<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder: October 15, 1998
We are pleased to present to you the Semi-Annual Report of The United Kingdom
Fund Inc. (the "Fund"). On September 30, 1998, the end of the period under
review, the Fund's net assets totaled $61.2 million. This represents a net asset
value per share of $15.25, with an average annual return of 10.54% from its
initial value after taking into account underwriting discounts, commissions,
offering expenses and distributions. This compares with an average annual return
of 11.18% for the FTSE All-Share Index (US$) over the same time period. At the
end of the period under review, the Fund was quoted at $13.750 per share on the
New York Stock Exchange, which represents a 9.84% discount to the Fund's net
asset value per share, and an average annual return of 8.76% from its initial
value, assuming reinvestment of dividends and distributions.
At the Annual Meeting of Shareholders of the Fund held on September 15, 1998,
the Board of Directors announced their decision to propose one of the following
three options as soon as practical: converting the Fund to an open-end fund,
liquidating the Fund, or merging the Fund with an existing open-end fund. The
Board of Directors also announced that they had authorized management to make
open-market purchases of the Fund's shares, depending on market conditions,
during the interim period prior to a decision being made among the three
alternatives. The Board of Directors' next scheduled meeting is November 24,
1998.
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 third quarter of 1998, your Fund experienced a decline in net asset
value of 12.10%, which compared with an 11.77% decrease in the FTSE All-Share
Index. These results are recorded in total return and US dollar-based terms.
During the period, the equity market reached a new high on July 20, 1998
however, it subsequently fell sharply to end at a lower level than at the start
of the year. The period featured unprecedented volatility in share prices with
wide variations in performance between sectors and between stocks within
sectors.
The crisis in Russia, caused by the withdrawal of foreign capital and the
government's inability to finance its short-term debt repayments, led to a
global liquidity squeeze. Foreign capital was withdrawn from those countries
that were perceived to be vulnerable to currency devaluation, thus exacerbating
the overall problem. Yield premiums on higher risk sovereign and corporate debt
increased dramatically, which severely impacted the highly leveraged operations
of hedge funds. Losses for companies in the financial sector due to their
involvement in Russia, hedge funds and corporate debt markets led to severe
share price reductions in the banking sector, not just in the UK, but globally.
Investors continued to seek safe havens within an increasingly nervous market.
Utilities and other companies with highly resilient earnings were in high
demand.
The best performing sectors were tobacco, oil and gas, water, electricity and
life insurance. The manufacturing sectors came under pressure, due to reduced
expectations for global growth and evidence that the high level of sterling and
declining business confidence was leading to falling order books and downgraded
profit expectations.
The worst performing sectors were paper, packaging and printing, chemicals,
distributors and financial services. Consumer confidence declined after an
earlier increase in base rates to 7.5%. Operationally geared sectors such as
leisure and hotels, breweries, pubs and restaurants, and household goods were
underperformers reflecting the poor summer weather and concerns over the
potential effects of rising unemployment. Within the banking sector, Barclays
underperformed sharply after announcing provisions for its Russian exposure. The
other clearing banks also underperformed, although in contrast, the converted
building societies performed very well as investors perceived them to be immune
from emerging market and hedge fund losses.
ECONOMIC & MARKET OUTLOOK
The UK equity market has experienced a sharp sell-off in line with other
European markets. Liquidity pressures have caused the withdrawal of marginal
investors such as hedge funds and international investors and as a result, the
market has fallen to a level lower than at the start of the year. The current
environment remains one of unusual volatility in share prices. Liquidity in the
corporate debt markets has contracted sharply, with very high premiums being
demanded for credit risk. Investors seem to be driven by fear rather than
fundamental valuations and are therefore still favoring the defensive sectors.
The UK economy continues to decelerate, with business optimism declining
significantly. Manufacturing activity has contracted for six consecutive months
and signs are appearing that confidence within the retail and financial services
sectors is also deteriorating rapidly. The recent reduction in base rates is a
consequence of this background and further reductions are anticipated. Although
we are not forecasting a recession in the UK, we acknowledge the risk that given
the global slowdown, it is possible that a substantial decline in business and
consumer confidence could create a recession through deferral of spending plans.
