<PAGE>
- --------------------------------------------------------------------------------
LETTER TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Dear Shareholder: January 15, 1999
We are pleased to present to you the Quarterly Report of The United Kingdom
Fund, Inc. (the "Fund"). On December 31, 1998, the end of the period under
review, the Fund's net assets totalled $60.6 million. This represents a net
asset value per share of $15.29, a rise of 10.81% per annum from its initial
value after taking into account underwriting discounts, commissions, offering
expenses and assuming reinvestment of dividends and distributions. This compares
with an increase of 11.64% per annum in the FTSE All-Share Index (U.S.$) over
the same time period. At the end of the period under review, the Fund was quoted
at $14.438 per share on the New York Stock Exchange, which represents a 5.57%
discount to the Fund's net asset value per share, and an annual return of 9.79%
per annum from its initial value, assuming reinvestment of dividends and
distributions.
On November 24, 1998, The Board of Directors decided to pursue the option of
liquidating the Fund. Implementation of liquidation will require the approval of
a majority of the Fund's outstanding shares. The special shareholder meeting to
vote on the proposal to liquidate will be held on April 14, 1999. During the
quarter ended December 31, 1998, the Fund repurchased 50,000 or 1.25% of its
outstanding shares.
We also enclose an investment review and United Kingdom market outlook
together with a summary of the major portfolio investments.
Yours sincerely,
/s/ Anthony M. Solomon /s/ J. Loughlin Callahan
Anthony M. Solomon J. Loughlin Callahan
Chairman of the Board President and Treasurer
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF INVESTMENT MANAGER
- --------------------------------------------------------------------------------
INVESTMENT REVIEW
During the fourth quarter, your Fund experienced a rise in net asset value of
8.64%, which compared with a 12.11% increase in the FTSE All-Share Index. For
the calendar year 1998, the Fund's net asset value has increased by 10.31%,
which compares with a 15.41% increase in the FTSE All-Share Index. These results
are recorded in total return and dollar based terms, with net dividends
reinvested.
Also during the fourth quarter, the equity market recovered from the weakness
of the late summer. There was extreme volatility in share prices, however, with
significant variations in performance of stocks even in the same sectors.
At the beginning of the fourth quarter, the market was still concerned about
global liquidity and deflation. However, subsequent reductions in U.K. and U.S.
interest rates quickly improved sentiment as investors took comfort from the
central banks' desire to avoid liquidity problems. Meanwhile, the U.K.
industrial background continued to deteriorate with a significant fall in
exports and domestic demand. The lack of pricing power for U.K. companies caused
continued pressure on profit margins and earnings forecasts were scaled back
across a wide range of sectors. Despite reductions in interest rates to 6.25% by
the end of December, the gloom began to spread to the services sector, where in
particular, many retailers experienced very dull holiday trading.
The worst performing sectors were oil exploration, property and household
goods. The weak oil price led the oil sector to underperform. The fall in the
property sector was a result of fears of economic slowdown and illiquidity in
the shares. The food and general retailing sectors were affected by declining
consumer confidence and increasing price competition. Utilities failed to
participate in the market rise as investors refocused on regulatory concerns and
the sector's lack of earnings growth. In contrast, general industrials held up
well as corporate buying was encouraged by the low ratings.
ECONOMIC & MARKET OUTLOOK
The U.K. equity market, along with global equity markets, has recovered
strongly from the depressed levels at the beginning of the fourth quarter.
Liquidity pressures have eased with the lowering of U.S. interest rates and
similar lowering in the U.K. As the risk of further country defaults recedes,
investors have been keen to add to their equity weightings rather than invest in
bonds at current low yields.
The U.K. economy currently shows little expansion, with observers waiting for
the recent lowering in interest rates to re-stimulate growth. Manufacturing
companies are still reporting difficult trading, with few signs of an immediate
improvement in either exports or domestic consumer confidence. Intense price
competition continues to restrict profit margins. The poor weather last year
contributed to the difficult retail environment, but lower interest rates should
bring about some degree of recovery in the first quarter of 1999. Overall, the
U.K. economy should still avoid a recession.
Corporate profits are likely to remain under pressure which may encourage
corporate management to consider mergers and take-overs to maintain growth. Even
the largest companies such as British Petroleum, Vodafone Group, Zeneca Group
and British American Tobacco are currently completing mergers to enable strong
cost-cutting. Smaller and medium-sized companies have seen their share prices
fall to extremely low levels, at where they make attractive take-over targets,
especially for U.S. or financial buyers. We anticipate a continuation of both
the very large mergers and the smaller industrial deals.
