ABERDEEN ASIAN INCOME FUND LIMITED

UNAUDITED HALF YEARLY REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2008

Interim Board Report

Background

During the six months to 30 June 2008, your Company's share price fell 1.6% from 110.00p to 108.25p and the net asset value fell 6.9% from 123.48p to 114.98p. This compares with a fall in the MSCI AC Asia Pacific ex-Japan Index, of 17.6%. The discount to NAV narrowed from 10.5% to 5.9%. 

In what was an exceptionally difficult period for Asian stock markets, the Company's resilience reflects both the Manager's approach, which looks for high quality companies with easy-to-understand businesses, together with a refocusing of investor attention on stocks with higher yields in the face of rising inflation. The period under review was in many ways the converse of 2007, in which markets had seen stocks pushed up by strong liquidity flows rather than fundamental value.

Your Manager expects the flight to quality seen over the period to continue for some time, as rising commodity prices and falling growth in developed markets (largely resulting from problems in housing markets) precipitate problems in poorer quality companies across the region.

Overview

After five years of strong gains, Asian equities fell sharply in the first half of 2008 as escalating problems in credit markets, rising inflation and a slowing global economy weighed on sentiment. The former high-flying markets India and China, which had run up very strongly in 2007, were the biggest losers during the period. Although April saw markets rebound on expectations that the worst of the credit crisis was over and some better-than-expected US corporate earnings results, the reality of a bleak economic outlook in developed economies, along with rising inflation in Asia, soon returned, putting paid to the rally.

The major cause of deteriorating sentiment was inflation, which accelerated across the region, hitting multi-year highs in several countries. This inflation was driven by rising fuel and food prices, to which Asian economies are more sensitive as these items account for a greater proportion of household expenditure. Policy responses from central banks varied, with Australia, Korea, Indonesia, India, Taiwan and the Philippines raising interest rates. Reserve requirements were raised in China, India and Taiwan, while Singapore allowed its currency to appreciate to counter imported inflation. Although governments in China, India, Indonesia, Malaysia and Taiwan raised fuel prices, they remain heavily subsidised, causing continued demand distortion. The fuel-price hikes also sparked widespread street protests in Malaysia and Indonesia, increasing political tensions. 

Despite increasing uncertainties, GDP growth held up surprisingly well across the region, with supporters of the decoupling theory arguing that this was clear evidence that Asian economies were no longer dependent on developed countries. More likely, there is a lag between slowing growth in developed economies and the impact on Asian exporting countries which will only be seen towards the end of the year. The only two countries which saw marked falls in GDP growth were Singapore and Korea, countries which are still highly dependent on demand from the west.

Performance review

Stock selection was particularly strong in Hong Kong, Malaysia, Singapore, Taiwan and Thailand. Many of the Company's holdings are defensive businesses, with high dividend yields reflecting high payout ratios. These were the stocks that performed well in relative terms and, in some cases, in absolute terms.

Hong Kong utility CLP Holdings rose 28% over the six months, as the company was boosted by favourable changes in the new agreements to the government's scheme of control, which regulates its earnings. This removed uncertainty that had been hanging over the stock. The strong relative performance of shoe manufacturer Kingmaker, on the other hand, was more technical in nature, rebounding after poor performance in 2007.

In Malaysia, British American Tobacco (Malaysia) rose 10%. The company has very strong free cash flow and a dividend yield of more than 7%. The company's management is extremely able, and has overcome challenges to its business such as smuggled cigarettes from Indonesia and sporadic changes to excise tax.

In Singapore, the Company's holdings in Oversea-Chinese Banking Corporation (OCBC) and Singapore Post performed well, rising 5.4% and 4.5% respectively. OCBC is very conservatively managed and its balance sheet has minimal exposure to the subprime market. Singapore Post, the former post office, is another defensive business, which yields nearly 6%.

Your Company's three holdings in Taiwan bucked the trend and showed decent increases in their share prices. Fubon Financial rose by 14.5% as the warming of cross-strait relations following the presidential election was perceived as being positive for Taiwan's banking sector. Indeed, Fubon's Hong Kong arm announced in June that it would buy a 20% stake in mainland Xiamen Commercial Bank, a move that was welcomed by shareholders. Taiwan Mobile, another defensive play, rose by 9.2% while Taiwan Semiconductor Manufacturing's high yield and payout also attracted interest in its shares, which rose 11.5%.

In Thailand, your Company's holding in PTT Exploration and Production showed strong performance, rising 6.9%. This was attributable to the rise in the price of crude oil, which accounts for half the company's revenues, and the fact that it is able to sell to the domestic market at international, rather than controlled, prices.

