Half-year Report

Acorn Income Fund Limited

LEI 213800UAZN7G46AHQM67

Half-yearly Condensed Report (unaudited)
For the six months ended 30 June 2019

(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 2019. The Report will shortly be available via the Investment Manager’s website https://www.premierfunds.co.uk/investors/investments/investment-trusts/acorn-income-fund 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 ?xed 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 O?cial 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 ?xed 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 diversi?ed 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 ?nance 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 signi?cant 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.

Dividend Policy

The Company’s policy is to provide Ordinary shareholders with a high income relative to the average dividend yield of the UK smaller companies comprised in the Numis Smaller Companies Index ex Investment Companies. The Company aims to pay a regular quarterly dividend in March, June, September and December. It is intended to distribute substantially all of the Company’s net income after expenses and taxation; however, the Company may retain a proportion of the Company’s income in each year as a revenue reserve to assist in providing long term stability in dividend distributions. Dividends may be paid to holders of Ordinary Shares whenever the financial position of the Company, in the opinion of the Directors, justifies such payment, subject to the Company being able to satisfy the solvency test, as defined under the Companies (Guernsey) Law 2008. The Board is alert to the potential for new share issuance to dilute earnings and accordingly will have regard to the size and timing of new share issues. The ZDP shares do not carry a right to a dividend.

Performance Summary
For the six months ended 30 June 2019

	30/06/2019	31/12/2018	% change/  return
Total Return Performance*
Total Return on Gross Assets*##			+8.80%
Numis Smaller Companies (Ex Investment Companies) Index	21,320.65	19,296.02	10.49%
FTSE All Share Index	7,430.61	6,577.39	12.97%
FTSE Small Cap (Ex Investment Companies) Index	7,194.15	6,778.97	6.12%
Share Price and NAV Returns
Ordinary Shares
Share Price	380.00p	334.00p	13.77%
NAV**	421.93p	384.61p	9.70%
IFRS NAV#	421.84p	384.51p	9.72%
Total return on Net Assets**			+12.40%
Ordinary Share Price Total Return*			+15.50%
Discount (-) to NAV on Ordinary Shares**	-9.94%	-13.16%
ZDP Shares
Share Price	157.00p	151.50p	3.63%
NAV**	151.13p	148.36p	1.87%
IFRS NAV#	151.19p	148.43p	1.85%
Premium (+) to NAV on ZDP Shares**	+3.88%	+2.12%
Cover on ZDP Shares***	3.40:1
Package Premium (+) Discount (-) to
NAV Combined Ordinary and ZDP Shares	-5.45%	-7.95%	-
	6 months to 30/6/2019	6 months to 30/6/2018	% change
Dividends and Earnings
Revenue return per ordinary share	11.16p	10.30p	8.35%
Dividends declared per ordinary share	10.40p	9.90p	5.05%

* assumes dividends reinvested
** calculated in accordance with the Articles
# calculated in accordance with International Financial Reporting Standards
## adjusted for share buybacks
Sources: Index data: Bloomberg, Total return on gross and net assets, PFM, JP Morgan Cazenove

Company Summary
History

The Company was incorporated on 5 January 1999 and commenced its activities on 11 February 1999. The portfolio is divided into two sub portfolios, a Smaller Companies Portfolio representing approximately 70% to 80% of the total with the balance invested in an Income Portfolio investing in fixed income securities, investment company shares and structured investments. The Company has always been leveraged, initially through bank debt and now through Zero Dividend Preference (“ZDP”) Shares. In December 2016, shareholders approved the extension of the ZDP Shares setting a new redemption date of 28 February 2022.

Capital Structure

Zero Dividend Preference Shares (1p each)	21,230,989 (excluding treasury shares). The ZDP Shares will have a ?nal capital entitlement of 167.2 pence per ZDP Share on 28 February 2022 following the extension of the life of the existing shares from 31 January 2017, subject to there being su?cient capital in the Company. The ZDP Shares are not entitled to any dividends. ZDP shareholders rank ahead of the ordinary shareholders in regards to rights as to capital. The ZDP shareholders have the right to receive notice of all general meetings of the Company, but do not have the right to attend or vote unless the business of the meeting involves an alteration of the rights attached to the ZDP Shares, in which case the holders of ZDP Shares can attend and vote.
Ordinary Shares (1p each)	15,816,687 (excluding treasury shares). 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.
Treasury Shares	As at 30 June 2019, there were 1,325,972 Ordinary and 1,779,873 ZDP Shares held in treasury.
Shareholder Funds	£66.72 million as at 30 June 2019 (calculated in accordance with IFRS) £66.73 million as at 30 June 2019 (calculated in accordance with the articles)
Market Capitalisation of the Ordinary Shares	£60.10 million as at 30 June 2019
The Board	The Board consists of three independent non-executive directors (the “Directors”), Nigel Ward (Chairman), David Warr and Sharon Parr, who was appointed to the Board on 16 August 2019. Nigel Sidebottom was appointed to the Board on 5 February 2019 and is not considered independent by virtue of his recent employment with the Premier Asset Management Group PLC (the parent company of the Investment Manager).
Investment Manager	Premier Asset Management (Guernsey) Limited (“PAMG”) is a subsidiary of Premier Asset Management Group PLC (“PAM”). PAM had approximately £6.7bn of funds under management as at 30 June 2019. PAMG Ltd is licensed under the provisions of the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended, by the Guernsey Financial Services Commission to carry on controlled investment business.
Investment Advisers	Premier Fund Managers Limited (“PFM Ltd”) – the Company’s Income Portfolio is now managed by Chun Lee and Robin Willis, following Paul Smith’s departure from PFM Ltd in August 2019. Unicorn Asset Management Limited (“Unicorn Ltd”) – the Company’s Smaller Companies Portfolio is managed by Simon Moon and Fraser Mackersie.
Secretary/Administrator	Northern Trust International Fund Administration Services (Guernsey) Limited.
Corporate Broker	Numis Securities Limited (“Numis”) provide all corporate broking  services.
Management Fee	0.7% per annum (Total Assets) charged 75% to capital and 25% to revenue. Minimum annual management fee £100,000. In addition, a performance fee is payable at the year-end if the target set out in note 4 is achieved. This is charged 100% to capital.
Registrar	Anson Registrars Limited

Financial Calendar

Company’s year end	31 December
Annual results announced	March/April
Company’s half year end	30 June
Annual General Meeting	16 August 2019
Half-year results announced	August
Dividend payments	At the end of March, June, September and December

Company Website

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

Chairman’s Statement and Interim Management Report
30 June 2019

Dear Shareholder

The first half of this year to 30 June 2019 has seen a positive bounce back from a disappointing 2018. The gross portfolio return was 8.8% compared to the total return on the Numis Smaller Companies (Ex Investment Companies) Index of 10.49%. However the gearing provided by the Zero Dividend Preference shares was beneficial for shareholders lifting NAV total return for ordinary shareholders to 12.4%.  A narrowing of the discount to net asset value over the period provided a further uplift in return. The ordinary share price total return over the six months was 15.5%.