Even with heavy corporate activity, we believe U.K. companies will show very
modest earnings and dividend growth in 1999. Inflation will likely remain low
and interest rates may decline further, allowing current ratings to be
sustained. Inevitably, the volatility experienced over the last year will be a
feature again. Although buying by index-tracking funds will support large
market-capitalization stocks, those smaller companies which attract predators
may exhibit the best performance in 1999.
2
<PAGE>
The Fund's and the FTSE All-Share Index's sector weightings expressed as a
percentage of total equities held at December 31, 1998 are outlined below:
<TABLE>
<CAPTION>
% OF FTSE
% U.K. ALL-SHARE
FUND INDEX
----------- -------------
<S> <C> <C>
Mineral Extraction................................ 9.8 7.8
General Industrials............................... 18.2 9.2
Consumer Goods.................................... 29.5 19.3
Services.......................................... 6.9 30.6
Utilities......................................... 18.6 5.8
Finance........................................... 17.0 24.6
Investment Trusts................................. 0.0 2.7
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY
- --------------------------------------------------------------------------------
We purchased Vodafone Group, and increased the holding in British
Telecommunications to take advantage of the strength of the telecommunications
sector. We sold the holdings of Imperial Chemical Industries and Seton Scholl
Healthcare Group and reduced Abbey National.
The Fund's ten largest equity holdings as at December 31, 1998 were:
GLAXO WELLCOME
<TABLE>
<S> <C>
Market Price as at 12/31/98................................. 2068p
Prospective Earnings per share (to December 1999)........... 55.7p
Prospective Earnings Multiple............................... 37.1x
</TABLE>
Glaxo Wellcome was the largest stock in the U.K. equity market, as at December
31, 1998. It is one of the world's major pharmaceuticals companies, with leading
drugs in many therapeutic areas. Two of its previous best-selling drugs, Zantac
and Zovirax continue to decline following the expiration of their U.S. 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.
NATIONAL WESTMINSTER BANK
<TABLE>
<S> <C>
Market Price as at 12/31/98................................. 1159p
Prospective Earnings per share (to December 1999)........... 84.0p
Prospective Earnings Multiple............................... 13.8x
</TABLE>
National Westminster Bank is a leading retail bank in the U.K. Like other
clearing banks, it is undergoing a strategy of branch closures and reductions in
its workforce through the establishment of new processing centers. It has
recently reorganized its remaining investment banking activities, having sold
its securities operation to Bankers Trust Corp. 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. National Westminster Bank is a likely
participant in any consolidation of the U.K. banking sector.
BARCLAYS
<TABLE>
<S> <C>
Market Price as at 12/31/98................................. 1296p
Prospective Earnings per share (to December 1999)........... 105.6p
Prospective Earnings Multiple............................... 12.3x
</TABLE>
Barclays has shown a strong recovery in banking profits following a reduction
in bad debts and has been successful 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 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 at 12/31/98................................. 905p
Prospective Earnings per share (to March 1999).............. 32.6p
Prospective Earnings Multiple............................... 27.8x
</TABLE>
British Telecommunications ("BT") is the leading fixed line telecommunications
company in the U.K. It also has a number of European joint venture interests and
has recently concluded an agreement with AT&T Corp. 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
4
<PAGE>
also has a stake in Cellnet Data Systems Inc., the second largest mobile
telephone company in the U.K., 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.
BRITISH PETROLEUM
<TABLE>
<S> <C>
Market Price as at 12/31/98................................. 897p
Prospective Earnings per share (to December 1999)........... 40.4p
Prospective Earnings Multiple............................... 22.2x
</TABLE>
British Petroleum ("BP") is a leading international oil company with a
substantial exploration and production profile, which recently merged with Amoco
Corp. The merged group, known as BP Amoco, became the largest company in the
U.K. market on January 1, 1999, and will rank alongside Exxon Corp. in terms of
reserves and capital employed. Amoco was the market leader in gas production in
the U.S. and the combined company will be a major force in gasoline retailing
and chemicals. BP is expected to show steady dividend progression based on its
strong cashflow, despite the present weakness of the crude oil price.
SHELL TRANSPORT & TRADING
<TABLE>
<S> <C>
Market Price as at 12/31/98................................. 369p
Prospective Earnings per share (to December 1999)........... 16.1p
Prospective Earnings Multiple............................... 22.9x
</TABLE>
Shell Transport & Trading is a leading oil company with substantial
production, refining and petrochemical activities. Although profits in 1999 may
be depressed by the very low oil price, they are expected to recover over the
next few years. Shell Transport & Trading has recently announced a merger of its
refining and marketing interests with Texaco Inc., which should improve
profitability. Cashflow remains highly positive, despite a substantial increase
in exploration expenditure and we continue to expect steady dividend progression
for at least the next two years.
