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THE
IRISH
INVESTMENT FUND
First Quarter Report
For the Period Ended January 31, 1997
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Chairman's Letter
-----------------
Dear Stockholder,
The Irish equity market performed strongly during the quarter ended January
31, 1997, closing the period up 9.5% in Irish pound terms. After adjusting for
the strength of the U.S. dollar against the Irish pound, the return converted
into an increase of 6.9% in U.S. dollar terms. Over the same period, The Irish
Investment Fund, Inc.'s (the "Fund") net asset value fell to $16.61 from
$16.90. However, when allowance is made for the dividend of $0.58
per share which was paid to stockholders at the end of December,
1996, the total return on investment was 1.7%.
ECONOMIC ENVIRONMENT
The Central Bank of Ireland has estimated that the economy expanded by a
very satisfactory 6.0% in 1996, following the average annual growth of 7.5%
which was recorded over the previous two years. This three-year period of
economic expansion easily represents the strongest period of Irish economic
growth in modern times.
As further evidence of this continued growth, the latest available data
shows that retail sales volumes have increased by 6.0% in the eleven months to
the end of November 1996, when compared with the same period in the previous
year. New car sales totaled 115,102 in 1996, the highest absolute level since
1979 and a 32% increase over 1995. The key drivers of economic growth remain
unchanged -- low and stable interest rates, continuing foreign direct
investment, a high level of business and consumer confidence, and an
expansionary fiscal policy. Higher employment levels and reductions in taxation
announced by the Government in its recent budget should support continued strong
domestic demand in 1997.
While manufacturing output in the third quarter of 1996 was 2.8% ahead of
the corresponding period in 1995, the pace of expansion in the technology sector
slowed from its earlier, unsustainably-high levels. Despite this, however, the
Irish Industrial Development Authority continues to attract multinational
companies to Ireland, and a number of significant new investment projects have
been announced recently by companies such as Compaq Computer Corp., Citibank,
and International Business Machines Corp.
Happily, Irish inflation remains subdued with consumer-price inflation in
mid-November 1996 standing at an annual rate of 1.9%. The strength in house
prices is, however, a concern with the third quarter 1996 prices 18.2% ahead of
1995 levels. During the fourth quarter, agreement was reached on a new national
wage agreement called Partnership 2000 which allows for annual wage increases of
between 3.0% and 3.5% over the next three years.
Government finances are in excellent condition with 1996 tax receipts 10.5%
higher than in 1995. This has resulted in the Government's borrowing requirement
being reduced to 1.2% of gross national product, the lowest level since 1970.
Although the introduction of a single European currency on January 1, 1999
is by no means certain, Ireland's case for membership in the European Monetary
Union remains strong. Prospects for Ireland's participation in the process of
European Monetary Union will be monitored carefully by financial markets during
1997.
STOCK MARKET REVIEW
As mentioned earlier, the Irish equity market performed strongly over the
quarter ended January 31, 1997, registering a gain of 9.5%. A comparison with
major international markets is shown below:
LOCAL CURRENCY U.S. $
-------------- ------
U.S. Equities 11.5% 11.5%
U.K. Equities 6.7% 5.0%
Japanese Equities -10.4% -16.1%
Irish Equities 9.5% 6.9%
In conjunction with the good underlying performance of the companies on the
Irish stock market, the strength of international markets -- led by Wall Street
- -- pushed Irish stock prices to all-time highs in the early weeks of 1997.
Financial stocks were amongst the strongest performers during the quarter,
supported by a decline in Irish ten-year bond yields from 6.82% to 6.53%.
Allied Irish Banks plc ("AIB") announced in January, 1997 that it has agreed
to acquire Pennsylvania-based Dauphin Deposit Corporation for a consideration of
$1.4 billion in cash and stock. The deal represents the largest ever by any
Irish company. The transaction, when completed, will take AIB's U.S. asset base
to over $16 billion. AIB is one of a handful of international banks that are
playing a part successfully in the consolidation of the U.S. banking industry
and the market responded positively to this transaction.
Fyffes announced full-year results showing a 15% increase in pre-tax profits
and a 16% increase in earnings-per-share. Results were impacted positively by
the company's joint-venture acquisition of the banana operations of Geest plc.
Jury's Hotel Group announced interim results for the six months ended October
31, 1996 showing an earnings-per-share increase of 21% over the corresponding
period in 1995. The company is benefiting from the buoyant Irish economy and
continued strong growth in the number of overseas visitors to Ireland.
