AIF.L Regulatory News (AIF)

Acorn Income Fund - Half-year Report

PR Newswire

London, August 15

Acorn Income Fund Limited

LEI 213800UAZN7G46AHQM67

Half-yearly Condensed Financial Report (unaudited)For the six months ended 30 June 2017

(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)

The Company has today, in accordance with DTR 6.3.5, released its Half-yearly Condensed Financial Report (unaudited) for the six months ended 30 June 2017. The Report will shortly be available via the Investment Manager’s website https://www.premierfunds.co.uk/media/960929/acorn-income-fund-interim-report-2017.pdf and will also be available for inspection online at www.morningstar.co.uk/uk/NSM website.

Investment Objectives and Policy

Investment Objectives

The investment objective and policy of Acorn Income Fund Limited (the “Company” or “Acorn”) is to provide Shareholders with high income and also the opportunity for capital growth.

The Company’s assets comprise investments in equities and fixed interest securities in order to achieve its investment objective. The Company’s investments are held in two portfolios. Approximately 70% to 80% of the Company’s assets are invested in smaller capitalised United Kingdom companies, admitted to the Official List of the Financial Conduct Authority (the “FCA”) and traded on the main market of the London Stock Exchange (the “LSE”) or traded on the Alternative Investment Market (“AIM”) at the time of investment. The Company also aims to enhance income for Ordinary Shareholders by investing approximately 20% to 30% of the Company’s assets in high yielding instruments which are predominantly fixed interest securities but may include up to 15% of the Company’s overall portfolio (measured at the time of acquisition) in high yielding investment company shares.

The proportion of the overall portfolio held in the Smaller Companies Portfolio and the Income Portfolio varies from day to day as the market prices of investments move. The Directors retain discretion to transfer funds from one portfolio to the other and generally expect between 70% to 80% of the investments to be held in the Smaller Companies Portfolio.

While the Company’s investment policy is to spread risk by maintaining diversified portfolios, there are no restrictions on the proportions of either of the portfolios which may be invested in any one geographical area, asset class or industry sector. However, not more than 7.5% of the Company’s gross assets may be invested in securities issued by any one company as at the time of investment, save that (i) in respect of the Income Portfolio only, investments may be made in other investment funds subject only to the restriction set out in paragraph (c) of the section headed “Investment Restrictions” below; and (ii) in respect of the Smaller Companies Portfolio only, provided that not more than 10% of the Company’s gross assets are invested in securities issued by any one company at any time, the 7.5% limit may be exceeded on a short term basis, with Board approval, where a company whose securities form part of the Smaller Companies Portfolio issues new securities (for example by way of a rights issue).

The Company’s capital structure is such that the underlying value of assets attributable to the Ordinary Shares is geared relative to the rising capital entitlements of the Preference Shares (“ZDP Shares”). The Company’s gearing policy is not to employ any further gearing through long-term bank borrowing. Save with the prior sanction of ZDP Shareholders, the Company will incur no indebtedness other than short term borrowings in the normal course of business such as to settle share trades or borrowings to finance the redemption of the ZDP Shares.

Investment Restrictions

For so long as required by the LSE Listing Rules in relation to closed-ended investment companies, the Company has adopted the following investment and other restrictions:

(a) the Company will at all times invest and manage its assets in a way which is consistent with its objective of spreading investment risk and in accordance with its published investment policy;

(b) the Company will not conduct any significant trading activity; and

(c) not more than 10% in aggregate of the value of the total assets of the Company at the time the investment is made will be invested in other listed closed-ended investment funds. The Listing Rules provide an exception to this restriction to the extent that those investment funds which have stated investment policies to invest no more than 15% of their total assets in other listed closed-ended investment companies.

Derivatives

The Company may invest in derivatives, money market instruments and currency instruments including contracts for difference, futures, forwards and options. These investments may be used for hedging positions against movements in, for example, equity markets, currencies and interest rates, for investment purposes and for efficient portfolio management. The Company’s use of such instruments for investment purposes is limited to 5 per cent. of the total assets of the Company. The Company will not use such instruments to engage in any significant trading activity. The Company will not maintain derivative positions should the total underlying exposure of these positions (excluding any currency hedges) exceed one times adjusted total capital and reserves.

