<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 June 30, 1998, the end of the period under review,
the Fund had net assets of $69.6 million. This represents a net asset value per
share of $17.35, with an average annual return of 11.41% from its initial value
in August 1987 after taking into account underwriting discounts, commissions,
offering expenses and distributions. This compares with an average annual return
of 12.33% for the FTSE All-Share Index over the same time period. At the end of
the period under review, the Fund was quoted at $14.75 per share on the New York
Stock Exchange, which represents a 14.99% discount to the Fund's net asset value
per share and an average annual return of 9.28% from its initial value, assuming
reinvestment of dividends and distributions.
During the 12 weeks prior to March 31, 1998, the Fund traded on the New York
Stock Exchange at an average discount of 11.25%. Consequently, in accordance
with the Fund's charter, a proposal to convert the Fund to an open-end
investment company will be submitted to shareholders at the next annual meeting
on September 15, 1998 for their consideration.
We also enclose an investment review and United Kingdom market outlook
together with a summary of the major portfolio investments.
Yours sincerely,
/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 second quarter of 1998, your Fund experienced a decrease in net
asset value of 1.43%, which compared with a decrease of 1.16% in the value of
the FTSE All-Share Index. These results are recorded in total return and US
dollar-based terms.
Over the period, the equity market consolidated on the gains it had made in
the first quarter. Continued buying by overseas investors again favored the
growth stocks which had performed well in the first quarter. Although in the
earlier part of the period the manufacturing sectors had returned to favor on
the prospects for European growth, this was very short-lived as base rates were
increased to 7.5% and sterling strengthened.
There was a continued re-rating of those stocks which were felt to be
relatively immune to the slowdown in economic growth. These included major
international stocks and public transport companies, as well as smaller computer
and business services companies, which enjoyed very favorable trading conditions
as companies prepared for EMU and year 2000 compliance.
There was a sharp divergence in the performance of individual sectors.
Domestic and cyclical sectors had a roller-coaster ride with a strong rise in
April and May followed by a sharp drop in June to end the quarter lower overall.
In contrast, defensive growth shares were scaled back. The best performing
sectors were telecommunications, transport and support services, with the
performance of mobile and cable telephone stocks being outstanding. Other strong
performers included Glaxo Wellcome and Unilever, which saw renewed overseas
buying.
The deteriorating state of the Asian economies and the move by the UK
manufacturing sector into recession impacted on a number of sectors. The worse
performing sector was extractive industries, where reduced global growth
expectations continued to depress metal prices. The leisure and hotels industry
also fared badly, with the unseasonably poor summer weather resulting in
downgrades and profit-taking. The financial sector was hit by the rise in
interest rates and the weakness of the Hong Kong market, which particularly
depressed HSBC Holdings and Standard Chartered. Sterling-sensitive sectors such
as chemicals, engineering and building materials, fell sharply in June,
resulting in under-performance over the quarter.
The Fund's and the FTSE All-Share Index's sector weightings expressed as a
percentage of total equities held at June 30, 1998 are outlined below:
<TABLE>
<CAPTION>
% OF FTSE
% U.K ALL-SHARE
FUND INDEX
----------- -------------
<S> <C> <C>
Mineral Extraction................................ 5.2 8.4
General Industrials............................... 21.5 11.0
Consumer Goods.................................... 30.0 18.6
Services.......................................... 8.1 30.3
Utilities......................................... 18.4 5.3
Finance........................................... 16.8 23.5
Investment Trusts................................. 0.0 2.9
</TABLE>
ECONOMIC & MARKET OUTLOOK
The UK equity market has consolidated, following its surprisingly strong start
to 1998. Much of the advance has been driven by US investors pursuing
pan-European themes as an alternative to investing in Far Eastern markets where
the underlying economies are facing immense structural problems. There is
evidence, however, that these investment flows are now predominantly directed
towards Continental Europe to take advantage of the launch of the Euro and to
benefit from recovering European economies. Overseas interest in UK equities now
appears to be confined to those companies with a high likelihood of showing
revenue growth over the next twelve months.
2
<PAGE>
The UK economy is slowing significantly, as the impact of high sterling and
increased interest rates take effect. The director-general of the British
Chamber of Commerce has referred to a "manufacturing meltdown" as export orders
reach a six year low. Life for industrial companies has been made difficult by
falling productivity and additional spending on computer systems at a time of
depressed demand because of strong sterling and the Asian crisis. Elsewhere, the
retailing sector has suffered during June because of poor weather and the impact
of recent mortgage rate increases. In the financial sector, the retail banks are
being affected by reduced demand for mortgages and the threat of rising bad
debts as the housing market slows and unemployment starts to rise.