Although the UK may avoid a technical recession, the outlook for corporate
profits is much harsher, with continued upward pressure on wage costs and global
deflationary forces restricting pricing power. Recent market declines have added
to pressures on company pension schemes, which could also increase payroll
costs. We believe corporate profits overall will show only very modest progress,
as will dividend growth. Company balance sheets are generally in good order and
an upturn in take-over and merger activity is expected, as companies take
advantage of depressed valuations.
The next few months will yet again be a testing time for the UK equity market
with continuing wide variations in the performance of individual stocks and
sectors. Caution will remain the order of the day with an emphasis on avoiding
highly leveraged companies and those where profits could prove to be vulnerable
to a downturn in current trading.
2
<PAGE>
The Fund's and the FTSE All-Share Index's sector weightings expressed as a
percentage of total equities held at September 30, 1998 are outlined below:
<TABLE>
<CAPTION>
% OF FTSE
% UK ALL-SHARE
FUND INDEX
----------- -------------
<S> <C> <C>
Mineral Extraction................................ 5.5 9.2
General Industrials............................... 21.1 9.3
Consumer Goods.................................... 29.0 18.2
Services.......................................... 7.2 30.9
Utilities......................................... 23.6 6.7
Finance........................................... 13.6 23.1
Investment Trusts................................. 0.0 2.6
</TABLE>
ECONOMIC AND MONETARY UNION (EMU)
Certain European countries have agreed to enter into the EMU in an effort,
among other things, to reduce barriers between countries, increase competition
among companies, reduce government subsidies in certain industries, and reduce
or eliminate currency fluctuations among these countries. EMU establishes a
single common European currency (the "euro") that will be introduced on January
1, 1999 and is expected to replace the existing national currencies of all EMU
participants by July 1, 2002. Upon introduction of the euro, certain securities
(beginning with government and corporate bonds) will be re-denominated in the
euro and, thereafter, will be listed, traded and will make dividend and other
payments only in euros.
- If the euro, or EMU as a whole, does not take effect as
planned, the Fund's investments could be adversely affected.
For example, sharp currency fluctuations, exchange rate
volatility and other disruptions of the markets could occur.
- Withdrawal from EMU by a participating country could also have
a negative effect on the Fund's investments, for example, if
securities re-denominated in euros are transferred back into
that country's national currency.
- Gains or losses resulting from the euro conversion may be
taxable to Fund shareholders under foreign tax laws.
- Computer, accounting, and trading systems must be capable of
recognizing the euro as a distinct currency. Like other
investment companies and business organizations, the Fund could
be adversely affected if the systems used by the Investment
Manager, Investment Adviser, the Fund's other service
providers, or entities with which the Fund or its service
providers do business do not properly address this issue prior
to euro conversion over the first weekend of 1999 (January 1
through January 3). These issues may negatively affect the
operations of the companies the Fund invests in as well. The
Investment Manager and Investment Adviser have taken steps that
they believe are reasonably designed to prepare their systems
and operations for the euro conversion. As of the date of this
report, however, there can be no assurance that these steps
will be sufficient to avoid any adverse impact to the Fund.
YEAR 2000 COMPLIANCE DISCLOSURE
Many computer systems and other electronically controlled equipment used by
companies and other business organizations throughout the world express dates
using only the last two digits of the year, and thus will require modification
or replacement to accommodate the Year 2000 and beyond in order to avoid
malfunctions and consequential widespread commercial disruption.
The Fund could be adversely affected if the computer systems and equipment
used by its service providers or the companies in which it invests, or other
organizations with which any of them deal, do not properly address this problem
before January 1, 2000. The Investment Manager and the Investment Adviser have
taken steps that they believe are reasonably designed to address that the
computer systems and equipment it uses are adequate to deal with Year 2000
issues and to seek the same of its suppliers and the Fund's other service
providers. As of the date of this report, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Fund.
3
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY
- --------------------------------------------------------------------------------
The strategy over the period was to realize profits on some on the financial
services and utility holdings. We reduced Abbey National and sold the holding of
Allied Zurich that was demerged from British American Tobacco (formerly BAT
Industries). We also received the cash proceeds from the takeovers of Beales
Hunter and Paramount Foods and accepted the cash offer for Wessex Water.
