Baronsmead Vt Regulatory News (BVT)

18 Nov 2011 16:03

Baronsmead VCT 2 plc

Annual report and accounts for the year ended 30 September 2011

Investment Objective

Baronsmead VCT 2 is a tax efficient listed company which aims to achieve long-term investment returns for private investors, including tax free dividends.

Investment Policy

- To invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM.

- Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value.

Further details on investment policy and risk management are contained in the Directors' Report.

Dividend policyThe Board of Baronsmead VCT 2 aims to sustain a minimum annual dividend levelat an average of 5.5p per ordinary share, mindful of the need to maintain netasset value. The ability to meet these twin objectives depends significantlyon the level and timing of profitable realisations and cannot be guaranteed.There will be variations in the amounts of dividends paid year on year.

Since launch, the average annual tax free dividend paid to Shareholders has been 6.4p per share (equivalent to a pre-tax return of 8.5p per Ordinary Share for a higher rate taxpayer). For Shareholders who claimed tax reliefs of 20 per cent, 30 per cent or 40 per cent, their returns would have been higher.

Secondary market in the shares of Baronsmead VCT 2 plc

The existing shares of the Company are listed on the London Stock Exchange and can be bought and sold using a stockbroker in the same way as shares of any other listed company.

Qualifying investors* who invest in the existing shares of the Company can benefit from:

- Tax free dividends;

- Realised gains not subject to capital gains tax (although any realised losses are not allowable);

- No minimum holding period; and

- No need to include VCT dividends in annual tax returns.

The UK tax treatment of VCTs is on a first in first out basis and thereforetax advice should be obtained before shareholders dispose of their shares andalso if they deferred a capital gain in respect of new shares acquired priorto 6 April 2004.

*UK income tax payers, aged 18 or over, who acquire no more than £200,000 worth of VCT shares in a tax year.

Financial Headlines

11.3% Net asset value ("NAV") per share increased 11.3 per cent during the year to 102.15p before deduction of dividends.

7.0p Dividends for the year totalled 7.0p per share

231.3p NAV total return to shareholders for every 100.0p invested since launch.

8.1% A tax free yield of 8.1 per cent has been received by qualifying shareholders, based on the mid share price of 86.25p at the year end, and 7.0p dividends paid for the year.

85.9p Cumulative tax free dividends total 85.9p per share for founder shareholders since 1998, equivalent to an annual average dividend of 6.4p per share.

Summary Since Launch

Performance Summary to 30 September 2011

1 year 5 years 10 years Since launchTotal return* % % % (2 April 1998)% Net asset value†+11.1 +20.2 +92.0 +131.3Share price†+18.9 +29.0 +95.7 +134.7FTSE All-Share (4.4) +4.0 +59.2 +45.2

*Source: ISIS EP LLP and AIC

†These returns for Baronsmead VCT 2 ignore up front tax reliefs and the impact of receiving dividends tax free.

Performance Record Ordinary share FTSE Combined Total Share Net asset All-Share total net Net asset price value total expense assets value (mid) total return* return ratio†Year ended £m p p p p % 31/03/1999 9.50 95.65 85.00 104.44 105.06 2.9031/02/2000 31.00 119.59 125.00 134.62 115.45 3.4031/03/2001 45.00 112.30 125.00 130.66 103.02 3.1031/03/2002 41.20 100.54 92.50 120.15 99.76 2.7031/03/2003 36.70 89.65 80.00 115.49 70.02 2.7031/03/2004 41.10 100.63 90.00 141.80 91.72 2.7031/03/2005 69.60 116.92 100.50 168.70 105.99 2.7031/03/2006 69.60 114.62 100.50 190.51 135.69 2.9030/09/2007 68.70 112.19 101.00 209.62 154.89 3.0030/09/2008 54.80 91.68 84.50 184.02 121.80 2.8530/09/2009 61.22 89.06 77.50 183.81 134.96 2.6630/09/2010 63.67 94.79 81.25 208.25 151.81 2.58 30/09/2011 65.00 95.15 86.25 231.26 145.18 2.44* Source: ISIS EP LLP.†As a percentage of average total shareholders' funds (excluding performancefee).Dividends Paid Since Launch Total Average Revenue Capital annual Cumulative total annual dividend dividend dividend dividend dividendYear ended p p p p p 6 months to 30/09/1998 1.00 0.00 1.00 1.00 0.5030/09/1999 3.80 0.00 3.80 4.80 3.2030/09/2000 3.60 0.00 3.60 8.40 3.3630/09/2001 3.50 0.00 3.50 11.90 3.4030/09/2002 2.50 0.00 2.50 14.40 3.2030/09/2003 1.70 10.20 11.90 26.30 4.7830/09/2004 1.40 3.50 4.90 31.20 4.8030/09/2005 2.50 7.70 10.20 41.40 5.5230/09/2006 1.80 9.20 11.00 52.40 6.1630/09/2007 2.10 6.40 8.50 60.90 6.4130/09/2008 2.80 4.20 7.00 67.90 6.4730/09/2009 0.70 4.80 5.50 73.40 6.3830/09/2010 1.50 4.00 5.50 78.90 6.31 30/09/2011 2.65 4.35 7.00 85.90 6.36