Performance Summaryfor the six months ended 30 June 2017

* assumes dividends reinvested** NAV calculated in accordance with the Articles*** non cumulative cover- source JP Morgan Cazenove# NAV calculated in accordance with International Financial Reporting Standards## adjusted for the issue and buyback of new Ordinary and ZDP Shares

Company SummaryCapital Structure

Financial Calendar

Company Websitehttps://www.premierfunds.co.uk/investors/investments/investment-trusts/acorn-income-fund

Chairman’s Statement and Interim Management Report30 June 2017

Dear Shareholder,

Despite the ongoing uncertainties surrounding the Brexit process and the unsatisfactory election outcome for the Conservative government, the UK stock market delivered positive returns over the first six months of 2017. While the larger companies in the FTSE 100 Index were seen as beneficiaries of weak sterling, smaller companies generally regarded as being more exposed to the domestic economy also performed well with the smaller company indices outperforming the FTSE 100 Index. Acorn itself outperformed the small cap sector and ordinary shareholders benefitted from a 25.2% total return in the six months to30 June 2017.

Investment Performance

Over the 6 months to 30 June 2017 the FTSE All-Share Index returned 5.5%. The FTSE Small Cap (ex investment companies) Total Return Index was up 8.82% and the broader Numis Small Company Index (Total Return ex Investment Companies) rose 9.72%. The Bank of America Merrill Lynch Sterling Non Gilts Index which the directors use as a reference point for investments in the fixed income investments in the Income Portfolio rose 2.3%. 

Acorn’s gross asset performance showed a total return of 12.6%. With rising gross assets Acorn’s gearing worked favourably for ordinary shareholders. Net asset value total return was 15.1%. A narrowing of the discount to NAV at which the ordinary shares traded provided a further uplift in return for ordinary shareholders. The ordinary share price total return over the half year was 25.2%. 

The Zero Dividend Preference shares appreciated in value by 3.85% over the six months.

Asset Allocation

At the start of the period the split between the Smaller Companies Portfolio and the Income Portfolio was 80% to the Smaller Companies Portfolio and 20% to Income Portfolio. This position was taken in July 2016. No change in this allocation has been made although relative performance of the Smaller Companies Portfolio against the Income Portfolio has meant that the actual split at the half year end was 82% Smaller Companies Portfolio 18% Income Portfolio. The directors and the managers have been comfortable in allowing this position to run as despite some recent weakening in bond markets there is insufficient attraction in fixed interest markets to wish to increase this exposure. Ahead of the UK election in June the directors agreed to take a more defensive stance and this was achieved by increasing the cash position in the Smaller Companies Portfolio and by purchasing an out of the money put option on the FTSE 250 Index. The put option position was closed shortly after the election and before the half year end. 

Share issuance and buy backs – Discount management

The Company has power to issue shares at a premium to net asset value and to buy back into treasury or for cancellation at a discount. These transactions are executed in both classes of share in the correct ratio to maintain the capital structure. Issues are done at a premium to the package net asset value (the NAV of ordinary shares and ZDPs combined) and buy backs at a discount to the package net asset value, such that the transaction will always be cover enhancing for the ordinary shares. 

No shares were issued or bought back during the period under review.

The ordinary share discount to NAV reduced from 11.84% at the start of the year to 6.13% at 30 June 2017.

Earnings and Dividends

The first interim dividend of 4.5p was paid on 31 March 2017. This represented a 12.8% increase on the 4.0p quarterly dividend paid in December 2016. The increase was brought forward from June to March giving a 28.6% increase over the first interim dividend for 2016.

The second interim dividend of 4.5p was paid on 30 June 2017 to shareholders on the register at 16 June 2017 giving a 20% increase in the dividend distribution for the first half. Earnings per share in the first six months were 9.11p and whilst this was a reduction in the level for the corresponding period in 2016 still exceeded the distribution of 9p. At 31 December 2016, the Company had revenue reserves in excess of the full year dividend distribution.

Outlook

As we entered the second half the UK market quickly recovered from the brief setback in June which arose from concerns about the election outcome and the immediate reaction to the result. At the time of writing this statement both the FTSE 100 Index and more domestically focused Numis Smaller Companies (ex Investment Companies) Index had recovered to levels close to their previous highs at the start of June.