ALLIED DOMECQ
<TABLE>
<S> <C>
Market Price as at 12/31/98................................. 554p
Prospective Earnings per share (to August 1999)............. 43.0p
Prospective Earnings Multiple............................... 12.9x
</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 franchises to Dunkin' Donuts Inc. and Baskin-Robbins ice cream parlors.
We expect earnings to make steady progress as the management maximizes the
profitability of its brand portfolio. It has recently agreed to the sale of
Cantrell and Cochrane Inc. for $850 million and may look to dispose of other
non-core assets.
GENERAL ELECTRIC CO.
<TABLE>
<S> <C>
Market Price as at 12/31/98................................. 542p
Prospective Earnings per share (to March 1999).............. 26.1p
Prospective Earnings Multiple............................... 20.8x
</TABLE>
General Electric Co. ("GEC") is the U.K.'s leading electronics and electrical
systems company. GEC has recently agreed to the merger of Marconi, its defense
electronics business with British Aerospace. GEC shareholders will receive
shares in the enlarged British Aerospace. We expect the merger to lead to
substantial annual cost savings and enhanced growth prospects for British
Aerospace. GEC should become a focused communications and technology company
with a strong balance sheet to fund growth opportunities.
5
<PAGE>
NATIONAL GRID GROUP
<TABLE>
<S> <C>
Market Price as at 12/31/98................................. 479p
Prospective Earnings per share (to March 1999).............. 22.1p
Prospective Earnings Multiple............................... 21.7x
</TABLE>
The National Grid Group is the monopoly owner of the electricity transmission
network in England and Wales between the generators, regional distribution
networks and industrial customers. It has recently agreed to purchase New
England Electric Systems, an electricity transmission and distribution business
based in Massachusetts and plans to make further U.S. acquisitions. It has
completed a secondary offering of shares in its majority owned subsidiary,
Energis, a long distance telecommunications company. Energis is growing rapidly
in business telecommunications, following the acquisition of Planet Online,
formerly the U.K.'s largest independent internet service provider.
BARR (AG)
<TABLE>
<S> <C>
Market Price as at 12/31/98................................. 437p
Prospective Earnings per share (to January 2000)............ 49.0p
Prospective Earnings Multiple............................... 8.9x
</TABLE>
Barr (AG) is a manufacturer of branded soft drinks based in Scotland. Profit
margins are now benefiting from its investment in modern manufacturing
facilities in Cumbernauld. The restructuring of the U.K. soft drinks industry is
likely to present interesting opportunities for leading independent companies
such as Barr (AG). Earnings are expected to grow steadily over the next few
years.
ECONOMIC AND MONETARY UNION (EMU)
Certain European countries have agreed to enter into the EMU to the effect,
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 has established a
single common European currency (the "euro") that was 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) were redenominated 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 system
used by the Fund's other service providers, or entities with which the
Fund or its service providers do business are not capable of recognizing
the euro as a distinct currency.
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 accomodate 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.
6
<PAGE>
- -----------------------------------------------------------
THE UNITED KINGDOM FUND INC.
