<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present to you the Quarterly Report of The United Kingdom
Fund Inc. (the "Fund"). On December 31, 1995, the end of the period under
review, the Fund's net assets totalled $58.5 million. This represents a net
asset value per share of $14.58, a rise of 104.26% from its initial value after
taking into account underwriting discounts, commissions, offering expenses and
distributions. This compares with an increase of 101.30% in the FT-SE Actuaries
All-Share Index (U.S.$) over the same time period. At the end of the period
under review, the Fund was quoted at $12.125 per share on the New York Stock
Exchange, which represents a 16.84% discount to the Fund's net asset value per
share.
We also enclose an investment review and United Kingdom market outlook
together with a summary of the major portfolio investments.
Yours sincerely,
<TABLE>
<C> <S>
[SIGNATURE] [SIGNATURE]
Anthony M. Solomon Richard J. Oldfield
Chairman of the Board President
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INVESTMENT MANAGER
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
During the quarter, your Fund experienced a rise in net asset value of 1.51%,
which compared with a 2.85% increase in the FT-SE Actuaries All-Share Index. For
1995 as a whole, the Fund's net asset value has increased by 18.05%, which
compares with a 21.86% increase in the FT-SE Actuaries All-Share Index. These
figures are recorded with net dividends reinvested and in U.S. dollar based
terms.
During the fourth quarter, the market made steady progress, with the FT-SE 100
Index reaching a new closing high of 3,664 on December 29, 1995. The market
continued to benefit from a growing perception that global inflationary
pressures were diminishing, which caused lower long-term interest rates. The 25
basis point cut in U.K. interest rates, coupled with a relatively prudent
budget, seemed to support this positive view. This improved outlook enabled the
market to ignore the increasing political uncertainty, a worsening Public Sector
Borrowing Requirement situation and several announcements that corporate profits
for 1995/6 would be lower than forecast. Takeover activity continued to boost
the market and, unlike the previous quarter, was spread across several sectors,
notably Oil Exploration & Production, Food Manufacturing and Hotels.
Smaller companies were very disappointing as they were particularly impacted
by the combination of weakening economic demand and rising raw material prices,
with the FT-SE Small Cap Index returning -2.5% in U.S. dollar based terms.
The best performing areas of the market were those which investors felt were
likely to be resilient to a slowdown in economic activity and which were
supported by bid speculation. Pharmaceuticals maintained their strong
performance while Financials continued to benefit from strong bond markets,
cost-cutting and takeover activity. An expectation that consumer spending would
begin to recover in 1996 encouraged retail and housebuilding stocks. Oils also
outperformed as uncertainty about the political situation in Saudi Arabia and a
cold winter boosted the oil price and investors focused on the strong cash
generation of the major companies. Those areas exposed to industrial activity
tended to underperform, especially those with a high exposure to Continental
Europe. The Paper & Packaging sector was particularly affected, with Chemical
companies also underperforming. Utilities suffered from concerns over a possible
early general election and the referral of two electricity bids to the
Monopolies and Mergers Commission.
Bonds outperformed the equity market over the quarter, with U.K. long gilts
returning 5.7% in U.S. dollar based terms. This was despite fears that there
would need to be increased gilt issuance by the government because the budget
deficit has widened. Offsetting this and the political worries were the
improving inflationary outlook and strength in global bond markets. The slowdown
in economic activity, demonstrated by the weak U.K. industrial production (which
decreased 0.9% in October), also aided relative performance.