Other holdings which were reduced included British Petroleum, Pennon Group and
Seton Scholl Healthcare. The bulk of the sale proceeds was retained in cash,
although we also increased SmithKline Beecham and purchased a holding in
Imperial Chemical Industries after the severe fall in its share price.
The Fund's ten largest equity holdings as of September 30, 1998 were:
GLAXO WELLCOME
<TABLE>
<S> <C>
Market Price as of 09/30/98................................. 1737p
Prospective Earnings per share (to December 1998)........... 49.5p
Prospective Earnings Multiple............................... 35.1x
</TABLE>
Glaxo Wellcome is the largest stock in the UK equity market. It is a leading
international pharmaceuticals company, with important drugs in many therapeutic
areas. Two of its previous best-selling drugs, Zantac and Zovirax, continue to
decline following the expiration of their US patents, but sales growth in the
respiratory, HIV and central nervous system therapy areas remains strong.
Although highly rated, Glaxo Wellcome is expected to show continued, steady
earnings growth.
BRITISH PETROLEUM
<TABLE>
<S> <C>
Market Price as of 09/30/98................................. 900p
Prospective Earnings per share (to December 1998)........... 38.9p
Prospective Earnings Multiple............................... 23.1x
</TABLE>
British Petroleum ("BP") is a leading international oil company with a
substantial exploration and production profile. BP has recently announced an
agreed merger with Amoco. The merged company will become the largest stock in
the UK market, and will rank alongside Exxon in terms of reserves and capital
employed. Amoco is the market leader in gas production in the US and the
combined company will be a major force in gasoline retailing and chemicals. BP
Amoco is expected to show excellent dividend progression based on its strong
cashflow.
SHELL TRANSPORT & TRADING
<TABLE>
<S> <C>
Market Price as of 09/30/98................................. 356p
Prospective Earnings per share (to December 1998)........... 16.2p
Prospective Earnings Multiple............................... 22.0x
</TABLE>
Shell Transport & Trading is a leading oil company with substantial
production, refining and petrochemical activities. Although profits in 1998 will
be depressed by the low oil price, they are expected to grow over the next few
years. Shell Transport & Trading has recently announced a merger of its refining
and marketing interests with Texaco, which should improve profitability.
Cashflow 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.
NATIONAL WESTMINSTER BANK
<TABLE>
<S> <C>
Market Price as of 09/30/98................................. 790p
Prospective Earnings per share (to December 1998)........... 78.9p
Prospective Earnings Multiple............................... 10.0x
</TABLE>
National Westminster Bank is a leading retail bank in the UK. Like other
clearing banks, it is undergoing a strategy of branch closures and reductions in
its workforce through the establishment of new processing centers. It has
recently reorganized its
4
<PAGE>
remaining investment banking activities, having sold its securities operation to
Bankers Trust. The release of capital from this sale leaves scope for a share
buyback, which could significantly improve the return on equity. Profits are
expected to continue their steady growth, helped by low bad debts and increasing
fee income. As the smallest of the four English clearing banks, National
Westminster Bank is a likely participant in any consolidation of the UK banking
sector.
BARCLAYS
<TABLE>
<S> <C>
Market Price as of 09/30/98................................. 961p
Prospective Earnings per share (to December 1998)........... 108.0p
Prospective Earnings Multiple............................... 8.9x
</TABLE>
Barclays has shown a strong recovery in banking profits following a reduction
in bad debts and success in controlling costs through branch closures and
centralization of service functions. We believe that substantial further cost
savings can be achieved through the introduction of new technology and
accompanying staff reductions. Barclays has recently been adversely affected by
its exposure to Russia and certain hedge funds which have caused investors to
reassess the company's risk profile. Barclays has sought to increase its return
on capital and we expect a continued focus on improving shareholder value.
BRITISH TELECOMMUNICATIONS
<TABLE>
<S> <C>
Market Price as of 09/30/98................................. 793p
Prospective Earnings per share (to March 1999).............. 32.7p
Prospective Earnings Multiple............................... 24.3x
</TABLE>
British Telecommunications ("BT") is the leading fixed line telecommunications
company in the UK. It also has a number of European joint venture interests and
has recently concluded an agreement with AT&T to combine their international
operations. The new venture will own cross border networks including the Concert
operation in which BT has a 75% stake. BT also has a stake in Cellnet, the
second largest mobile telephone company in the UK, as well as valuable
investments in Syntegra and Yellow Pages. Although the shares have had a
significant re-rating, we believe BT remains an attractive growth stock.
