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[Graphic Omitted]
The
IRISH
Investment Fund
Third Quarter Report
For the Period Ended July 31, 1998
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Chairman's Letter
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Dear Stockholder,
The Irish equity market declined by 4.0% in Irish pound terms during the
quarter ended July 31, 1998. After adjusting for movements in exchange
rates, this decrease converted into a decline of 3.3% in U.S. dollar terms.
The net asset value per share of The Irish Investment Fund, Inc. (the
"Fund") declined by 9.1% to $24.25 over the same period.
ECONOMIC ENVIRONMENT
Over the past number of years economic forecasters have assumed that
annual Irish economic growth, which has averaged 7.25% since 1993, would at
some point slow to more moderate levels. To date in 1998 we have seen little
or no evidence that growth is slowing. Strong consumer confidence together
with rapid employment growth is underpinning Irish gross national product
growth, which the Irish Central Bank has forecast will be 7.5% this year.
Retail sales volumes increased by 10.9% in the second quarter of 1998 over
1997 levels, which represents an acceleration from a growth rate of 9.0% in
the first quarter.
While it is necessary to monitor and comment on current economic data,
it is important to put the performance of the Irish economy over the past
five years into perspective. Low inflation, low interest rates and sound
fiscal policy have supported the Irish economy, but in particular it is
demographic changes that are serving as the locomotive for growth. In the
1980s almost 50% of Ireland's population was under the age of twenty. As we
approach the new millennium, Ireland's maturing population structure is
resulting in rapid growth in the labor force. More importantly, this
expanding and highly educated pool of labor has ample employment
opportunities, particularly in the high-technology sector. In short, there
are positive secular factors driving economic growth, and currently there is
increasing evidence that Ireland is in the midst of a rapid increase in
living standards that is unprecedented in its economic history.
Inflation remains the key risk to this rosy scenario, but consumer price
inflation, while rising, remained moderate at an annualized rate of 2.7%.
However, house prices have increased at a rapid pace and the government has
introduced a number of measures in an attempt to cool the property market.
It is too early at this point to determine how successful these measures
will be.
STOCK MARKET REVIEW
Despite the general positive economic backdrop of the Irish equity
market, it declined by 4.0% over the quarter ended July 31, 1998. A
comparison with major international markets is shown below:
Local Currency U.S. Dollars
-------------- ------------
U.S. Equities +0.8% +0.8%
U.K. Equities -1.9% -4.1%
Japanese Equities +4.7% -4.2%
Irish Equities -4.0% -3.3%
The key features of the Irish market during the quarter were declines in
the leading industrial stocks due to concerns over Asia, and pronounced
weakness in Irish smaller capitalization stocks.
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Among leading stocks Smurfit (Jefferson) Group - which declined by 36.5%
for the period was hardest hit, as investors anticipated that economic
turmoil in Asia would result in weak paper product prices. On a positive
note, the company announced that its U.S. associate, JSC Corporation,
intends to merge with Stone Container to create the largest brown paper
manufacturer in North America. The transaction will generate significant
cost savings over the next three years.
The Fund was also negatively impacted by significant declines in the
stock prices of a number of small and medium-sized companies. Abbey
(housebuilder), Hibernian Group (insurance) and Fyffes (fresh fruit
distributor) all experienced price declines in the region of 20%. These
companies continue to deliver strong profits growth, yet their recent stock
price performance reflects a widespread phenomenon where smaller stocks are
lagging the performance of larger companies across almost all major stock
markets. We remain confident that the fundamentals for many of these
companies remain excellent and believe they offer long-term value at current
levels.
During the quarter, the Fund acquired a holding in Icon. Based in
Dublin, Icon is a contract research organization that provides clinical
trial services for the pharmaceutical industry. The company has recorded
average annual revenue growth of 45% over the past five years and appears to
be well placed in an attractive fast-growing industry.
CURRENT OUTLOOK
The outlook for the Irish economy remains strong. In the near-term,
short-term interest rates are expected to fall as the new Euro currency is
introduced at the beginning of 1999. While inflation remains a concern,
Ireland is benefiting from the global deflationary pressures being driven by
the Asian crisis. Fortunately, the Irish economy has insignificant direct
exposure to the troubled economies of Asia or Russia.
The Manager and Directors of the Fund do not believe that the
introduction of the Euro currency will necessitate a change in the Fund's
investment policy.
