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First Quarter Report
For the Period Ended January 31, 1998
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Chairman's Letter
Dear Stockholder,
The Irish equity market delivered a strong performance during the
quarter ended January 31, 1998, and gained 19.1% in Irish pound terms.
However, the Irish pound was weak against all major currencies including the
U.S. dollar, and as a result the increase translates into 8.4% in U.S.
dollar terms. Over the same period, the net asset value ("NAV") of The Irish
Investment Fund, Inc. (the "Fund") increased to $20.54 from $19.99. This
represented a total return of 7.1%, when allowance is made for the dividend
of $0.77 per share which was paid to stockholders during the quarter.
ECONOMIC ENVIRONMENT
The Irish economy enters 1998 with considerable momentum following four
years (1994-1997) of rapid economic growth. Over this period Irish gross
national product ("GNP") has grown on average by 7.7% per annum. There is
little evidence that any of the factors which have fueled the strong growth
in the economy over the past number of years will abate in 1998. Consumer
and business confidence is high, interest rates are low and employment
growth is strong. The Irish Central Bank is forecasting a 6.75% growth rate
for 1998.
Consumer spending remains buoyant with retail sales volumes increasing
by 8.9% in the third quarter of 1997, and by 7.8% and 10.0% in the months of
October and November, respectively, compared to the previous year's levels.
According to industry statistics, new car sales in 1997 were at record
levels, increasing by 18.7% over 1996 levels. In light of these facts, it is
hardly surprising that private sector credit expanded by as much as 21.6% in
the final quarter of 1997.
The buoyancy of the economy is reflected in the Irish Government's
finances. Tax revenues during the year increased by 14%, compared to the
Irish Government's Budget projection of a 6% gain. Despite the favorable
revenue flows, increased capital spending cut the budget surplus for 1997 to
0.6% of GNP. An expected continuation of this healthy state of public
finances has enabled the Irish Government to cut personal tax rates by 2%,
corporate tax rates by 4% and to halve the capital gains tax rate to 20%.
The Irish pound fell from Brt Pd 2.59 to Brt Pd 2.50 against the German
mark over the quarter, as markets began to anticipate that the currency will
join the new European currency system close to its central parity exchange rate
of Brt Pd 2.41 against the German mark. This decline, together with the
strengthening of the U.S. dollar, also resulted in a lower rate against the
U.S. dollar.
The weakness of the Irish pound, in conjunction with the strong economy,
and the stimulative fiscal policy has led to concerns about a possible rise
in inflation over the coming months. Nevertheless, in the second half of
1997, Irish inflation was the lowest in the European Union, and for the
whole of 1997, consumer prices increased by just 1.4%.
STOCK MARKET REVIEW
The Irish equity market increased by 19.1% over the quarter ended
January 31, 1998. A comparison with major international markets is shown
below:
LOCAL CURRENCY U.S. DOLLAR
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U.S. Equities + 7.2% +7.2%
U.K. Equities +10.6% +7.8%
Japanese Equities + 1.0% -4.2%
Irish Equities +19.1% +8.4%
Falling bond yields were once again a positive influence on equity
markets and Irish ten-year-bond yields decreased from 6.0% to 5.25% over the
quarter. The Irish equity market also benefited from the depreciation of the
Irish pound because approximately 54% of Irish corporate profits are
generated outside of the country. The 4% decrease in the corporate tax rate
resulted in upward earnings revisions for many companies. More importantly,
the Irish Government has committed to progressively reduce the corporate tax
rate for non-investment income to 12.5% by the year 2006. While this target
cannot be guaranteed, it does indicate that Ireland is committed to a
capital-friendly business environment.
Allied Irish Bank ("AIB"), the Fund's largest holding, delivered strong
results for the year to December 31, 1997, with pre-tax profits increasing
by 38% to $800 million, and earnings per share rising by 25%. Return on
assets and return on equity for 1997 were 1.23% and 23.8%, respectively,
which represents all-time records for AIB. Loan growth increased by 14% in
1997, driven by an increase of 19% in the domestic market. Asset quality
across all divisions is excellent and the integration of Dauphin Deposits
(acquired in July 1997) into the company's U.S. business is progressing in
line with management expectations. The company increased its dividend in
1997 by 18% and over the quarter the stock price rose by 37.2%.
While AIB and the other Irish financial stocks were moving in line with
financial stocks, the industrial stocks were not performing quite as well.
CRH's and Smurfit (Jefferson) Group's stock prices increased by 8.1% and
2.5%, respectively, in the quarter, underperforming the market. Smurfit
(Jefferson) Group, in particular, continues to suffer from concerns that the
Asian crisis will defer recovery in global paper prices.