JOHN MENZIES
<TABLE>
<S> <C>
Market Price as of 09/30/98................................. 460p
Prospective Earnings per share (to March 1999).............. 44.3p
Prospective Earnings Multiple............................... 10.4x
</TABLE>
John Menzies is a major wholesaler of books, newspapers, magazines, home
entertainment products and office supplies. Its electronic games subsidiary, THE
Games, acts as the UK distributor for Nintendo. It has recently sold its
newsagent business to its rival W.H. Smith and is developing a high growth
business in airport distribution and support services. We expect the current
increase in its share price to continue, reflecting the company's strong growth
potential and new emphasis on distribution and support services.
NATIONAL GRID GROUP
<TABLE>
<S> <C>
Market Price as of 09/30/98................................. 438p
Prospective Earnings per share (to March 1999).............. 22.3p
Prospective Earnings Multiple............................... 19.6x
</TABLE>
National Grid Group is the monopoly owner of the electricity transmission
network in England and Wales including the generators, regional distribution
networks and industrial customers. It also operates transmission links with
Scotland and France. Its majority owned subsidiary Energis, a long-distance
telecommunications company, is growing rapidly in the telecommunications arena,
especially following the acquisition of Planet Online, formerly the UK's largest
independent internet service provider.
5
<PAGE>
BARR (AG)
<TABLE>
<S> <C>
Market Price as of 09/30/98................................. 422p
Prospective Earnings per share (to January 1999)............ 42.7p
Prospective Earnings Multiple............................... 9.9x
</TABLE>
Barr (AG) is a manufacturer of branded soft drinks based in Scotland. The
results for last year were extremely positive, following its investment in
modern manufacturing facilities in Cumbernauld. Profits are likely to be lower
this year because of poor summer weather and the absence of other beneficial
factors. Nevertheless, earnings are expected to show growth over the medium
term.
ALLIED DOMECQ
<TABLE>
<S> <C>
Market Price as of 09/30/98................................. 425p
Prospective Earnings per share (to August 1999)............. 43.1p
Prospective Earnings Multiple............................... 9.9x
</TABLE>
Allied Domecq is an international spirits company with several leading brands,
including Ballantine's and Canadian Club whiskies, Beefeater gin, Tia Maria and
Kahlua. It also is a liquor retailer through its pub chains and off-licenses and
owns the worldwide franchises to Dunkin' Donuts and Baskin-Robbins ice cream
parlors. We expect earnings to make steady progress as the management maximizes
the profitability of its brand portfolio. Allied Domecq has recently acquired
total control of Cantrell and Cochrane after buying Diageo's stake.
WESSEX WATER
The holding of 200,000 shares of Wessex Water has been excluded from the top
ten list because essentially, this is a cash holding. As of September 30, 1998,
the stock was sold to Enron, with the Fund awaiting settlement.
6
<PAGE>
- ----------------------------------------------------
THE UNITED KINGDOM FUND INC.
