<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, 1996, the end of the period under
review, the Fund's net assets totaled $67.9 million. This represents a net asset
value per share of $16.92, a rise of 162.36% from its initial value after taking
into account underwriting discounts, commissions, offering expenses and
distributions. This compares with an increase of 156.60% in the FT-SE Actuaries
All-Share Index (U.S.$) over the same time period. At the end of the period
under review, the Fund was quoted at $13.875 per share on the New York Stock
Exchange, which represents a 18.00% 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,
/s/ Anthony M. Solomon /s/ J. Loughlin Callahan
Anthony M. Solomon J. Loughlin Callahan
Chairman of the Board President and Treasurer
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INVESTMENT MANAGER
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
During the fourth quarter of 1996, your Fund experienced a rise in net asset
value of 13.78%, which compared with a 13.96% increase in the FT-SE Actuaries
All-Share Index. For 1996 year to date, the Fund's net asset value has increased
by 28.16%, which compares with a 27.47% increase in the FT-SE Actuaries
All-Share Index. These figures are recorded in total return and dollar based
terms.
The recovery in consumer spending lifted retail sales and the rapidly
improving housing market contributed to a mood of increasing optimism for the
domestic economy. The major feature of the quarter, however, was the unexpected
strength of sterling, which rose nearly 10% against Continental currencies.
Despite this, earnings downgrades for the leading companies were relatively
modest and investors were content to support equities at the higher levels,
especially those with domestic earnings.
The best performing areas of the market were utilities, financials, food
retailers, tobacco and oil exploration. Three take-over bids for regional
electricity companies and the proposed merger of British Telecom and MCI created
a buoyant stock market environment for utilities. Financials also enjoyed heavy
demand from investors due to the combination of favorable trading conditions and
intense speculation of further rationalization moves in the banking and
insurance sectors. Domestic earners such as food retailers returned to favor and
the tobacco industry succeeded in reversing some unfavorable U.S. court rulings.
The strength of sterling wreaked havoc among stocks dependent on a competitive
level of sterling for overseas sales or protection against imports. Most
industrial sectors suffered, particularly building materials, chemicals,
electronics and textile enterprises.
Bonds made some progress, with U.K. long gilts returning 5.5%. The 0.25%
increase in base rates, the first increase for two years, was seen as necessary
to curb potential inflationary pressures, although it encouraged speculation
that there would be further increases before the next General Election. The
budget in November was cautious and provided extra reassurance to the bond
market that inflation would be kept in check. Index-linked stocks returned 2.2%,
giving a slightly higher return than cash over the quarter.
ECONOMIC & MARKET OUTLOOK
The outlook for the U.K. domestic economy for the next twelve months remains
very positive. There is clear evidence of strong consumer-led economic expansion
with consumer spending in the third quarter of 1996 rising at an annual rate of
4.6%. This increase in spending has taken place despite a rise in the savings
ratio towards a twelve year high. Strong growth in earnings and falling
unemployment, together with the income tax cuts announced in the budget suggest
that disposable income will rise by over 3% in 1997. The most substantial boost
to consumer confidence, however, will come from the unique event of five major
building society conversions within a few months which will release over L20
billion of disposable assets into the hands of consumers. It will also add
further impetus to the housing market which is expected to strengthen further
with the recovery becoming wider spread geographically.
On the industrial side of the economy, destocking has come to an end, but
greater challenges for manufacturers now exist after last quarter's rise in
sterling of almost 10% against Continental currencies. There are also signs that
recessionary conditions are still prevailing in certain parts of Continental
Europe where, despite lower interest rates, growth generally remains sluggish.
Inflation is expected to remain relatively subdued, although inflationary
pressures have been building up. Sterling's rise has contributed to a steep fall
in input prices which has kept inflation well within the Chancellor's target
range. The small 0.25% rise in bank base rates during the fourth quarter is
likely to be followed with further increases in early 1997 to dampen the rapid
growth of the economy. Increases in interest rates could lead to a further
strengthening of sterling, which is already threatening the competitiveness of
U.K. exporters and creating an eventual trade deficit problem. Against this
background, the gilt market appears to be a relatively safe but unexciting haven
for investors.