The Fund's and the FT-SE Actuaries All-Share Index sector weightings expressed
as a percentage of total equities held at December 31, 1995 are outlined below:
<TABLE>
<CAPTION>
% FT-SE
ACTUARIES
% U.K. ALL-SHARE
FUND INDEX
------------ --------------
<S> <C> <C>
Mineral Extraction...................... 10.0 9.1
General Manufacturing................... 26.4 18.1
Consumer Goods.......................... 19.7 19.6
Services................................ 19.2 20.5
Utilities............................... 11.5 11.6
Finance................................. 13.2 17.5
Investment Trusts....................... 0.0 3.6
</TABLE>
2
<PAGE>
ECONOMIC & MARKET OUTLOOK
The recent 25 basis point cut in interest rates reflected the pressures on the
Chancellor of the Exchequer to relax monetary policy, because of current
economic weakness and a need to gain popularity ahead of the next general
election. While these factors look likely to persist, we believe that
significant interest rate cuts are relatively unlikely given the difficulties in
controlling the budget deficit as highlighted by the Budget Statement. GDP
growth may be below the government's forecast with the shortfall caused by areas
exposed to Continental Europe. Consumer confidence ought to increase in 1996 as
the benefits of lower mortgage rates and the reduction in income tax take
effect. Both the housing market and retail spending are expected to show an
improvement.
Given the slower rate of growth, expectations of future corporate profits have
been trimmed back, although margins will continue to benefit from the
cost-cutting measures implemented during the recession. Among those areas of the
economy most affected are the commodity producers, currently experiencing
falling prices and lower volumes. Healthy cash generation is expected to
underpin strong dividend growth and lead to further share buy-backs. The low
cost of borrowing also means that takeover activity should remain a feature of
the market in 1996. A continuation in corporate activity would help to support
company valuations and reduce some of the structural overcapacity in industries
such as Construction and Food Manufacturing. The budget is not expected to have
a significant impact although consumer confidence will benefit from pay-outs
from building society takeovers and the maturing of Tax Exempt Special Savings
Accounts.
The U.K. equity market is likely to remain influenced by movements in bond
markets, both in the U.K. and the U.S. We believe that the scope for short-term
lower interest rates in either country in the near-term is limited, given the
need to finance budget deficits. The gilt market and sterling may also be
influenced by the political uncertainty associated with the approach of the next
general election. In the longer-term, the use of technology to cut costs and a
flexible global labor market suggests an optimistic scenario for world inflation
and a positive outlook for long-term interest rates.
The long-term outlook for the U.K. economy remains positive. Investment in
manufacturing remains strong allowing substantial productivity improvements and
greater flexibility. Inflation looks set to remain within the government's
target range of 1-4%, suggesting that an imminent rise in interest rates is
unlikely. With this background, the medium-term outlook for U.K. equities
continues to be positive. Worries over funding the budget deficit in the
short-term, a slowing in the growth of corporate profits and increasing
political uncertainty may keep the market relatively subdued.
3
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY
- --------------------------------------------------------------------------------
The strategy during the quarter was to raise cash for new investments. We sold
the holding in the Internet stock Unipalm Group during the offer from UUNet
Technologies. The holding in Smith (DS) Holdings was also sold, as it was
expected to underperform on concerns over customer destocking. We also sold the
greater part of the holding in Bridon ahead of a substantial shortfall in
current trading. Reductions took place in Royal Doulton and BICC where last
year's profits are expected to fall below previous expectations. Small
reductions also took place in Persona Group and CPL Aromas following strong
outperformance.
The Fund's ten largest equity holdings as of December 29, 1995 were :
STANDARD CHARTERED
<TABLE>
<S> <C>
Market Price as of 12/29/95............................. 548p
Prospective Earnings per share (to December 1996)....... 48.7p
Prospective Earnings Multiple........................... 11.2x
</TABLE>
Standard Chartered is a UK-based banking group, which is rapidly recovering
following a period of disappointing results. The Group has significant earnings
growth potential, based on UK economic recovery and its strong presence in the
fast growth markets of the Asia Pacific region and Africa. Although the shares
have performed well, they remain relatively modestly rated.