STATEMENT OF INVESTMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------------------
<C> <S> <C>
INVESTMENTS IN UNITED KINGDOM SECURITIES--
92.3% OF NET ASSETS
COMMON STOCKS--92.3%
ALCOHOLIC BEVERAGES--3.3%
250,000 Allied Domecq plc Ord 25p......................... $ 1,805,623
462,299 Merrydown plc Ord 25p............................. 243,547
-----------
2,049,170
-----------
BANKING--12.5%
80,000 Abbey National plc Ord 10p........................ 1,378,561
150,000 Barclays plc Ord 100p............................. 2,449,700
200,000 National Westminster Bank plc Ord 100p............ 2,685,068
100,000 Royal Bank of Scotland Group plc Ord 25p.......... 1,138,605
-----------
7,651,934
-----------
BUILDING MATERIALS & MERCHANTS--5.1%
285,000 Johnston Group plc Ord 10p........................ 1,525,645
550,000 Norcros plc Ord 25p............................... 542,112
530,000 Universal Ceramic Materials plc Ord 5p............ 729,557
344,370 Vibroplant plc Ord 5p............................. 345,283
-----------
3,142,597
-----------
CHEMICALS--3.1%
100,000 Imperial Chemical Industries plc Ord 100p......... 787,677
35,000 Wolstenholme Rink plc Ord 25p..................... 300,371
337,500 Yorkshire Group plc Ord 25p....................... 745,616
-----------
1,833,664
-----------
DIVERSIFIED INDUSTRIALS--2.7%
233,333 Vickers plc Ord 50p............................... 584,880
200,000 Wardle Storeys plc Ord 10p........................ 1,084,224
-----------
1,669,104
-----------
ELECTRICITY--3.1%
255,000 National Grid Group plc Ord 10p................... 1,898,071
-----------
ELECTRONICS & ELECTRICAL EQUIPMENT--6.2%
1,000,000 Alphameric plc Ord 2.5p*.......................... 764,735
345,000 CML Microsystems plc Ord 5p....................... 935,143
240,000 General Electric Co. plc Ord 5p................... 1,753,791
4,800 General Electric Co. plc, Warrants (exp. 10/98)*.. 10,400
100,000 Roxboro Group plc Ord 1p.......................... 299,946
-----------
3,764,015
-----------
ENGINEERING--GENERAL--1.3%
331,186 Ash & Lacy plc Ord 5p............................. 683,827
2,000,000 Beauford plc Ord 10p.............................. 127,456
-----------
811,283
-----------
ENGINEERING--VEHICLES--1.1%
218,000 LucasVarity plc Ord 25p........................... 670,553
-----------
FOOD PRODUCERS--6.3%
450,000 Alpha Airports Group plc Ord 10p.................. 359,425
260,000 Barr (AG) plc Ord 25p............................. 1,866,802
200,000 CPL Aromas plc Ord 10p............................ 326,287
1,000,000 Finlay (James) plc Ord 25p........................ 1,308,546
-----------
3,861,060
-----------
HEALTH CARE--1.0%
50,000 Seton Scholl Healthcare Group plc Ord 5p.......... 596,068
-----------
<CAPTION>
- --------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------------------
<C> <S> <C>
LEISURE & HOTELS--1.1%
275,000 MacDonald Hotels plc Ord 5p....................... $ 698,670
-----------
OIL & GAS--12.1%
176,470 BG plc Ord 25p.................................... 1,226,570
200,000 British Petroleum plc Ord 25p..................... 3,058,938
200,000 Centrica plc Ord 5p*.............................. 386,616
450,000 Shell Transport & Trading plc Ord 25p (Regd.)..... 2,724,367
-----------
7,396,491
-----------
PHARMACEUTICALS--11.8%
150,000 Glaxo Wellcome plc Ord 25p........................ 4,427,813
125,000 SmithKline Beecham plc Ord 6.5p................... 1,374,398
40,000 Zeneca Group plc Ord 25p.......................... 1,413,909
-----------
7,216,120
-----------
RETAILERS--GENERAL--4.0%
106,250 Courts plc Ord 25p................................ 496,546
250,000 John Menzies plc Ord 25p.......................... 1,954,322
-----------
2,450,868
-----------
TELECOMMUNICATIONS--3.3%
150,000 British Telecommunications plc Ord 25p............ 2,021,448
-----------
TEXTILES & APPAREL--3.3%
350,000 French plc Ord 10p................................ 193,307
165,000 Shiloh plc Ord 25p................................ 270,589
1,550,000 Sirdar plc Ord 25p................................ 1,554,110
-----------
2,018,006
-----------
TOBACCO--1.1%
87,500 British American Tobacco plc Ord 25p.............. 651,671
-----------
TRANSPORT--1.5%
150,000 British Airways plc Ord 25p....................... 917,681
-----------
WATER--8.4%
933,333 Anglian Water plc Ord 100p........................ 1,503,638
100,000 Anglian Water, Class B plc Ord 56p................ 88,369
75,000 Pennon Group plc Ord 100p......................... 1,410,298
200,000 Wessex Water plc Ord 60p.......................... 2,142,955
-----------
5,145,260
-----------
TOTAL COMMON STOCKS
(cost $44,250,264).............................. 56,463,734
-----------
UNITED STATES SHORT-TERM INVESTMENT--
0.6% OF NET ASSETS
391,248 Federated Investors, Trust for Short-Term U.S.