The prospects for the U.K. equity market are mixed. Exporters are faced with a
newly uncompetitive level of sterling whereas suppliers to the consumer side of
the economy are likely to be blessed with near boom conditions in the middle of
1997 due to the building society windfalls. The smaller company sector may
recover some of its lost performance, as investors look for companies with large
domestic exposure. We may also see further takeover activity ahead of the
general election, however, the overall mood of the equity market is likely to be
cautious with sentiment undermined by a succession of profits downgrades from
manufacturing companies suffering from sterling's rise.
2
<PAGE>
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PORTFOLIO SUMMARY
- --------------------------------------------------------------------------------
The strategy over the fourth quarter was to take profits on some of the large
holdings in the financials and utilities sectors. We sold the sizable position
in Standard Chartered on concern over the long-term future of the company's
banking business in Hong Kong. With the proceeds, we acquired shares of National
Westminster Bank, which is a leading U.K. retail bank. We sold East Midlands
Electricity during the agreed offer from Dominion Resources and substantially
increased the weighting in the water sector, with purchases of Anglian Water and
Wessex Water. We also acquired a new holding of Allied Domecq, which is expected
to benefit from an increased focus on realizing shareholder value. The position
in Great Universal Stores was sold, as we anticipated continued competitive
pressures on the company's catalog shopping business. Other purchases include
the specialty chemical companies, Manders and Yorkshire Group, which should
benefit from lower raw materials prices. We sold the holdings of Alexon Group,
Allied Colloids, Marley and Nurdin & Peacock.
The Fund's ten largest equity holdings as of December 31, 1996 were:
SHELL TRANSPORT & TRADING
<TABLE>
<S> <C>
Market Price as of 12/31/96................................... 1012p
Prospective Earnings per share (to December 1997)............. 60.5p
Prospective Earnings Multiple................................. 16.7x
</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 price
of crude oil. Cash flow remains highly positive, despite a substantial increase
in exploration expenditure and we continue to expect strong dividend progression
for at least the next two years.
BRITISH PETROLEUM
<TABLE>
<S> <C>
Market Price as of 12/31/96................................... 701p
Prospective Earnings per share (to December 1997)............. 47.6p
Prospective Earnings Multiple................................. 14.7x
</TABLE>
British Petroleum ("BP") is a leading international oil company with a
substantial exploration and production profile. BP continues to develop its oil
production interests in the Gulf of Mexico, Colombia and the region West of
Shetlands. It is planning to cut its refining capacity to match production with
customer demand and has reduced the cyclicality of its chemicals operations.
Strong cash flow from the company should see a sharp reduction in the level of
borrowings and we expect excellent dividend progression.
NATIONAL WESTMINSTER BANK
<TABLE>
<S> <C>
Market Price as of 12/31/96................................... 686p
Prospective Earnings per share (to December 1997)............. 80.0p
Prospective Earnings Multiple................................. 8.6x
</TABLE>
National Westminster Bank is a leading retail bank in the U.K. Like other
clearing banks it is undergoing a strategy of branch closures and reductions in
its workforce. It is rapidly expanding its investment banking activities and in
the last two years it has acquired Gartmore, an investment management house, and
two specialist advisory firms, Gleacher and Hambro Magan to expand its bonds and
corporate advisory expertise.
3
<PAGE>
ABBEY NATIONAL
<TABLE>
<S> <C>
Market Price as of 12/31/96................................... 765p
Prospective earnings per share (to December 1997)............. 64.9p
Prospective Earnings Multiple................................. 11.8x
</TABLE>
Abbey National is one of the leading mortgage lenders in the U.K. It acquired
the National & Provincial Building Society and is expected to buy another
building society to increase its market share. Abbey National continues to
broaden its involvement in complementary financial services and plans to make
further acquisitions in life assurance and consumer finance. It is now looking
to expand in the Far East, particularly in Hong Kong. We are anticipating strong
profits growth helped by cost reductions and a more active residential property
market.