Cash Returned to Shareholders

The table below shows the cash returned to shareholders dependent on their subscription cost, including their income tax reclaimed on subscription.

Net Cumulative Subscription Income tax Cash dividends Net annual Gross price reclaim Invested paid†yield* yield†Year subscribed p p p p % % 1998 (April) - Ordinary 100.0 20.0 80.0 85.9 8.0 10.61999 (May) - Ordinary 102.0 20.4 81.6 82.4 8.2 10.92000 (February) - Ordinary 137.0 27.4 109.6 79.2 6.2 8.32000 (March) - Ordinary 130.0 26.0 104.0 79.2 6.6 8.82004 (October) - C 100.0 40.0 60.0 37.3 8.9 11.82009 (April) 91.6 27.5 64.1 18.0 11.3 15.0

C share dividend calculated using conversion ratio of 0.9657, which is the rate the C shares were converted into ordinary shares.

* Net annual yield represents the cumulative dividends paid expressed as a percentage of the net cash invested.

†The gross equivalent yield if the dividends had been subject to higher ratetax (currently 32.5 per cent on dividend income). The additional rate of taxon dividend income of 42.5 per cent which came into force from the 2010 / 11tax year for those shareholders who earn more than £150,000 has not beenincluded. For those shareholders who would otherwise pay this additional rateof tax on dividends, the future gross equivalent yield will be higher than

thefigures shown.Chairman's Statement

I am pleased to report an increase in Net Asset Value ("NAV") of 10.36p pershare (11.3 per cent) for the year to 30 September 2011. Before deductingdividends this increased our NAV to 102.15p per share. It was achievedprimarily as a result of a series of profitable realisations from the unquotedportfolio. Reflecting this excellent result the Board decided to pay anincreased second dividend making the total dividends for the year 7.0p a shareas compared with 5.5p paid in each of the previous two financial years.

INVESTMENT PERFORMANCE

Results

The growth of 11.3 per cent in NAV over the year compares to a 4.4 per cent.fall in the FTSE All-Share index over the same period. The changes can besummarised as follows: Pence per ordinary shareNAV as at 1 October 2010 (after final Dividend of 3.0p deducted) 91.79 Valuation uplift (11.3 per cent) 10.36 102.15Interim dividend paid on 17 June 2011 (2.50) Second interim dividend paid on 29 Sept 2011 (4.50)NAV as at 30 September 2011 95.15During the year four of our unquoted companies were sold at anaverage of 2.5 times original cost and realising net profitts of £6.6m. Twocompanies in particular contributed significantly to these figures. The saleof Reed & Mackay, which was announced with the interim results, was at amultiple of 4.8 times cost. This was an excellent investment return from acompany that grew consistently throughout the recent recession as a result ofits dedicated focus on service and value for customers. During September, theCompany's investment in Quantix was sold realising a profit of £1.7m anddelivering a return of 3.1 times cost.Approximately two thirds of the total return achieved in the yearto 30 September 2011 has been paid to shareholders as dividends, which at 7.0pare 27 per cent higher than in the previous two financial years. The level offuture dividends will, of course, depend upon continued profitablerealisations, although the Board intends to maintain and hopefully improve theCompany's dividend policy of maintaining an annual average dividend of 5.5p ashare subject to maintaining NAV.

All of the VCT qualifying tests had also been met throughout the year.

LONGER TERM PERFORMANCE AND BENEFIT OF THE VCT TAX RELIEFS

The Net Asset Value Total Return at 30 September 2011, calculated on the basis of reinvested dividends, is 231.3p for each 100p invested by founder shareholders before taking account of any VCT tax reliefs (as above). The comparable return would be 280.0p if the initial income tax relief available at inception was included.