The range of sectors immune from economic slowdown is diminishing, which is
leading to exaggerated movements in those stocks which can continue to
demonstrate strong revenue and earnings growth. Even though UK institutional
cashflow into UK equities is now negligible, companies continue to re-purchase
their own shares at an annualized rate of over L10 billion. UK companies are
generally reluctant to issue equity for acquisitions, especially for US or
European businesses, where high ratings would lead to earnings dilution. There
may be opportunities for some companies to acquire investments in the Asian
region at attractive prices. We anticipate that new equity issues will remain
scarce and that corporate buying will lend support to equity prices.
The next few months will again be a testing time for the UK equity market,
with continued wide divergence in the performance of individual stocks and
sectors. Caution will remain the order of the day, with an emphasis on avoiding
companies vulnerable to a downturn in current trading, although some of the
stretched valuations for growth stocks could also come under pressure.
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 strategy of the Investment Manager and Investment
Adviser is to ensure 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.
3
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY
- --------------------------------------------------------------------------------
The strategy over the quarter was to realize profits on some of the smaller
company holdings and to reinvest the proceeds in companies with strong near-term
prospects. We sold Cape following management changes and took profits on Hall
Engineering Holdings before the difficult trading conditions in the steel
industry were fully appreciated. We also substantially reduced Scholl following
its merger with Seton Healthcare.
New holdings included Vickers, which has recently sold its Rolls-Royce Motor
Cars subsidiary to Volkswagen and is focusing on its defense and marine
engineering businesses. We also purchased Alpha Airports Group which supplies
passenger, baggage handling, catering and other aviation-related services to
airlines. The holdings in British Telecom and SmithKline Beecham were increased.
The Fund's ten largest equity holdings as of June 30, 1998 were:
GLAXO WELLCOME
<TABLE>
<S> <C>
Market Price as of 06/30/98................................. 1799p
Prospective Earnings per share (to December 1998)........... 52.0p
Prospective Earnings Multiple............................... 34.6x
</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 steady earnings
growth.
BARCLAYS
<TABLE>
<S> <C>
Market Price as of 06/30/98................................. 1728p
Prospective Earnings per share (to December 1998)........... 116.4p
Prospective Earnings Multiple............................... 14.8x
</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 completed the sale of BZW,
its securities arm, which has released significant capital on which a higher
return can be achieved. Barclays has bought back its own shares on a regular
basis and we expect a continued focus on improving shareholder value.
NATIONAL WESTMINSTER BANK
<TABLE>
<S> <C>
Market Price as of 06/30/98................................. 1071p
Prospective Earnings per share (to December 1998)........... 70.6p
Prospective Earnings Multiple............................... 15.2x
</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 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.
4
<PAGE>
BRITISH PETROLEUM
<TABLE>
<S> <C>
Market Price as of 06/30/98................................. 874p
Prospective Earnings per share (to December 1998)........... 46.2p
Prospective Earnings Multiple............................... 18.9x
</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 also a participant in offshore Angolan prospects, along with
Exxon. Profits are highly geared to oil prices, which have recently been
depressed. Strong cash flow from the company will see a continued reduction in
the level of borrowings and we expect excellent dividend progression.
SHELL TRANSPORT & TRADING
<TABLE>
<S> <C>
Market Price as of 06/30/98................................. 422p
Prospective Earnings per share (to December 1998)........... 20.2p
Prospective Earnings Multiple............................... 20.9x
</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, despite the recent fall 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.
ALLIED DOMECQ
<TABLE>
<S> <C>
Market Price as of 06/30/98................................. 563p
Prospective Earnings per share (to August 1998)............. 40.3p
Prospective Earnings Multiple............................... 14.0x
</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 and may float
the company on the Irish Stock Exchange.
JOHN MENZIES
<TABLE>
<S> <C>
Market Price as of 06/30/98................................. 535p
Prospective Earnings per share (to April 1999).............. 44.3p
Prospective Earnings Multiple............................... 12.1x
</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 book
and magazine retailing business to its rival W.H. Smith and is developing a high
growth business in airport cargo logistics. We expect the current revival in its
share price to continue, reflecting the company's strong growth potential and
new emphasis on distribution and support services.
BARR (AG)
<TABLE>
<S> <C>
Market Price as of 06/30/98................................. 509p
Prospective Earnings per share (to January 1999)............ 42.7p
Prospective Earnings Multiple............................... 11.9x
</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.
5
<PAGE>
GENERAL ELECTRIC CO.