This confidence in markets has been despite the plentiful commentary on the uncertainties facing the UK economy as the government negotiates an exit from the EU and the potential impact that this could have on certain sectors and companies. There are also a number of global issues that might be expected to unsettle markets, whether it be terrorism, instability in the Middle East or US/North Korean brinkmanship. Nevertheless the earnings outlook for the companies in which Acorn invests remains robust and with any increase in interest rates likely to be modest and cautiously applied the directors consider that the potential return from our equity portfolio remains attractive. Our investment advisers are cautious on the outlook for bonds and for the income portfolio are finding opportunities in the investment company sector and with structured investments.

Helen GreenChairman15 August 2017

Responsibility Statementfor the period from 1 January 2017 to 30 June 2017

We confirm that to the best of our knowledge:

(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 by:

Helen GreenChairman15 August 2017

Investment Advisers’ ReportsThe Smaller Companies PortfolioIn the six months from 31 December 2016 to 30 June 2017, the Smaller Companies Portfolio generated a total return +16.5%, outperforming the benchmark Index, the NSCI (ex IC), which produced a total return of +9.72%.

The portfolio enjoyed a relatively strong performance driven by positive moves across the board; with a large number of meaningful risers and very few fallers. The spring reporting season saw the vast majority of the portfolio’s holdings post earnings at least in-line with market consensus and pleasingly share prices reacted accordingly. Companies experienced modest upward valuation re-ratings, compounding the effect of the earnings growth delivered, leading to strong share price performance during the first half of the year. 

The portfolio managers were actively picking up oversold shares in the second half of 2016 following unwarranted and indiscriminate devaluing of some of the Fund’s holdings in the immediate aftermath of the EU referendum. It was particularly pleasing to see meaningful contributions from a number of the longer term holdings, many of which suffered significantly in share price terms in the middle of last year despite continuing to deliver strong operational performance.

The closing chapter of the period was defined by political events: In March the UK Prime Minister, Theresa May, formally triggered Article 50, effectively starting the two-year time limit during which a trade deal with the EU must be struck. Just a few weeks later she called a snap general election seeking to capitalise on the Conservative’s significant lead in the polls, establish a significant parliamentary majority and form a strong mandate with which to negotiate the terms of Britain’s exit from the EU. In reality the gamble failed: the Conservatives saw their lead in the polls drop significantly in the run up to polling day, ultimately lost their slim majority, and were subsequently forced to form a minority government. This environment of increased political uncertainty has weighed slightly on shares following the significant run they had enjoyed over the period as a whole, subsequently they ended the period in a rather muted fashion.

The Smaller Companies Portfolio initiated positions in six new holdings and exited six existing holdings in full during the period under review. Two of the new investments made were through initial public offerings (IPO). Of the six disposals, three were the result of M&A activity which has been an increasing feature within the Portfolio and the wider market since the depreciation of Sterling in the summer of 2016. The new positions initiated during the period were: Vesuvius, a specialist manufacturer of refractory and flow control equipment used in the production of steel; 4imprint, a manufacturer of promotional materials for corporate clients; Polar Capital Holdings, the fund management company; and Berendsen, a textile services company (which was subsequently bid for and sold by the Managers in the period). The two IPOs were AlphaFX, a currency hedging services provider for small and medium sized companies; and Xafinity, a pensions services provider. It is pleasing to note that both of the IPO companies have made a meaningful positive contribution since their listing date.

The strongest contributors to performance were Conviviality and Warpaint which both contributed 141bps to performance, ending the period 45% and 75% higher respectively. Conviviality, the leading distributor of alcoholic drinks to the on and off-trade, released interim results during the period that reported trading was positive and the integration of acquisitions remains ahead of plan. Warpaint, the cosmetics producer that listed in the second half of 2016, continued to enjoy its start to quoted life as it reported strong maiden results and subsequently confirmed that trading continued to be in line. Other significant contributors were Acal (118bps) and Somero (103bps). The most significant negative contributor was Van Elle which took 46bps from performance, the ground engineering specialist issued disappointing trading updates, which reported that project delays had impacted margins significantly. 

