AIF.L Regulatory News (AIF)

Acorn Income Fund Limited

Half-yearly Financial Report

For the six months ended 30 June 2011

ACORN INCOME FUND

INVESTMENT OBJECTIVES AND POLICY

The objectives of Acorn Income Fund Limited (the "Company") are to provide shareholders with a high income and also the opportunity for capital growth.

The Company's portfolio is invested in equities and high income and fixed interest securities in order to achieve its investment objectives. It is the aim of the Company to provide both income and capital growth predominantly through investment of approximately 70% of the portfolio in smaller capitalised United Kingdom companies admitted to the Official List of the United Kingdom Listing Authority and traded on the London Stock Exchange or traded on AIM. The Company also aims to further enhance income for shareholders by investing approximately 30% of its assets in high yielding securities which will be predominantly fixed interest securities (including corporate bonds, preference and permanent interest bearing shares, convertible and reverse convertible bonds and debentures) but may include up to 15% of the portfolio (measured at the time of acquisition) in high yielding investment company shares.

*assumes dividends reinvested

# adjusted for debt repayment

COMPANY SUMMARY

CHAIRMAN'S STATEMENT & INTERIM MANAGEMENT REPORT

Dear Shareholder

Markets traded in a relatively narrow range for the first half of 2011 and the small capitalization stocks moved very much in line with larger companies. In fact the FTSE All-Share Index (total return) and the FTSE Small Cap index (ex investment trusts) both rose 2.77% over the six month period to 30 June 2011. The Company's strong performance relative to market indices continued with the net asset value per share (NAV) rising 15.3% whilst dividends of 3.5p per share were distributed over the period.

 At 30 June 2011 78.3% of gross assets were allocated to the Smaller Companies Portfolio and 19.6% to the Income Portfolio. Across the whole fund there was 4.8% in cash. The current split between the two portfolios is weighted towards equities rather than fixed interest as in the current low interest rate environment our managers see greater potential in equities. Your board have supported this stance.

Investment performance

The Company's total assets (adjusted for alterations in bank debt drawn down) rose 11.3% over the six months to 30 June 2011 and the Company's geared structure enhanced performance such that NAV per share rose 15.3% from 194.78p at the start of the period to 224.90 at 30 June 2011. NAV total return was 16.02% over the period once again providing a material outperformance of the UK small cap indices as well as the broader market.

Dividends

Earnings per share for the half year were 3.75p (3.04p) and two interim dividends (each of 1.75p), totalling 3.50p (3.00p) were paid during the period.

Gearing, Bank Facility

The Company started the year with its £4.35m bank facility fully drawn. With the banking covenants very comfortably covered a further £0.65m of loan was drawn down over the period. Subsequent to the period end the remaining £1m of the loan facility was drawn down.

Share Buybacks and Discount to NAV

50,000 shares were bought back over the period however the discount to NAV at which the Company's shares trade on the stock market reduced from 14.2% at the start of the period to 10.85% at the period end. Strong performance in relation to indices and other income generating investment trusts generated interest in the fund helping to support the shares on a narrower discount.

Continuation Resolution

At the General Meeting held on 24 August 2011 shareholders had an opportunity to vote for the winding up of the Company. The resolution that the Company should cease to continue as constituted was defeated by shareholders. In accordance with the Articles of Association shareholders will have an opportunity to vote on a similar resolution in another 5 years at the general meeting in 2016.

With the future of the Company now secured the directors and managers will be examining the best options for refinancing the Company's bank facility which currently runs to February 2012.

Outlook

The economic outlook in the US and Europe is particularly uncertain with investors unsettled by the downgrading of US sovereign debt, which focused attention on the scale of the US budget deficit, and at the same time the fragility of the Euro Zone with heavily indebted nations such as Greece and Italy unable to finance their debt without support from the EU. Nevertheless many companies appear to be performing well and dividend distributions are rising against a background where interest rates in the US and UK are likely to remain at the current low levels well into 2012. Companies that can sustain an attractive pay out during this prolonged period of low interest rates will be sought after by investors. Our managers believe that the Company's equity portfolio is well placed to benefit from any increased demand for good quality higher yielding equities.

John Boothman

Chairman.