The backdrop to investment this year was in marked contrast to 2018 as the easing of headwinds concerning Sino-US trade wars and interest rate fears ameliorated sentiment. Furthermore, the Spring reporting season was a good one for the equity portfolio with many investments beating expectations. Despite the recovery we still feel that ‘Brexit uncertainty’ weighs upon smaller, domestically focused companies held in the portfolio. We wait to see whether the new government and its discussions with a transitional European government will help or hinder the revaluation of this sector. The investment adviser reports give further detail.

Discount/Premium Management

During periods of weaker equity markets and domestic uncertainty the discount, ie the difference between the value of the assets and the share price, on investment trusts can widen.  This half year the discount has fluctuated due to a variety of impacts: market sentiment, the macro backdrop and consensus on UK smaller companies whilst the result of Brexit is clarified. The discount ranged between 8% and 10% for most of the period and as at 30 June 2019 was 10%. However, it has since widened out to some 16%, reflecting these uncertainties.

Asset Allocation

The investment advisers meet regularly to discuss the Asset Allocation. Coming into 2019 after a weak 2018, Acorn’s investment advisers continued to remain positive on the outlook for the UK smaller companies in which the Company is invested and cautious about the outlook for global, especially sovereign, bond markets. Your board supported these views. As a consequence, asset allocation at the start of the year was approximately 75% to the Smaller Companies Portfolio and 25% to the Income Portfolio, but as well as drifting up in favour of equities after some growth, the Asset Allocation committee agreed that the current 77.5% to 22.5% split should continue.

Share issuance and buy backs

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 have generally been executed in both classes of share in the correct ratio to maintain the capital structure. Issues are done at a premium to the packaged 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 enhance cover for the ZDP shares and be NAV enhancing for the ordinary shares. There were no buy backs during this period as the Board believes that capital can currently be more productively deployed into the Smaller Companies Portfolio. There are 15,816,687 Ordinary Shares in issue.

Zero Dividend Preference Shares (‘ZDPs’)

The number of ZDPs in issuance is 21,230,989. The ZDPs were trading at a 3.88% premium and were 3.4x covered as at 30 June 2019.

Earnings and Dividends

Revenue earnings in the first half were 11.16 pence per ordinary share compared to 10.30 pence in the first six months of 2018.

The stable income stream from the Company’s Income Portfolio and levels of cash generation of underlying holdings in the Smaller Company Portfolio has enabled the board to increase dividends in the first half by 5%. A first interim dividend of 5.2p was paid on 29 March 2019 and the second interim dividend, also of 5.2p, was paid on 28 June 2019. These dividends were covered by first half earnings of 11.16p. Based on the share price as at 30 June 2019 and the 5.2p quarterly dividends already paid the ordinary shares yield 5.5% on an annualised basis.

Regulation

As you will be aware, updates in the Markets in Financial Instruments Directive (“MiFID II”) became effective in January 2018. One of the main changes introduced by the Directive relates to investment research. Under MiFID II, investment managers are only permitted to receive external research from third parties when it is paid for from a separate Research Payment Account (“RPA”) managed in accordance with the rules of the Financial Conduct Authority (“FCA”). MiFID II has not led to a material change in returns or overall costs for the Company as our Investment Advisers’ firms meet the cost of investment research within their fees. In compliance with the Packaged Retail and Insurance-based Investment Products regulations which also came into effect in January 2018 the Company has published Key Information Documents (“KIDs”) which can be viewed on the Company’s website, shown below.

Outlook

We still believe in the long term attractions of our overall investment strategy and have confidence in our Investment Advisers to steer our asset allocation and stock and alternative income strategy selection.  Pleasingly, despite the ongoing domestic uncertainty and broader macro issues discussed, the dividend of the Company increased by 10% during the period. As part of their process, the Investment Advisers continue to meet the majority of our investee companies on a regular basis and carry out extensive due diligence on the various alternative income opportunities we look to invest in.  As active managers they continue to assess a number of potential new investment opportunities but remain content with the current portfolios. 

Board refreshment

As reported within the last Annual Report there is a planned succession which sees Helen Green standing down from the board on 16 August 2019 having served 12 years as a board member and seven years as your chairman. We can also report that I will become Chairman following Helen Green’s resignation and that Sharon Parr has recently been appointed to the board as a non-executive director. We will continue to keep under review the composition of the Board.

Contact with shareholders

Shareholders are always welcome to attend the Annual General Meeting in August or to contact the Chairman directly through the email address [e-mail]. There is a dedicated website where you may also like to find further information:

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

Thank you for your ongoing support as an investor in the Company, as we look forward to the six months ahead.

And finally, I would like to take this opportunity personally and on behalf of the board to thank Helen Green for her valuable service and contribution, not least for her leadership of the board over the past seven years.

Nigel Ward
Chairman
16 August 2019

Statement of Principal Risks and Uncertainties
30 June 2019

The principal risks assessed by the Board relating to the Company were disclosed in the Annual Report and Audited Financial Statements for the year ended 31 December 2018. The principal risks disclosed include market risk, liquidity risk, foreign currency risk and reinvestment risk. A detailed explanation can be found in the annual report. The Board and Portfolio Manager do not consider these risks to have changed and remain relevant for the remaining six months of the financial year.

Market risk

Market risk is the risk associated with changes in market prices including spreads, interest rates, economic uncertainty, changes in laws and national and international political circumstances.

Reinvestment risk

Reinvestment risk is the risk that monies resulting from principal and income payments from a bond will not be reinvested at the prevailing interest rate when the bond was initially purchased.

Credit risk

The investment portfolio is comprised of equities and bonds which expose the Company to credit risk, being the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company.

Liquidity risk

Liquidity risk is that the Company does not have sufficient cash resources to meet obligations, including the dividend target as they fall due or can only do so on terms that are materially disadvantageous.

Foreign currency risk

Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The majority of the Company’s assets and liabilities are denominated in sterling. However, some of the investments in the Income Portfolio may be denominated in foreign currencies. Generally, these exposures are hedged back to sterling and there is unlikely to be any significant direct currency risk.

Interest rate risk

The Company's investment portfolios, particularly the Income Portfolio, include investments bearing interest at fixed rates. Generally, when interest rates rise, the market prices of fixed interest securities fall and when interest rates fall the prices of fixed interest securities rise. The Company will therefore be exposed to movements in interest rates. The Company has fixed rate leverage through its ZDP Shares. In January 2017, the redemption date of the Company’s ZDP shares was extended to 28 February 2022 at a rate of 3.85% per annum. Replacing this leverage in 2022 might involve the Company paying a higher accrual rate on an issue of new ZDP Shares if interest rates have risen.