BRITISH AIRWAYS
<TABLE>
<S> <C>
Market Price as of 12/31/96................................... 606p
Prospective Earnings per share (to March 1998)................ 54.0p
Prospective Earnings Multiple................................. 11.2x
</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
may lead to further substantial improvements in profitability. It has recently
announced a proposed alliance with American Airlines.
BARCLAYS
<TABLE>
<S> <C>
Market Price as of 12/31/96................................... 1001p
Prospective Earnings per share (to December 1997)............. 108.7p
Prospective Earnings Multiple................................. 9.2x
</TABLE>
Barclays is one of the largest clearing banks in the U.K. It has shown a
strong recovery in profits following a reduction in bad debts and success in
controlling costs through branch closures and centralization of service
functions. Although lending demand continues to be relatively subdued, we
believe that substantial further cost savings can be achieved through the
introduction of new technology and accompanying staff reductions.
GLAXO WELLCOME
<TABLE>
<S> <C>
Market Price as of 12/31/96................................... 948p
Prospective Earnings per share (to December 1997)............. 60.2p
Prospective Earnings Multiple................................. 15.7x
</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. Glaxo may now experience a decline in
sales of Zantac as generic competition builds up. However, some of its new
products have the potential to replace the Zantac turnover. These include 3TC
which has gained FDA approval for the treatment of HIV infection in combination
with Zovirax and a new drug, 1592, which may be effective against AIDS.
JOHNSTON GROUP
<TABLE>
<S> <C>
Market Price as of 12/31/96................................... 470p
Prospective Earnings per share (to December 1997)............. 38.7p
Prospective Earnings Multiple................................. 12.1x
</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 roadsweeper 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. Johnston Group was successful in its defense against a
hostile tender offer by the conglomerate, TT Group.
4
<PAGE>
JOHN MENZIES
<TABLE>
<S> <C>
Market Price as of 12/31/96................................... 545p
Prospective Earnings per share (to April 1998)................ 49.5p
Prospective Earnings Multiple................................. 11.0x
</TABLE>
John Menzies is a major wholesaler of books, newspapers, magazines, home
entertainment products and office supplies and has a very efficient distribution
network. It is a leading retail news agent with 250 outlets and also owns the
U.K. retail chain Early Learning Centre, which sells educational toys for
pre-school children. Early Learning Centre has suffered from a more competitive
retail environment for toys but is expected to recover in the current year. John
Menzies will be acting as an exclusive U.K. distributor for the latest Nintendo
entertainment system, which should lead to a substantial improvement in profits.
SCHOLL
<TABLE>
<S> <C>
Market price as of 12/31/96................................... 299p
Prospective Earnings per share (to December 1997)............. 18.3p
Prospective Earnings Multiple................................. 16.3x
</TABLE>
Scholl is a footwear and healthcare group which is undergoing a major
restructuring. The new chief executive has begun to re-focus the company on its
areas of greatest strength. It has disposed of its herbal remedies and French
antiseptic cleanser businesses and is also likely to dispose of further European
activities. This would provide funds for a beneficial global link-up with
Schering-Plough, the owner of the Dr. Scholl brand in the U.S.
5
<PAGE>
- -----------------------------------------------
THE UNITED KINGDOM FUND INC.
