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The
IRISH
Investment Fund
Third Quarter Report
For the Period Ended July 31, 1999
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Chairman's Letter
Dear Stockholder,
The Irish Equity market declined by 6.1% in euro-currency terms over the
quarter ended July 31, 1999. The strength of the euro against the U.S.
dollar translated this into a decline of 5.1% in dollar terms. Over the same
period, the Net Asset Value ("NAV") of The Irish Investment Fund, Inc. (the
"Fund"), decreased from $22.17 to $20.51, which equates to a decline of
7.5%.
ECONOMIC REVIEW
The Irish economy continues to grow strongly with the Irish Central Bank
forecasting that the economy will expand by 6.5% in 1999. While this
represents somewhat of a slowdown in comparison to 1998 when economic growth
was 8.0%, Ireland remains one of the world's fastest-growing economies. To
an extent, the forecast slowdown can be explained by a lower contribution
from net exports rather than lower domestic demand. In 1998, exports grew by
22.2%, which was deemed by most commentators to be unsustainable. Export
growth of 12.5% for the current year is anticipated. As already mentioned,
domestic demand remains quite buoyant with retail sales volumes in the
second quarter of 1999 increasing by 8.5% in comparison to the same period
of 1998. Industrial production in the second quarter of 1999 increased by
10.0% over previous year levels, but this represents a slowdown from the
16.0% rate in 1998.
As highlighted in the previous quarterly report, there is evidence that
the pace of Irish economic growth peaked in 1998. Following six years of
vigorous growth, the economy does not have the surplus labor or
infrastructural capacity to maintain economic growth rates that averaged
over 8.0% during that period. However, despite these comments we expect the
economy to continue to show significant growth. We believe that the solid
fundamentals - positive demographics, strong foreign direct investment, low
interest rates - which underpin the economy will provide a very positive
operating environment for many of the companies in which the Fund is
invested.
EQUITY MARKET REVIEW
The Irish equity market declined by 6.1% over the quarter ended July 31,
1999. A comparison with major international markets is shown below:
LOCAL CURRENCY U.S. $
-------------- ------
Ireland -6.1% -5.1%
US -0.5% -0.5%
UK -3.4% -2.8%
Japan +6.9% +11.2%
Europe ex UK -1.8% -1.8%
Germany -4.1% -3.0%
France -0.5% +0.6%
Netherlands -3.5% -2.4%
The key features of the Irish equity market over the quarter were the
weak performance by financial stocks, the weakness in smaller capitalization
stocks and the privatization of Telecom Eireann (which has been renamed
Eircom).
During the quarter, European bond markets suffered from a sharp reversal
in market sentiment towards the future direction of European and indeed
global interest rates. The yield on German ten-year government bonds
increased from 3.83% to 4.74% over this period. Both Allied Irish Banks
("AIB") and Irish Life & Permanent were negatively impacted by this
development, declining by 16.0% and 27.7%, respectively. The performance of
AIB over the period contrasts with a solid set of interim results which it
delivered to the market in August. Excluding exceptional items, the company
increased pre-tax profits by 13.0% and earnings per share by 10.0%. The bank
increased its dividend by 15.0% and generated a return on equity of 23.8%
during the period.
Small and medium-sized Irish companies were broadly de-rated over the
quarter thus reversing the recovery in stock prices seen in the previous
quarter. The Fund has a number of investments in quality, smaller Irish
companies and believes that many of these stocks represent excellent value
for long-term investors. In the first week of September 1999, evidence
emerged that this confidence will be rewarded when the management of
Clondalkin (a medium-sized packaging company) announced a proposed
management buyout of the company at 9.10 euros per share. This offer
represents a 54.2% premium to the company's stock price at July 31, 1999.
The floatation of Eircom in July was the largest IPO in Irish history
and the Fund purchased a significant position in the stock. Eircom possesses
a number of key investment attractions, most notably exposure to the fast-
growing Irish telecommunications industry and significant potential for cost
savings.
CURRENT OUTLOOK
The Irish economy continues to grow strongly and while the pace of
growth is decelerating, the fundamentals remain attractive.
The Irish stock market is virtually unchanged to date in 1999. It is
attractively valued at 17.6 times 1999 earnings and offers a dividend yield
of 1.7%. These valuations represent a discount to international equity
markets. The Fund retains its fully-invested position.
