AIF.L Regulatory News (AIF)

Acorn Income Fund Limited

Half-yearly Financial Report

for the six months ended 30 June 2012

Acorn Income Fund Limited

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 70-80% 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 20-30% of its assets in high yielding instruments 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.

Acorn Income Fund Limited

PERFORMANCE SUMMARY for the six months ended 30 June 2012

*assumes dividends reinvested

# adjusted for debt repayment

Acorn Income Fund Limited

Acorn Income Fund Limited

CHAIRMAN'S STATEMENT & INTERIM MANAGEMENT REPORT

Dear Shareholder

The euro crisis was the overriding influence on market sentiment during the first half of 2012. Markets rallied over the first quarter with the new coalition government in Greece accepting the EU austerity package but fell back sharply in May following a rejection of the bailout package by the Greek electorate and with focus turning towards the solvency of the Spanish banks. By the end of the first half markets had recovered from the May low points as the Greek pro austerity party gained a narrow majority in the June election. In the UK, smaller companies had a good first half with the FTSE Small Cap (ex investment trusts) Total Return index rising 13.4% against a more modest 3.4% rise in the FTSE All Share Total Return index.

Investment performance

The Company's portfolio, with its mix of UK smaller companies and fixed interest securities, generated a 10.8% total return and with the benefit of leverage the Ordinary Share NAV total return was 16.4% and the return to shareholders (share price total return) 16.2%; a satisfactory outcome against a background of considerable macro uncertainty. The deployment of the capital raised from the ZDP Share issue in December 2011 was timely. The enhanced return resulting from the leverage on the rising gross assets more than covering the cost of the ZDP Share issue.

ZDP shareholders should note that the net asset value figure shown for the ZDP Shares in the statutory accounts is calculated in accordance with IFRS accounting standards. This requires the issue costs of the ZDP Share issue to be carried against the ZDP Shares and amortised over their life. This results in a lower ZDP Share NAV than that applying if calculated in accordance with the Company's articles of association which provide for a steady accrual from the starting NAV of 100p. On this basis the ZDP Share NAV ended the period at 103. 36p and the ZDP Shares were trading at 107.50p. With the increase in gross assets, cover for the ZDP Shares improved over the period.

At 30 June 2012 75.6% of gross assets were allocated to the smaller companies portfolio and 20.6% to the income portfolio. Across the whole fund there was 2.2% in cash.

During the period, the Company reallocated the balance between the two portfolios to increase the weighting of the smaller companies portfolio, taking advantage of perceived market opportunities.

Dividends

Earnings per share for the half year were 4.48p. This compared to 3.15p in the comparable period in 2011. The 42% increase in first half earnings was due principally to the extra revenue generated from the capital provided by the ZDP Share issue. Two interim dividend of 3p each were paid during the period, compared to two dividends of 1.75p each in the comparable period in 2011. When announcing the first interim dividend in February 2012 the directors indicated that they expected to be able to sustain a 3p quarterly dividend throughout the year but that they would keep the position under review in the light of economic and market conditions.

Outlook

The economic outlook remains uncertain with the euro zone problems still unresolved and the focus now moving to the ability of larger sovereign states, such as Spain, to service their debt. However, as I noted 6 months ago many of the companies in our portfolio are performing well and maintaining their dividend distributions. While gilt yields and forecasted inflation remain low the income generated from our fixed interest portfolio and from equity dividends can provide an attractive return, with the continuing prospect of capital growth.

John Boothman

Chairman.

Acorn Income Fund Limited

RESPONSIBILITY STATEMENT for the period from 1 January 2012 to 30 June 2012

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 22 August 2012

Helen Green

Director

Acorn Income Fund Limited

INVESTMENT ADVISERS' REPORT

Smaller Companies Portfolio

During the period under review the value of the Portfolio rose by 12.3% compared to a rise of 9.4% in the Numis Smaller Companies Index (ex IC).The outperformance was caused by a significant weighting towards industrial earners which serve worldwide markets.

A number of stocks performed very strongly during the first half. Renishaw rose by 39.3% as a result of recovery in the United States and further growth in China. Diploma rose by 31.1% as the company produced very strong results with pre tax profits increasing by 19.6% and a dividend increase of 20%. James Halstead rose by 25.3% as pre tax profits increased by 14.1% with earnings per share increasing by 16.1%. Mucklow group rose by 26.4% as rental rates have started to harden.

Holdings in the majority of the stocks were increased during the period as a result of additional capital from the ZDP issue. During the period the entire holding in Stobart Group was disposed of as its strategy changed whilst the holdings in RPC and Rotork were reduced following very strong performance. Three new stocks were added to the portfolio; Silverdell, a hazardous removal contractor, Low and Bonar, a performance materials manufacturer and UK Mail, a parcels and mail delivery company.

The portfolio remains weighted towards companies serving international markets where growth prospects are much more encouraging than in the UK. The fund continues to have very little exposure to the UK high street and has no house builders where we think markets will remain difficult.

John McClure

Unicorn Asset Management Limited

Income Portfolio

The High Income Portfolio performed strongly in the first quarter following a tightening in credit spread, specifically in Financials to which the Portfolio maintains an overweight position. Returns were lacklustre in the second quarter as markets reversed but overall during the interim period the Portfolio produced capital growth whilst generating an attractively high yield.

The Monetary Policy Committee ("MPC") has maintained the base rate at 0.5% whilst the asset purchase programme was increased by £50 billion in February to £325 billion. It was therefore no great surprise to see the announcement that UK GDP fell in the first quarter. Whilst GDP only fell 0.3% this negative move was enough to put the UK technically back into a recession. Inflation has fallen back over the first half of the year and despite inflation remaining elevated the MPC now consider that, on balance, the risks to inflation have shifted to the downside.

Following the success of the European Central Bank's sizeable Long Term Refinancing Operation ("LTRO") in December, which allowed European Banks to address their near term refinancing requirements with three years loans, markets rallied. Credit spreads tightened as the likelihood of a disorderly Greek default reduced and 'safe-haven' yields rose. However despite a second LTRO in February markets remained volatile with Greek elections proving to be just one of several market moving events. Following a re-run of the Greek elections a disorderly exit was avoided as a coalition party was formed, however markets sharply turned their attention to Spain. It is believed that Spain will be the next country to seek financial aid however it is thought that financial support could be provided directly to its banks, rather than through the sovereign.

Within the Portfolio, despite the continued market volatility, we remain predominately invested in financials as we believe they offer the best return potential over the medium term. This interim period experienced significant gains from our largest holdings of Contingent Convertibles as the major banks became swamped with cash and raised capital ratios. Other bank paper issued by the likes of HSBC, Countrywide, Goldman Sachs and ING Bank also contributed significantly to the Portfolio's performance, typically returning over 10% over the period. Given the majority of the Portfolio is invested in Financials, poor performers were hard to find although utilities exposure disappointed, especially our holding of Gas Natural which suffered amidst Spanish concerns. With the proceeds received from the Company's ZDP Share issue at the end of last year, we invested into a variety of credit such as Fidelity, RSL Finance and we further increased our exposure to Contingent Convertibles. We are positioned for risk free rates to rise quicker than the market anticipates and to capitalise on a tightening in credit spreads, specifically in financials. We continue to believe that credit risk is currently more attractive than interest rate risk.

Paul Smith and Ben Hamilton

Premier Fund Managers Limited