<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to present to you the Annual Report of The United Kingdom Fund
Inc. (the "Fund"). On March 31, 1996, the end of the period under review, the
Fund had net assets of $60.0 million. This represents a net asset value per
share of $14.95, a rise of 109.91% from its initial value after taking into
account underwriting discounts, commissions, offering expenses and
distributions. This compares with an increase of 104.38% in the FT-SE Actuaries
All-Share Index (U.S.$) over the same time period. At the end of the period
under review, the Fund was quoted at $12.00 per share on the New York Stock
Exchange ("NYSE"), which represents a 19.73% discount to the Fund's net asset
value per share.
During the 12 weeks prior to March 31, 1996, the Fund traded on the NYSE at an
average discount of 17.46%. Consequently, in accordance with the Fund's charter,
a proposal to convert the Fund to an open-end investment company will be
submitted to shareholders at the next annual meeting (anticipated to be
September 24, 1996) for their consideration.
We also enclose an investment review and United Kingdom market outlook
together with a summary of the major portfolio investments.
Yours sincerely,
[SIGNATURE]
Anthony M. Solomon
Chairman of the Board
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INVESTMENT MANAGER
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
During the first quarter of 1996, your Fund experienced a rise in net asset
value of 2.54% which compared with an increase of 1.53% in the value of the
FT-SE Actuaries All-Share Index. For fiscal year 1996, the Fund's net asset
value increased by 17.09%, which compares with a 16.35% increase in the FT-SE
Actuaries All-Share Index. These results are recorded with net dividends
reinvested and in U.S. dollar based terms.
During the first quarter of 1996, the equity market continued to rise, albeit
at a slower rate than in 1995. This rise was despite the pressure imposed on the
global bond markets as investors began to fear that world economic growth rates
were beginning to rise, reducing the prospect for further interest rate cuts.
Equity investors focused on the positive aspects of this environment, namely,
increased consumer confidence and good prospects for corporate earnings. This
reaction followed two further moves to reduce borrowing costs, with interest
rates falling 0.5% to 6.0%. The market also continued to be boosted by further
takeover activity, which encompassed a wide range of individual companies. This
culminated in the announcement of merger talks between two of the largest
companies in the market, Cable & Wireless and British Telecom.
Bonds underperformed the equity market, with U.K. long gilts returning
negative 4.5%. Concerns in the U.S. that increased economic activity would lead
to higher inflation spread to the U.K. market. These fears were compounded by
ongoing political uncertainty and the prospect of an increased Public Sector
Borrowing Requirement to pay for the BSE scare in the British beef industry.
This weakness in the gilt market came despite the government reducing its
forecasts for inflation to 2.5% for 1996.
In contrast to 1995, the best performing areas of the market were those which
were sensitive to economic growth and consumer spending. Consequently, the
Engineering, Leisure and Media sectors significantly outperformed the FT-SE
Actuaries All-Share Index. In addition, investors' fears about the impact of
inventory liquidation subsided, boosting commodity manufacturing stocks such as
Imperial Chemical Industries. Again, bid activity and speculation was evident,
notably in the Media and Telecommunications sectors. Underperforming stocks
tended to be in Financials and more defensive areas of the market. Composite
Insurance companies suffered from concerns that asset values would be impacted
by the fall in the U.S. bond market and the belief that premium rates had
peaked. Consumer goods sectors, such as Alcoholic Beverages and Pharmaceuticals,
also suffered as investors sought areas that are better geared to an upturn in
spending.
The Fund's and the FT-SE Actuaries All-Share Index's sector weightings
expressed as a percentage of total equities held at March 31, 1996 are outlined
below:
<TABLE>
<CAPTION>
% FT-SE
Actuaries
% U.K. All-Share
Fund Index
------------ ------------
<S> <C> <C>
Mineral Extraction........................ 9.7 9.4
General Industrials....................... 26.6 18.9
Consumer Goods............................ 18.5 16.4
Services.................................. 22.0 23.6
Utilities................................. 10.6 11.2
Finance................................... 12.6 16.8
Investment Trusts......................... 0.0 3.7
</TABLE>
2
<PAGE>
ECONOMIC & MARKET OUTLOOK
The interest rate cuts seen during the quarter demonstrated the political
necessity for the Chancellor of the Exchequer to stimulate consumer confidence,
a feature that is also likely to be evident in the 1996 Budget. While further
interest rate cuts are unlikely, given the high government borrowing
requirements, we believe that the year will see a significant revival in U.K.
consumer confidence, as benefits from previous tax cuts and windfalls from
building society mergers take effect. While this will clearly provide some
benefit to the industrial sector, economic growth may take somewhat longer to
strengthen. Demand from Continental Europe, a key export market for many U.K.
companies, is likely to be weak as growth remains subdued and the single
currency issue influences economic decision making.
The divergent outlook for U.K. companies is expected to be reflected in
forecasts for future corporate profits. Upgrades are likely for companies
exposed to consumer recovery and the U.S., while others may struggle to meet
current expectations. The anticipated weakness in economic activity in the first
quarter is likely to have been compounded by the cold weather, especially for
some building related companies. Margins will continue to benefit from
restructuring and this will lead to healthy cash generation. Dividend growth is
expected to remain healthy, with more share buy-backs likely, particularly as
companies may anticipate that in the future the government could remove the tax
benefits for pension funds. Similarly, the low cost of borrowing and fears of
restrictions on takeover activity from a possible change in government next year
means that for the present, corporate activity is expected to remain a feature
of the market.