RESPONSIBILITY STATEMENT

for the period from 1 January 2011 to 30 June 2011

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS34 Interim Financial Reporting;

• the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Signed on behalf of the Board of Directors on 24 August 2011

Helen Green

Director

INVESTMENT ADVISERS' REPORT

Smaller Companies Portfolio

During the period under review the value of the Portfolio rose by 15.5% compared to a rise of 4.27% in the HGSC(ex IC). The outperformance was caused by a continued concentration on industrial and international earners which serve world growth markets.

A number of stocks performed very strongly during the first half as emerging markets continued to grow. Renishaw continued to recover with prospects in China improving resulting in a share price rise of 42.5%. Renishaw also announced significant capacity expansion at all three of its Gloucestershire sites and the purchase of the former manufacturing operation of Bosch in Cardiff which covers a 193 acre site and adds 450,000 sq ft of manufacturing space to the group. As a result Renishaw has access to a new pool of well qualified labour to meet its growth plans. Harvey Nash enjoyed continued growth as its geographic diversity paid dividends with continued strong growth. Castings rose by 25% as operational gearing kicked in as sales grew from £60.6m to £105.4m. The group has continued to invest in plant and machinery and has recently approved a further extension to the main manufacturing operation. Castings strong recruitment drive has continued throughout the recovery period. Diploma rose by 32.5% as its acquisition strategy started to work with improvements in the seals division and a recovery in the life sciences division. RPC was the main contributor to performance as the acquisition of Superfloss was fully integrated and the benefits of the strategic review have started to come through.

Holdings in RPC, James Halstead, Castings, VP Group, Stobart, Lupus Capital and MacFarlane were increased during the period. IMI was disposed of after many years of outperformance as it has now graduated to the FTSE 100 and is no longer a small or mid cap stock. Holdings in Renishaw, Devro Fenner and Diploma were reduced following a number of years of sustained outperformance.

The Portfolio remains invested in UK companies serving international markets which will benefit from sustained long term growth in emerging markets. There is very little direct exposure to the UK consumer who continues to suffer from increasing taxation both direct and indirect. UK interest rates look likely to remain low as the budget deficit was one of the first to be tackled and inflation remains under control. The uncertainty that results from industrial and social unrest remains in the background.

We are encouraged by the return of corporate activity to the market as valuations remain low with a great deal of potential to extract value.

John McClure

Unicorn Asset Management Limited

Income Portfolio

The UK base rate remained at 0.50% throughout the reporting period as the MPC continued to balance the risks of weak growth and stubbornly high inflation. With inflation remaining resilient markets factored in an early rate hike over the summer, however these expectations were pushed back to later in the year following the announcement that the UK economy had contracted in Q4 2010. With subsequent Q1 2011 GDP also disappointing, the Bank of England is likely to maintain an accommodative monetary policy to support growth pushing any expectations of a rate hike to next year.

We continued to maintain a gilt hedge to reduce the duration of the Income Portfolio over the period, limiting interest rate risk. This hedge insulated the Income Portfolio against rising rate expectations in the first quarter however the Income Portfolio did not fully benefit from the subsequent fall in government bond yields over the second quarter. Lower yields were driven by the deteriorating economic outlook and renewed fear over sovereign debt levels. Over the reporting period the UK government yield curve fell slightly over the short maturities although remained broadly unchanged at the long end.

Credit spreads tightened over the first quarter with financials and particularly subordinated financials benefitting. However, with the return of Euro Zone instability and weaker than anticipated economic releases, financials widened back out to where they began the year. We continue to believe that financials offer good value over the medium term although they are likely to suffer from increased volatility. Changing financial regulation is adding to current volatility, however these changes could lead to greater protection for bonds higher up the capital structure. In addition, new regulations are generating more interest in subordinated financials, such as our holding of Lloyds Contingent Convertibles (CoCo), which will benefit significantly from the increased capital requirement being proposed.

Over the reporting period we topped up our holding of Gas Natural bonds, increasing our exposure to corporates who are systematically important in troubled Euro Zone economies following a widening in credit spreads. We also increased our exposure to callable F&C subordinated debt and bought Electra Private Equity Convertible Unsecured Loan Stock (CULS), these CULS offer a suitable yield given their downside protection whilst also offering the opportunity for significant upside potential if the Company's assets perform. In the second quarter we continued to invest in financials adding a long date Barclays bond as well other diversified financials such as Henderson Group and Old Mutual bonds. We remain supportive and confident in the growth of the contingent capital market, adding the Credit Suisse CoCo to the Income Portfolio whilst we also increased our investment company CULS exposure following weakness in equity markets in May and June. Finally we have added an additional position to the Fund via a bearish product linked to the Halifax House Price Index. This holding will benefit from house price falls in the UK and lose in the event house prices rally. Further weakness in the UK housing market could be seen as a risk for our bank exposures and so this position can be seen as a partial hedge.