Australia was the only country where stock selection was a drag on performance. Neither ANZ Banking Group nor Commonwealth Bank of Australia could escape the global financial crisis, falling 22.9% and 23.4% respectively. Tabcorp, on the other hand, fell by 24.6% as the early implementation of legislation will result in an effective end to the company's gaming duopoly much sooner than had been expected. Tabcorp has been a particularly disappointing investment but your Manager does not believe it would be right to take any action until there is further clarification of the new laws and it is known what recourse, if any, the company may have. The Company's lack of exposure to resource companies also detracted from performance during the period.

On the asset allocation front, the above benchmark positions in Singapore and Thailand and below benchmark positions in China and India contributed positively to relative performance. Singapore's defensive qualities shone through in what was a very difficult period while Thailand, having seen foreign investors exit the country last year, was perceived as something of a recovery play. The Company is likely to remain un-invested in India until your Manager can find companies with decent dividend yields and acceptable payout ratios.

China is still one of the most exciting growth stories in Asia from a top-down perspective. However, corporate transparency tends to be poor and easy access to capital and financing has resulted in poor management disciplines. The quality of companies has been found wanting, and even after the recent market correction, valuations are not yet sufficiently attractive. Your Manager's preference is to gain exposure to China via Hong Kong-listed companies doing business on the mainland.

The underweight position in Australia contributed negatively to relative performance. As mentioned previously, your Company does not have exposure to the resource sector but the market as a whole also proved defensive, falling only 7.6% during the period.

Turning to portfolio activity, the only notable changes over the period were the disposals of Malaysia's Maybank and Taiwan's Sinopac Financial Holdings, and the introduction of Australia's largest general insurer, QBE as its yield had become attractive after the recent sell-down. The insurer's management has an excellent track record in controlling risk and takes a conservative approach towards its business and balance sheet. 

Other activity included the topping up of Singapore companies Hong Leong Finance, Oversea-Chinese Banking Corporation, SBS Transit and United Overseas Bank.

Share Buy-backs, Dividends and Gearing

Your Company has an active discount management policy which is managed through the use of share buy-backs with the aim of maintaining the price of the Ordinary shares at a discount of no more than 5% to the underlying NAV. During the period, a total of 420,000 Ordinary shares were purchased in the market and cancelled at discounts in excess of 5%. The Board has absolute discretion to make purchases of Ordinary shares for cancellation, subject to the Listing Rules and Jersey law, and the Directors will consider the merits of making further purchases of Ordinary shares subject to the volatility of the markets, if and when any suitable opportunities arise in the future. At the time of writing, the Ordinary share discount to net asset value has tightened to under 6%. 

On 16 July 2008, the Board declared a first interim dividend of 2.0p per Ordinary share in respect of the year ending 31 December 2008 (2007 2.0p), which is payable on 28 August 2008 to shareholders on the register on 25 July 2008. A second interim dividend will be announced in January 2009 and payable in February 2009.

The Company has retained short-term gearing throughout the period, with borrowings of HKD 137.7 million and USD 12.2 million (GBP 15.0 million in total) representing a gearing level of 12.0% of net assets at the period end. The Board is responsible for establishing and implementing the Company's gearing strategy, and will continue to have a close regard to the level of gearing in the context of the current volatility in stockmarkets, detailed above.

Outlook

As a result of rising inflation and slowing growth, the equity landscape in Asia has turned increasingly challenging. Although the region has largely been spared the direct impact of the credit crisis, its indirect effects on economies, and companies, are likely to become increasingly evident.

Governments in Asia have cut economic growth estimates as export demand wanes in the face of more pronounced slowdowns in Western countries. As the growth outlook weakens, there is scope for pump-priming to shore up consumer and investment sentiment, given the strong fiscal and trade balances built up by regional governments in recent years. But such moves, expansionary in nature, would increase risks on another front, namely inflation. 

Price pressures, caused mainly by a spike in food and commodity costs, continue to rise rapidly in the region. Consequently, inflation has become the number one policy challenge, especially in the poorer parts of Asia where food and fuel constitute a much higher proportion of disposable income. Political risks have risen too, as the strain of rising prices feeds a growing discontent. At this stage, central bank policy has not appeared to have tightened enough, while government moves to trim fuel subsidies will increase price pressures in the short term.

Accelerating inflation has also triggered downward revisions to corporate earnings. Margins are being squeezed, although some companies have been able to pass on rising input costs to consumers. The second half of 2008 may see further deterioration, with earnings growth falling to single digits, as the export slowdown gathers pace and the spending power of consumers is eroded by higher costs. 