The U.K. equity market is not expected to remain immune from the influence of
U.K. and U.S. bond markets. With the high level of budget deficits in both
countries, the scope for further reductions in interest rates is limited,
despite forthcoming elections. In addition, political uncertainty in the U.K. is
likely to overshadow the gilt market and sterling. Globally, economic growth is
forecast to remain steady, accompanied by low inflation. The slower rates of
growth in Europe may be compensated for by faster growth in the U.S. and the
Pacific Basin economies.
The long-term outlook for the U.K. economy remains positive. Investment in
manufacturing remains strong, with productivity improvements aiding
competitiveness. Despite improving consumer confidence, inflation still appears
likely to remain within the government's target range of 1 to 4%. As such, the
long-term outlook for U.K. equities remains benign, although in the short-term
we may see some consolidation as investors become concerned about a possible
upswing in inflation and the possibility of an interventionist attitude towards
the corporate sector from an incoming Labor government.
3
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY
- --------------------------------------------------------------------------------
The portfolio strategy during the quarter was to increase exposure to
companies which would benefit from rising domestic consumer expenditure. We
purchased a holding in MacDonald Hotels, a fast-growing hotel operator and
purchased new holdings in Kingsbury Group and Courts, two furniture retailers
and Alexon Group, a womenswear retailer. We purchased Beauford Group and
Universal Ceramic Materials, which both supply ceramic components to
manufacturers of consumer durable products. We sold W.H. Smith where a recovery
had taken place in the shares, following the appointment of a new chief
executive, and completed the sale of BICC on concerns over the difficult trading
environment in the cable industry.
The Fund's ten largest equity holdings as of March 31, 1996 were:
STANDARD CHARTERED
<TABLE>
<S> <C>
Market Price as of 03/29/96............................. 609p
Prospective Earnings per share (to December 1997)....... 58.4 p
Prospective Earnings Multiple........................... 10.4 x
</TABLE>
Standard Chartered is a U.K.-based banking group which is rapidly recovering
following a period of disappointing results. We believe that the group has
significant earnings growth potential, based on U.K. economic growth 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 03/29/96............................. 865p
Prospective Earnings per share (to December 1997)....... 58.9 p
Prospective Earnings Multiple........................... 14.7 x
</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. Cash flow remains highly positive, which we expect
will result in strong dividend progression for at least the next two years.
BRITISH PETROLEUM
<TABLE>
<S> <C>
Market Price as of 03/29/96............................. 573p
Prospective Earnings per share (to December 1997)....... 43.9 p
Prospective Earnings Multiple........................... 13.1 x
</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 operation has
experienced a slight downturn due to inventory liquidation, continuing strong
cashflow from the company is likely to result in a sharp reduction in the level
of borrowings.
WHITECROFT
<TABLE>
<S> <C>
Market Price as of 03/29/96............................. 234p
Prospective Earnings per share (to March 1997).......... 14.8 p
Prospective Earnings Multiple........................... 15.8 x
</TABLE>
Whitecroft is a diversified industrial group with interests in building
products, commercial lighting, textiles and medical cotton fiber. It has
recovered strongly over the last three years and is seeing good demand for its
products. Earnings growth from the existing businesses is expected to remain at
high levels and may now be supplemented by the acquisition of companies in
related areas.
4
<PAGE>
GREAT UNIVERSAL STORES
<TABLE>
<S> <C>
Market Price as of 03/29/96............................. 673p
Prospective Earnings per share (to March 1997).......... 42.6 p
Prospective Earnings Multiple........................... 15.7 x
</TABLE>
Great Universal Stores is a retail, mail order, property and financial group
with a strong balance sheet and record of steady earnings growth. Improvements
in the systems of the mail order division are expected to reduce costs and
enhance the return on capital. The appointment of a new chairman may lead to
further moves to restructure the group and return more value to shareholders.
BRITISH AIRWAYS
<TABLE>
<S> <C>
Market Price as of 03/29/96............................. 536p
Prospective Earnings per share (to March 1997).......... 45.9 p
Prospective Earnings Multiple........................... 11.7 x
</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. Major cost cutting programs
are expected to lead to further improvements in profitability. It has a stake in
USAir, which has recently announced a significant improvement in passenger
volume.
POWERGEN
<TABLE>
<S> <C>
Market Price as of 03/29/96............................. 534p
Prospective Earnings per share (to March 1997).......... 60.7 p
Prospective Earnings Multiple........................... 8.8 x
</TABLE>
PowerGen is a leading power generator in England and Wales, which continues to
reduce its costs. PowerGen has had its offer for Midlands Electricity blocked by
the Trade & Industry Secretary and is now likely to concentrate on returning
value to shareholders and maintaining its good record of dividend growth.
GLAXO WELLCOME
<TABLE>
<S> <C>
Market Price as of 03/29/96............................. 821p
Prospective Earnings per share (to December 1997)....... 59.5 p
Prospective Earnings Multiple........................... 13.8 x
</TABLE>
Glaxo Wellcome (Glaxo) is a leading international pharmaceuticals company with
substantial scope for cost reduction through improving the productivity of its
research and development activities. We believe that Glaxo is likely to
experience a decline in sales of Zantac as generic competition climbs. However,
some of its new products have great potential to replace the Zantac turnover.