On the acquisition front, Kerry Group announced the purchase of Dalgety
Food Ingredients for $543 million. This deal is important from a strategic
perspective because it significantly extends Kerry Group's global capability
in food ingredients by adding this European-based operation to the company's
strong position in the U.S. stock market. Kerry Group's track record in
integrating acquisitions gives rise to confidence that cost reduction and
synergistic benefits will be rapidly achieved.
OUTLOOK
The Irish economy continues to expand at a rapid pace and its
fundamentals remain positive. European Monetary Union is due to commence on
January 1, 1999, and Ireland is expected to be a founding member of the new
currency block. The benefits of monetary union in terms of lower interest
rates are currently being reflected in buoyant Irish bond and equity
markets.
In line with international equity markets, generally, the Irish market
has seen valuations move higher and now stands at a prospective price-
earnings ratio of 17.0X for 1998 and offers a dividend yield of 2.0%. The
Fund retains a fully invested position.
Sincerely,
/s/ Peter Hooper
Peter Hooper
Chairman of the Board
February 27, 1998
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Investments (unaudited)
January 31, 1998
Shares Value
IRISH COMMON STOCKS (93.2%)
Abbey 698,600 U.S. $ 2,868,625
Adare Printing Group 320,000 3,284,998
Allied Irish Bank 1,817,688 19,281,683
Avonmore Waterford Group 953,610 3,981,024
Boxmore International 393,000 1,533,068
Clondalkin Group 348,850 3,089,349
CRH 948,036 11,289,325
FBD Holdings 260,000 1,352,324
Fyffes 1,635,000 3,021,172
Green Property Group 907,143 5,401,183
Greencore Group 542,568 2,822,030
Hibernian Group 500,000 3,690,490
Independent Newspapers 309,999 1,951,830
IONA Technologies 169,300 3,132,050
Irish Life 500,000 3,216,561
I.W.P., International 639,886 2,890,284
Jury's Hotel Group 691,792 4,639,760
Kerry Group, Series A 465,000 5,155,394
Smurfit (Jefferson) Group 2,785,840 7,702,495
United Drug 437,500 2,724,666
Waterford Wedgewood 2,065,739 2,884,028
TOTAL IRISH COMMON STOCKS
(Cost U.S. $49,740,299) 95,912,339
UNITED KINGDOM COMMON STOCKS (2.9%)
BCO Technologies PLC 535,700 1,597,730
Galen Holdings PLC 200,000 1,389,114
TOTAL UNITED KINGDOM COMMON STOCKS
(Cost U.S. $1,749,943) 2,986,844
TOTAL INVESTMENTS BEFORE FOREIGN CURRENCY ON DEPOSIT
(Cost U.S. $51,490,242#) U.S. $ 98,899,183
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Investments (unaudited) (continued)
January 31, 1998
Face Value Value
FOREIGN CURRENCY ON DEPOSIT (0.5%)
(Interest Bearing)
British Pound Sterling Brt Pd 11,330 U.S. $ 18,516
Irish Pound IR Pd 344,513 471,552
TOTAL FOREIGN CURRENCY ON DEPOSIT
(Cost U.S. $522,448) 490,068
TOTAL INVESTMENTS (96.6%)
(Cost U.S. $52,012,690) 99,389,251
OTHER ASSETS AND LIABILITIES (3.4%)
Net Unrealized Appreciation of
Forward Foreign Currency Contracts 1,500,507
Other Assets 2,199,611
Other Liabilities (194,811)
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3,505,307
NET ASSETS (100.0%)
Applicable to 5,009,000 outstanding
U.S. $.01 par value shares
(authorized 20,000,000 shares) U.S. $102,894,558
NET ASSET VALUE PER SHARE
(U.S. $102,894,558 / 5,009,000) U.S. $ 20.54
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#Aggregate cost for U.S. Federal income tax purposes.
SCHEDULE OF FORWARD FOREIGN CURRENCY CONTRACT
FORWARD FOREIGN CURRENCY CONTRACT TO SELL
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Contract to Deliver
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Delivery Local In Exchange Value in Unrealized
Date Currency For U.S. $ U.S. $ Appreciation
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<S> <C> <C> <C> <C>
3/10/1998 Irish Pound 17,182,131 25,000,000 23,499,493 U.S. $1,500,507
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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
William Harkins - Assistant Treasurer
---------------------- 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
----------------------- 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 -- BOS710
53 State Street
Boston, Massachusetts 02109
TELEPHONE INQUIRIES SHOULD BE DIRECTED TO:
1-800-GO-TO-IRL (1-800-468-6475)