Discount volatility

Being a closed-end fund, the Company’s shares may trade at a discount or premium to their Net Asset Value (“NAV”). The magnitude of this discount or premium ?uctuates daily and can vary signi?cantly. Thus, for a given period of time, it is possible that the market price could decrease despite an increase in the Company’s NAV. The Directors review the discount levels regularly. The Investment Advisers actively communicate with the Company’s major shareholders and potential new investors, with the aim of managing discount levels.

Brexit

The United Kingdom’s vote to leave the European Union has introduced new uncertainties and instability into the financial markets. As the process of a major country leaving the EU has no precedent, the Board and the Investment Manager expect an ongoing period of market uncertainty as the implications are processed.

Related parties

Related party balances and transactions are disclosed in note 14 of these Unaudited Condensed Interim Financial Statements.

Going concern

The Directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern and to identify any material uncertainties to the Company’s ability to continue as a going concern for at least 12 months from the date of approving the financial statements.

The Board believes that it is appropriate to adopt the going concern basis in preparing the Unaudited Condensed Interim Financial Statements in view of its holdings in cash and cash equivalents and certain more liquid investments within the portfolios and the income deriving from those investments, meaning the Company has adequate financial resources to meet its liabilities as they fall due.

Responsibility Statement
For the period from 1 January 2019 to 30 June 2019

The Directors are responsible for preparing the Unaudited Half-yearly Financial Report (the “Unaudited Condensed Interim Financial Statements”), which has not been audited or reviewed by an independent auditor, and confirm that to the best of their knowledge:

·      the Unaudited Condensed Interim Financial Statements have been prepared in accordance with International Accounting Standard (IAS) 34, 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 ?rst six months of the ?nancial year and their impact on the Unaudited Condensed Interim 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 ?rst six months of the current ?nancial year and that have materially a?ected the ?nancial 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:

Nigel Ward
Chairman
16 August 2019

Investment Advisers’ Reports

The Smaller Companies Portfolio

In the six months from 31 December 2018 to 30 June 2019 the Smaller Companies Portfolio generated a total return of +11.49%, outperforming the benchmark index, the NSCI (ex IC), which produced a total return of +10.49%.

In contrast to the second half of 2018, the first six months of 2019 saw a supportive environment for equity markets as interest rate expectations were tempered and some progress was made in talks between the US and China on trade. As such, markets were quick to rerate and largely recover the lost ground from the 4th quarter of 2018. The Spring reporting season was a good one for the portfolio and we saw the vast majority of holdings meet or beat expectations. Despite the recovery we still feel that ‘Brexit uncertainty’ is weighing on smaller, more domestically focussed companies, and will continue to until there is more clarity on the UK’s terms of exit from the EU.

The Smaller Companies Portfolio initiated positions in four new holdings in the period under review, one of which was through the acquisition of an existing holding (Mucklow by LondonMetric Property plc; partially through shares). The other new positions were: NCC Group, STV Group, and Goodwin. NCC Group is a leading cyber security consultancy and escrow business.  The company had suffered a number of operational challenges over the past few years and was consequently trading at depressed valuation multiples.  An able new management team combined with the excellent reputation the company has within its sector should position it well to deliver future profitable growth.  STV Group, a Scottish television broadcaster, was added to the portfolio when it was trading at depressed valuations and accordingly offered a healthy, well-covered, dividend yield. Goodwin is a high quality engineering business that has the capacity to manufacture and machine specialist large-scale steel castings.

The first half of the year saw a marked increase in corporate activity involving our investee companies, with three holdings receiving bid approaches during the period, generating a combined contribution to performance of just under 300bps.  As already noted Mucklow was acquired by LondonMetric Property plc in a cash and share deal, Dairy Crest was purchased by the Canadian dairy firm Saputo and Manx Telecom was acquired by Basalt Infrastructure Partners.

Other notable contributions to performance during the first half of the year included 4imprint, the US focussed supplier of corporate branded promotional products, which delivered further strong organic growth and was promoted to the FTSE 250, adding 125bps to the portfolio performance; Marshalls, the UKs leading supplier of paving products which also continues to trade strongly, adding 88bps to performance; and Macfarlane Group, the largest distributor of protective packaging in the UK, which added 85bps to portfolio returns.  There were also meaningful contributions from Polar Capital (75bps), James Halstead (65bps), Secure Trust Bank (62bps), Alpha FX (60bps) and Primary Health Properties (60bps).

The largest individual negative contributor was XPS Pensions, which provided a disappointing market update towards the end of period highlighting current challenges in its largest division, Pension Advisory.  Despite this short term setback we remain long term supporters of the business and the holding has been increased on share price weakness.  During the period under review XPS had a negative impact on performance of 85bps.  The holding in Saga was exited in full following a poor trading update flagging continued tough conditions in the highly competitive insurance market.  Prior to disposal Saga had a negative impact on performance of 62 bps.

As part of our fundamental analysis of companies we continue to place considerable emphasis on the quality of the underlying dividend payments.   The ability to consistently pay a sustained or growing dividend that is comfortably covered by earnings is exceptionally attractive in an environment of heightened volatility, as such we remain happy with the current shape of the portfolio. Special or supplementary dividend payments are an additional payment over and above the ordinary dividend and can indicate that a business is operating well, has a strong balance sheet and also confidence in its outlook. Pleasingly six of the holdings within the portfolio paid special dividends over the period.

In the equivalent report last year we mentioned the potential that clarification of the terms of Brexit could have on valuations of domestically focussed stocks. Regrettably twelve months later we find ourselves little, if any, further forward. As such the sentiment is still negative towards these companies, and price moves are still volatile; accordingly we continue to attempt to benefit from this by actively buying into mispriced stocks and taking advantage of this negative sentiment.

Fraser Mackersie and Simon Moon
Unicorn Asset Management Limited

The Income Portfolio

Year to date, Government bonds have rallied strongly with yields falling in some cases, to record lows. Central banks have begun to posture more dovishly in response to the softening economic data being witnessed globally whilst trade tensions threaten to cut activity and confidence further.

With trillions of dollars of global debt now trading on negative yields many bond buyers are effectively paying governments to have their money. But alongside this, risk assets such as equities and corporate bonds have also been rallying. Trying to make sense of these conflicting moves might lead to the conclusion that markets are preparing for a scenario whereby central banks will ease quickly and effectively enough to offset the slowdown meaning global economies escape unscathed. However positioning strongly for central bank’s magical ability to fine-tune policy seems highly complacent. Historically this has not been the case and when business cycles turn, risk assets have tended to see declines, even as central banks are easing aggressively as cuts struggle to provide support instantaneously.

As it has been since the financial crisis, perceived market wisdom is if the central banks are accommodating, then investors should immediately add risk. We find this hard to justify in bonds given very expensive valuations and the scope for markets to be surprised, especially on the downside in terms of credit risk, should company earnings weaken materially. We therefore believe it is still prudent to stay focussed on shorter dated corporate bonds where visibility and predictability of returns is stronger and also like selective instruments where issuers are incentivised to buy back bonds ahead of maturity, improving the risk-return profile.