These include 3TC which has gained FDA approval for the treatment of HIV
infection, in combination with Zovirax. With other potentially interesting drugs
under development, earnings growth appears likely.
JOHNSTON GROUP
<TABLE>
<S> <C>
Market Price as of 03/29/96............................. 400p
Prospective Earnings per share (to December 1997)....... 42.1 p
Prospective Earnings Multiple........................... 9.5 x
</TABLE>
Johnston Group is a diversified industrial group involved in road surfacing,
quarrying, the manufacture of concrete pipes, road sweepers, fire fighting
equipment and washroom equipment. The road sweeper business has grown strongly
and the concrete pipes division has also performed well, due to substantial
ordering by water companies who are spending heavily to meet tighter
environmental standards. We expect continuing growth in Johnston Group's
profits.
EAST MIDLANDS ELECTRICITY
<TABLE>
<S> <C>
Market Price as of 03/29/96............................. 599p
Prospective Earnings per share (to March 1997).......... 64.3 p
Prospective Earnings Multiple........................... 9.3 x
</TABLE>
East Midlands Electricity is an independent regional electricity company. It
has strong fundamental attractions with good cash flow and a focused business
strategy. We continue to expect excellent dividend growth.
5
<PAGE>
- -----------------------------------------------
The United Kingdom Fund Inc.
Statement of Investments
March 31, 1996
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
<C> <S> <C>
Value (Note
Shares Description 1)
- ---------------------------------------------------------------
INVESTMENTS IN UNITED KINGDOM SECURITIES--
94.4% OF NET ASSETS
Common Stocks--94.4%
Banks--11.8%
200,000 Abbey National plc Ord 10p............. $ 1,720,366
150,000 Barclays plc Ord L1.................... 1,664,649
400,000 Standard Chartered plc Ord 25p......... 3,718,556
-----------
7,103,571
-----------
Building Materials & Merchants--7.7%
250,000 BPB Industries plc Ord 50p............. 1,183,038
126,000 Cape plc Ord 25p....................... 315,436
300,000 Johnston Group plc Ord 10p............. 1,831,801
250,000 Marley plc Ord 25p..................... 469,399
400,000 Norcros plc Ord 25p.................... 531,222
150,000 Universal Ceramic Materials plc Ord
5p................................... 274,770
-----------
4,605,666
-----------
Chemicals--3.0%
250,000 Allied Colloids plc Ord 10p............ 496,113
200,000 Wardle Storeys plc Ord 10p............. 1,297,526
-----------
1,793,639
-----------
Distributors--1.5%
231,250 Persona Group plc Ord 5p............... 882,508
-----------
Diversified Industrials--4.7%
50,000 Charter Ord 2p (Reg'd.)................ 692,268
600,000 Whitecroft plc Ord 25p................. 2,143,207
-----------
2,835,475
-----------
Electricity--7.2%
200,000 East Midlands Electricity plc Ord 56
9/11p................................ 1,828,748
142,600 National Grid Group plc Ord 10p........ 423,930
250,000 PowerGen plc Ord 50p................... 2,037,879
-----------
4,290,557
-----------
Electronics--2.7%
240,000 Beales Hunter plc Ord 20p.............. 769,356
150,000 General Electric Co. plc Ord 5p........ 839,194
-----------
1,608,550
-----------
Engineering-General--2.2%
246,186 Ash & Lacy plc Ord 5p.................. 725,300
400,000 Beauford Group plc Ord 10p............. 195,392
250,000 Bridon plc Ord 25p..................... 385,441
-----------
1,306,133
-----------
Engineering-Vehicles--2.7%
500,000 Lucas Industries plc Ord 25p........... 1,640,988
-----------
Food Manufacturing--6.9%
280,000 Barr (AG) plc Ord 25p.................. 1,367,745
510,000 Canadian Pizza plc Ord 10p............. 599,457
168,000 CPL Aromas plc Ord 10p................. 1,166,857
1,000,000 Finlay (James) plc Ord 25p............. 992,226
-----------
4,126,285
-----------
Health Care--2.2%
400,000 Scholl plc Ord 5p...................... 1,306,685
-----------
Household Goods--1.4%
192,500 Royal Doulton plc Ord L1............... 816,907
-----------
<CAPTION>
- ---------------------------------------------------------------
Value (Note
Shares Description 1)
<C> <S> <C>
- ---------------------------------------------------------------
Leisure & Hotels--2.4%
355,000 Inspirations plc Ord 10p............... $ 666,547
275,000 MacDonald Hotels plc Ord 5p............ 797,597
-----------
1,464,144
-----------
Oil & Gas--10.3%
200,000 British Gas plc Ord 25p................ 697,611
250,000 British Petroleum plc Ord 25p.......... 2,188,621
250,000 Shell Transport & Trading plc Ord 25p
(Reg'd).............................. 3,301,058
-----------
6,187,290
-----------
Pharmaceuticals--3.1%
150,000 Glaxo Holdings plc Ord 25p............. 1,879,886
-----------
Retailers-Food--3.7%
53,000 Greggs plc Ord 20p..................... 1,086,548
450,000 Nurdin & Peacock plc Ord 10p........... 1,154,035
-----------
2,240,583
-----------
Retailers-General--9.7%
750,000 Alexon Group plc Ord 10p............... 1,144,876
20,000 Courts plc Ord 25p..................... 249,735
200,000 Great Universal Stores plc Ord 25p..... 2,054,670
100,000 Kingfisher plc Ord 25p................. 868,579
10,000 Kingsbury Group plc Ord 25p............ 32,972
175,000 Menzies (John) plc Ord 25p............. 1,442,543
-----------
5,793,375
-----------
Spirits, Wines & Ciders--0.5%
185,000 Merrydown plc Ord 25p.................. 290,875
-----------
Textiles & Apparel--3.1%
350,000 French (Thomas) & Sons plc Ord 10p..... 347,279
165,000 Shiloh plc Ord 25p..................... 214,092
1,055,000 Sirdar plc Ord 25p..................... 1,304,471
-----------
1,865,842
-----------
Tobacco--2.5%
200,000 BAT Industries plc Ord 25p............. 1,476,126
-----------
Transport--3.4%
250,000 British Airways plc Ord 25p............ 2,045,511
-----------
Water--1.7%
100,000 South West Water plc Ord L1............ 1,033,441
-----------
Total Common Stocks
(cost $43,829,953)................... 56,594,037
-----------
UNITED STATES SHORT-TERM INVESTMENT--
1.0% OF NET ASSETS
593,506 Federal Trust for Short-term U.S.
