Tender Offer

Acorn Income Fund Ld
13 December 2006

                           ACORN INCOME FUND LIMITED

                                  Tender Offer

Introduction

The Board announced on 29 September 2006 that it would put forward proposals to
Shareholders which would provide the opportunity for Shareholders to reduce
their investment in the Company at close to net asset value.

The Board together with its advisers reviewed a number of proposals that were
presented to it and consulted widely with Shareholders.  During that process it
has become apparent that a number of Shareholders would like to continue their
investment in the Company.  The Board's proposals are, in summary, as follows:

•        provide for the continuation of the Company under the new overall
management of Premier Asset Management (Guernsey) Limited and the continued
management of the smaller companies portfolio by Unicorn;

•        provide for a Tender Offer for Ordinary Shares and the attendant
reduction of the share capital and share premium account of the Company to
create sufficient distributable reserves out of which to purchase the Ordinary
Shares; and

•        provide for a default mechanism whereby if acceptances under the Tender
Offer are such that the net asset value is less than £15 million ('Post Tender
Amount') then the Company will no longer be considered to be viable in size, and
the Company will, subject to Shareholder approval, be liquidated.

The Proposals

In structuring the Proposals, the Board has sought to provide a mechanism to
continue the Company and provide some assurance as to its minimum size, while
also recognising that there are a number of Shareholders who wish to realise
their investment in the Company for cash. For these reasons, the Board is
proposing a Tender Offer for Ordinary Shares and a default mechanism whereby,
should the residual net asset value following completion of the Tender Offer be
less than £15 million ('Minimum Size Condition'), the Company would be placed
into members' voluntary liquidation.

In order that either the Tender Offer or the Winding Up Proposals may be
implemented without the need for further documentation or delay, details of both
transactions are set out in this document and appropriate general meetings are
being convened as explained below.

The Tender Offer

There is no maximum number of Ordinary Shares which may be purchased under the
Tender Offer.  However if the number of Ordinary Shares tendered is such that
the Post Tender Amount would be less than £15 million and therefore the Minimum
Size Condition is not achieved, the Tender Offer will not proceed and instead
the Company will, subject to Shareholder approval, be put into liquidation.

Shareholders are being invited to tender some or all of their Ordinary Shares to
Fairfax who will, as principal, purchase the Ordinary Shares tendered at the
Tender Price and, following the completion of those purchases, sell them on to
the Company at the Tender Price by way of an on-market transaction, such market
being the London Stock Exchange.  All Ordinary Shares which the Company acquires
from Fairfax following the Tender Offer will be cancelled on acquisition.  All
transactions will be carried out on the London Stock Exchange.

Both the Manager and Unicorn have been instructed by the Board to realise assets
so that the Company has sufficient cash out of which to meet the expected level
of the Tender Offer.  As of 11 December 2006 the Company had £38.7 million in
cash or cash equivalent securities.

The Tender Price will be calculated by taking the aggregate net asset value of
the Ordinary Shares on the Tender Offer Calculation Date and deducting an amount
equal to the expected expenses of the Tender Offer Proposals.  The resultant
figure will be divided by the total number of Ordinary Shares in issue so as to
produce the Tender Price.  As at the close of business on 11 December 2006 the
net asset value per Ordinary Share was 201.79 pence.  Taking into account the
estimated costs of the Tender Offer Proposals (including the termination fee
payable to Collins Stewart Fund Management Limited) then, for illustration
purposes only, based on these figures the Tender Price would be 201p per
Ordinary Share.

Funding for the Tender Offer

Under Guernsey law (The Companies (Purchase of Own Shares) Ordinance, 1998 (the
'Ordinance')), a company may, with the appropriate authority from its
shareholders, purchase its own shares. The Company is seeking authority from its
Shareholders to repurchase its shares so as to be able to implement the Tender
Offer as well as to implement its discount protection mechanisms described
below.  Whilst the Ordinance permits a company in certain circumstances to
purchase shares out of capital, the more normal and practicable method of
financing such purchases is to fund them out of distributable profits.  It is
proposed that, subject to obtaining the relevant Shareholder approvals referred
to below, the Company will apply to the Court to confirm a reduction of the
Company's share capital and share premium account in order to create a
distributable reserve out of which Ordinary Shares may be purchased.

The authorised and issued share capital of the Company is £7,400,000.50.  The
Company currently has an amount of £17,079,000 standing to the credit of its
share premium account.  The Board proposes to reduce the Company's share capital
by £7,104,000.48 by cancelling 24 of the 25p nominal capital per share and also
reduce the Company's share premium account by £17,000,000.  The Board will
credit such amounts to a distributable reserve so that the Company has
sufficient reserves to implement the Tender Offer.

The Court will need to be satisfied that the interests of the Company's
creditors will not be prejudiced as a result of the reduction of the share
capital and share premium account and the Company will take such steps in that
regard as it deems appropriate and as required by the Court.