An example has been our holding of Barclays 14% subordinated bonds which were called during the quarter, as expected, given the penal coupon step-up they would face if they chose to leave them outstanding. Meanwhile we added some Sainsbury hybrid bonds with short-dated call features on the basis that it would be uneconomic for the company not to exercise this option. In addition the company has also announced a focus on deleveraging following the collapse of the proposed takeover of Asda, which could mean the bonds get bought back even sooner.

Trying to identify idiosyncratic opportunities within credit markets is getting trickier but is still possible. Our Tesco bond holdings benefitted from an associated improvement in their credit spreads as ratings agency Moody’s raised the company’s credit rating to investment grade status, reflecting the improved operating profit and stronger credit profile we have seen in recent years.

Within our non-bond investments, Fondul Proprietatea has seen strong NAV growth and a tightening in the discount of late whilst also paying a high dividend. The company invests in both listed and unlisted Romanian energy and infrastructure companies.  The Romanian stock market has traded strongly following the pro-market Union to Save Romania (USR) Party’s strong performance in the European elections, improving the prospects for IPOs of some of the underlying assets.

Alternative investments to traditional fixed income help diversify the drivers of return. Meanwhile the weighting of the Income Portfolio remains at the lower end of the typical range given uncompelling bond valuations.

Paul Smith, Chun Lee and Robin WillisPremier Fund Managers Limited

Schedule of Principal Investments

As at 30 June 2019

Position	Company	Market Value £’000	Percentage of Portfolio	Percentage of Total Assets 2019
Smaller Companies Portfolio
1	Telecom Plus plc	2,679,000	3.64	2.69
2	Polar Capital Holdings plc	2,463,760	3.35	2.47
3	Primary Health Properties plc	2,397,600	3.26	2.41
4	Ocean Wilsons Holdings Limited	2,362,500	3.21	2.37
5	James Halstead plc	2,328,420	3.16	2.34
6	Goodwin plc	2,210,000	3.00	2.22
7	Secure Trust Bank plc	2,157,300	2.93	2.17
8	FDM Group Holdings plc	2,064,600	2.80	2.07
9	4Imprint Group plc	2,011,690	2.73	2.02
10	LondonMetric Property plc	1,938,938	2.63	1.95
11	Macfarlane Group plc	1,916,000	2.60	1.92
12	Severfield plc	1,881,000	2.55	1.89
13	Somero Enterprises Inc	1,834,000	2.49	1.84
14	Hollywood Bowl Group plc	1,792,000	2.43	1.80
15	Palace Capital plc	1,770,000	2.40	1.78
16	Numis Corporation plc	1,768,500	2.40	1.78
17	Clipper Logistics plc	1,738,646	2.36	1.75
18	Regional Reit Ltd	1,689,645	2.29	1.70
19	Sabre Insurance Group plc	1,686,400	2.29	1.69
20	Castings plc	1,640,000	2.23	1.65
TOTAL		40,329,999	54.75	40.51
Income Portfolio
1	Investec Bank 0.00% 22/08/2022	1,195,745	5.44	1.20
2	Apq Global Limited 3.5% CULS 30/09/2024	827,700	3.76	0.83
3	Pershing Square Holdings 5.50% 15/07/2022	819,046	3.72	0.82
4	Pershing Square Holdings Limited	812,195	3.69	0.82
5	Value & Income Trust 11.00% 31/03/2021	805,384	3.66	0.81
6	Real Estate Investors plc	769,500	3.50	0.77
7	UBS 6.375% 19/11/2024	713,202	3.24	0.72
8	Tesco Personal Finance 1.00% 2019	665,863	3.03	0.67
9	Credit Suisse Group 2.75% 08/08/2025	618,293	2.81	0.62
10	US 0.875% IL Treasury 2047	614,421	2.79	0.62
11	London Stock Exchange 9.125%	613,974	2.79	0.62
12	Supermarket Income REIT plc	603,200	2.74	0.61
13	Burford Capital 6.5% 2022	545,628	2.48	0.55
14	JPMorgan Global Convertibles Income	520,800	2.37	0.52
15	AT&T 2.9% 2026	520,030	2.36	0.52
16	Deutsche Bank Credit European 0025 Index 29/10/2020	501,859	2.28	0.50
17	British Land (White) 2015 9/6/2020	492,250	2.24	0.49
18	Sainsbury 6.5% PERP call 7/20	470,250	2.14	0.47
19	British American Tobacco plc 4% 04/09/2026	436,446	1.98	0.44
20	GS Group 3.125% 25/07/2029	422,018	1.92	0.42
TOTAL		12,967,804	58.94	13.02

As at 31 December 2018

Position	Company	Market Value £’000	Percentage of Portfolio	Percentage of Total Assets 2018
Smaller Companies Portfolio
1	Ocean Wilsons Holdings Limited	2,485,707	3.78	2.68
2	Telecom Plus plc	2,293,749	3.49	2.47
3	James Halstead plc	2,135,000	3.25	2.30
4	Somero Enterprises Inc	2,100,000	3.19	2.26
5	Marshalls plc	1,905,680	2.90	2.05
6	Mucklow A&J Group plc	1,848,541	2.81	1.99
7	4Imprint Group plc	1,845,000	2.81	1.99
8	Wincanton plc	1,840,000	2.80	1.98
9	Park Group plc	1,812,500	2.76	1.95
10	Primary Health Properties plc	1,772,800	2.70	1.91
11	Polar Capital Holdings plc	1,766,238	2.69	1.90
12	Hill & Smith Holdings plc	1,720,025	2.62	1.85
13	Hollywood Bowl Group plc	1,700,160	2.59	1.83
14	Dairy Crest Group plc	1,692,165	2.57	1.82
15	Palace Capital plc	1,662,470	2.53	1.79
16	Severfield plc	1,631,850	2.48	1.76
17	Macfarlane Group plc	1,610,991	2.45	1.74
18	DiscoverIE Group plc	1,609,898	2.45	1.74
19	Sabre Insurance Group plc	1,603,425	2.44	1.73
20	Secure Trust Bank plc	1,539,935	2.34	1.66
		36,576,134	55.65	39.40
Income Portfolio
1	Investec Bank 0.00% 22/08/2022	1,158,869	4.92	1.25
2	St Modwen Properties 2.875% 06/03/19	897,537	3.81	0.97
3	Value & Income Trust 11.00% 31/03/2021	862,820	3.66	0.93
4	Apq Global Limited 3.5% CULS 30/09/24	845,500	3.59	0.91
5	United Kingdom 1.25% IL Treasury 2032	784,386	3.33	0.85
6	Tesco Personal Finance 1.00% 2019	649,347	2.75	0.70
7	Pershing Square Holdings Limited	599,450	2.54	0.65
8	Credit Suisse Group 2.75% 08/08/2025	586,402	2.49	0.63
9	Burford Capital 6.5% 2022	549,701	2.33	0.59
10	US 0.875% IL Treasury 2047	547,339	2.32	0.59
11	British American Tobacco plc 4% 04/09/2026	528,580	2.24	0.57
12	Barclays plc 14% Perp	522,697	2.22	0.56
13	The Royal Bank of Scotland Group Plc 6.375%	513,213	2.18	0.55
14	JPMorgan Global Convertibles Income	512,400	2.17	0.55
15	Trafford Centre 2.875% 28/04/2019	503,042	2.13	0.54
16	AT&T 2.9% 2026	488,819	2.07	0.53
17	GS Group 3.125% 25/07/2029	481,106	2.04	0.52
18	British Land White 0.00%	480,199	2.04	0.52
19	Sainsbury 6.5% PERP call 7/20	470,661	2.00	0.51
20	Walgreens Boots 3.60% 20/11/2025	413,036	1.75	0.45
TOTAL		12,395,104	52.58	13.37