Government Securities--Money Market
Fund (cost $593,506)................. 593,506
-----------
Total Investments (cost
$44,423,459)--95.4%.................. 57,187,543
-----------
Cash and other assets in excess of
liabilities--4.6%.................... 2,779,508
-----------
Net Assets--100%....................... $59,967,051
-----------
-----------
Number of shares issued and
outstanding.......................... 4,011,655
-----------
-----------
Net asset value per share.............. $14.95
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
- -----------------------------------------------------------
The United Kingdom Fund Inc.
Statement of
Assets and Liabilities
March 31, 1996
- ----------------------------------------------------
<TABLE>
<S> <C>
Assets
Investments, at value (cost
$44,423,459)........................... $ 57,187,543
Cash (includes $2,592,915 equivalent in
an interest-bearing pound sterling
account)............................... 2,592,915
Dividends and interest receivable....... 729,459
Receivable for securities sold.......... 682,727
United Kingdom withholding tax refund
receivable............................. 62,168
Other assets............................ 13,971
------------
Total assets...................... 61,268,783
------------
Liabilities
Payable for securities purchased........ 1,178,982
Investment management fee payable....... 35,265
Administration fee payable.............. 7,367
Accrued expenses and accounts payable... 80,118
------------
Total liabilities................. 1,301,732
------------
Net Assets.............................. $ 59,967,051
------------
------------
Net assets consist of:
Common stock, $0.01 par value
(Authorized 15,000,000 shares)....... $ 40,116
Paid-in-surplus....................... 45,960,154
Undistributed net investment income... 423,357
Accumulated net realized gains on
investments and pound sterling....... 756,104
Net unrealized appreciation on
investments and translation of other
assets and liabilities denominated in
pound sterling....................... 12,787,320
------------
Net assets............................ $ 59,967,051
------------
------------
Net asset value per share
($59,967,051 DIVIDED BY 4,011,655
shares of common stock issued and
outstanding)......................... $14.95
</TABLE>
- ----------------------------------------------------
The United Kingdom Fund Inc.
Statement of Operations
For the Year ended
March 31, 1996
- ----------------------------------------------------
<TABLE>
<S> <C>
Net Investment Income
Income
Dividends............................. $ 3,131,918
Interest.............................. 96,183
------------
3,228,101
------------
Less: United Kindom withholding tax on
United Kingdom source dividends...... 350,701
------------
Total income...................... 2,877,400
------------
Expenses
Investment management fee............. 430,730
Legal fee............................. 101,018
Administration fee.................... 86,180
Directors' fees and expenses.......... 73,732
Reports and notices to shareholders... 68,900
Custodian's fees and expenses......... 42,740
Audit fee............................. 36,724
Transfer agent's fees and expenses.... 22,099
NYSE listing fee...................... 16,773
Insurance fee......................... 5,954
Miscellaneous expenses................ 6,040
------------
Total expenses.................... 890,890
------------
Net investment income................... 1,986,510
------------
Realized and Unrealized Gain/(Loss) on
Investments and Pound
Sterling Transactions
Net realized gain/(loss) on:
Investments........................... 2,444,505
Pound sterling transactions........... (253,786)
Net change in unrealized appreciation
on:
Investments........................... 4,538,642
Pound sterling transactions........... (67,686)
------------
Net gain on investments and pound
sterling transactions.................. 6,661,675
------------
Net Increase in Net Assets Resulting
From Operations........................ $ 8,648,185
------------
------------
</TABLE>
See Notes to Financial Statements. See Notes to Financial Statements.
7
<PAGE>
- -----------------------------------------------------------
The United Kingdom Fund Inc.