SHELL TRANSPORT & TRADING
<TABLE>
<S> <C>
Market Price as of 12/29/95............................. 852p
Prospective Earnings per share (to December 1996)....... 55.5p
Prospective Earnings Multiple........................... 15.4x
</TABLE>
Shell Transport & Trading is a leading oil company with substantial
production, refining and petrochemical activities. Profits from oil exploration
and production are expected to grow, helped by the recent recovery in the crude
oil price. Although some weakening has now taken place in chemicals, growth is
expected to resume in 1996. Cashflow remains highly positive which we expect
will result in strong dividend progression for at least the next two years.
GLAXO WELLCOME
<TABLE>
<S> <C>
Market Price as of 12/29/95............................. 915p
Prospective Earnings per share (to December 1996)....... 57.4p
Prospective Earnings Multiple........................... 15.9x
</TABLE>
Glaxo Wellcome is a leading international pharmaceuticals company formed by
the takeover of Wellcome by Glaxo. There is substantial scope for cost reduction
through improving the productivity of the research and development activities.
Glaxo recently received a boost from the end of a legal challenge to its Zantac
patents. It also gained FDA approval for the use of 3TC in combination with
Zovirax to treat HIV infection. With other potentially interesting drugs under
development, profits should grow steadily over the next few years.
GREAT UNIVERSAL STORES
<TABLE>
<S> <C>
Market Price as of 12/29/95............................. 684p
Prospective Earnings per share (to March 1997).......... 42.6p
Prospective Earnings Multiple........................... 16.1x
</TABLE>
Great Universal Stores is a retail, mail order, property and financial group
with a strong balance sheet and consistent earnings record. Current trading in
the mail order division has been steady and there are still further
rationalization benefits which can be achieved. The appointment of a new
chairman is expected to lead to further moves to increase shareholder value and
the development of new growth areas.
4
<PAGE>
BRITISH PETROLEUM
<TABLE>
<S> <C>
Market Price as of 12/29/95............................. 539p
Prospective Earnings per share (to December 1996)....... 39.9p
Prospective Earnings Multiple........................... 13.5x
</TABLE>
British Petroleum ("BP") is a leading international oil company with a
substantial exploration and production profile. BP has sold its Marcus Hook
refinery in the U.S. and is planning to cut additional refinery capacity to
match production with customer demand. Although the chemicals operations
experienced a slight downturn in the third quarter due to destocking, strong
cashflow from the company will see a sharp reduction in the level of borrowings
leading to the possibility of a share buy-back.
EAST MIDLANDS ELECTRICITY
<TABLE>
<S> <C>
Market Price as of 12/29/95............................. 667p
Prospective Earnings per share (to March 1997).......... 68.0p
Prospective Earnings Multiple........................... 9.8x
</TABLE>
East Midlands Electricity is one of the few remaining independent regional
electricity companies. It has recently announced that it will be forming three
divisions to focus on its three main business streams, which will result in
significant reductions in central overhead costs. A special dividend of 120p per
share has been declared and the holding in National Grid Group has been demerged
to shareholders. East Midlands Electricity remains a potential takeover
candidate.
POWERGEN
<TABLE>
<S> <C>
Market Price as of 12/29/95............................. 532p
Prospective Earnings per share (to March 1997).......... 60.7p
Prospective Earnings Multiple........................... 8.8x
</TABLE>
PowerGen, a leading power generator in England and Wales, continues to reduce
its costs. PowerGen has made a recommended offer for Midlands Electricity, which
will prepare the company for the deregulated market in 1998, although the bid
has currently been referred to the Monopolies and Mergers Commission. PowerGen
is likely to continue its strong record of dividend growth.
ABBEY NATIONAL
<TABLE>
<S> <C>
Market Price as of 12/29/95............................. 635p
Prospective Earnings per share (to December 1996)....... 56.6p
Prospective Earnings Multiple........................... 11.2x
</TABLE>
Abbey National provides a comprehensive range of domestic mortgage finance,
personal financial services and treasury services. It is Britain's second
largest mortgage lender and has strengthened its position with the acquisition
of Household Mortgage Corporation, a centralized mortgage lender. Abbey National
offers low risk exposure to the banking sector and is geared to an upturn in the
housing market. It is a strong cash generator and has excellent dividend growth
prospects.