OUTLOOK
The Irish economy began 1997 with considerable momentum and while one should
expect some deceleration in economic growth, the extent of any slowdown is
likely to be modest.
With the overall price-to-earnings ratio for the market standing at an
attractive 13.3 times prospective 1997 earnings and a dividend yield of 3.1%,
the Fund remains fully invested. The manager continues to see the potential for
upward movement by the U.S. dollar against the Irish pound, but following a
sharp rise during the quarter, the level of hedging was reduced to approximately
15% from 35% of total assets.
Sincerely,
/s/ Peter Hooper
Peter Hooper
Chairman of the Board of Directors
March 10, 1997
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Investments (unaudited)
-----------------------
January 31, 1997
Shares Value
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IRISH COMMON STOCKS (95.3%)
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Abbey 745,000 U.S. $ 2,310,452
Adare Printing Group 220,000 2,169,304
Allied Irish Banks 1,917,688 13,206,020
Anglo Irish Bank Corporation 905,720 1,152,365
Boxmore International 393,000 1,937,583
Clondalkin Group 348,850 2,912,756
Crean (James) 347,625 984,095
CRH 1,048,036 10,784,167
FBD Holdings 260,000 930,384
Fyffes 1,635,000 3,042,354
Green Property 900,000 3,578,398
Greencore 442,568 2,639,474
Hibernian Group 750,000 3,304,054
Independent Newspapers 309,999 1,676,275
Irish Life 500,000 2,147,039
I.W.P., International 389,886 1,674,201
Jury's Hotel Group 791,792 3,689,647
Kerry Group, Series A 465,000 4,843,958
Smurfit (Jefferson) Group 3,355,840 9,073,112
United Drug 437,500 2,330,929
Waterford Foods, Class A 1,644,156 2,248,783
Waterford Wedgewood 2,065,739 2,628,280
TOTAL IRISH COMMON STOCKS
(Cost U.S. $52,971,887) 79,263,630
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UNITED KINGDOM COMMON STOCK (2.6%)
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Powerscreen International 230,000 2,128,255
TOTAL UNITED KINGDOM COMMON STOCK
(Cost U.S. $1,403,303) 2,128,255
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TOTAL INVESTMENTS BEFORE FOREIGN CURRENCY ON DEPOSIT
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(Cost U.S. $54,375,190#) U.S. $81,391,885
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Investments (unaudited) (continued)
-----------------------------------
January 31, 1997
<TABLE>
<CAPTION>
Face Value Value
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FOREIGN CURRENCY ON DEPOSIT (0.7%)
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<S> <C> <C>
(Interest Bearing)
British Pound Sterling Pds 39,114 U.S. $ 62,673
Irish Pound IRPds 345,880 550,086
TOTAL FOREIGN CURRENCY ON DEPOSIT
(Cost U.S. $642,385)
612,759
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TOTAL INVESTMENTS (98.6%)
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(Cost U.S. $55,017,575) 82,004,644
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OTHER ASSETS AND LIABILITIES (1.4%)
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Net Unrealized Appreciation of Forward
Foreign Currency Contracts 962,870
Other Assets 410,485
Other Liabilities (187,097)
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1,186,258
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NET ASSETS (100.0%)
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Applicable to 5,009,000 outstanding U.S. $.01 par
value shares (authorized 20,000,000 shares) U.S. $83,190,902
- ----------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
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(U.S. $83,190,902 / 5,009,000) U.S. $ 16.61
=====
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# Aggregate cost for Federal tax purposes.
<CAPTION>
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACTS
FORWARD FOREIGN CURRENCY CONTRACT TO BUY
Contract to Receive
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Expiration Local In Exchange Value in Unrealized
Date Currency For U.S. $ U.S. $ Depreciation
---------- ------------------------------- ----------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
02/28/1997 Irish Pound 10,000,000 16,398,000 15,900,703 U.S. $ (497,297)
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<CAPTION>
FORWARD FOREIGN CURRENCY CONTRACT TO SELL
Contract to Deliver
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Expiration Local In Exchange Value in Unrealized
Date Currency For U.S. $ U.S. $ Appreciation
---------- ------------------------------- ----------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
02/28/1997 Irish Pound 16,606,079 27,865,000 26,404,833 U.S. $ 1,460,167
============
</TABLE>
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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
Elizabeth A. Russell - Assistant Secretary
Susan G. 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)