Statement of Changes in Net Assets
- -----------------------------------------------
<TABLE>
<CAPTION>
For the Year ended
March 31,
--------------------------------
1996 1995
-------------- ---------------
<S> <C> <C>
Increase in Net Assets
Operations
Net investment income................. $ 1,986,510 $ 1,618,837
Net realized gain on investments...... 2,444,505 146,227
Net realized gain/(loss) on pound
sterling transactions................ (253,786) 228,760
Net change in unrealized appreciation
on investments and pound sterling
transactions......................... 4,470,956 3,300,199
-------------- ---------------
Net increase in net assets resulting
from operations...................... 8,648,185 5,294,023
-------------- ---------------
Dividends and distributions to
shareholders from
Net investment income ($0.376 and
$0.403 per share, respectively)...... (1,508,832) (1,616,697)
Net realized gains ($0.014 and $0.057
per share, respectively)............. (55,716) (228,664)
-------------- ---------------
Total increase.......................... 7,083,637 3,448,662
Net Assets
Beginning of year..................... 52,883,414 49,434,752
-------------- ---------------
End of year (including undistributed
net investment income of $423,357 and
$478,052, respectively).............. $ 59,967,051 $ 52,883,414
-------------- ---------------
-------------- ---------------
</TABLE>
See Notes to Financial Statements.
- -----------------------------------------------
The United Kingdom Fund Inc.
Notes to Financial Statements
- -----------------------------------------------
Note 1. Significant
Accounting Policies
The United Kingdom Fund Inc. (the "Fund") was incorporated in the State of
Maryland on May 28, 1987, as a closed-end, diversified management investment
company. Prior to commencing investment operations on August 14, 1987, the Fund
had no operations other than the sale to Mercury Asset Management Group plc. (an
affiliate to the "Investment Adviser" and "Investment Manager") of 8,602 shares
of common stock for $100,000 on August 4, 1987.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
VALUATION OF INVESTMENTS: All securities for which current market quotations
are readily available are valued at the last sales price prior to the time of
determination. If there is no sales price on that date, the securities would be
valued at the most recently available sales price. Unless otherwise determined
by the Fund's Board of Directors, United States short-term investments having a
maturity of 60 days or less are valued at amortized cost. Short-term United
Kingdom securities are valued at cost after reflecting any unrealized foreign
exchange gains or losses. Securities and assets for which current market
quotations are not readily available are valued at fair value as determined in
good faith by or under the direction of the Board of Directors of the Fund.
Forward currency contracts are valued at the current cost of covering or
offsetting the contracts. Any assets or liabilities initially expressed in terms
of pound sterling ("Sterling") are translated into U.S. dollars at the
prevailing market rates as quoted by one or more banks or dealers on the date of
valuation.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
recorded on the trade date (the date on which the order to buy or sell is
executed). Realized gains and losses from security and foreign currency
transactions are calculated on the identified cost basis and interest income is
recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date, except that certain dividends from U.K. securities are recorded as soon as
the Fund is informed of the ex-dividend date. Such dividend income and interest
income is recorded before United Kingdom withholding tax. United Kingdom
withholding tax is recorded as a reduction of investment income, net of an
amount receivable from the United Kingdom tax authorities pursuant to the tax
treaty with the United States.
8
<PAGE>
FOREIGN CURRENCY TRANSLATION: The books and records of the Fund are
maintained in U.S. dollars as follows:
(i) the foreign currency market value of investment securities and other
assets and liabilities stated in Sterling are translated at the exchange
rate prevailing at the end of the period; and
(ii) purchases, sales of investments, income and expenses are translated at
the rate of exchange prevailing on the respective dates of such
transactions.
The resultant exchange gains and losses are included in the Statement of
Operations.
The Fund does not generally isolate the effect of fluctuations in foreign
exchange rates from the effect of fluctuations in the market price of
investments. However, the Fund does isolate the effect of fluctuations in
Sterling rates when determining the gain or loss upon the sale or maturity of
Sterling-denominated debt obligations pursuant to U.S. federal income tax
regulations; such amount is categorized as foreign exchange gain or loss for
both financial reporting and income tax reporting purposes.
Net realized foreign exchange losses of $253,786 represent foreign exchange
gains and losses from holdings of Sterling, exchange gains or losses realized
between the trade date and settlement dates on security transactions, and the
difference between the amounts of interest and dividends recorded on the Fund's
books and the U.S. dollar equivalent of the amounts actually received.
The 12:00 P.M. midpoint rate of exchange at March 31, 1996 was U.S. $1.5265 to
L1 Sterling.
FORWARD FOREIGN CURRENCY CONTRACTS: The Fund may enter into forward foreign
currency exchange contracts ("Forward Contracts") in connection with planned
purchases or sales of securities or to hedge the U.S. dollar value of portfolio
securities denominated in Sterling.
The Fund may not position a hedge with respect to Sterling or another currency
to an extent greater than the aggregate market value (at the time of making such
transaction) of the securities held in its portfolio denominated or generally
quoted in or currently convertible into Sterling or such other currency. If the
Fund enters into a currency hedging transaction, the Fund's custodian will place
cash or U.S. government securities or other high quality short-term debt
obligations or a combination thereof in a segregated account of the Fund in an
amount equal to the value of the Fund's total assets committed to the
consummation of the forward contract, which value will be adjusted on a daily
basis. If the value of the securities placed in the segregated account declines,
additional cash or securities will be placed in the account so that the value of
the account will equal the amount of the Fund's commitment with respect to the
contract. The Fund did not enter into such contracts during the year.