The state of the UK and Global economy remains uncertain and volatile. However, with rates low and financing accessible, corporates in particular have successfully accessed the bond markets and have lengthened their debt maturity profiles. This bodes well for corporates and therefore periods of market volatility should not bring into question their survival. We are positioned for risk-free rates to rise quicker than the market anticipates and to capitalise on a tightening in credit spreads as economies recover and credit default rates fall. We believe credit risk is currently more attractive than interest rate risk. We remain overweight in financial bonds and realise this may lead to greater volatility but superior returns over the medium to long term. In a similar theme we have reduced the assets invested in the Income Portfolio as a proportion of the Company as we believe a greater weighting in the Smaller Companies Portfolio is likely to lead to superior returns worth consuming additional volatility in the short term.

Paul Smith and Ben Hamilton

Premier Fund Managers Limited

SCHEDULE OF PRINCIPAL INVESTMENTS

as at 30 June 2011

SCHEDULE OF PRINCIPAL INVESTMENTS

as at 31 December 2010

STATEMENT OF COMPREHENSIVE INCOME (Unaudited)

for the period ended 30 June 2011

The Total column of this statement is the Statement of Comprehensive Income of the Company. The Company had no other comprehensive income during the period other than that reflected in the above Statement of Comprehensive Income.

The supplementary revenue return and capital return columns have been prepared in accordance with the Statement of Recommended Practice (SORP) issued by the Association of Investment Companies (AIC).

In arriving at the results for the financial period, all amounts above relate to continuing operations.

No operations were acquired or discontinued in the period.

The notes form an integral part of these financial statements.

STATEMENT OF FINANCIAL POSITION (Unaudited)

as at 30 June 2011

The financial statements were approved by the Board of Directors and authorised for issue on 24 August 2011 and signed on its behalf by:

Helen Green John Boothman

Director Director

The notes form an integral part of these financial statements.

STATEMENT OF CASH FLOWS (Unaudited)

for the period ended 30 June 2011

The notes form an integral part of these financial statements.

STATEMENT OF CHANGES IN EQUITY (Unaudited)

as at 30 June 2011

The notes form an integral part of these financial statements.

Notes to the Financial Statements (Unaudited)

for the period ended 30 June 2011

1 ACCOUNTING POLICIES

(a) Basis of preparation

The financial statements, which give a true and fair view, have been prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB") and with the AIC's SORP (as revised in January 2009) where this is consistent with the requirements of IFRS and all in compliance with The Companies (Guernsey) Law, 2008 (as amended). All accounting policies adopted for the period are consistent with IFRS issued by the IASB. The financial statements have been prepared on an historical cost basis except for the measurement at fair value of certain financial instruments.

Changes in accounting policy and disclosures

The following Standards or Interpretations have been adopted in the current period.

Their adoption has not had any impact on the amounts reported in these financial statements and is not expected to have any impact on future financial periods:

IFRS 8 Operating Segments (amendments)

IAS 1 Presentation of Financial Statements (amendments)

IAS 7 Statement of Cash Flows (amendments)

The following Standards or Interpretations have been issued by the IASB but not yet adopted by the Company:

IFRS 7 Financial Instruments: Disclosures effective for annual periods beginning on or after 1 July 2011.

IFRS 9 Financial Instruments: Classification and Measurement effective for annual periods beginning on or after 1 January 2013.

The Directors have considered the above and are of the opinion that the above Standards and Interpretations are not expected to have a material impact on the Company's financial statements except for the presentation of additional disclosures and changes to the presentation of components of the financial statements. These items will be applied in the first financial period for which they are required.

(b) Use of estimates and judgements

Management use estimates and judgements in allocating expenses between Revenue and Capital.

(c) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity.

(d) Taxation

The Company has been granted exemption under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 from Guernsey Income Tax, and has elected to remain exempt following changes in the Guernsey tax regime. The Company pays an annual fee of £600.

(e) Treasury shares

Treasury shares are classified as a deduction from equity and recorded for the consideration paid.