Condensed Statement of Comprehensive Income (unaudited)

For the period ended 30 June 2019

						Period ended 30 June 2019		Period ended 30 June 2018
		Revenue		Capital		Total		Total
	Notes	GBP		GBP		GBP		GBP
Net gains/(losses) on financial assets designated as at
fair value through profit or loss	8	-		6,687,975		6,687,975		(1,018,734)
Gains/(losses) on derivative financial instruments	2	-		23,514		23,514		(85,701)
Investment income	3	2,154,679		-		2,154,679		1,913,194
Total income and gains		2,154,679		6,711,489		8,866,168		808,759
Expenses	4	(389,398)		(339,815)		(729,213)		(610,942)
Return on ordinary activities before finance costs
and taxation		1,765,281		6,371,674		8,136,955		197,817
Interest payable and similar charges	5	-		(586,289)		(586,289)		(576,809)
Return/(loss) on ordinary activities before taxation		1,765,281		5,785,385		7,550,666		(378,992)
Taxation on ordinary activities		-		-		-		-
Other comprehensive income		-		-		-		-
Total comprehensive income/(loss) for the period
attributable to ordinary shareholders		1,765,281		5,785,385		7,550,666		(378,992)
		Pence		Pence		Pence		Pence
Return/(loss) per Ordinary Share	7	11.16		36.58		47.74		(2.38)
Dividend per Ordinary Share	6	10.40		-		10.40		9.90
Return per ZDP Share	7	-		2.76		2.76		2.70

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 the financial statements.

Condensed Statement of Financial Position (unaudited)
As at 30 June 2019

			30 June 2019		31 Dec 2018
	Notes		GBP		GBP
NON-CURRENT ASSETS
Financial assets designated as at fair value through profit or loss	8		95,800,957		89,329,557
CURRENT ASSETS
Receivables	9		1,614,301		525,847
Cash and cash equivalents			2,178,078		2,884,610
Derivative financial instruments			5,955		14,086
			3,798,334		3,424,543
TOTAL ASSETS			99,599,291		92,754,100
CURRENT LIABILITIES
Derivative financial instruments			189,593		199,600
Payables - due within one year	10		588,288		225,111
			777,881		424,711
NON-CURRENT LIABILITIES
ZDP Shares	11		32,099,725		31,513,434
TOTAL LIABILITIES			32,877,606		31,938,145
NET ASSETS			66,721,685		60,815,955
EQUITY
Share capital and premium	12		27,420,824		27,420,824
Revenue reserve			3,298,548		3,178,203
Capital reserve			30,782,475		24,997,090
Other reserves	13		5,219,838		5,219,838
TOTAL EQUITY			66,721,685		60,815,955
			Pence		Pence
Net asset value per Ordinary Share (per Articles)			421.93		384.61
Net asset value per Ordinary Share (per IFRS)			421.84		384.51
Net asset value per ZDP Share (per Articles)			151.13		148.36
Net asset value per ZDP Share (per IFRS)			151.19		148.43

The financial statements were approved by the Board of Directors and authorised for issue on 16 August 2019 and signed on its behalf by:

Nigel Ward
Chairman

The notes form an integral part of the financial statements.

Condensed Statement of Cash Flows (unaudited)
For the period ended 30 June 2019

		Period ended 30 June 2019		Period ended 30 June 2018
	Notes	GBP		GBP
Operating activities
Return/(loss) on ordinary activities before taxation		7,550,666		(378,992)
Net (gains)/losses on financial assets designated as at fair value through profit or loss	8	(6,687,975)		1,018,734
Investment income	3	(2,154,679)		(1,913,194)
Interest expense	5	586,289		576,809
Decrease in derivative financial assets		8,131		10,831
(Decrease)/increase in derivative financial liabilities		(10,007)		211,385
Increase/(decrease) in payables and appropriations excluding amount due to brokers	10	363,177		(616,801)
Increase in receivables excluding accrued investment income and due from brokers	9	(1,220)		(28,981)
Net cash flow used in operating activities before investment income		(345,618)		(1,120,209)
Investment income received		2,001,998		2,021,202
Net cash flow from operating activities before taxation		1,656,380		900,993
Tax paid		-		-
Net cash flow from operating activities		1,656,380		900,993
Investing activities
Purchase of financial assets designated at fair value through profit or loss		(20,038,297)		(16,988,808)
Sale of financial assets designated at fair value through profit or loss		19,320,321		16,129,282
Net cash flow used in investing activities		(717,976)		(859,526)
Financing activities
Equity dividends paid	6	(1,644,936)		(1,575,752)
Net cash flow used in financing activities		(1,644,936)		(1,575,752)
Decrease in cash and cash equivalents		(706,532)		(1,534,285)
Cash and cash equivalents at beginning of period		2,884,610		4,976,255
Cash and cash equivalents at end of period		2,178,078		3,441,970

The notes form an integral part of the financial statements.

Condensed Statement of Changes in Equity (unaudited)
As at 30 June 2019

	Share Capital and Premium	Revenue Reserve	Capital  Reserve	Other  Reserves	Total
	30 June 2019	30 June 2019	30 June 2019	30 June 2019	30 June 2019
	GBP	GBP	GBP	GBP	GBP
Balances as at 1 January 2019	27,420,824	3,178,203	24,997,090	5,219,838	60,815,955
Total comprehensive income for the period attributable to ordinary shareholders
	-	1,765,281	5,785,385	-	7,550,666
Dividends	-	(1,644,936)	-	-	(1,644,936)
Balances as at 30 June 2019	27,420,824	3,298,548	30,782,475	5,219,838	66,721,685

As at 30 June 2018

	Share Capital and Premium	Revenue Reserve	Capital Reserve	Other Reserves	Total
	30 June 2018	30 June 2018	30 June 2018	30 June 2018	30 June 2018
	GBP	GBP	GBP	GBP	GBP
Balances as at 1 January 2018	27,633,383	2,886,872	41,506,186	5,431,762	77,458,203
Total comprehensive loss for the period attributable to ordinary shareholders	-	1,639,559	(2,018,551)	-	(378,992)
Dividends	-	(1,575,752)	-	-	(1,575,752)
Balances as at 30 June 2018	27,633,383	2,950,679	39,487,635	5,431,762	75,503,459

The notes form an integral part of the financial statements.