Risks may arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from unanticipated
movements in the value of the foreign currency relative to the U.S. dollar.
Fluctuations in the value of forward contracts are recorded for book purposes
as unrealized gains or losses by the Fund.
Realized gains and losses include net gains or losses recognized by the Fund
on forward contracts that the Fund has terminated by entering into offsetting
commitments.
U.S. FEDERAL TAX STATUS: The Fund intends to distribute all of its taxable
income and to comply with the other requirements of the U.S. Internal Revenue
Code applicable to regulated investment companies. Accordingly, no provision for
U.S. federal income taxes is required. In addition, by distributing during each
calendar year substantially all of its ordinary income and capital gains, if
any, the Fund intends not to be subject to a U.S. federal excise tax.
UNITED KINGDOM WITHHOLDING TAXES: Dividend income received from United
Kingdom corporations is subject to the Advance Corporation Tax ("ACT"). Pursuant
to the U.K.-U.S. tax treaty, the Fund will generally be entitled to receive from
the United Kingdom Inland Revenue a payment equal to the ACT minus a 15%
withholding tax. The withholding tax is based upon the sum of the dividend
received plus the ACT. The Fund is not subject to U.K. taxes on capital gains
and interest income.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: The Fund records dividends and
distributions to its shareholders on the ex-dividend date.
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with U.S. federal income tax
regulations which may differ from net investment income and net realized capital
gains as determined by generally accepted accounting principles. These
"book/tax" differences are either considered temporary or permanent in nature.
To the extent these differences are permanent in nature, such amounts are
reclassified within the capital accounts based on their U.S. federal tax-basis
treatment; temporary differences do not require reclassification. Dividends and
distributions which exceed net investment income and net realized capital gains
for financial reporting purposes but not for tax purposes are reported as
dividends in excess of net investment income or distributions in excess of net
realized capital gains. To the extent dividends and distributions exceed net
investment income and net realized capital gains for tax purposes, they are
reported as distributions of paid-in-surplus.
The Fund had permanent book/tax differences primarily attributable to dividend
redesignations. To reflect reclassifications arising from permanent book/tax
differences as of March 31, 1996, undistributed net investment income was
9
<PAGE>
debited $532,373 and accumulated net realized gains was credited $455,025, and
paid-in-surplus was credited $77,348.
Note 2. Agreements
The Fund has entered into Agreements with Mercury Asset Management International
(Channel Islands) Ltd. (the "Investment Manager"), Mercury Asset Management
International Ltd. (the "Investment Adviser") and Bear Stearns Funds Management
Inc. (the "Administrator").
The Investment Management Agreement provides that the Fund pays the Investment
Manager a fee, computed weekly and payable monthly, at the following rates:
0.75% of the Fund's average weekly net assets up to $150 million, and 0.65% of
such assets in excess of $150 million. The Administration Agreement provides
that the Fund pays the Administrator a fee at the annual rate of 0.15% of the
Fund's average weekly net assets up to $200 million and 0.10% on such assets in
excess of $200 million. The Investment Manager makes investment decisions on
behalf of the Fund on the basis of recommendations from the Investment Adviser
subject to the overall supervision of the Board of Directors of the Fund. The
Investment Manager pays a fee to the Investment Adviser for the services
rendered. The Administrator provides certain clerical and bookkeeping services
to the Fund.
Note 3. Transactions with Affiliates
Of the 4,011,655 shares outstanding at March 31, 1996, Mercury Asset Management
Group plc (the parent company of the Investment Adviser and Investment Manager)
owned 13,048 shares in respect of the Fund's initial capital contribution
(including 4,446 shares acquired through dividends reinvested).
Certain directors and officers of the Fund are also directors and officers of
either the Investment Manager, the Investment Adviser or Mercury Asset
Management Group plc.
Note 4. Investments in
Securities
For U.S. federal income tax
purposes, the cost of securities owned at March 31, 1996 was $44,423,459.
At March 31, 1996, the net unrealized appreciation of investments on a tax
basis of $12,764,084 was composed of gross appreciation of $15,061,390 for those
investments having an excess of value over cost and gross depreciation of
$2,297,306 for those investments having an excess of cost over value.
For the year ended March 31, 1996 aggregate purchases and proceeds from the
sales of portfolio securities (excluding short-term securities) were $12,219,541
and $13,704,870, respectively.
Note 5. Concentration
of Risk
Investments in the United Kingdom may involve certain considerations and risks
not typically associated with investments in the United States as a result of,
among others, the possibility of future political and economic developments and
the level of the United Kingdom governmental supervision and regulation of its
securities markets.
The ability of the issuers of the debt securities held by the Fund to meet
their obligations may be affected by economic and political developments in a
specific industry or region.
