862,021
Fyffes 1,635,000 2,670,730
Green Property 1,100,000 4,091,772
Greencore 442,568 2,161,613
Hibernian Group 300,000 1,334,274
Independent Newspapers 309,999 1,453,950
Irish Life 700,000 2,649,139
I.W.P., International 194,943 1,541,727
Jury's Hotel Group 991,792 3,849,663
Kerry Group, Series A 465,000 4,512,270
Smurfit (Jefferson) Group 3,355,840 8,629,573
Unidare 150,000 460,931
United Drug 350,000 1,783,075
Waterford Foods, Class A 1,644,156 2,260,231
Waterford Wedgewood 3,565,739 4,209,818
TOTAL IRISH COMMON STOCKS
(Cost U.S. $53,238,778) 71,966,961
UNITED KINGDOM COMMON STOCKS (5.3%)
Northern Ireland Electricity 400,000 2,271,030
Powerscreen International 230,000 1,781,670
TOTAL UNITED KINGDOM COMMON STOCKS
(Cost U.S. $4,198,623) 4,052,700
TOTAL INVESTMENTS BEFORE FOREIGN CURRENCY ON DEPOSIT
(Cost U.S. $57,437,401#) 76,019,661
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Investments (unaudited) (continued)
-----------------------------------
July 31, 1996
Face Value Value
FOREIGN CURRENCY ON DEPOSIT (1.0%)
(Interest Bearing)
British Pound Sterling Brt Pd 53,872 U.S. $ 83,798
Irish Pound IR Pd 430,661 696,509
TOTAL FOREIGN CURRENCY ON DEPOSIT
(Cost U.S. $748,874)
780,307
TOTAL INVESTMENTS (100.2%)
(Cost U.S. $58,186,275)
76,799,968
OTHER ASSETS AND LIABILITIES (-0.2%)
Net Unrealized Depreciation of Forward
Foreign Currency Contract (551,968)
Other Assets 601,479
Other Liabilities (184,307)
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(134,796)
NET ASSETS (100.0%)
Applicable to 5,009,000 outstanding U.S. $.01 par
value shares (authorized 20,000,000 shares) U.S. $76,665,172
NET ASSET VALUE PER SHARE
(U.S. $76,665,172 / 5,009,000) U.S. $ 15.31
=====
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# Aggregate cost for Federal tax purposes.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACT
FORWARD FOREIGN CURRENCY CONTRACT TO SELL
Contract to Deliver
-------------------------------------------------
Expiration Local In Exchange Value in Unrealized
Date Currency For U.S. $ U.S. $ Depreciation
---------- ----------------------- ---------- ---------- ---------------
11/29/1996 Irish Pound 17,566,034 28,416,968 27,865,000 U.S. $(551,968)
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THE IRISH INVESTMENT FUND, INC.
------------------------- DIRECTORS AND OFFICERS -------------------------
Peter J. Hooper - Chairman of the Board
William P. Clark - Director
Gerald F. Colleary - Director
Denis P. Kelleher - Director
James M. Walton - Director
Richard H. Rose - President and Treasurer
Brigid O. Bieber - Secretary
Patricia L. Bickimer - Assistant Secretary
Susan Manter - Assistant Treasurer
---------------------- PRINCIPAL INVESTMENT ADVISOR ----------------------
Bank of Ireland Asset Management (U.S.) Limited
Two Greenwich Plaza
Greenwich, Connecticut 06830
----------------------------- U.S. CO-ADVISOR ----------------------------
Salomon Brothers Asset Management Inc
Seven World Trade Center
New York, New York 10048
------------------------------ ADMINISTRATOR -----------------------------
First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
------------------------------- CUSTODIANS -------------------------------
Bank of Ireland
Lower Baggot Street, Dublin 2, Ireland
BankBoston
150 Royall Street
Canton, Massachusetts 02021
----------------------- SHAREHOLDER SERVICING AGENT ----------------------
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
------------------------------ LEGAL COUNSEL -----------------------------
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
------------------------- INDEPENDENT ACCOUNTANTS ------------------------
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
----------------------------- CORRESPONDENCE -----------------------------
ALL CORRESPONDENCE SHOULD BE ADDRESSED TO:
The Irish Investment Fund, Inc.
c/o First Data Investor Services Group, Inc.
One Exchange Place -- BOS665
Boston, Massachusetts 02109
TELEPHONE INQUIRIES SHOULD BE DIRECTED TO:
1-800-GO-TO-IRL (1-800-468-6475)
