XSL transformation fails with special characters in XML source

We are receiving the following开发者_开发问答 XML from an external partner firm...

<FundLegalName>McGregor DDR ABN&#8364;&#8221;Equities</FundLegalName>

The XML file is sent to us with encoding ISO-8859-1.

When we attempt to transform the XML using XSLT, we get the following error..

net.sf.saxon.trans.XPathException: com.sun.org.apache.xerces.internal.impl.io.MalformedByteSequenceException: Invalid byte 1 of 1-byte UTF-8 sequence

When we remove the €” characters from the XML the problem is eliminated, so we know for sure it's related to those characters.