STATEMENT OF INVESTMENTS
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENTS IN UNITED KINGDOM SECURITIES--
98.2% OF NET ASSETS
COMMON STOCKS--98.2%
ALCOHOLIC BEVERAGES--3.6%
250,000 Allied Domecq plc Ord 25p............................................. $ 1,954,048
270,000 Merrydown plc Ord 25p................................................. 492,343
-------------
2,446,391
-------------
BANKING--12.0%
200,000 Abbey National plc Ord 10p............................................ 2,619,666
150,000 Barclays plc Ord 100p................................................. 2,569,584
250,000 National Westminster Bank plc Ord 100p................................ 2,934,283
-------------
8,123,533
-------------
BUILDING MATERIALS & MERCHANTS--7.7%
476,000 Cape Industries plc Ord 25p........................................... 1,418,113
300,000 Johnston Group plc Ord 10p............................................ 2,414,202
300,000 Norcros plc Ord 25p................................................... 472,567
504,000 Universal Ceramic Materials plc Ord 5p................................ 957,873
-------------
5,262,755
-------------
CHEMICALS--4.7%
500,000 Manders plc Ord 25p................................................... 1,626,590
55,000 Wolstenholme Rink plc Ord 25p......................................... 647,426
250,000 Yorkshire Group plc Ord 25p........................................... 933,149
-------------
3,207,165
-------------
DIVERSIFIED INDUSTRIALS--5.8%
50,000 Charter plc Ord 2p (Regd.)............................................ 633,942
200,000 Wardle Storeys plc Ord 10p............................................ 1,703,639
600,000 Whitecroft plc Ord 25p................................................ 1,587,209
-------------
3,924,790
-------------
ELECTRICITY--1.5%
300,000 National Grid Group plc Ord 10p....................................... 1,004,205
-------------
ELECTRONICS & ELECTRICAL EQUIPMENT--5.0%
240,000 Beales Hunter plc Ord 20p............................................. 710,905
440,000 CML Microsystems plc Ord 5p........................................... 1,028,347
250,000 General Electric Co. plc Ord 5p....................................... 1,635,151
-------------
3,374,403
-------------
ENGINEERING--GENERAL--2.6%
301,186 Ash & Lacy plc Ord 5p................................................. 925,665
1,250,000 Beauford Group plc Ord 10p............................................ 866,801
-------------
1,792,466
-------------
ENGINEERING--VEHICLES--2.8%
500,000 LucasVarity plc Ord 25p............................................... 1,904,823
-------------
FOOD PRODUCERS--6.2%
280,000 Barr (AG) plc Ord 25p................................................. 1,550,911
510,000 Canadian Pizza plc Ord 10p............................................ 724,774
170,500 CPL Aromas plc Ord 10p................................................ 534,232
1,000,000 Finlay (James) plc Ord 25p............................................ 1,378,321
-------------
4,188,238
-------------
HEALTH CARE--3.2%
425,000 Scholl plc Ord 5p..................................................... 2,172,140
-------------
HOUSEHOLD GOODS--1.3%
192,500 Royal Doulton plc Ord 100p............................................ 891,564
-------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
- ---------------------------------------------------------------------------------------------------------
<C> <S> <C>
LEISURE & HOTELS--2.7%
355,000 Inspirations plc Ord 10p.............................................. $ 480,187
142,000 Inspirations plc 7.7% Convertible Preference 20p...................... 196,937
325,000 MacDonaldHotels plc Ord 5p............................................ 1,174,141
-------------
1,851,265
-------------
OIL & GAS--10.7%
200,000 British Gas plc Ord 25p............................................... 768,778
250,000 British Petroleum plc Ord 25p......................................... 2,998,490
200,000 Shell Transport & Trading plc Ord 25p (Regd.)......................... 3,463,781
-------------
7,231,049
-------------
PHARMACEUTICALS--3.6%
150,000 Glaxo Wellcome plc Ord 25p............................................ 2,434,748
-------------
RETAILERS--FOOD--1.8%
53,000 Greggs plc Ord 20p.................................................... 1,213,736
-------------
RETAILERS--GENERAL--6.8%
52,500 Courts plc Ord 25p.................................................... 1,188,802
250,000 John Menzies plc Ord 25p.............................................. 2,332,873
100,000 Kingfisher plc Ord 25p................................................ 1,081,254
-------------
4,602,929
-------------
TEXTILES & APPAREL--3.1%