10
<PAGE>
- --------------------------------------------------------------------------------
The United Kingdom Fund Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each period indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the
Period from
August 14,
For the Year ended March 31, 1987*
---------------------------------------------------------------------------------------- to March
1996 1995 1994 1993 1992 1991 1990 1989 31, 1988
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 13.18 $ 12.32 $ 10.84 $ 9.93 $ 11.67 $ 10.38 $ 12.15 $ 10.94 $ 11.63
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Operations:
Net investment
income............. 0.50 0.40 0.17 0.26 0.40 0.38 0.36 0.25 0.20
Net realized and
unrealized
gain/(loss) on
investments and
pound sterling
transactions....... 1.66 0.92 1.45 1.19 (1.31) 1.64 (1.53) 1.61 (0.36)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Total from
operations....... 2.16 1.32 1.62 1.45 (0.91) 2.02 (1.17) 1.86 (0.16)
Dividends and
distributions to
shareholders from:
Net investment
income............. (0.38) (0.40) (0.14) (0.14) (0.45) -- (0.35) (0.22) (0.13)
Net realized
gains.............. (0.01) (0.06) -- (0.41) (0.38) (0.73) (0.25) (0.43) (0.22)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Total from
distributions.... (0.39) (0.46) (0.14) (0.55) (0.83) (0.73) (0.60) (0.65) (0.35)
From capital
transactions:
Reduction in
offering costs..... -- -- -- 0.01 -- -- -- -- --
Offering costs
charged to
capital............ -- -- -- -- -- -- -- -- (0.18)
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Net asset value, end
of period............ $ 14.95 $ 13.18 $ 12.32 $ 10.84 $ 9.93 $ 11.67 $ 10.38 $ 12.15 $ 10.94
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Per share market
value, end of
period............... $ 12.00 $ 10.88 $ 10.50 $ 9.63 $ 9.13 $ 10.25 $ 8.75 $ 10.00 $ 8.88
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Total investment
return, market
value**.............. 13.91% 7.93% 10.32% 11.45% (2.63)% 26.40% (7.40)% 20.68% (22.92)%+
Net assets at end of
period (000
omitted)............. $ 56,967 $ 52,883 $ 49,435 $ 43,467 $ 39,823 $ 46,775 $ 41,609 $ 48,707 $ 43,864
Ratios of operating
expenses to average
net assets........... 1.55% 1.47% 1.50% 1.78% 1.74% 2.19% 1.92% 1.89% 1.99%++
Ratios of net
investment income to
average net assets... 3.45% 3.15% 1.43% 2.43% 3.73% 3.34% 3.06% 4.10% 3.01%++
Portfolio turnover
rate................. 20.85% 19.73% 27.05% 45.54% 47.30% 36.37% 22.07% 40.91% 22.15%+
</TABLE>
- ------------------------
*Commencement of operations.
**Total investment return, market value, is based on the change in market price
of a share during the period and assumes reinvestment of distributions at
actual prices pursuant to the Fund's dividend reinvestment plan. Total
investment return does not reflect brokerage commissions.
+Not annualized.
++Annualized.
11
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Shareholders and
Board of Directors of
The United Kingdom Fund Inc.
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of The United Kingdom Fund Inc. as of
March 31, 1996, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of March
31, 1996 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
United Kingdom Fund Inc. at March 31, 1996, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
[SIGNATURE]
New York, New York
May 2, 1996
12
<PAGE>
-----------------------------------------------
The United Kingdom Fund Inc.
U.S. Tax Information
-----------------------------------------------
The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise its shareholders within 60 days of the Fund's fiscal year end
(March 31, 1996) as to the U.S. federal tax status of distributions received by
the Fund's shareholders in respect of such fiscal year. Domestic shareholders,
whether receiving these dividends in cash or reinvesting it under the automatic
Dividend Reinvestment Plan, must report dividend income as follows:
SOURCE OF DIVIDENDS AND DISTRIBUTIONS
<TABLE>
<CAPTION>
Applicable Total
Ordinary Foreign Reportable
Dates Income Taxes Dividend
- ------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
June 1995............... $ 0.07 $ 0.02 $ 0.09
December 1995........... 0.32 0.05 0.37
----------- ----------- -----------
Total............... $ 0.39 $ 0.07 $ 0.46
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Fund earned $649,681 of income from United Kingdom sources in the last
quarter of the fiscal year 1996 of which it paid $0.02 per share in United
Kingdom withholding taxes. The Fund intends to give the benefit of the $0.02 per
share in foreign tax as a credit to its shareholders. These amounts will be
reported to shareholders in their 1996 1099 which should be mailed in January,
1997. Accordingly, shareholders who must report their dividend in a U.S. federal
income tax return will be entitled to choose between a foreign tax credit or an
itemized deduction in computing their U.S. federal income tax liability. It is
generally more advantageous to claim credit rather than to take a deduction. The
amount allowable as a credit is subject to the general limitations on tax
credits imposed by Sections 904 of the U.S. Internal Revenue Code. The Fund did
not earn any dividend income that qualifies for the dividends received deduction
that is available to corporate shareholders.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of the actual dividends made by the Fund. They will generally not be
entitled to a U.S. foreign tax credit or deduction for the withholding taxes
paid by the Fund.
Generally, dividends received by tax-exempt recipients (e.g., IRA's and
Keoghs) need not be reported as taxable income for U.S. federal income tax
purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7)
plans) may need this information for their annual information.
All shareholders are advised to consult their own tax advisers with respect to
the tax consequences of their investment in the Fund.
-----------------------------------------------
The United Kingdom Fund Inc.
Results of Annual Meeting of Shareholders
-----------------------------------------------
On September 19, 1995, the annual meeting of shareholders of the Fund was held
and the following matters were voted upon:
(1) To re-elect directors to the Board of Directors of the Fund.