Government Securities+--(cost $391,248)......... 391,248
-----------
Total Investments (cost $44,641,512)--92.9%....... 56,854,982
-----------
Cash and other assets in excess of
liabilities--7.1%............................... 4,317,899
-----------
NET ASSETS--100.0%................................ $61,172,881
-----------
-----------
NUMBER OF SHARES ISSUED AND OUTSTANDING........... 4,011,655
-----------
-----------
NET ASSET VALUE PER SHARE......................... $15.25
-----------
-----------
</TABLE>
- ------------------
* Non-income producing securities.
+ Money market fund.
See Notes to Financial Statements.
7
<PAGE>
- -----------------------------------------------
THE UNITED KINGDOM FUND INC.
STATEMENT OF
ASSETS AND LIABILITIES
SEPTEMBER 30, 1998 (UNAUDITED)
- ----------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $44,641,512)........................................ $56,854,982
Cash, at value (cost $3,809,952)................................................ 3,890,703
Dividends and interest receivable............................................... 482,753
United Kingdom withholding tax refund receivable................................ 167,499
-----------
Total assets.............................................................. 61,395,937
-----------
LIABILITIES
Investment management fee payable............................................... 38,371
Administration fee payable...................................................... 8,138
Accrued expenses................................................................ 176,547
-----------
Total liabilities......................................................... 223,056
-----------
NET ASSETS...................................................................... $61,172,881
-----------
-----------
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........................................... 124,837
Accumulated net realized gains on investments and pound sterling.............. 2,731,945
Net unrealized appreciation on investments and translation of other assets and
liabilities denominated in pound sterling.................................... 12,315,829
-----------
Net assets.................................................................... $61,172,881
-----------
-----------
Net asset value per share
($61,172,881 DIVIDED BY 4,011,655 shares of common stock issued and
outstanding)................................................................. $15.25
-----------
-----------
</TABLE>
- ----------------------------------------------------
THE UNITED KINGDOM FUND INC.
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED)
- ----------------------------------------------------
<TABLE>
<S> <C>
NET INVESTMENT INCOME
Income
Dividends..................................................................... $ 1,459,521
Interest...................................................................... 60,091
------------
1,519,612
Less UK withholding tax....................................................... 269,786
------------
Total income.............................................................. 1,249,826
------------
Expenses
Legal fee..................................................................... 293,360
Investment management fee..................................................... 258,738
Reports and notices to shareholders........................................... 82,574
Administration fee............................................................ 51,748
Directors' fees and expenses.................................................. 43,338
Custodian's fees and expenses................................................. 22,326
Audit fee..................................................................... 18,862
Transfer agent's fees and expenses............................................ 14,495
NYSE listing fee.............................................................. 8,085
Insurance fee................................................................. 2,664
Miscellaneous expenses........................................................ 9,759
------------
Total expenses............................................................ 805,949
------------
Net investment income........................................................... 443,877
------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND POUND STERLING TRANSACTIONS
Net realized gain/(loss) on:
Investments................................................................... 2,879,484
Pound sterling transactions................................................... (16,214)
Net change in unrealized appreciation/ (depreciation) on:
Investments................................................................... (10,483,617)
Pound sterling transactions................................................... 93,817
------------
Net loss on investments and pound sterling transactions......................... (7,526,530)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS............................ $ (7,082,653)
------------
------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
- -----------------------------------------------------------
THE UNITED KINGDOM FUND INC.