<TABLE>
<S> <C>
Market Price as of 06/30/98................................. 517p
Prospective Earnings per share (to March 1999).............. 26.7p
Prospective Earnings Multiple............................... 19.4x
</TABLE>
General Electric Co. ("GEC") is the UK's leading electronics and electrical
systems company. GEC-Marconi is a leading European defense electronics
subsidiary which is expected to grow further through acquisitions in the US and
Continental Europe having recently acquired Tracor. Its power systems
subsidiary, GEC Alsthom, has just been floated on the French stock exchange and
the 40% of GPT owned by Siemens has been acquired giving GEC total ownership of
this telecommunications equipment business. Further corporate activity is
anticipated, which should assist the continued re-rating of its shares.
FINLAY (JAMES)
<TABLE>
<S> <C>
Market Price as of 06/30/98................................. 113p
Prospective Earnings per share (to December 1998)........... 12.6p
Prospective Earnings Multiple............................... 9.0x
</TABLE>
Finlay (James) is a major tea producer owning tea estates in Kenya and
Bangladesh. It also has a stake in a Ugandan tea estate and has purchased a
group of estates which it previously had managed on behalf of the Sri Lankan
government. Finlay (James) also produces special teas, including instant tea and
packaged tea on an exclusive basis for Sainsbury (J), plc, one of Britain's
major supermarket chains. It has recently disposed of its non-core confectionery
business. Finlay (James) has benefited from higher tea prices and is expected to
show further profit growth over the next few years.
6
<PAGE>
- ----------------------------------------------------
THE UNITED KINGDOM FUND INC.
STATEMENT OF INVESTMENTS
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------------------
<C> <S> <C>
INVESTMENTS IN UNITED KINGDOM SECURITIES--
97.1% OF NET ASSETS
COMMON STOCKS--97.1%
ALCOHOLIC BEVERAGES--3.8%
250,000 Allied Domecq plc Ord 25p......................... $ 2,348,414
462,299 Merrydown plc Ord 25p............................. 320,109
-----------
2,668,523
-----------
BANKING--16.3%
95,000 Abbey National plc Ord 10p........................ 1,688,105
150,000 Barclays plc Ord 100p............................. 4,324,752
200,000 National Westminster Bank plc Ord 100p............ 3,573,927
100,000 Royal Bank of Scotland Group plc Ord 25p.......... 1,735,240
-----------
11,322,024
-----------
BUILDING MATERIALS & MERCHANTS--5.3%
285,000 Johnston Group plc Ord 10p........................ 1,509,784
550,000 Norcros plc Ord 25p............................... 651,549
530,000 Universal Ceramic Materials plc Ord 5p............ 897,570
344,370 Vibroplant plc Ord 5p............................. 497,013
-----------
3,555,916
-----------
CHEMICALS--2.1%
35,000 Wolstenholme Rink plc Ord 25p..................... 360,605
337,500 Yorkshire Group plc Ord 25p....................... 1,120,606
-----------
1,481,211
-----------
DIVERSIFIED INDUSTRIALS--4.2%
350,000 Vickers plc Ord 50p............................... 1,284,745
200,000 Wardle Storeys plc Ord 10p........................ 1,658,489
-----------
2,943,234
-----------
ELECTRICITY--2.5%
255,000 National Grid Group plc Ord 10p................... 1,718,889
-----------
ELECTRONICS & ELECTRICAL EQUIPMENT--6.5%
1,000,000 Alphameric plc Ord 2.5p*.......................... 700,770
315,000 Beales Hunter plc Ord 20p......................... 428,346
345,000 CML Microsystems plc Ord 5p....................... 923,890
240,000 General Electric Co. plc Ord 5p................... 2,068,273
100,000 Roxboro Group plc Ord 1p.......................... 403,777
-----------
4,525,056
-----------
ENGINEERING-GENERAL--1.6%
331,186 Ash & Lacy plc Ord 5p............................. 878,608
2,000,000 Beauford plc Ord 10p.............................. 266,960
-----------
1,145,568
-----------
ENGINEERING-VEHICLES--1.2%
218,000 LucasVarity plc Ord 25p........................... 865,685
-----------
FOOD PRODUCERS--7.9%
450,000 Alpha Airports Group plc Ord 10p.................. 713,284
260,000 Barr (AG) plc Ord 25p............................. 2,205,924
200,000 CPL Aromas plc Ord 10p............................ 403,777
1,000,000 Finlay (James) plc Ord 25p........................ 1,885,405
150,000 Paramount Foods plc Ord 10p....................... 304,084
-----------
5,512,474
-----------
HEALTH CARE--1.7%
95,820 Seton Scholl Healthcare Group plc Ord 5p.......... 1,203,064
-----------
<CAPTION>