WHITECROFT
<TABLE>
<S> <C>
Market Price as of 12/29/95............................. 199p
Prospective Earnings per share (to March 1997).......... 15.0p
Prospective Earnings Multiple........................... 13.3x
</TABLE>
Whitecroft is a diversified industrial group with interests in building
products, commercial lighting, textiles and medical cotton fibre. It has
recently completed a three year recovery phase and is now moving on to a growth
trend where acquisitions will play a significant part. It has recently acquired
a company which manufactures lighting for the oil and gas industry and further
growth both from new acquisitions and existing operations is anticipated.
BRITISH AIRWAYS
<TABLE>
<S> <C>
Market Price as of 12/29/95............................. 466p
Prospective Earnings per share (to March 1997).......... 45.1p
Prospective Earnings Multiple........................... 10.3x
</TABLE>
British Airways operates international and domestic scheduled air services. It
is experiencing strong demand for passenger and freight services and is
benefiting from increased premium passenger traffic. It has a stake in USAir,
which has recently announced a significant improvement in passenger volume.
5
<PAGE>
- -----------------------------------------------
THE UNITED KINGDOM FUND INC.
STATEMENT OF INVESTMENTS
DECEMBER 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
<C> <S> <C>
SHARES DESCRIPTION VALUE
- ---------------------------------------------------------------
INVESTMENTS IN UNITED KINGDOM SECURITIES--
91.8% OF NET ASSETS
COMMON STOCKS--91.8%
BANKS--12.1%
200,000 Abbey National plc Ord 10p............. $ 1,974,907
150,000 Barclays plc Ord L1.................... 1,721,057
400,000 Standard Chartered plc Ord 25p......... 3,403,299
-----------
7,099,263
-----------
BUILDING MATERIALS & MERCHANTS--6.7%
250,000 BPB Industries plc Ord 50p............. 1,172,213
101,000 Cape plc Ord 25p....................... 219,538
300,000 Johnston Group plc Ord 10p............. 1,565,021
250,000 Marley plc Ord 25p..................... 430,846
400,000 Norcros plc Ord 25p.................... 540,305
-----------
3,927,923
-----------
CHEMICALS--2.8%
250,000 Allied Colloids plc Ord 10p............ 524,002
200,000 Wardle Storeys plc Ord 10p............. 1,133,398
-----------
1,657,400
-----------
DISTRIBUTORS--0.9%
125,000 Persona Group plc Ord 5p............... 551,173
-----------
DIVERSIFIED INDUSTRIALS--4.3%
50,000 Charter plc Ord 2p (Regd.)............. 669,947
600,000 Whitecroft plc Ord 25p................. 1,853,804
-----------
2,523,751
-----------
ELECTRICITY--7.8%
200,000 East Midlands Electricity plc Ord 56
9/11p................................ 2,071,168
142,600 National Grid Group plc Ord............ 441,694
250,000 PowerGen plc Ord 50p................... 2,066,898
-----------
4,579,760
-----------
ELECTRONICS--3.6%
240,000 Beales Hunter plc Ord 20p.............. 819,773
100,000 BICC plc Ord 50p....................... 428,518
150,000 General Electric Co. plc Ord 5p........ 826,759
-----------
2,075,050
-----------
ENGINEERING-GENERAL--1.9%
246,186 Ash & Lacy plc Ord 5p.................. 672,722