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
SEPTEMBER 30, YEAR ENDED
1998 MARCH 31,
(UNAUDITED) 1998
-------------- ---------------
<S> <C> <C>
INCREASE/ (DECREASE) IN NET ASSETS
Operations
Net investment income..................................... $ 443,877 $ 1,934,394
Net realized gain on investments.......................... 2,879,484 4,786,288
Net realized gain/(loss) on pound sterling transactions... (16,214) 77,550
Net change in unrealized appreciation on investments and
pound sterling transactions.............................. (10,389,800) 7,644,914
-------------- ---------------
Net increase/ (decrease) in net assets resulting from
operations............................................... (7,082,653) 14,443,146
-------------- ---------------
Dividends and distributions to shareholders from
Net investment income ($0.17 and $0.434
per share, respectively)................................. (681,981) (1,741,241)
Net realized gains ($0.43 and $0.948 per
share, respectively)..................................... (1,725,012) (9,090,231)
-------------- ---------------
Total dividends and distributions......................... (2,406,993) (10,831,472)
-------------- ---------------
Total increase/(decrease)................................... (9,489,646) 3,611,674
NET ASSETS
Beginning of period....................................... 70,662,527 67,050,853
-------------- ---------------
End of period (including undistributed net investment
income of $202,387 and $362,941, respectively)........... $ 61,172,881 $ 70,662,527
-------------- ---------------
-------------- ---------------
</TABLE>
See Notes to Financial Statements.
- -----------------------------------------------
THE UNITED KINGDOM FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- -----------------------------------------------
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.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
certain estimates and assumptions that may affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those
estimates.
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 are
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
9
<PAGE>
reduction of investment income, net of an amount receivable from the United
Kingdom tax authorities pursuant to the tax treaty with the United States.
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 $16,214 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 September 30, 1998 was U.S.
$1.69941 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 six months ended
September 30, 1998.
Risks may arise upon entering into 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
10
<PAGE>
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.
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
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 Ltd.
NOTE 4. INVESTMENTS IN
SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at September
30, 1998 was $44,641,512.
At September 30, 1998, the net unrealized appreciation of investments on a tax
basis of $12,213,470 was composed of gross appreciation of $18,169,273 for those
investments having an excess of value over cost and gross depreciation of
$5,955,803 for those investments having an excess of cost over value.
For the year ended September 30, 1998 aggregate purchases and proceeds from
the sales of portfolio securities (excluding short-term securities) were
$6,490,779 and $11,631,971, 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.
11
<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
SIX MONTHS ENDED FOR THE YEAR ENDED MARCH 31,
SEPTEMBER 30, 1998 ----------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 17.61 $ 16.71 $ 14.95 $ 13.18 $ 12.32 $ 10.84
-------- -------- -------- -------- -------- --------
Operations:
Net investment income................. 0.11 0.48 0.36 0.50 0.40 0.17
Net realized and unrealized gain/
(loss) on investments and pound
sterling transactions................ (1.87) 3.12 2.77 1.66 0.92 1.45
-------- -------- -------- -------- -------- --------
Total from operations............... (1.76) 3.60 3.13 2.16 1.32 1.62
Distributions to shareholders from:
Net investment income................. (0.17) (0.43) (0.42) (0.38) (0.40) (0.14)
Net realized gains.................... (0.43) (2.27) (0.95) (0.01) (0.06) --
-------- -------- -------- -------- -------- --------
Total from distributions............ (0.60) (2.70) (1.37) (0.39) (0.46) (0.14)
Net asset value, end of period.......... $ 15.25 $ 17.61 $ 16.71 $ 14.95 $ 13.18 $ 12.32
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Per share market value, end of period... $ 13.75 $ 15.56 $ 13.75 $ 12.00 $ 10.88 $ 10.50
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Total investment return, market
value**................................ (8.11)%(a) 36.44% 26.54% 13.91% 7.93% 10.32%
Net assets at end of period (000
omitted)............................... $61,173 $70,663 $67,051 $59,967 $52,883 $49,435
Ratios of operating expenses to average
net assets............................. 2.34%(b) 1.44% 1.53% 1.55% 1.47% 1.50%
Ratios of net investment income to
average net assets..................... 1.29%(b) 2.95% 2.22% 3.45% 3.15% 1.43%
Portfolio turnover rate................. 9.94% 11.64% 32.58% 20.85% 19.73% 27.05%
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