350,000 French plc Ord 10p.................................................... 380,536
165,000 Shiloh plc Ord 25p.................................................... 317,827
1,175,000 Sirdar plc Ord 25p.................................................... 1,398,225
-------------
2,096,588
-------------
TOBACCO--2.4%
200,000 BAT Industries plc Ord 25p............................................ 1,659,122
-------------
TRANSPORT--3.8%
250,000 British Airways plc Ord 25p........................................... 2,591,843
-------------
WATER--6.9%
200,000 Anglian Water plc Ord 100p............................................ 2,020,396
100,000 South West Water plc Ord 100p......................................... 1,036,737
250,000 Wessex Water plc Ord 60p.............................................. 1,609,468
-------------
4,666,601
-------------
Total Common Stocks
(cost $49,809,973)................................................... 66,640,354
-------------
UNITED STATES SHORT-TERM INVESTMENT--
2.9% OF NET ASSETS
1,955,460 Federated Trust for Short-term
U.S. Government Securities--Money Market
Fund (cost $1,955,460)--2.9%......................................... 1,955,460
-------------
Total Investments
(cost $51,765,434)--101.1%........................................... 68,595,814
-------------
Liabilities in excess of cash and
other assets--(1.1%)................................................. (714,346)
-------------
NET ASSETS--100.0%.................................................... $ 67,881,468
-------------
-------------
NUMBER OF SHARES ISSUED AND OUTSTANDING............................... 4,011,655
-------------
-------------
NET ASSET VALUE PER SHARE.............................................
$16.92
-------------
-------------
</TABLE>
6
<PAGE>
- ------------------------------------------------------------------
DIRECTORS AND OFFICERS
ANTHONY M. SOLOMON, Chairman of the Board and Director
J. LOUGHLIN CALLAHAN, President and Treasurer
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
STEVEN W. GOLANN, Vice President, Assistant Treasurer
RITA J. KLEINMAN, Secretary
THADDEA M. FELDMAN, Assistant Secretary
AMANDA J. MARSH, Assistant Secretary
* 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
This report, including the Statement of Investments, 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 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 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 AND CASH OPTION PLAN--SUMMARY
An automatic Dividend Reinvestment and Cash Option 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 and
the opportunity to purchase additional shares of the Fund on a quarterly basis.
Information describing the Plan is available from the Plan Agent, The Bank of
New York, by calling: 1-800-432-8224.
All shareholders are automatically enrolled in the Dividend Reinvestment Plan
unless they have elected to receive distributions in cash. Therefore, if you
wish to participate and your shares are held in your own name, no action is
required on your part. If you have previously elected to receive distributions
in cash and now wish to participate in the plan, please call the Plan Agent at
the number above. 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 it 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, 1996
<PAGE>
[LETTERHEAD]
To the Shareholders of The United Kingdom Fund Inc.:
On November 26, 1996, the Board of Directors of The United Kingdom Fund Inc.
(the "Fund") approved an Amended Dividend Reinvestment and Cash Option Plan (the
"Plan"). The Plan allows shareholders to make cash payments to The Bank of New
York (the "Plan Agent") so that the Plan Agent can purchase the Fund's common
stock on behalf of shareholders. Because the Plan Agent will be purchasing stock
for all participants in blocks and prorating the commission, the Fund expects
that brokerage charges for purchasing stock through the Plan Agent will be less
than shareholders would have incurred if they purchased Fund shares through
their broker. In addition, should the Fund trade at a premium to its net asset
value, additional shares will be issued by the Fund (rather than purchased in
the open market) at a discount of up to 5 per cent from then-current market
price.
Shareholders who participate in the Plan will have the option of making cash
payments, quarterly, in any amount from U.S. $100 to U.S. $3,000, for investment
in the Fund's common stock. The Plan Agent will use all of the funds received
pursuant to this new cash option to purchase Fund shares on or about March 15,
June 15, September 15 and December 15 of each year. The Plan Agent will charge
only U.S. $2.00 for each purchase for a participating shareholder, plus a PRO
RATA share of the brokerage commission.