250,000 Bridon plc Ord 25p..................... 461,898
-----------
1,134,620
-----------
ENGINEERING-VEHICLES--2.4%
500,000 Lucas Industries plc Ord 25p........... 1,405,103
-----------
FOOD PRODUCERS--6.5%
280,000 Barr (AG) plc Ord 25p.................. 1,447,644
510,000 Canadian Pizza plc Ord 10p............. 585,951
140,000 CPL Aromas plc Ord 10p................. 799,899
1,000,000 Finlay (James) plc Ord 25p............. 947,086
-----------
3,780,580
-----------
HEALTH CARE--2.1%
400,000 Scholl plc Ord 5p...................... 1,204,817
-----------
HOUSEHOLD GOODS--1.3%
192,500 Royal Doulton plc Ord L1............... 738,222
-----------
LEISURE & HOTELS--1.0%
355,000 Inspirations plc Ord 10p............... 600,778
-----------
<CAPTION>
- ---------------------------------------------------------------
SHARES DESCRIPTION VALUE
<C> <S> <C>
- ---------------------------------------------------------------
OIL & GAS--10.6%
200,000 British Gas plc Ord 25p................ $ 788,721
250,000 British Petroleum plc Ord 25p.......... 2,092,128
250,000 Shell Transport & Trading plc Ord 25p
(Regd.).............................. 3,307,038
-----------
6,187,887
-----------
PHARMACEUTICALS--3.6%
150,000 Glaxo Holdings plc Ord 25p............. 2,130,943
-----------
RETAILERS-FOOD--3.5%
53,000 Greggs plc Ord 20p..................... 948,778
450,000 Nurdin & Peacock plc Ord 10p........... 1,068,965
-----------
2,017,743
-----------
RETAILERS-GENERAL--9.1%
200,000 Great Universal Stores plc Ord 25p..... 2,127,062
100,000 Kingfisher plc Ord 25p................. 841,509
175,000 Menzies (John) plc Ord 25p............. 1,717,175
100,000 Smith (WH) Group plc Ord 50p........... 658,302
-----------
5,344,048
-----------
SPIRITS, WINES & CIDERS--0.6%
185,000 Merrydown plc Ord 25p.................. 333,188
-----------
TEXTILES & APPAREL--3.5%
350,000 French plc Ord 10p..................... 369,519
165,000 Shiloh plc Ord 25p..................... 251,055
1,005,000 Sirdar plc Ord 25p..................... 1,451,137
-----------
2,071,711
-----------
TOBACCO--3.0%
200,000 BAT Industries plc Ord 25p............. 1,762,201
-----------
TRANSPORT--3.1%
250,000 British Airways plc Ord 25p............ 1,808,779
-----------
WATER--1.4%
100,000 South West Water plc Ord L1............ 810,457
-----------
Total Common Stocks
(cost $41,845,899)................... 53,745,397
-----------
UNITED STATES SHORT-TERM INVESTMENT--
0.2% OF NET ASSETS
<CAPTION>
PRINCIPAL
AMOUNT
(000)
<C> <S> <C>
US$101 Federated Trust for Short-term U.S.
Government Securities (cost
$100,625)-- 0.2%..................... 100,625
-----------
Total Investments (cost $41,946,524)--
92.0%................................ 53,846,022
-----------
Cash and other assets in excess of
liabilities--8.0%.................... 4,653,554
-----------
NET ASSETS--100.0%..................... $58,499,576
-----------
-----------
NUMBER OF SHARES ISSUED AND
OUTSTANDING.......................... 4,011,655
-----------
-----------
NET ASSET VALUE PER SHARE..............
$14.58
-----------
-----------
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
THE UNITED KINGDOM FUND INC.