- --------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------------------
<C> <S> <C>
LEISURE & HOTELS--1.4%
275,000 MacDonald Hotels plc Ord 5p....................... $ 968,147
-----------
OIL & GAS--11.3%
176,470 BG plc Ord 25p.................................... 1,020,235
226,974 British Petroleum plc Ord 25p..................... 3,309,891
200,000 Centrica plc Ord 5p*.............................. 337,037
450,000 Shell Transport & Trading plc Ord 25p (Regd.)..... 3,168,482
-----------
7,835,645
-----------
PHARMACEUTICALS--10.2%
150,000 Glaxo Wellcome plc Ord 25p........................ 4,502,447
75,000 SmithKline Beecham plc Ord 6.5p................... 912,878
40,000 Zeneca Group plc Ord 25p.......................... 1,716,553
-----------
7,131,878
-----------
RETAILERS-GENERAL--4.1%
106,250 Courts plc Ord 25p................................ 642,633
250,000 John Menzies plc Ord 25p.......................... 2,231,619
-----------
2,874,252
-----------
TELECOMMUNICATIONS--2.7%
150,000 British Telecommunications plc Ord 25p............ 1,852,035
-----------
TEXTILES & APPAREL--2.9%
350,000 French plc Ord 10p................................ 207,311
165,000 Shiloh plc Ord 25p................................ 271,173
1,550,000 Sirdar plc Ord 25p................................ 1,525,843
-----------
2,004,327
-----------
TOBACCO--2.5%
175,000 BAT Industries plc Ord 25p........................ 1,751,925
-----------
TRANSPORT--2.3%
150,000 British Airways plc Ord 25p....................... 1,623,032
-----------
WATER--6.6%
100,000 Anglian Water plc Ord 100p........................ 1,407,380
100,000 South West Water plc Ord 100p..................... 1,661,826
200,000 Wessex Water plc Ord 60p.......................... 1,520,003
-----------
4,589,209
-----------
TOTAL COMMON STOCKS
(cost $45,993,108).............................. 67,572,094
-----------
UNITED STATES SHORT-TERM INVESTMENT--
0.1% OF NET ASSETS
88,116 Federated Investors, Trust for Short-Term US
Government Securities+--(cost $88,116).......... 88,116
-----------
Total Investments (cost $46,081,224)--97.2%....... 67,660,210
-----------
Cash and other assets in excess of
liabilities--2.8%............................... 1,953,344
-----------
NET ASSETS--100.0%................................ $69,613,554
-----------
-----------
NUMBER OF SHARES ISSUED AND OUTSTANDING........... 4,011,655
-----------
-----------
NET ASSET VALUE PER SHARE......................... $17.35
-----------
-----------
</TABLE>
- ------------------
* Non-income producing security.
+ Money market fund.
7
<PAGE>
-----------------------------------------------
THE UNITED KINGDOM FUND INC.
RESULTS OF SPECIAL MEETING OF SHAREHOLDERS (UNAUDITED)
-----------------------------------------------
On February 25, 1998, a special meeting of shareholders of the Fund was held
and the following matters were voted upon:
(1) To approve a new investment management agreement between the Fund and
Mercury Asset Management International Channel Islands Ltd., the Fund's
investment manager.
<TABLE>
<CAPTION>
VOTES
VOTES FOR AGAINST VOTES WITHHELD NON-VOTES
- ---------- ------------ --------------- ----------
<S> <C> <C> <C>
2,098,970 519,776 13,091 1,379,818
</TABLE>
(2) To approve a new investment advisory agreement between Mercury Asset
Management International Channel Islands Ltd., and Mercury Asset Management
International Ltd., the Fund's investment adviser.
<TABLE>
<CAPTION>
VOTES
VOTES FOR AGAINST VOTES WITHHELD NON-VOTES
- ---------- ------------ --------------- ----------
<S> <C> <C> <C>
2,094,610 522,076 15,151 1,379,818
</TABLE>
8
<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 US $100 to US $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 US dollars. Optional cash payments drawn on a non-US
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 US $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
9
<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 US 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.
10
<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 is transmitted to the shareholders of The United Kingdom Fund Inc.
for their information. The Statement of Investments included herein are 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.
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SUMMARY OF GENERAL INFORMATION
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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.
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THE UNITED KINGDOM FUND INC.
QUARTERLY REPORT
JUNE 30, 1998