Sincerely,
/s/ Peter J. Hooper
Peter J. Hooper
Chairman of the Board
September 17, 1999
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Investments (unaudited)
July 31, 1999
Shares Value
IRISH COMMON STOCKS (97.76%)
Abbey U.S. $ 2,347,34
548,600 9
Adare Printing 320,000 2,156,514
Allied Irish Banks 1,567,688 21,548,872
Boxmore International 393,000 790,337
Clondalkin 271,902 1,716,038
CRH 664,462 13,398,102
DCC 400,000 2,888,189
FBD Holding 260,000 1,446,234
Fyffes 1,635,000 3,323,021
Glanbia 1,153,610 1,542,520
Green Property 757,143 4,697,510
Greencore 542,568 1,654,096
Hibernian 300,000 2,438,915
Horizon Technology*+ 897,436 950,767
ICON - ADR* 85,000 1,870,000
Independent Newspapers 317,071 1,509,309
IONA Technologies - ADR* 139,300 2,176,562
Irish Life & Permanent 306,991 3,251,042
I.W.P., International 639,886 1,368,971
Jury's Hotel 591,792 4,811,101
Kerry Group, Series A 465,000 5,322,290
Kingspan 550,000 1,382,587
Smurfit Group 1,435,840 4,162,336
Telecom Eireann* 1,800,000 8,885,994
United Drug 287,500 1,906,739
Waterford Wedgwood 2,865,739 2,881,551
TOTAL IRISH COMMON STOCKS
(Cost U.S. $59,549,691) 100,426,946
UNITED KINGDOM COMMON STOCKS (1.92%)
BCO Technologies* 535,700 325,538
Galen Holdings 200,000 1,644,809
TOTAL UNITED KINGDOM COMMON STOCKS
(Cost U.S. $1,749,942) 1,970,347
TOTAL INVESTMENTS BEFORE FOREIGN CURRENCY ON DEPOSIT
(Cost U.S. $61,299,633#) U.S. $102,397,293
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Investments (unaudited) (continued)
July 31, 1999
Face Value Value
FOREIGN CURRENCY ON DEPOSIT (0.02%)
(Interest Bearing)
British Pound Sterling Brt Pd 93 U.S. $ 151
Euro EUR 21,825 23,346
TOTAL FOREIGN CURRENCY ON DEPOSIT
(Cost U.S. $22,619)
23,497
TOTAL INVESTMENTS (99.70%)
(Cost U.S. $61,322,252) 102,420,790
OTHER ASSETS AND LIABILITIES (0.30%)
Cash 401,142
Dividends and Interest Receivable 79,830
Investment Advisory Fee Payable (64,081)
Consulting Fee Payable (14,013)
Administration Fee Payable (18,057)
Other Liabilities (74,360)
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310,461
NET ASSETS (100.0%)
Applicable to 5,009,000 outstanding U.S. $.01 par
value shares (authorized 20,000,000 shares) U.S. $102,731,251
NET ASSET VALUE PER SHARE
(U.S. $102,731,251 / 5,009,000) U.S. $ 20.51
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# Aggregate cost for U.S. Federal income tax purposes.
* Non-income producing security.
+ Private placement security.
ADR -- Denominated in U.S. dollars.
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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
--------------------------- INVESTMENT ADVISOR ---------------------------
Bank of Ireland Asset Management (U.S.) Limited
20 Horseneck Lane
Greenwich, Connecticut 06830
-------------------------------- CONSULTANT -------------------------------
Salomon Brothers Asset Management Inc
Seven World Trade Center
New York, New York 10048
------------------------------ ADMINISTRATOR -----------------------------
First Data Investor Services Group, Inc.
101 Federal Street
Boston, Massachusetts 02110
------------------------------- CUSTODIANS -------------------------------
Bank of Ireland
Lower Baggot Street
Dublin 2, Ireland
The Chase Manhattan Bank
Global Investor Services
4 Chase Metrotech Center, 18th Floor
Brooklyn, New York 11245
----------------------- 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 ------------------------
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.
101 Federal Street, 6th Floor
Boston, Massachusetts 02110
TELEPHONE INQUIRIES SHOULD BE DIRECTED TO:
1-800-GO-TO-IRL (1-800-468-6475)
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