The tax free nature of a VCT is of particular benefit forqualifying shareholders as they do not have to pay income tax on the dividendsthey receive, or declare them in a tax return. This means that qualifyingshareholders in Baronsmead VCT 2, who are higher and additional rate taxpayers do not have to pay income tax equivalent to 25 per cent and 36.1 percent respectively on the cash dividend they receive from the Company. Togenerate the same after-tax dividends, it would be necessary for the dividendreceived from a non-VCT investment to be 33.3 per cent or 56.5 per centhigher, respectively.

PORTFOLIO

The valuation of the portfolio of sixty-eight companies has grownstrongly over the twelve months to 30 September 2011. The direction of travelshowing trading and profitability of these companies is recorded quarterly sothat the Board can monitor the health of the portfolio. The continued pooreconomic backdrop in the UK is beginning to have some impact on performancewith 80 per cent of investee companies progressing steadily at the year endcompared with 92 per cent at the end of the previous year. Pleasingly theactions taken during the early crisis years of 2008/09 have resulted in mostinvestee companies having lower borrowings and tighter cost control.

The net assets of £65.0 million were invested as follows:

- unquoted companies 44.6 per cent

- AIM-traded and other listed companies 26.2 per cent

- Wood Street Microcap Investment Fund 4.4 per cent

- in liquid assets or government securities 24.8 per cent.

The largest unquoted investment, Nexus Vehicle Holdings and the largest AIM investment, IDOX represented 8.6 and 3.8 per cent of net asset value respectively.

The most significant increases in individual investment valuationsduring the year were CableCom (68 per cent) and Nexus (34 per cent) both ofwhich have increased profits significantly since the Company invested. The twolargest AIM investments were IDOX and Staffline, both of which have continuedto grow and trade more profitably.

Subsequent to the year end the Company invested £1.3m in ICCM, a provider of high acuity care for home based care users. This has increased the total amount of net assets invested in unquoted companies to 46.7 per cent

VCT LEGISLATION AND WIDER REGULATION

There have been two positive actions by the Government to improveVCT legislation. The March 2011 Budget announced not only a better regime forentrepreneurs but also an intention to liberalise the rules governing theinvestments VCTs can make. From April 2012 the Government wishes to change thequalifying company rules so that investee companies can have up to 250employees (rather than the present limit of up to 50 employees) and grossassets of £15 million (£7 million at present). Additionally the Government isproposing to increase the annual investment limit for qualifying companies to£10 million. These proposals are however subject to EU state aid approvalwhich is currently being negotiated.In July 2011, HM Treasury issued a consultation document which isaiming to refocus the VCT scheme on risk investments and seeking to removesome of the structural VCT constraints. Our Trade Association, the AIC, workedclosely with the larger VCT Manager groups to provide a suitable response tothis consultation. The response to the Treasury's consultation and researchpublished by the AIC has stressed the extent to which the VCT sector hascontributed to employment, innovation and growth in the economy.The Company's investment manager, ISIS EP LLP, participated inthese discussions and previously has provided data and case studies from theBaronsmead portfolios to the AIC, to assist them in producing economic impactdata for the sector. This data demonstrates that the VCT sector has generatedsignifi cant employment since inception and has contributed to the overallgrowth of the economy. In particular SDL and Vectura in which the Companyinvested in 1998 and 2001 respectively have grown into substantial companiesthat are now listed on the London Stock Exchange.

ANNUAL GENERAL MEETING

I look forward to meeting as many shareholders as possible at our 14th Annual General Meeting to be held on Wednesday 11 January 2012 at the London Stock Exchange, 10 Paternoster Square near St Paul's Cathedral. Proceedings for the day commence at 9.45 a.m. with a shareholder workshop. This is followed by the AGM at 10.45 a.m. as well as presentations from the Manager and an investee company ending with a light lunch.

OUTLOOK

My cautionary remarks in the interim report anticipated continued uncertainty and slower growth for the UK economy. The summer months have confirmed that this caution was justified. Concerns about the level of indebtedness of Western Economies, particularly in the EU, have led to significant stock market volatility and lower investor confidence.

Against this backdrop Baronsmead VCT 2 has realised good profitsfrom the sale of a number of companies and its portfolio is lowly geared. Themanager, ISIS, has the experience to guide portfolio companies throughdifficult trading environments and in this rapidly changing economic climatethere will be specific sector opportunities to which the Manager remains alertand in which it intends to invest.