----------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 9.93 $ 11.67 $ 10.38 $ 12.15 $ 10.94
-------- -------- -------- -------- --------
Operations:
Net investment income................. 0.26 0.40 0.38 0.36 0.25
Net realized and unrealized gain/
(loss) on investments and pound
sterling transactions................ 1.20** (1.31) 1.64 (1.53) 1.61
-------- -------- -------- -------- --------
Total from operations............... 1.46 (0.91) 2.02 (1.17) 1.86
Distributions to shareholders from:
Net investment income................. (0.14) (0.45) -- (0.35) (0.22)
Net realized gains.................... (0.41) (0.38) (0.73) (0.25) (0.43)
-------- -------- -------- -------- --------
Total from distributions............ (0.55) (0.83) (0.73) (0.60) (0.65)
Net asset value, end of period.......... $ 10.84 $ 9.93 $ 11.67 $ 10.38 $ 12.15
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per share market value, end of period... $ 9.63 $ 9.13 $ 10.25 $ 8.75 $ 10.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total investment return, market
value**................................ 11.45% (2.63)% 26.40% (7.40)% 20.68%
Net assets at end of period (000
omitted)............................... $43,467 $39,823 $46,775 $41,609 $ 48,707
Ratios of operating expenses to average
net assets............................. 1.78% 1.74% 2.19% 1.92% 1.89%
Ratios of net investment income to
average net assets..................... 2.43% 3.73% 3.34% 3.06% 4.10%
Portfolio turnover rate................. 45.54% 47.30% 36.37% 22.07% 40.91%
</TABLE>
- ------------------------
* Total investment return, market value, is based on the change in market
price of a share during the period and assumes reinvestment of dividends and
distributions at actual prices pursuant to the Fund's Dividend Reinvestment
Plan. Total investment return does not reflect brokerage commissions.
** Reflects a reduction of $0.01 in offering costs previously charged to paid
in capital.
(a) Not annualized.
(b) Annualized.
12
<PAGE>
- --------------------------------------------------------------------------------
THE UNITED KINGDOM FUND INC.
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
- --------------------------------------------------------------------------------
On September 15, 1998, 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 FOR VOTES WITHHELD NON-VOTES
- ------------------------------ -------- -------------- ---------
<S> <C> <C> <C>
Anthony M. Solomon............ 2,116,123 88,946 1,806,586
George F. Bennett............. 2,130,587 74,482 1,806,586
Livio Borghese................ 2,122,674 82,395 1,806,586
Sir Arthur Bryan.............. 2,118,543 86,526 1,806,586
Peter Stormonth Darling....... 2,097,973 107,096 1,806,586
Leon Levy..................... 2,103,996 101,073 1,806,586
J. Murray Logan............... 2,116,301 88,768 1,806,586
James S. Martin............... 2,098,211 106,858 1,806,586
Richard Barone................ 201,878 21,720 3,788,057
Gerald Hellerman.............. 201,878 21,720 3,788,057
Robert Kelley................. 201,878 21,720 3,788,057
Adam Shapiro.................. 201,878 21,720 3,788,057
Phillip Goldstein............. 201,878 21,720 3,788,057
</TABLE>
(2) To ratify the selection of Ernst & Young LLP, as independent public
accountants for the year ending March 31, 1999.
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES WITHHELD NON-VOTES
- ------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
2,390,787 23,420 14,458 1,582,990
</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 FOR VOTES AGAINST VOTES WITHHELD NON-VOTES
- ------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
1,528,093 634,334 56,820 1,792,408
</TABLE>
13
<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 US 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 as determined on the record date for that dividend.
Whenever the 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.
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
14
<PAGE>
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, the Bank of New York, at P.O. Box 11002, Church
Street Station, New York, New York, 10249.
15
<PAGE>
- ------------------------------------------------------------------
DIRECTORS AND OFFICERS
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
J. LOUGHLIN CALLAHAN, President and Treasurer
STEVEN W. GOLANN, Vice President, Assistant Treasurer
RITA J. KLEINMAN, Secretary
THADDEA M. MAGUIRE, 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, market data, shareholder inquiries and requests for
Fund reports, please call 1-212-272-2323.)
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 financial statements herein, 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 FTSE 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 US
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. (Regulated by IMRO).
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," and are also available on REUTERS under the designation "MAMINDEX".
Shareholders interested in receiving the quarterly newsletter entitled
"Closed-End Fund Focus" should call 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 PURCHASE PLAN--SUMMARY
A Dividend Reinvestment and Cash Purchase 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.
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1998