Winding Up Proposals

As set out above, the Board proposes that the Company should only continue if it
is a viable size, which it has determined would require the Post Tender Amount
to be not less than £15 million.

In the event that the conditions of the Tender Offer are not satisfied, it is
proposed that the Company be placed into voluntary liquidation and that the
Company's assets (after payment of the liabilities and after deducting the costs
of implementing the Winding Up Proposals) on such winding up be distributed.

On the basis of the net asset value as at the close of business on 11 December
2006 of £59.5 million, it is currently estimated that the net assets available
for distribution to Shareholders on a liquidation would be approximately £59.5
or 201p per Ordinary Share.  This assumes the successful realisation of all the
investments at carrying values, no claims arising and the estimated costs of the
Winding Up Proposals (see 'Expenses' below).

Shareholders should note that the amount finally distributed to them may be
different due to a variety of factors including movements in the value of the
underlying assets, the level at which assets can be realised, settlement of any
currently unknown or contingent liabilities and ongoing costs associated with
running the Company and the realisation process.

Liquidation and Dealings

It is proposed that Messrs Anthony Christian Pickford and James Robert Toynton
of RSM Robson Rhodes Corporate Recovery (CI) Limited be appointed as liquidators
of the Company.  Assuming that the liquidation of the Company is approved by
Shareholders as proposed in this document and in the absence of unforeseen
circumstances, the Liquidators envisage that they should be in a position to
make distributions by 5 February 2007 to Shareholders of an amount equal to the
surplus assets of the Company after reserving for creditor claims, if any, not
previously agreed and paid, and the costs of the Winding Up Proposals.

Dealings in the Ordinary Shares on the London Stock Exchange will be suspended
at the opening of business on 5 January 2007 and on the same date the listing on
the Official List of the UK Listing Authority will be suspended.  The Company
will subsequently apply for the listing on the Official List to be cancelled.

Appointment of Premier

On 29 September 2006 the Board announced that the Company had served protective
notice on the Manager of the Company in relation to the termination of the C.I.
Management Agreement with Collins Stewart Fund Management Limited ('Manager').
Following completion of the Tender Offer, it is proposed that Premier will be
appointed as the Company's managers in place of the Manager.  The small
companies portfolio will continue to be managed by Unicorn.

The Board believes that the proposal put forward by Premier and Unicorn will
allow for the Company's assets to be managed in a substantially similar way to
the way it is currently managed, reflecting the views of those Shareholders who
wish to continue with their investment in the Company.

The Board has recently been in negotiations with the Manager surrounding the
basis on which their Management Agreement would be terminated.  It has been
agreed that, conditional upon the Tender Offer becoming unconditional in all
respects, the Manager's appointment will be terminated with immediate effect
upon the date on which such condition is satisfied. The Termination Agreement
provides that the Manager shall be paid a sum of £150,000 in respect of the
performance fee for the period ending 31 December 2006 and a sum of £187,500 for
the balance of the outstanding notice period under their management agreement.
In the event that the Tender Offer does not become wholly unconditional, the
Manager's appointment under the current management agreement shall continue in
full force and effect.  However the Company will continue to pay the Manager the
sum of £150,000 in respect of the performance fee for the period to 31 December
2006 and the Manager will have no further claim for any performance fees.

In addition, the Company has entered into a conditional contract with Premier ('
the Premier Management Agreement').  This agreement provides that conditional
upon the Tender Offer becoming wholly unconditional, Premier will be appointed
as manager to the Company.  The agreement provides that the fixed management fee
will be equal to 0.7 per cent. per annum of the Company's gross assets and there
will be a performance fee of 15 per cent. of any excess over a total return of
10 per cent. per annum.  In that agreement, Premier has also agreed to cap the
total expense ratio of the Company at 1.5 per cent. of gross assets (excluding
performance fees and non-routine professional fees).  To the extent that the
Company's annual expenses exceed 1.5 per cent. of the gross assets in any
particular year, then Premier will reduce its fees received or receivable for
that year accordingly but subject always to it receiving a fixed annual fee of
not less than £50,000.  In addition, Premier may delegate the performance of the
administration functions under the Premier Management Agreement and, in such
circumstances, it shall be entitled to charge the Company an additional
administration fee equal to 0.12 per cent. per annum of the Company's gross
assets subject to a minimum annual payment of £55,000.  This fee may be reviewed
from time to time.

Premier has also agreed to make a contribution to the expenses of this
transaction equivalent to 0.65 per cent. of the value of the Post Tender Amount
conditional upon completion of the Tender Offer.

On-going Investment Policy

The Company's existing investment policy is to allocate approximately 75 per
cent. of its assets to a smaller companies portfolio, with the balance invested
in an income portfolio.  It is proposed that this should be amended so that
approximately 70 per cent. of the Company's assets will be allocated to the
smaller companies portfolio with the balance allocated to the income portfolio.
The exact amount allocated between each portfolio will be reviewed and, if
appropriate, the amount allocated to the smaller company portfolio may be
increased.