Despite the recent tragic events in Omagh, Northern Ireland, the peace
process there moves strongly ahead. The new Northern Ireland Parliament
convened for the first time in September 1998.
The Irish market stands on a price-to-earnings ratio of 15.2 times, and
offers a dividend yield of 2.1%. The Fund retains its fully invested
position.
Sincerely,
/s/ Peter Hooper
Peter Hooper
Chairman of the Board September 30, 1998
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Investments (unaudited)
July 31, 1998
Shares Value
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IRISH COMMON STOCKS (97.08%)
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Abbey 698,600 U.S. $ 3,553,137
Adare Printing Group 320,000 4,114,075
Allied Irish Bank 1,817,688 27,657,689
Avonmore Waterford Group 1,153,610 4,726,480
Boxmore International 393,000 1,277,030
Clondalkin Group 268,850 2,222,014
CRH 958,036 12,655,354
FBD Holdings 260,000 1,744,809
Fyffes 1,635,000 3,395,595
Green Property Group 907,143 6,023,577
Greencore Group 542,568 2,682,892
Hibernian Group 500,000 4,944,802
Independent Newspapers 309,999 1,401,494
ICON - ADR* 85,000 2,656,250
IONA Technologies - ADR 169,300 5,100,163
Irish Life 500,000 4,485,642
I.W.P., International 639,886 3,209,311
Jury's Hotel Group 691,792 6,059,657
Kerry Group, Series A 465,000 5,978,265
Smurfit (Jefferson) Group 2,535,840 5,911,350
United Drug 437,500 3,770,411
Waterford Wedgwood 3,565,739 4,332,403
TOTAL IRISH COMMON STOCKS
(Cost U.S. $55,971,163) 117,902,400
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UNITED KINGDOM COMMON STOCKS (2.69%)
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BCO Technologies 535,700 1,842,015
Galen Holdings 200,000 1,429,314
TOTAL UNITED KINGDOM COMMON STOCKS
(Cost U.S. $1,749,942) 3,271,329
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TOTAL INVESTMENTS BEFORE FOREIGN CURRENCY ON DEPOSIT
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(Cost U.S. $57,721,105) U.S. $121,173,729
Face Value
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FOREIGN CURRENCY ON DEPOSIT (0.12%)
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(Interest Bearing)
British Pound Sterling Brt Pd 221 U.S. $ 361
Irish Pound IR Pd 101,358 143,199
TOTAL FOREIGN CURRENCY ON DEPOSIT
(Cost U.S. $143,539) 143,560
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TOTAL INVESTMENTS (99.89%)
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(Cost U.S. $57,864,644)
121,317,289
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OTHER ASSETS AND LIABILITIES (0.11%)
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Net Unrealized Appreciation of
Forward
Foreign Currency Contracts 95,724
Other Assets 262,128
Other Liabilities (224,482)
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133,370
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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. $121,450,659
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NET ASSET VALUE PER SHARE
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(U.S. $121,450,659 / 5,009,000) U.S. $ 24.25
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# Aggregate cost for U.S. Federal income tax purposes.
* Non-income producing security.
ADR -- Denominated in U.S. dollars.
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SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACT
FORWARD FOREIGN CURRENCY CONTRACT TO SELL
<CAPTION>
Contract to Deliver
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Delivery Local In Exchange Value in Unrealized
Date Currency For U.S. $ U.S. $ Appreciation
------ -------------------------- ----------- -------- ---------------
<S> <C> <C> <C> <C>
9/10/1998 Irish Pound 17,642,907 25,000,000 24,904,276 U.S. $ 95,724
=========
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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
Elizabeth A. Russell - Secretary
Linda J. Hoard - Assistant Secretary
------------------------PRINCIPAL INVESTMENT ADVISOR----------------------
Bank of Ireland Asset Management (U.S.) Limited
20 Horseneck Lane
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
53 State Street
Boston, Massachusetts 02109
------------------------------- CUSTODIANS -------------------------------
Bank of Ireland
Lower Baggot Street
Dublin 2, Ireland
BankBoston
150 Royall Street
Canton, Massachusetts 02021
----------------------- STOCKHOLDER 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 ------------------------
PriceWaterhouseCoopers 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 -- BOS865
53 State Street
Boston, Massachusetts 02109
TELEPHONE INQUIRIES SHOULD BE DIRECTED TO:
1-800-GO-TO-IRL (1-800-468-6475)
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