QUARTERLY RESULTS OF OPERATIONS* (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET REALIZED AND
UNREALIZED
NET INVESTMENT GAIN/(LOSS) ON
INVESTMENT INVESTMENTS AND
POUND STERLING
INCOME INCOME/ (LOSS) TRANSACTIONS
--------------- --------------- ---------------- NET ASSET VALUE MARKET VALUE**
PER PER PER --------------- ---------------
QUARTER ENDED TOTAL SHARE TOTAL SHARE TOTAL SHARE HIGH LOW HIGH LOW VOLUME**
- --------------------- ------ ------ ------ ------ ------- ------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 30, 1995........ $ 512 $ 0.13 $ 316 $ 0.08 $ 1,708 $ 0.43 $13.96 $13.10 $11.75 $10.75 434,900
September 30, 1995... 568 0.14 339 0.08 4,167 1.04 14.87 14.08 12.50 10.75 608,400
December 31, 1995.... 932 0.23 771 0.19 (120) (0.03) 14.93 14.40 13.25 11.75 414,200
------ ------ ------ ------ ------- ------
$2,012 $ 0.50 $1,426 $ 0.35 $ 5,755 $ 1.44
------ ------ ------ ------ ------- ------
------ ------ ------ ------ ------- ------
June 30, 1994........ $ 378 $ 0.09 $ 198 $ 0.05 $ (833) $(0.21) $12.68 $11.98 $12.000 $10.250 481,500
September 30, 1994... 514 0.13 309 0.08 3,505 0.88 13.48 12.16 11.750 10.500 516,300
December 31, 1994.... 1,187 0.30 993 0.24 (605) (0.15) 13.64 12.75 11.875 10.500 748,300
March 31, 1995....... 297 0.07 119 0.03 1,608 0.40 13.18 12.49 11.000 10.500 433,900
------ ------ ------ ------ ------- ------
------ ------ ------ ------ ------- ------
$2,376 $ 0.59 $1,619 $ 0.40 $ 3,675 $ 0.92
------ ------ ------ ------ ------- ------
------ ------ ------ ------ ------- ------
June 30, 1993........ $ 240 $ 0.06 $ 68 $ 0.02 $ 714 $ 0.18 $11.36 $10.75 $10.875 $ 9.500 713,700
September 30, 1993... 531 0.13 355 0.08 2,605 0.65 12.04 10.50 12.125 10.500 576,300
December 31, 1993.... 155 0.04 (33) -- 4,688 1.17 12.91 11.58 13.875 10.625 734,200
March 31, 1994....... 460 0.12 288 0.07 (2,200) (0.55) 13.68 12.31 13.875 10.375 904,100
------ ------ ------ ------ ------- ------
------ ------ ------ ------ ------- ------
$1,386 $ 0.35 $ 678 $ 0.17 $ 5,807 $ 1.45
------ ------ ------ ------ ------- ------
------ ------ ------ ------ ------- ------
</TABLE>
- ------------------------------
* Totals expressed in thousands of dollars except per share amounts and New
York Stock Exchange trading volume of the Fund's common stock.
** As reported on the New York Stock Exchange.
7
<PAGE>
------------------------------------------------------------------
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
ANTHONY M. SOLOMON, Chairman of the Board and
Director
RICHARD J. OLDFIELD, President
GEORGE F. BENNETT, Director
LIVIO BORGHESE, Director
* SIR ARTHUR BRYAN, Director
PETER STORMONTH DARLING, Director
LEON LEVY, Director
* J. MURRAY LOGAN, Director
* JAMES S. MARTIN, Director
JAMES M. DONALD, Vice President, Treasurer and
Assistant Secretary
STEVEN GOLANN, Senior Vice President, Secretary and
Assistant Treasurer
THADDEA M. FELDMAN, Assistant Secretary
</TABLE>
* Member of the Audit Committee
----------------------------------------------------
EXECUTIVE OFFICES--
245 Park Avenue
15th Floor
New York, New York 10167
(For latest net asset value and market data, please
call (212) 272-2323; regarding shareholder inquiries
and requests for Fund reports, please call
1-800-524-4468.)
INVESTMENT MANAGER--
Mercury Asset Management International (Channel
Islands) Ltd.
Forum House, Grenville Street
St Helier, Jersey JE4 8RL
Channel Islands
INVESTMENT ADVISER--
Mercury Asset Management International Ltd.