A key consideration of our investment process is the sustainability of a company’s dividend payments. Many of the underlying investee companies have long established track records of increasing dividend payments, which, in turn, are comfortably covered by earnings. During periods of uncertainty, the reliability of these dividend flows is of even greater value. It was also pleasing to see a number of investee companies return excess cash to shareholders in the form of special dividends during the period, highlighting the strong cash generative characteristics that we look for in companies.

Market volatility has provided opportunities to buy high quality stocks on attractive valuations and as active fund managers we will be looking to take further advantage of volatility as a result of heightened political uncertainty going forward.

Fraser Mackersie and Simon MoonUnicorn Asset Management Limited

The Income Portfolio

After the last few months of complacency, bond investors again found themselves awoken to the dangers of rich bond valuations amidst erratic central bank communication. The ECB has made tentative signals that it is preparing to pare back some of its ultra loose stimulus - something that has long been expected but not dissuaded investors. Mario Draghi has trodden cautiously in his previous statements to the markets which have tried to balance the improvements in the Eurozone economies with the need for the bank to remain accommodative. However, whilst previous emphasis has been on protecting against deflation risks, the latest ECB statements indicate that the more balanced environment might give them confidence to gradually dial back the scale of stimulus. It is of course a delicate balancing act and one which we have seen the Fed make the same nervous, tentative steps before.

The Bank of England has also been forced to make more balanced statements about monetary policy, given the large uncertainty overhanging the UK economy and the very low levels of Gilt yields. A bout of import driven price increases coupled with falling yields has seen Gilt yields failing to compensate investors for inflation across the entire range of available maturities and this makes them extremely uncompelling. Given that ultra low yields has not been consistent with even a modest tightening of monetary policy over the next few years, volatility is likely as a change in path is repriced – something which can escalate due to the losses that can be suffered on what have been bought as ‘safe haven’ assets.

Meanwhile credit spreads continue to be well supported by the excess cash being put to work although current valuations mean that the reach for yield requires the adoption of a lot more risk and does not appear attractive on an absolute risk-return basis. In what we perceive to be an environment of rich valuations, avoiding mistakes is as important as finding new opportunities. Sectors such as UK retail face both structural and cyclical challenges which we do not feel have been fully reflected in valuations and so we heavily reduced exposure ahead of a more discerning market.

In light of these perceived risks, the portfolio continues to be positioned with low duration exposure whilst endeavoring to extract returns from relative value opportunities within bonds and alternative fixed income investments. This has included exploiting discount opportunities in the JP Morgan Global Convertibles Income Fund, where the introduction of a new discount control mechanism has benefitted the unit price, as well as identifying credits such as Burford and Phoenix Life where spreads have rallied materially following fundamental improvements in these companies, enabling these bonds to generate positive returns away from the impact of duration. With this more absolute return approach to risk and return, the portfolio has managed to achieve a positive first half return, comparable with corporate bond indices and materially ahead of UK Gilt comparators, whilst taking much lower duration risk, therefore delivering a much smoother return profile.

Paul SmithPremier Fund Managers Limited

Schedule of Principal Investmentsas at 30 June 2017

Schedule of Principal Investmentsas at 31 December 2016

Condensed Statement of Comprehensive Income (unaudited)for the period ended 30 June 2017

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.

Condensed Statement of Financial Position (unaudited)as at 30 June 2017

The financial statements were approved by the Board of Directors and authorised for issue on 15 August 2017 and signed on its behalf by:

Helen GreenChairman

David WarrDirector

The notes form an integral part of these financial statements.

Condensed Statement of Cash Flows (unaudited)for the period ended 30 June 2017

The notes form an integral part of these financial statements.

Condensed Statement of Changes in Equity (unaudited)for the period ended 30 June 2017

The notes form an integral part of the financial statements.

Condensed Statement of Changes in Equity (unaudited)as at 30 June 2016

The notes form an integral part of the financial statements.

Notes to the Condensed Financial Statements (unaudited)for the period ended 30 June 2017

1 ACCOUNTING POLICIES

(a) Basis of preparation

The financial statements for the six months ended 30 June 2017 have been prepared in accordance with IAS 34 “Interim Financial Reporting” as adopted by the European Union, the AIC’s SORP (as revised in January 2017) and applicable legal and regulatory requirements of the Companies (Guernsey) Law, 2008.