<TABLE>
<CAPTION>
Votes
Name of Director Votes For Withheld Non-Votes
- ---------------------- ---------- ------------- ----------
<S> <C> <C> <C>
Anthony M. Solomon.... 2,801,018 179,148 1,031,489
George F. Bennett..... 2,804,491 175,675 1,031,489
Livio Borghese........ 2,807,659 172,507 1,031,489
Sir Arthur Bryan...... 2,801,018 179,148 1,031,489
Peter Stormonth
Darling.............. 2,791,826 188,340 1,031,489
Leon Levy............. 2,795,801 184,365 1,031,489
J. Murray Logan....... 2,803,339 176,827 1,031,489
James S. Martin....... 2,791,776 188,390 1,031,489
</TABLE>
(2) To ratify the selection of Ernst & Young LLP, as independent public
accountants for the year ending March 31, 1996.
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld Non-Votes
- ---------- ------------- --------------- ----------
<S> <C> <C> <C>
2,851,076 29,327 99,763 1,031,489
</TABLE>
(3) To amend and restate the charter to convert the Fund from a closed-end
investment company to an open-end investment company.
<TABLE>
<CAPTION>
Votes
Votes For Against Votes Withheld Non-Votes
- --------- ------------ --------------- ----------
<S> <C> <C> <C>
663,773 667,620 55,739 2,624,523
</TABLE>
13
<PAGE>
-----------------------------------------------
The United Kingdom Fund Inc.
Dividend Reinvestment Plan
-----------------------------------------------
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), shareholders
have all distributions automatically reinvested by The Bank of New York (the
"Plan Agent"). Shareholders who do not wish to participate in the Plan may elect
to receive all distributions in cash paid by check in dollars mailed directly to
the shareholder by the Plan Agent, as dividend paying agent. Shareholders whose
shares are held in the name of a broker or nominee should contact their broker
or nominee to determine whether they should participate in the Plan or how they
may withdraw from the Plan.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the directors of the Fund declare a dividend, participants in the Plan will
receive the equivalent in stock in the Fund valued at the lower of market price
or net asset value, in either case as determined on the record date for that
dividend. Whenever market price is equal to or exceeds net asset value at the
time shares are valued for the purpose of determining the number of shares
equivalent to the cash dividend or distribution, participants will be issued
shares of the Fund at a price equal to the greater of net asset value or an
amount equal to 95% of the then current market price of the Fund's shares. The
Fund will not issue shares under the Plan below net asset value. If net asset
value exceeds the market price of the Fund shares at such time, or if the Fund
should declare a dividend or other distribution payable only in cash (i.e., if
the Board of Directors should preclude reinvestment at net asset value), the
Plan Agent will, as agent for the participants, buy Fund shares in the open
market, on the New York Stock Exchange or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price exceeds the net asset value of a Fund share, the average per share
purchase price paid by the Plan Agent may exceed the net asset value of the
Fund's shares, resulting in the acquisition of fewer shares than if the dividend
or distribution had been paid in shares issued by the Fund.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant are held by the Plan Agent in non-certificated form in the
name of the participant, and each shareholder's proxy will include those shares
purchased pursuant to the Plan.
In the case of shareholders, such as banks or nominees, which hold shares for
others who are the beneficial owners, the Plan Agent administers the Plan on the
basis of the number of shares certified from time to time by the shareholder as
representing the total amount registered in the shareholder's name and held for
the account of beneficial owners who are to participate in the Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions. The Plan Agent's fees for the handling of reinvestment of
dividends and distributions are paid by the Fund. There are no brokerage charges
with respect to shares issued directly by the Fund as a result of dividends or
capital gains distributions payable either in stock or cash. However, each
participant pays a pro rata share of brokerage commissions incurred with respect
to the Plan Agent's open market purchases in connection with the reinvestment of
dividends or capital gains distributions.
The automatic reinvestment of dividends and distributions does not relieve
participants of any U.S. income tax that may be payable on such dividends or
distributions.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any voluntary cash payments made and any dividend or distribution
paid subsequent to notice of the change sent to the members of the Plan at least
90 days before the record date for such dividend or distribution. The Plan also
may be amended or terminated by the Plan Agent by at least 90 days' written
notice to members of the Plan. All correspondence concerning the Plan should be
directed to the Plan Agent at P.O. Box 11258, Church Street Station, New York,
New York 10286.
14
<PAGE>
------------------------------------------------------------------
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
ANTHONY M. SOLOMON, Chairman of the Board and
Director
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 1-800-432-8224.)
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
ADDITIONAL INFORMATION
Since the filing of the most recent amendment to the Fund's registration
statement with the Securities and Exchange Commission, there have been (i) no
material changes in the Fund's investment objectives or policies, (ii) no
changes to the Fund's charter or by-laws that would delay or prevent a change
of control of the Fund, (iii) no material changes in the principal risk
factors associated with investment in the Fund, and (iv) no change in the
person primarily responsible for the day-to-day management of the Fund's
portfolio, who is Thomas W.G. Charlton, the Portfolio Manager of the Fund.
This report, including the financial statements herein, is transmitted to the
shareholders of The United Kingdom Fund Inc. for their information. 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 FT-SE 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 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
United Kingdom 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.
Annual Report
March 31, 1996