Against such a backdrop, market sentiment is likely to remain volatile for some time to come. This should provide your Manager with opportunities to add to the existing holdings or buy into companies at attractive levels, although markets are not at "bargain-basement" levels yet. Such market conditions also accentuate the sound investing approach of your Manager, with its focus on fundamental factors such as management quality and balance sheet strength, which has given the portfolio a defensiveness that has stood it in good stead, and which is also likely to ensure satisfactory returns over the long term.

I look forward to reporting to you again with the Annual Report for the year to 31 December 2008, which will be issued in March 2009. In the meantime, Shareholders can find regular updates from your Manager, and copies of all Stock Exchange announcements on the Company's website www.asian-income.co.uk. Also on the website there are NAV and share price feeds which are updated on a daily basis.

Peter Arthur

Chairman

21 August 2008

Principal Risks and Uncertainties

An investment in the Company's Ordinary shares and/or Warrants is only suitable for investors capable of evaluating the risks (including the potential risk of capital loss) and merits of such investment and who have sufficient resources to bear any loss which may result from such investment. Furthermore, an investment in the Ordinary shares and/or Warrants should constitute part of a diversified investment portfolio. The principal risks and uncertainties faced by the Company during the period and which apply for the next six month period are set out below and are considered by the Directors to be material to shareholders and potential investors in the Company. Greater detail on these risks is provided in the Annual Report and Accounts for the year ended 31 December 2007.

Ordinary shares

The market price and the realisable value of the Ordinary shares, as well as being affected by their underlying net asset value, also take into account supply and demand for the Ordinary shares, market conditions and general investor sentiment. As such, the market value and the realisable value of the Ordinary shares may fluctuate and vary considerably from the net asset value of the Ordinary shares and investors may not be able to realise the value of their original investment. There is no guarantee that the Board's discount management policy will achieve its objective.

Warrants

Warrants represent a geared investment, so a relatively small movement in the market price of the Ordinary shares may result in a disproportionately large movement, unfavourable as well as favourable, in the market price of the Warrants.

Dividends

The Company will only pay dividends on the Ordinary shares to the extent that it has profits available for that purpose. The ability of the Company to pay any dividends in respect of the Ordinary shares and any future dividend growth will depend primarily on the level of income received from its investments. A proportion of the Company's income is derived from special dividends and the level of special dividends received in any year is liable to fluctuation. Accordingly, the amount of the dividends paid to Shareholders may also fluctuate.

Borrowings

Whilst the use of borrowings should enhance the total return on the Ordinary shares where the return on the Company's underlying assets is rising and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is less than the cost of borrowing, further reducing the total return on the Ordinary shares.

Market Risks

The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. Market risk comprises three elements, interest rate risk, currency risk and other price risk.  

General

The Company does not have a fixed winding-up date and, therefore, unless Shareholders vote to wind up the Company, Shareholders will only be able to realise their investment through the market.  

Taxation and Exchange Controls

Any change in the Company's tax status or in taxation legislation (including the tax treatment of dividends or other investment income received by the Company) could affect the value of the investments held by the Company, affect the Company's ability to provide returns to Shareholders or alter the post-tax returns to Shareholders. The Company may purchase investments that may be subject to exchange controls or withholding taxes in various jurisdictions. In the event that exchange controls or withholding taxes are imposed with respect to any of the Company's investments, the effect will generally be to reduce the income received by the Company on its investments and the capital value of the affected investments. Other risks associated with investment in Asia include the risk of social, political and economic instability which may lead to price volatility.

Directors' Responsibility Statement

The Directors are responsible for preparing this half-yearly financial report in accordance with applicable law and regulations. The Directors confirm that to the best of their knowledge:

• the condensed set of interim financial statements contained within the half yearly financial report which have been prepared in accordance with the Accounting Standards Board's statement "Half-Yearly Financial Reports" give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and,

•  the Interim Board Report includes a fair review of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.

The Half Yearly Report includes a fair review of the information required on material transactions with related parties and changes since the Annual Report.

For and on behalf of the Board of Aberdeen Asian Income Fund Limited

Peter Arthur

Chairman

21 August 2008  Aberdeen Asian Income Fund Limited 

Income Statement (unaudited) 

The total columns of this statement represent the Income Statement of the Company, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of Aberdeen Asian Income Fund Limited. There are no minority interests.

  Aberdeen Asian Income Fund Limited 

Income Statement (unaudited) 

The total columns of this statement represent the Income Statement of the Company, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of Aberdeen Asian Income Fund Limited. There are no minority interests.

The total columns of this statement represent the Income Statement of the Company, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. All items in the above statement derive from continuing operations.

All income is attributable to the equity holders of Aberdeen Asian Income Fund Limited. There are no minority interests.

  Reconciliation of Movements in Shareholders' Funds

Six months ended 30 June 2008 (unaudited)