Notes to the Condensed Financial Statements (unaudited)

For the period ended 30 June 2019

1.      ACCOUNTING POLICIES

(a)     Basis of preparation

The ?nancial statements for the six months ended 30 June 2019 have been prepared in accordance with IAS 34 “Interim Financial Reporting” as adopted by the European Union (“EU”), 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 2018.

The accounting policies and methods of computation followed in these Unaudited Condensed Interim Financial Statements are consistent with those of the latest Annual Audited Financial Statement for the year ended 31 December 2018 which were prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the EU.

(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 re?ect the activities of an Investment Company and in accordance with the guidance issued by the Association of the Investment Companies (“AIC”), supplementary information which analyses the Condensed Statement of Comprehensive Income between items of capital and revenue nature has been presented within the Condensed 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 di?erent investment objectives and strategies and contain investments in di?erent 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:

	Investment objectives and principal investments products
Income Portfolio	To enhance income and control risk by investing in fixed interest securities, including convertible securities, structured investments across a range of asset classes, shares of other investment companies, including property investment companies, and open-ended fixed interest funds.
Small Companies Portfolio	To maximise income and capital growth through investments in smaller capitalised UK companies.

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 ?nancial statements.

						Smaller
				Income		Companies
				Portfolio		Portfolio		Unallocated		Total
				GBP		GBP		GBP		GBP
30 June 2019
External revenues:
Net gains on financial assets designated as at fair value
through profit or loss				340,533		6,347,442		-		6,687,975
Gains on derivative financial instruments				23,514		-		-		23,514
Investment income:
Dividend income				83,619		1,785,594		-		1,869,213
Bond income				281,319		-		-		281,319
Sundry income				4,147		-		-		4,147
Total gains				733,132		8,133,036		-		8,866,168
Expenses				-		-		(729,213)		(729,213)
Interest payable and similar charges				-		-		(586,289)		(586,289)
Total comprehensive income/(loss) for the period attributable to shareholders				733,132		8,133,036		(1,315,502)		7,550,666
						Smaller
				Income		Companies
				Portfolio		Portfolio		Unallocated		Total
				GBP		GBP		GBP		GBP
30 June 2019
Financial assets designated as at fair value through
profit or loss				22,150,565		73,650,392		-		95,800,957
Receivables				659,791		952,080		2,430		1,614,301
Derivative financial instruments				5,955		-		-		5,955
Cash and cash equivalents				1,281,722		896,356		-		2,178,078
Total assets				24,098,033		75,498,828		2,430		99,599,291
Derivative financial instruments				189,593		-		-		189,593
Payables				-		-		588,288		588,288
Total current liabilities				189,593		-		588,288		777,881

						Smaller
				Income		Companies
				Portfolio		Portfolio		Unallocated		Total
				GBP		GBP		GBP		GBP
30 June 2018
External revenues:
Net gains/(losses) on financial assets designated as at fair
value through profit or loss				952,642		(1,971,376)		-		(1,018,734)
Losses on derivative financial instruments				(85,701)		-		-		(85,701)
Dividend income				27,435		1,655,437		-		1,682,872
Bond income				230,322		-		-		230,322
Total income and gains/(losses)				1,124,698		(315,939)		-		808,759
Expenses				-		-		(610,942)		(610,942)
Interest payable and similar charges				-		-		(576,809)		(576,809)
Total comprehensive income/(loss) for the period attributable to shareholders				1,124,698		(315,939)		(1,187,751)		(378,992)
						Smaller
				Income		Companies
				Portfolio		Portfolio		Unallocated		Total
				GBP		GBP		GBP		GBP
30 June 2018
Financial assets designated as at fair value through
profit or loss				16,349,970		87,119,829		-		103,469,799
Receivables				345,833		317,110		-		662,943
Derivative financial instruments				18,746		-		-		18,746
Cash and cash equivalents				1,713,756		1,728,214		-		3,441,970
Total assets				18,428,305		89,165,153		-		107,593,458
Derivative financial instruments				212,357		-		-		212,357
Payables				-		-		755,622		755,622
Total current liabilities				212,357		-		755,622		967,979

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.

Other

Rest of

UK

Guernsey

Jersey

Europe

the world

Total

GBP

GBP

GBP

GBP

GBP

GBP

30 June 2019

External revenues

Total Revenue

1,664,079

115,582

-

119,342

255,676

2,154,679

Other

Rest of

UK

Guernsey

Jersey

Europe

the world

Total

GBP

GBP

GBP

GBP

GBP

GBP

30 June 2018

External revenues

Total Revenue

1,572,609

73,431

-

70,626

196,528

1,913,194

The Company did not hold any non-current assets during the period other than ?nancial instruments (30 June 2018: £nil).

Major customers

The Company regards its shareholders as customers. As at the period ended 30 June 2019, the Company had no shareholders with a holding greater than 10%. (31 December 2018: HSBC Issuer Services Common Depositary Nominee (UK) Limited).

3.      INVESTMENT INCOME

				Period ended		Period ended
				30 June 2019		30 June 2018
				GBP		GBP
Dividend income				1,869,213		1,682,872
Bond income				281,319		230,322
Sundry income				4,147		-
				2,154,679		1,913,194

4.      EXPENSES

				Period ended 30 June 2019						Period ended 30 June 2018
				Revenue		Capital		Total		Revenue		Capital		Total
				GBP		GBP		GBP		GBP		GBP		GBP
Manager's fee*				84,969		254,908		339,877		92,537		277,611		370,148
Administrator's fee**				41,200		-		41,200		45,108		-		45,108
Registrar's fee				19,810		-		19,810		14,532		-		14,532
Directors' fees				57,785		-		57,785		48,154		-		48,154
Custody fees				11,395		-		11,395		301		-		301
Audit fees				21,644		-		21,644		15,334		-		15,334
Directors' and Officers' insurance				8,691		-		8,691		3,605		-		3,605
Annual fees				15,762		-		15,762		6,370		-		6,370
AIFMD Fees				-		-		-		9,515		-		9,515
Commissions and charges paid				-		84,907		84,907		-		59,696		59,696
Legal and professional fees				18,727		-		18,727		14,667		-		14,667
Broker fees				22,294		-		22,294		19,050		-		19,050
Bank interest				-		-		-		596		-		596
Sundry costs				17,221		-		17,221		11,004		-		11,004
Loss/(gain) on foreign exchange				69,900		-		69,900		(7,138)		-		(7,138)
				389,398		339,815		729,213		273,635		337,307		610,942

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 2017 to 30 June 2018. Please refer to note 1(h) in the Company’s Annual Report and Financial Statements for the year ended 31 December 2018 for details on how expenses are charged to the capital reserve and revenue account. The ManagementAgreement may be terminated, in writing, by either party giving 6 months’ notice, provided the initial 12 month period from signing has expired, this date being 17 April 2020. The Company has entered into an agreement with the Investment Manager for the provision of AIFM reporting services for a fee of £19,450 per annum from 1 September 2017.