The smaller companies portfolio will continue to be managed by Unicorn and will
principally be invested in UK equities with a market capitalisation of under £1
billion.  Unicorn will focus on companies with experienced and well motivated
management products or services supplying growth markets, sound operational and
management controls, good cash generation and a progressive dividend.  Unicorn
intends to target a yield on this part of the portfolio of around 3.75 per cent.
per annum.

Premier will manage the income portfolio.  The objectives of this part of the
portfolio will be to maximise income with the objective of capital protection.
The portfolio will include sterling denominated fixed interested securities
including corporate bonds, preference and permanent interest bearing shares,
convertibles, reverse convertibles, debentures and other similar securities.
The income portfolio may also contain higher yielding shares of other investment
companies, including property investment companies, however these will not
exceed 15 per cent. of the overall portfolio (at the time of acquisition).  The
target yield on this part of the portfolio will initially be around 8 per cent.
per annum.

Although this investment policy is broadly in line with the Company's existing
investment policy there is an amendment to the investment policy of the
Company's income portfolio as it will now allow the Company to invest in reverse
convertible bonds and property investment companies in addition to the other
securities referred to in the paragraph above which securities the Company was
able to invest in under the previous investment policy for the income portfolio.
The investment policy also provides for a slightly lower allocation to the
smaller companies portfolio.  Accordingly, the Directors believe that as there
will be some changes to the way in which the income portfolio is managed that it
is appropriate that Shareholders should approve this investment policy.
Consequently a resolution is being proposed at the First EGM to approve this
investment policy.

Borrowings

The Company repaid the Bank of Scotland Offshore Facility in full on 15 November
2006.  In the event that the Tender Offer completes and the Company continues in
existence, the Board intends that the Company should enter into further
borrowings with a suitable lender.  The Board intends to fix the permitted
amount of borrowings by the Company at not more than 30 per cent. of the gross
asset value of the Company at the time the borrowings are entered into.

Dividends

If the Tender Offer proceeds and the Company continues it is estimated that for
the period from 1 January 2007 to 31 December 2007 in the absence of unforeseen
circumstances the Company should pay a dividend of 8p.  This is a dividend
estimate only and should not be treated as a forecast of profits.

Discount Protection

The Directors believe it is important that once the Tender Offer has been
completed the Ordinary Shares do not trade on a wide discount to net asset
value.  In this respect:

•              the Company will take powers, which it will seek to renew
annually, to make purchases of its Ordinary Shares.  It is proposed that
Ordinary Shares acquired by the Company will initially be held in treasury and
may be sold by the Company out of treasury should the opportunity arise.  The
Board will look to use these powers to manage the discount to net asset value;

•              the Company's Articles will be amended to provide Shareholders
with the opportunity at the Annual General Meeting to be held in 2011 to vote
whether the Company should continue as an investment company.  At the same time,
it is proposed to remove the current article 134(3) which requires the Company
to convene an EGM to wind-up the Company in circumstances where the Company
serves notice to terminate the appointment of its investment manager; and

•              Premier has undertaken to actively market the Company's shares
and will include the Company within its ISA and savings products.

Board Changes

Upon completion of the Tender Offer Martin Bralsford will retire as both
Chairman and Director of the Company.  John Boothman, who has been a director of
the Company for 3 years, has agreed to become Chairman.  Eitan Milgram will also
stand down once the Tender Offer has been completed.  The Board intends to
appoint a further director to replace Martin Bralsford once the Tender Offer has
been completed and will make a further announcement in respect of this.


                                   TIMETABLE


Tender Offer                                                                                2007
Latest time and date for receipt of Tender Forms                                         3 January
Tender Offer Record Date                                                                 3 January
Tender Offer Calculation Date                                                            3 January
Latest time and date for receipt of Forms of Proxy for the First EGM              11.00 a.m. on 3 January
Result of Tender Offer announced                                                         4 January
First EGM                                                                         11.00 a.m. on 5 January
Court hearing of application to confirm reduction of the share premium account           12 January
of the Company
Effective date of reduction of the share capital and share premium account of            15 January
the Company
Settlement of Tender Offer consideration                                                 17 January


Winding Up                                                                                  2007
Latest time and date for receipt of Forms of Proxy for the First EGM              11.00 a.m. on 3 January
Latest time and date for receipt of Forms of Proxy for the Second EGM             11.05 a.m. on 3 January
Suspension of Ordinary Shares from trading on the London Stock Exchange and         7.30am on 5 January
suspension of listing on the Official List
Share registers close                                                                    5 January
First EGM                                                                         11.00 a.m. on 5 January
Second EGM                                                                        11.05 a.m. on 5 January
Effective date for implementation of the liquidation                                     5 January
Cancellation of listing of the Ordinary Shares on the Official List                 8.00am on 5 February
Initial liquidation distributions                                                        5 February



Enquiries

Paul Richards                        020 7598 5368
Fairfax I.S. PLC

Nigel Sidebottom                     01483 306 090
Premier Asset Management PLC


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