As in the old Dividend Reinvestment Plan, you may also choose to have your
investment income and capital gains distributions from the Fund reinvested
automatically in additional shares of the Fund's common stock. Like the cash
purchase option, these shares should be purchased with reduced commissions and
if the Fund's shares are trading at a premium, the shares will be issued at a
discount to market.
All shareholders who own shares of the Fund in their own name are
automatically enrolled in the Plan unless they have elected to receive
distributions in cash. Shareholders who hold shares of the Fund through a broker
or nominee are enrolled in the Plan unless their broker or nominee had elected
on their behalf to receive distributions in cash.
Please read the attached Amended Dividend Reinvestment and Cash Option Plan to
understand the details of how the Plan works.
If you hold your shares in your own name and you are not currently
participating in the Plan but would like to do so, please call the Plan Agent at
the number listed below.
If you hold your shares through a nominee, such as a bank or brokerage firm
and you are not currently participating in the Plan but would like to do so, you
should instruct your nominee to participate in the Plan on your behalf. If your
nominee is unable or unwilling to participate in the Plan on your behalf, you
should request that your shares be registered in your own name so that you may
enroll in the Plan.
You may reach the Plan Agent by calling, toll-free 1-800-524-4458.
1
<PAGE>
The United Kingdom Fund Inc.
Amended Dividend Reinvestment and Cash Purchase Plan
Terms and Conditions
1. Each shareholder of The United Kingdom Fund Inc. (the "Fund") will have all
distributions automatically reinvested by The Bank of New York (the "Plan
Agent"), in Fund shares pursuant to the Fund's Amended Dividend Reinvestment and
Cash Purchase Plan. Shareholders who do not wish to participate in the Plan may
elect to receive all distributions in cash paid by check in U.S. dollars mailed
directly to the shareholder by the Plan Agent, as dividend paying agent.
2. 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 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.
3. Participants have the option of making additional cash payments to the Plan
Agent, quarterly, in any amount from U.S. $100 to U.S. $3,000, for investment in
the Fund's common stock. The Plan Agent will use all funds received from
participants to purchase Fund shares in the open market on or about March 15,
June 15, September 15 and December 15 of each year. Any voluntary cash payments
received more than 30 days prior to these dates will be returned by the Plan
Agent, and interest will not be paid on any uninvested cash payments. To avoid
unnecessary cash accumulations, and also to allow ample time for receipt and
processing by the Plan Agent, participants should send in voluntary cash
payments to be received by the Plan Agent approximately ten days before March
15, June 15, September 15 or December 15, as the case may be. Optional cash
payments must be made in U.S. dollars. Optional cash payments drawn on a
non-U.S. bank will be subject to collection fees and must be collected by the
foregoing quarterly dates to be invested. A participant may withdraw a voluntary
cash payment by written notice, if the notice is received by the Plan Agent not
less than 48 hours before the payment is to be invested.
4. 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 will be 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.
5. In the case of shareholders, such as banks, brokers or nominees, which hold
shares for others who are the beneficial owners, the Plan Agent will administer
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. Shareholders whose shares are held in the name of a broker or nominee
should consult with the broker or nominee to determine whether they should
participate in the Plan or how they may withdraw from the Plan.
6. 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 will be paid by the Fund. There will be 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 will pay 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 Plan
Agent may use its wholly-owned subsidiary, BNY Brokerage Inc., for trading
activity relating to the Plan, on behalf of Plan participants.
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7. With respect to purchases for voluntary cash payments, the Plan Agent will
charge U.S. $2.00 for each purchase for a participant, plus a pro rata share of
the brokerage commission. Brokerage charges for purchasing small amounts of
stock for individual accounts through the Plan are expected to be less than the
usual brokerage charges for these transactions because the Plan Agent will be
purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.
8. The automatic reinvestment of dividends and distributions will not relieve
participants of any U.S. income tax that may be payable on such dividends or
distributions.
9. Participants in the Plan may effect "book-to-book" transfers, which involve
transferring shares from an existing participant account in the Plan to a new
participant account, by contacting the Plan Agent.
10. 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 11002, Church Street Station, New York,
New York, 10249.
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