The Unaudited Condensed Interim Financial Statements do not include all the information and disclosures in the Annual Financial Statements and should be read in conjunction with the Company’s Annual Report and Audited Financial Statements for the year ended 31 December 2016.

The accounting policies and methods of computation followed in this Interim Unaudited Condensed set of Financial Statements are consistent with those of the latest Annual Audited Financial Statement for the year ended 31 December 2016 which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

(b) Presentation of information

The Unaudited Condensed Interim Financial Statements have been prepared on a going concern basis under the historical cost convention adjusted to take account of the revaluation of the Company’s investments at fair value.

In order to better reflect the activities of an Investment Company and in accordance with the guidance issued by the Association of the Investment Companies, supplementary information which analyses the Statement of Comprehensive Income between items of capital and revenue nature has been presented within the Statement of Comprehensive Income.

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 follows. 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.

Segmental information is measured on the same basis as that used in the preparation of the Company’s financial statements.

Geographical information

In presenting information on the basis of geographical segments, segment revenue and segment assets are based on the domicile countries of the investees and counterparties to derivative transactions. The table below excludes net gains on financial assets designated as at fair value through profit or loss and gains or losses on derivative instruments.

The Company did not hold any non-current assets during the period other than financial instruments (December 2016: £ Nil).

Major customers

The Company regards its shareholders as customers. The Company’s only shareholder with a holding greater than 10% at the period end was HSBC Issuer Services Common Depositary Nominee (UK) Limited (2016: The Company’s only shareholder with a holding greater than 10% at the year end was HSBC Issuer Services Common Depositary Nominee (UK) Limited).

3 INVESTMENT INCOME

For the period ended 30 June 2017, special dividends totalling £Nil (30 June 2016: £165,000) were reflected in the capital reserve.

4 EXPENSES

Manager’s fee

* The Company has entered into a Management Agreement with Premier Asset Management (Guernsey) Limited, a wholly-owned, Guernsey incorporated subsidiary of Premier Asset Management Limited. The Investment Manager receives a management fee of 0.7% per annum of total assets (subject to a minimum of £100,000) calculated monthly and payable quarterly in arrears, out of which it pays fees to the Investment Advisers. The Investment Manager is also paid a shareholder communication and support fee, currently £3,100 for the twelve months from 1 May 2016 to 30 June 2017. Please refer to Note 1(h) in the Company’s Annual Report and Audited Financial Statements for the year ended 31 December 2016 for details on how expenses are charged to the capital reserve and revenue account. The Management Agreement may be terminated by either party on 12 months’ written notice.

Performance fee

*\* The Investment Manager is also potentially entitled to a performance fee at the year end equal to 15% of any excess of the NAV per Ordinary Share (together with any dividends paid) over the higher of the first benchmark or the second benchmark. The first benchmark is the NAV per share immediately following the tender in January 2007 increasing at 10% per annum compound. The second benchmark is the highest NAV per Ordinary Share as of the last calculation day in any preceding financial period commencing after completion of the tender in January 2007 in respect of which a performance fee has been paid compounded at 10% per annum. A performance fee amounting to £469,050 was accrued for the period ended30 June 2017 (2016: Nil).

Administrator’s fee

**\* The Company entered into an Administration Agreement with Northern Trust International Fund Administration Services (Guernsey) Limited on 1 April 2015. The Company shall pay the Administrator a fee of 12 basis points per annum on the net assets between £0 – £100 million, 10 basis points per annum on the net assets between £100 million – £150 million and 8 basis points per annum on the net assets over £150 million subject to a minimum of £7,000 per month. The Administration Agreement may be terminated by either party on ninety days notice.

5 INTEREST PAYABLE AND SIMILAR CHARGES

6 DIVIDENDS IN RESPECT OF ORDINARY SHARES

7 EARNINGS PER SHARE

Ordinary Shares

The total return per Ordinary Share (per IFRS) is based on the total gain on ordinary activities for the period attributable to Ordinary shareholders of £11,188,442 (30 June 2016: loss of £8,603,766) and on 15,915,655 (30 June 2016: 15,906,825) shares, being the weighted average number of shares in issue during the period. There are no dilutive instruments and therefore basic and diluted gains per share are identical.