33 King William Street
London EC4R 9AS
England
ADMINISTRATOR--
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, New York 10167
CUSTODIAN--
Custodial Trust Company
101 Carnegie Center
Princeton, New Jersey 08540
TRANSFER AGENT AND REGISTRAR--
The Bank of New York
Shareholder Relations Department-11E
P.O. Box 11258
Church Street Station
New York, New York 10286
LEGAL COUNSEL--
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
INDEPENDENT AUDITORS--
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
THIS REPORT, INCLUDING THE STATEMENT OF INVESTMENTS AND QUARTERLY RESULTS OF
OPERATIONS, IS TRANSMITTED TO THE SHAREHOLDERS OF THE UNITED KINGDOM FUND INC.
FOR THEIR INFORMATION. THE FINANCIAL INFORMATION INCLUDED HEREIN IS TAKEN FROM
THE RECORDS OF THE FUND WITHOUT AUDIT BY THE FUND'S INDEPENDENT AUDITORS WHO
DO NOT EXPRESS AN OPINION THEREON. THIS IS NOT A PROSPECTUS, CIRCULAR OR
REPRESENTATION INTENDED FOR USE IN THE PURCHASE OF SHARES OF THE FUND OR ANY
SECURITIES MENTIONED IN THIS REPORT.
NOTICE IS HEREBY GIVEN IN ACCORDANCE WITH SECTION 23(C) OF THE INVESTMENT
COMPANY ACT OF 1940 THAT THE FUND MAY PURCHASE AT MARKET PRICES FROM TIME TO
TIME SHARES OF ITS COMMON STOCK IN THE OPEN MARKET.
COMPARISONS BETWEEN CHANGES IN THE FUND'S NET ASSET VALUE PER SHARE AND
CHANGES IN THE FINANCIAL TIMES ACTUARIES ALL- SHARE INDEX SHOULD BE CONSIDERED
IN LIGHT OF THE FUND'S INVESTMENT POLICY AND OBJECTIVES, THE CHARACTERISTICS
AND QUALITY OF THE FUND'S INVESTMENTS, THE SIZE OF THE FUND AND VARIATIONS IN
THE U.S. DOLLAR/POUND STERLING EXCHANGE RATE.
<PAGE>
-------------------------------------------
SUMMARY OF GENERAL INFORMATION
---------------------------------------
THE FUND
The United Kingdom Fund Inc. is a diversified, closed-end management
investment company whose shares trade on the New York Stock Exchange. Its
investment objective is long-term capital appreciation through investments
primarily in United Kingdom equities. The Fund is managed by Mercury Asset
Management International (Channel Islands) Ltd., relying on investment advice
from Mercury Asset Management International Ltd.
SHAREHOLDER INFORMATION
Daily market prices for the Fund's shares are published in the New York Stock
Exchange Composite Transactions section of newspapers under the designation "Utd
KingFd" or "UKing". The Fund's New York Stock Exchange trading symbol is UKM.
Weekly comparative net asset value (NAV) and market price information about the
Fund shares are published each Monday in THE WALL STREET JOURNAL, THE NEW YORK
TIMES, and BARRON'S as well as other newspapers in a table called "Closed End
Funds".
Shareholders interested in receiving the quarterly newsletter entitled "Closed
End Fund Focus" should call 1-800-543-6217 or 1-212-888-6941 and request to be
placed on the mailing list or send a request by mail to the Fund's address.
DIVIDEND REINVESTMENT PLAN-- SUMMARY
An automatic Dividend Reinvestment Plan is available to provide shareholders
with automatic reinvestment of their dividend income and capital gains
distributions in additional shares of the Fund's common stock. A brochure
describing the Plan is available from the Plan Agent, The Bank of New York, by
calling: 1-800-432-8224.
If you wish to participate and your shares are held in your own name, no
action is required on your part. However, if your shares are held in the name of
a brokerage firm, bank or other nominee, you should instruct your nominee to
participate in the Plan on your behalf. If your nominee is unable to participate
on your behalf you should request to register your shares in your own name which
will enable you to participate in the Plan.
[LOGO]
THE UNITED KINGDOM FUND INC.
QUARTERLY REPORT
DECEMBER 31, 1995