(f) Capital reserve

The following are accounted for in this reserve:

- gains and losses on the realisation of investments;

- expenses charged to this account in accordance with the policy below;

- increases and decreases in the valuation of the investments held at the period end; and

- unrealised exchange differences of a capital nature.

(g) Expenses

All expenses are accounted for on an accruals basis. Expenses are charged to the capital reserve where a connection with the maintenance or enhancement of the value of the investments can be demonstrated.

75% of the Company's management fee and financing costs are charged to the capital reserve in line with the Board's expected long-term split of returns between income and capital gains from the investment portfolio.

100% of any performance fee is charged to the capital account.

All other expenses are charged through the revenue account.

(h) Investment income

Interest income and distributions receivable are accounted for on an accruals basis. Interest income relates only to interest on bank balances. Bond income is accounted for on the effective interest rate ("EIR") basis.

(i) Foreign currency translation

The currency of the primary economic environment in which the Company operates (the functional currency) is Great Britain Pounds (GBP) which is also the presentation currency.

Transactions denominated in foreign currencies are translated into GBP at the rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities, other than investments, denominated in foreign currencies at the reporting date are translated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income. Foreign exchange differences relating to investments are taken to the capital reserve. Realised and unrealised foreign exchange differences on non-capital assets or liabilities are taken to the Statement of Comprehensive Income in the period in which they arise.

(j) Cash and cash equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits and short term, highly liquid investments readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash, deposits at bank and money market deposits.

(k) Investments

All investments have been designated as financial assets at "fair value through profit or loss". Investments are initially recognised on the date of purchase at cost, being the fair value of the consideration given. Subsequently, investments are measured at fair value, with unrealised gains and losses on investments and impairment of investments recognised in the Statement of Comprehensive Income. Investments are derecognised on the date of sale. Gains and losses on the sale of investments will be taken to the Statement of Comprehensive Income in the period in which they arise. For investments actively traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market bid prices as at the close of business on the reporting date.

(l) Derivatives

Derivatives consist of forward exchange contracts which are stated at market value, with the resulting net realised and unrealised gains and losses being reflected in the Statement of Comprehensive Income.

(m) Trade date accounting

All "regular way" purchases and sales of financial assets are recognised on the "trade date", i.e. the date that the entity commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of the asset within the timeframe generally established by regulation or convention in the market place.

(n) Segmental reporting

The Company retains two Investment Advisers, Unicorn Asset Management Limited and Premier Fund Managers Limited for the Smaller Companies Portfolio and Income Portfolio respectively. As the Board reviews the performance of each portfolio separately and decides on the allocation of resources based on this performance, the Board has determined that the Company has two reportable segments.

The Board is charged with setting the Company's investment strategy in accordance with the Prospectus. They have delegated the day to day implementation of this strategy to its Investment Advisers but retain responsibility to ensure that adequate resources of the Company are directed in accordance with their decisions. The investment decisions of the Investment Advisers are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Board. The Investment Advisers have been given full authority to act on behalf of the Company, including the authority to purchase and sell securities and other investments on behalf of the Company and to carry out other actions as appropriate to give effect thereto. Whilst the Investment Advisers may make the investment decisions on a day to day basis regarding the allocation of funds to different investments, any changes to the investment strategy or major allocation decisions have to be approved by the Board, even though they may be proposed by the Investment Advisers. The Board therefore retains full responsibility as to the major allocation decisions made on an ongoing basis. The Investment Advisers will always act under the terms of the Prospectus which cannot be radically changed without approval of the Board and the Shareholders.

The key measure of performance used by the Board to assess the Company's performance and to allocate resources is the total return on the Company's net asset value, as calculated under IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the financial statements.

The schedule of principal investments held as at the period end are presented in the Investment Advisers' Report.

(o) Going Concern

The Company has adequate financial resources and as a consequence, the directors believe the Company is well placed to manage its business risks successfully despite the current economic climate.

2 OPERATING SEGMENTS

The Company has two reportable segments, being the Income Portfolio and the Smaller Companies Portfolio. Each of these portfolios is managed separately as they entail different investment objectives and strategies and contain investments in different products.

For each of the portfolios, the Board reviews internal management reports on a quarterly basis. The objectives and principal investment products of the respective reportable segments are as follows:

Information regarding the results of each reportable segment is included below. Performance is measured based on the increase in value of each portfolio, as included in the internal management reports that are reviewed by the Board.

Segment information is measured on the same basis as those used in the preparation of the Company's financial statements.