STATEMENT OF INVESTMENTS
DECEMBER 31, 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--4.1%
250,000 Allied Domecq plc Ord 25p......................... $ 2,306,457
462,299 Merrydown plc Ord 25p*............................ 219,215
-----------
2,525,672
-----------
BANKS, RETAIL--16.4%
60,000 Abbey National plc Ord 10p........................ 1,284,794
150,000 Barclays plc Ord 100p............................. 3,234,447
200,000 National Westminster Bank plc Ord 100p............ 3,856,711
100,000 Royal Bank of Scotland Group plc Ord 25p.......... 1,597,258
-----------
9,973,210
-----------
BUILDING MATERIALS & MERCHANTS--3.3%
285,000 Johnston Group plc Ord 10p........................ 1,446,267
550,000 Norcros plc Ord 25p............................... 539,906
-----------
1,986,173
-----------
CHEMICALS--2.7%
530,000 UCM Group plc Ord 5p.............................. 696,636
35,000 Wolstenholme Rink plc Ord 25p..................... 264,962
337,500 Yorkshire Group plc Ord 25p....................... 659,805
-----------
1,621,403
-----------
CONSTRUCTION--0.5%
344,370 Vibroplant plc Ord 5p............................. 326,591
-----------
DISTRIBUTORS--2.6%
250,000 John Menzies plc Ord 25p.......................... 1,559,822
-----------
DIVERSIFIED INDUSTRIALS--2.0%
200,000 Wardle Storeys plc Ord 10p........................ 1,189,624
-----------
ELECTRICITY--3.4%
255,000 National Grid Group plc Ord 10p................... 2,035,443
-----------
ELECTRONICS & ELECTRICAL EQUIPMENT--6.1%
1,000,000 Alphameric plc Ord 2.5p*.......................... 757,034
370,000 CML Microsystems plc Ord 5p....................... 455,551
235,200 General Electric Co. plc Ord 5p................... 2,122,955
100,000 Roxboro Group plc Ord 1p.......................... 382,676
-----------
3,718,216
-----------
ENGINEERING-GENERAL--2.1%
331,186 Ash & Lacy plc Ord 5p............................. 570,317
233,333 Vickers plc Ord 50p............................... 702,682
-----------
1,272,999
-----------
ENGINEERING-VEHICLES--1.0%
180,000 LucasVarity plc Ord 25p........................... 600,469
-----------
FOOD PRODUCERS--5.6%
260,000 Barr (AG) plc Ord 25p............................. 1,890,421
200,000 CPL Aromas plc Ord 10p............................ 297,822
1,000,000 Finlay (James) plc Ord 25p........................ 1,197,943
-----------
3,386,186
-----------
GAS DISTRIBUTION--2.5%
176,470 BG plc Ord 25p.................................... 1,113,526
200,000 Centrica plc Ord 5p*.............................. 402,642
-----------
1,516,168
-----------
<CAPTION>
- --------------------------------------------------------------------------
SHARES DESCRIPTION VALUE
- --------------------------------------------------------------------------
<C> <S> <C>
HOUSEHOLD GOODS & TEXTILES--3.3%
350,000 French plc Ord 10p*............................... $ 183,435
165,000 Shiloh plc Ord 25p................................ 356,887
1,550,000 Sirdar plc Ord 25p................................ 1,469,976
-----------
2,010,298
-----------
LEISURE & HOTELS--1.2%
275,000 MacDonald Hotels plc Ord 5p....................... 748,091
-----------
OIL, INTEGRATED--9.5%
200,000 British Petroleum plc Ord 25p+.................... 2,986,539
450,000 Shell Transport & Trading plc Ord 25p (Regd.)..... 2,764,628
-----------
5,751,167
-----------
PHARMACEUTICALS--14.3%
150,000 Glaxo Wellcome plc Ord 25p........................ 5,161,139
125,000 SmithKline Beecham plc Ord 6.5p................... 1,747,001
40,000 Zeneca Group plc Ord 25p.......................... 1,741,676
-----------
8,649,816
-----------
RETAILERS-GENERAL--0.7%
106,250 Courts plc Ord 25p................................ 402,174
-----------
SUPPORT SERVICES--0.6%
450,000 Alpha Airports Group plc Ord 10p.................. 348,152
-----------
TELECOMMUNICATIONS--7.7%
200,000 British Telecommunications plc Ord 25p............ 3,013,160
100,000 Vodafone Group plc Ord 5p......................... 1,623,879
-----------
4,637,039
-----------
TOBACCO--1.3%
87,500 British American Tobacco plc Ord 25p.............. 769,408
-----------
TRANSPORT--1.7%
150,000 British Airways plc Ord 25p....................... 1,011,389
-----------
WATER--4.5%
93,333 Anglian Water plc Ord 100p........................ 1,295,110
75,000 Pennon Group plc Ord 100p......................... 1,450,010
-----------
2,745,120
-----------
TOTAL COMMON STOCKS
(cost $42,964,259).............................. 58,784,630
-----------
UNITED STATES SHORT-TERM INVESTMENT--5.9%
OF NET ASSETS
1,500,387 Federated Investors, Trust for Short-Term U.S.
Government Securities++--(cost $3,594,452)...... 3,594,452
-----------
Total Investments (cost $46,558,711)--103.0%...... 62,379,082
-----------
Liabilities in excess of cash and other assets--
(3.0%).......................................... (1,796,336)
-----------
-----------
NET ASSETS--100.0%................................ $60,582,746
-----------
-----------
NUMBER OF SHARES ISSUED AND OUTSTANDING........... 3,961,655
-----------
-----------
NET ASSET VALUE PER SHARE......................... $15.29
-----------
-----------
</TABLE>
- ------------------
* Non-income producing securities.
+ On January 5, 1999, as a result of a merger the company changed its name to
BP Amoco plc.
++ Money market fund.
7
<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
8
<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.
9
<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
DECEMBER 31, 1998