The revenue return per Ordinary Share (per IFRS) is based on the revenue return on activities for the period attributable to Ordinary shareholders of £1,450,010 (30 June 2016: £1,670,927) and on 15,915,655 (30 June 2016: 15,906,825) shares, being the weighted average number of shares in issue during the period. There are no dilutive instruments and therefore basic and diluted gains per share are identical.

The capital return per Ordinary Share (per IFRS) is based on the capital gain on ordinary activities for the period attributable to Ordinary shareholders of £9,738,432 (30 June 2016: loss of £10,274,693) and on 15,915,655 (30 June 2016: 15,906,825) shares, being the weighted average number of shares in issue during the period. There are no dilutive instruments and therefore basic and diluted gains per share are identical.

ZDP shares

The return per ZDP Share (per IFRS) is based on the appropriation in respect of ZDP Shares and the amortisation of ZDP Share issue costs totaling £771,881 (30 June 2016: £844,087) and on 21,245,847 (30 June 2016: 21,353,095) shares, being the weighted average number of ZDP Shares in issue during the period.

8 FINANCIAL ASSETS DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR LOSS

As at 30 June 2017, the closing fair value of investments comprises £82,327,888 (31 Dec 2016: £72,001,134) of Smaller Companies Portfolio, £17,560,760 (31 Dec 2016: £15,171,128) of Income Portfolio and an asset of £103,078 (31 Dec 2016: asset of £132,661) in respect of long gilts held.

IFRS 13 requires the fair value of investments to be disclosed by the source of inputs using a three-level hierarchy as detailed below:

Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);

Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2); and

Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).

Details of the value of each classification are listed in the table below. Values are based on the market value of the investments as at the reporting date:

Financial assets designated as at fair value through profit or loss

Bonds and structured investments are priced by reference to market quotations which incorporate assessment of yield, maturity and the instrument’s terms and conditions.

During the prior year, equity securities held within the Income Portfolio were reclassified from Level 2 to Level 1 in order to better reflect the source of inputs for these securities.

The following table is a reconciliation of investments the Company held during the period ended 30 June 2017 and year ended 31 Dec 2016 at fair value using unobservable inputs (Level 3):

For investments categorised in Level 3 as at 30 June 2017, the below details the valuation methodologies used:

Lehman Brother Holdings Capital Trust V 6.9% – These bonds were subordinated and are in default and the Investment Adviser does not expect any return of capital or interest and the bonds are valued at zero.

Petromena AS 10.85% 2014 – The bonds are in default and are priced from a Bloomberg bond valuation model.

Silverdell plc – The stock is suspended and is valued at zero. The Investment Adviser does not expect any return of capital.

Derivative financial assets and liabilities designated as at fair value through profit or loss

It is the Company’s policy to recognise all the transfers into the levels and transfers out of the levels at the end of the reporting year. Transfers into each level shall be disclosed and discussed separately from transfer out of each level.

The derivative financial instruments held by the Company have been classified as Level 2. This is in accordance with the fair value hierarchy. The Company uses widely recognised valuation models for determining fair value of derivative financial instruments that use only observable market data and require little management judgement and estimation.

9 RECEIVABLES

10 PAYABLES

11 ZDP SHARES

The fair value of the ZDP Shares as at 30 June 2017 was £30,926,157 (31 Dec 2016: £29,767,629).

ZDP Shares carry no entitlement to income distributions to be made by the Company. The ZDP Shares will not pay dividends but have a final capital entitlement at the end of their life on 28 February 2022 of 167.2 pence following the extension of the life of the existing ZDP Shares from 31 January 2017.

A Continuation Offer was made to ZDP Shareholders whereby such holders were given an opportunity to either receive their 2017 Final Capital Entitlement of 138p or to continue their investment in the existing ZDP Shares.

Following the proposals, 19,523,014 ZDP Shares were elected for the Continuation Offer with a further 1,842,2017 New ZDP Shares being issued through an Initial Placing at 140.0p which represented a premium of 1.4% to the opening NAV per New ZDP Share.

1,834,160 ZDP Shares were elected for Redemption at their 2017 Final Capital Entitlement of 138p.

The ZDP shares were classified on the Statement of Financial Position as a current liability for the year ended31 December 2016 as the maturity date (31 January 2017) was within one year before extension of their life to28 February 2022.