Performance fee

The Investment Manager is also potentially entitled to a performance fee equal to 15% of any excess of the NAV per Ordinary Share (together with any dividends paid) over the higher of the ?rst benchmark or the second benchmark. The ?rst 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 ?nancial 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 £nil was accrued for the period ended 30 June 2019 (31 December 2018: £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 and £100 million, 10 basis points per annum on the net assets between £100 million and £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

				Period ended 30 June 2019				Period ended 30 June 2018
				Revenue	Capital	Total		Revenue	Capital	Total
				GBP	GBP	GBP		GBP	GBP	GBP
Appropriation in respect of ZDP shares				-	586,289	586,289		-	576,809	576,809
				-	586,289	586,289		-	576,809	576,809

6.      DIVIDENDS IN REPECT OF ORDINARY SHARES

			Period ended
			30 June 2019
					Pence
			GBP		per share
First interim payment			822,468		5.20
Second interim payment			822,468		5.20
			1,644,936		10.40
			Period ended
			30 June 2018
					Pence
			GBP		per share
First interim payment			787,876		4.95
Second interim payment			787,876		4.95
			1,575,752		9.90

Further details on the Company’s dividend policy can be found in Investment Objectives and Policy.

7.      EARNINGS PER SHARE

Ordinary Shares

The total return per Ordinary Share (per IFRS) is based on the total return on ordinary activities for the period attributable to Ordinary shareholders of £7,550,666 (30 June 2018: loss of £378,992) and on 15,816,687 (30 June 2018: 15,916,687) 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 ordinary activities for the year attributable to Ordinary shareholders of £1,765,281 (30 June 2018: £1,639,559) and on 15,816,687 (30 June 2018: 15,916,687) 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 year attributable to Ordinary shareholders of £5,785,385 (30 June 2018: capital loss of £2,018,551) and on 15,816,687 (30 June 2018: 15,916,687) 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 is based on the appropriation in respect of ZDP Shares, the amortisation of ZDP Share issue costs and ZDP Share issue costs totalling £586,289 (30 June 2018: £576,809) and on 21,230,989 (30 June 2018: 21,365,221) 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

							30 June 2019		31 Dec 2018
							GBP		GBP
INVESTMENTS
Opening portfolio cost							85,087,877		76,561,591
Purchases at cost							20,038,297		36,515,135
Sales
- proceeds							(20,254,872)		(36,088,915)
- realised gains on sales							3,387,203		10,318,189
- realised losses on sales							(2,458,209)		(2,218,123)
Closing book cost							85,800,296		85,087,877
Unrealised appreciation on investments							16,591,110		12,483,659
Unrealised depreciation on investments							(6,590,449)		(8,241,979)
Fair value							95,800,957		89,329,557
Realised gains on sales							3,387,203		10,318,189
Realised losses on sales							(2,458,209)		(2,218,123)
Increase/(decrease) in unrealised appreciation on investments							4,107,451		(16,607,485)
Decrease/(increase) in unrealised depreciation on investments							1,651,530		(5,888,063)
Net gains/(losses) on financial assets designated as at fair value through profit or loss							6,687,975		(14,395,482)

As at 30 June 2019, the closing fair value of investments comprises £73,650,392 (31 December 2018: £65,758,921) of Smaller Companies Portfolio, £22,150,565 (31 December 2018: £23,570,636) of Income Portfolio. The Market value of open Futures included in the Income Portfolio totalled £57,280 in liabilities (31 December 2018: £74,111 in assets).

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 classi?cation 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 pro?t or loss

		30 June 2019		30 June 2019		31 Dec 2018		31 Dec 2018
		Market value		Market value		Market value		Market value
		%		GBP		%		GBP
Level 1		82.17		78,721,346		78.43		70,062,801
Level 2		17.83		17,079,611		21.57		19,266,756
Level 3		-		-		-		-
Total		100.00		95,800,957		100.00		89,329,557

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

The following table is a reconciliation of investments the Company held during the period ended 30 June 2019 and year ended 31 December 2018 at fair value using unobservable inputs (Level 3):

				30 June 2019		31 Dec 2018
				Market value		Market value
				GBP		GBP
Balance at start of the period/year				-		322,434
Transfer from Level 1 to Level 3				-		-
Unrealised loss on investments				-		(322,434)
Balance at end of the period/year				-		-

For investments categorised in Level 3 as at 30 June 2019, the below details the valuation methodologies used:

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

Derivative ?nancial assets and liabilities designated as at fair value through pro?t or loss

			30 June 2019		30 June 2019		31 Dec 2018		31 Dec 2018
			Market value		Market value		Market value		Market value
			%		GBP		%		GBP
Level 2 derivative financial assets			100.00		5,955		100.00		14,086
Level 2 derivative financial liabilities			100.00		189,593		100.00		199,600

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 period. Transfers into each level shall be disclosed and discussed separately from transfer out of each level.

The derivative ?nancial instruments held by the Company have been classi?ed 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 ?nancial instruments that use only observable market data and require little management judgement and estimation.

9.      RECEIVABLES

						30 June 2019		31 Dec 2018
						GBP		GBP
Due from brokers						934,551		-
Prepayments						19,959		18,739
Accrued investment income						659,791		507,108
						1,614,301		525,847

10.    PAYABLES

					30 June 2019		31 Dec 2018
					GBP		GBP
Accrued expenses					65,847		53,931
Amounts due to brokers					346,144		-
Trade creditors					176,297		171,180
					588,288		225,111

11.    ZDP SHARES

							30 June 2019		31 Dec 2018
							GBP		GBP
ZDP Share entitlement							32,099,725		31,513,434
The above entitlement comprises the following:
21,365,221 ZDP Shares issued to date up to 31 Dec 2017							-		23,037,103
21,230,989 ZDP Shares issued to date up to 31 Dec 2018							22,831,682		-
134,232 Buyback of ZDP shares during the year							-		(205,421)
ZDP Premium							(13,042)		(15,877)
Appropriation in respect of ZDP Shares							9,268,041		8,681,752
ZDP value (calculated in accordance with the Articles)							32,086,683		31,497,557
ZDP issue costs							-		-
Issue costs amortised							-		-
Add back ZDP Premium							13,042		15,877
ZDP value (calculated in accordance with IFRS)							32,099,725		31,513,434

The fair value of the ZDP Shares as at 30 June 2019 was £33,332,653 (31 December 2018: £32,164,948).

The ZDP shares are classified under Level 1 based on unadjusted quoted prices in active markets. Since valuations are based on quoted prices that are readily and regularly available in an active market, the valuation does not entail a significant degree of judgement (2017: Level 1).

A Continuation Offer proposal to ZDP shareholders was published in November 2016, 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. Shareholders approved the scheme and 91.4% of ZDP shareholders elected to remain invested.

Following the proposals, 19,523,014 ZDP Shares were elected for the Continuation Offer with a further 1,842,207 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.

ZDP Shares carry no entitlement to income distributions to be made by the Company. The ZDP Shares will not pay dividends but have a ?nal 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.

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 su?cient on 28 February 2022 to meet the ?nal capital entitlement of ZDP Shares.

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 e?ected).

The number of authorised ZDP Shares is 50,000,000. The number of issued ZDP Shares is 21,230,989 (31 December 2018: 21,230,989). The non-amortisation of the ZDP Shares in line with the Articles has the e?ect of increasing the NAV per Ordinary Share by 0.10 pence.

12.    SHARE CAPITAL AND PREMIUM

Authorised						GBP	GBP
Ordinary Shares of 1p each						unlimited	unlimited
						30 June 2019	31 Dec 2018
						Number of	Number of
Issued						Shares	Shares
Number of shares in issue at the start of the period/year						15,816,687	15,916,687
Buyback of Ordinary Shares during the period/year						-	(100,000)
Number of shares in issue at the end of the period/year						15,816,687	15,816,687
Issued and fully paid capital at the end of the period/year						£196,606	£196,606

					Share Capital	Share Premium	Total	Total
					30 June 2019	30 June 2019	30 June 2019	31 Dec 2018
					GBP	GBP	GBP	GBP
Opening share capital and premium					196,606	27,224,218	27,420,824	27,633,383
Buyback of Ordinary Shares during the period/year					-	-	-	(213,059)
Cancellation of Ordinary Shares during the period/ year					-	-	-	500
Closing share capital and premium					196,606	27,224,218	27,420,824	27,420,824

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 issued and fully paid capital as at 30 June 2019 was £196,606 (31 December 2018: £196,606).

13.    OTHER RESERVES

Treasury reserve

				30 June 2019		31 Dec 2018
				GBP		GBP
Balance at the beginning of the period/year				(4,780,162)		(4,568,238)
Buyback of Ordinary Shares during the period/year				-		(424,483)
Cancellation of Treasury Shares during the period/year				-		212,559
Balance at the end of the period/year				(4,780,162)		(4,780,162)

The other reserves presented on the Condensed Statement of Financial Position comprise the treasury reserve of (£4,780,162) and special reserve of £10,000,000 totalling £5,219,838.

				30 June 2019		31 Dec 2018
				No. Shares		No. Shares
Balance at the beginning of the period/year				1,325,972		1,275,972
Buyback of ordinary shares during the period/year				-		100,000
Cancellation of ordinary shares during the period/year				-		(50,000)
Balance at the end of the period/year				1,325,972		1,325,972

A Special reserve of £10,000,000 was created on the cancellation of part of the Company’s Share premium account.

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 delegates its authority over the Company’s investment portfolios.

£339,877 (30 June 2018: £370,148) of costs were incurred by the Company with this related party in the period, of which £176,298 (30 June 2018: £187,997) was due to this related party as at 30 June 2019.

The Directors’ remuneration is disclosed in note 4.

Helen Green holds 2,425 (31 December 2018: nil) Ordinary Shares in the capital of the Company, which represented an interest of 0.02% (31 December 2018: nil) of the Company’s Ordinary Shares in issue as at 30 June 2019.

David Warr holds 63,000 (31 December 2018: 63,000) Ordinary Shares in the capital of the Company, which represented an interest of 0.40% (31 December 2018: 0.40%) of the Company’s Ordinary Shares in issue as at 30 June 2019.

Nigel Sidebottom holds 4,366 (31 December 2018: 4,366) Ordinary Shares in the capital of the Company, which represented an interest of 0.03% (31 December 2018: 0.03%) of the Company’s Ordinary Shares in issue as at 30 June 2019, and 5,205 (31 December 2018: 5,205) ZDP Shares in the capital of the Company, which represented an interest of 0.02% (31 December 2018: 0.02%) of the Company’s ZDP Shares in issue as at 30 June 2019.

15.    SUBSEQUENT EVENTS

These Financial Statements were approved for issue by the Board on 16 August 2019. Subsequent events have been evaluated until this date.

A dividend of 5.2p was declared on 16 August 2019 and is expected to be paid to ordinary shareholders on 27 September 2019.

No other signi?cant events have occurred after the statement of ?nancial position date in respect of the Company that may be deemed relevant to the accuracy of these Financial Statements.

Directors, Advisers and Contacts

Directors		Custodian
John Nigel Ward (Chairman)		Northern Trust (Guernsey) Limited
David John Warr		PO Box 71
Nigel Sidebottom (appointed 5 February 2019) Sharon Parr (appointed 16 August 2019)		Trafalgar Court Les Banques
Helen Foster Green (resigned 16 August 2019)		St Peter Port
		Guernsey
Shareholders  are welcome to contact the Chairman directly by emailing : Acorn_Income_Fund [e-mail]		GY1 3DA Corporate Broker
		Numis Securities Limited
Investment Manager		10 Paternoster Square
Premier Asset Management (Guernsey) Limited PO Box 255		London EC4M 7LT Tel: [phone]
Trafalgar Court
Les Banques		Registrar
St Peter Port		Anson Registrars Limited
Guernsey		PO Box 426
GY1 3QL		Anson House
Tel: [phone]		Havilland Street
Contact: Henry Pollard		St Peter Port
		Guernsey GY1 3WX
		Tel: [phone]
Investment Adviser – Smaller Companies Portfolio		Email: [e-mail]
Unicorn Asset Management Limited		Company’s Registered O?ce
Preacher’s Court		PO Box 255
The Charterhouse		Trafalgar Court
Charterhouse Square		Les Banques
London EC1M 6AU		St Peter Port
Tel: [phone]		Guernsey GY1 3QL
Contact: Simon Moon
		Company Details
Investment Adviser – Income Portfolio		Company Number: 34778
Premier Fund Managers Limited		GIIN Number: CY0IXM.99999.SL.831
Eastgate Court
High Street		Ordinary Shares
Guildford GU1 3DE		ISIN: GB0004829437
Tel: [phone]		Ticker: AIF
Contact: Henry Pollard
		ZDP Shares
		ISIN: GGOOBYMJ7X48
		Ticker: AIFZ
Administrator and Secretary
Northern Trust International Fund Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 3QL
Email: [e-mail]