It should be noted that the predetermined capital entitlement of a ZDP Share is not guaranteed and is dependent upon the Company’s gross assets being sufficient on 28 February 2022 to meet the final capital entitlement of ZDP Shares. If the Company had been wound up on 30 June 2017, the ZDP Shares would have had an entitlement of 140.16 pence each. The ZDP Shares have the right to receive notice of and attend, but shall not have the right to vote at, any general meeting.

Under the Articles of Incorporation, the Company is obliged to redeem all of the ZDP Shares on 28 February 2022 (if such redemption has not already been effected).

The number of authorised ZDP Shares is 50,000,000. The number of issued ZDP Shares is 21,365,221 (31 Dec 2016: 21,357,174). The non-amortisation of the ZDP Shares in line with the Articles has the effect of increasing the NAV per Ordinary Share by 0.21 pence.

12 SHARE CAPITAL

The Ordinary Shares (excluding treasury shares) are entitled to participate in all dividends and distributions of the Company. On a winding-up holders of Ordinary Shares are entitled to participate in the distribution and the holders of Ordinary Shares are entitled to receive notice of and attend and vote at all general meetings of the Company.

The issue and fully paid capital as at 30 June 2017 was £197,106 (31 Dec 2016: £171,867).

13 TREASURY RESERVES

14 RELATED PARTIES

Premier Asset Management (Guernsey) Limited is the Company’s Investment Manager and operates under the terms of the management agreement in force which gives it complete control over the Company’s investment portfolio.

£356,975 (30 June 2016: £305,436) of costs were incurred by the Company with this related party in the period, of which £186,147 (31 Dec 2016: £159,880) was due to this related party as at 30 June 2017.

A performance fee amounting to £469,050 was accrued for the period ended 30 June 2017 (2016: Nil).

The directors’ remuneration is disclosed in Note 4.

David Warr holds 63,000 (31 Dec 2016: 63,000) Ordinary Shares in the capital of the Company, which represented an interest of 0.40% (31 Dec 2016: 0.40%) of the Company’s Ordinary Shares in issue as at 30 June 2017.

15 SUBSEQUENT EVENTS

These Financial Statements were approved for issue by the Board on 15 August 2017. Subsequent events have been evaluated until this date.

No significant events have occurred after the statement of financial position date in respect of the Company that may be deemed relevant to the accuracy of these Financial Statements.

Directors, Advisers and Contacts

DirectorsHelen Foster Green (Chairman)John Nigel WardDavid John WarrShareholders are welcome to contact the Chairman directly by emailing her at: Acorn_Income_Fund Limited@ntrs.com.Investment ManagerPremier Asset Management (Guernsey) LimitedPO Box 255Trafalgar CourtLes BanquesSt Peter PortGuernsey GY1 3QLTel: 01483 306090Contact: Nigel SidebottomInvestment Adviser – Smaller Companies PortfolioUnicorn Asset Management LimitedPreacher’s CourtThe CharterhouseCharterhouse SquareLondon EC1M 6AUTel: 0207 2530889Contact: Simon MoonInvestment Adviser – Income PortfolioPremier Fund Managers LimitedEastgate CourtHigh StreetGuildford GU1 3DETel: 01483 306090Contact: Nigel SidebottomAdministrator and SecretaryNorthern Trust International Fund Administration Services (Guernsey) LimitedPO Box 255Trafalgar CourtLes BanquesSt Peter PortGuernsey GY1 3QLTel: 01481 745001CustodianNorthern Trust (Guernsey) LimitedPO Box 71Trafalgar CourtLes BanquesSt Peter PortGuernsey GY1 3DACorporate BrokerNumis Securities Limited10 Paternoster SquareLondon EC4M 7LTTel: 0207 2601000RegistrarAnson Registrars LimitedPO Box 426Anson HouseHavilland StreetSt Peter PortGuernsey GY1 3WXEmail: registrars@anson-group.comCompany’s Registered OfficePO Box 255Trafalgar CourtLes BanquesSt Peter PortGuernsey GY1 3QLCompany DetailsCompany Number: 34778GIIN Number: CY0IXM.99999.SL.831Ordinary SharesISIN: GB0004829437Ticker: AIFZDP SharesISIN: GG00B4W1FT21Ticker: AIFZ