The Government needs to create a more business friendly environment and drive private sector growth, particularly by encouraging investment by individuals and the corporate sector. If they also succeed in liberalising the VCT regulations, it is companies like those in our portfolio which can generate the growth that the UK economy needs.

Clive ParrittChairman18 November 2011MANAGER'S REVIEWUntil summer 2011, trading performance across the unquoted and AIMportfolio companies had improved compared to the previous year, including aseries of profitable exits. The deterioration in the economy and now renewedthreat of recession is having some impact on the portfolio but in general thecompanies are well placed to trade through a renewed downturn.

PORTFOLIO REVIEW

The portfolio comprised sixty-eight investee companies at the year end aftermaking nine realisations and adding eleven new investments. Capital proceedsfrom realisations totalled £13.6 million and net capital profits realised inthe period were £7.0 million. Investment in unquoted and AIM traded companieswere £5.5 million and £3.1 million respectively, including further roundfinancings.The new unquoted investments were in Valldata Group, a UK leading provider ofoutsourced donation processing and fulfilment services for the UK not-forprofit sector; and three acquisition companies. Each of the acquisitioncompanies is led by an experienced Chairman who had previously been backed byISIS through investment by the Baronsmead VCTs. These prior investee companieswere ScriptSwitch a healthcare IT company, Reed & Mackay a business travelmanagement company and Hawksmere a business training company. All threeinvestments delivered successful realisations for shareholders and the threeChairmen are now seeking new opportunities in their chosen sectors.The volume of qualifying AIM opportunities again increased from the depressedlevels of 2009. A total of £2.0 million was invested into seven AIM-tradedcompanies and another £1.4 million of additional capital was provided to eightexisting investments. The two largest AIM investments were in Music Festivalsplc and Escher Group Holdings plc. Music Festivals focuses on the ownership,development, and production of music festivals including FestivalInternacional de Benicassim in Spain and the Hop Farm Music Festival in Kent.Escher Group Holdings provides software for the global post office automationmarket.Wood Street Microcap Investment Fund ("Wood Street") was established by ISISin May 2009 to provide flexibility for the Baronsmead VCTs to invest ingenerally larger and more liquid non VCT qualifying AIM and Small Capopportunities. At 30 September 2011 Baronsmead VCT 2 had invested £2.5 millionthrough Wood Street into a portfolio of twenty nine companies and generated apositive return of 7.9 per cent over the year. The Manager receives noadditional fee for managing this fund.

EXITS IN THE YEAR UNDER REVIEW

The four unquoted and five AIM full exits have deliveredsignificant realised profits. The former were sold at an aggregate of 2.5times cost yielding profits of £6.6m. Although profits from the AIM portfoliorealisations were at a lower multiple of 1.3 times cost, this is encouragingin the context of quoted markets being lower by September 2011 than inSeptember 2010.

The two unquoted companies that achieved sale prices of 4.8 times and 3.1 times their cost were Reed & Mackay and Quantix. Both companies had sustained growth through the 2008/09 recession.

- Reed & Mackay provides business travel management to mostlyfinancial services and professional services firms and prides itself on itsexceptional customer service. Over the five and half years that the BaronsmeadVCTs were shareholders, ISIS worked with the business to strengthen the seniormanagement team and further develop the technological support for their travelconsultants. The work-force more than doubled from the 140 employees at theoutset.- Quantix is an IT managed services provider, with servicesincluding database support and cloud services to enterprises throughout theUK. Since the Baronsmead VCTs invested in the company in 2007 it has tripledits client base and become a recognised leader in its field particularly forits innovative approach. Simon Goodenough, MD of Quantix said "We have reallyenjoyed having ISIS as a partner for the past four and a half years. Thebusiness has definitely benefitted from having such a supportive investor.They gave us the confidence to invest in the sales force and internaloperations processes ahead of our original plan."- Getting Personal and Credit Solutions were also successfully soldduring the year to 30 September 2011. Getting Personal is a leading internetretailer of personalised gifts which had grown rapidly since its launch 5years ago and generated sales of £11.5 million in the year to April 2011. Thebusiness was profitably sold to Card Factory in July 2011. Baronsmead VCT 2invested in Credit Solutions, a debt collection agency in 2005. The businesswas sold to arvato, a global business outsourcing partner in November 2010.

CASE STUDIES

The four case studies highlighted in this Annual Report have shown sustained growth over the last three years.

- CableCom Networking Holdings supplies IT and communication services to the UK student accommodation and key worker sectors. The latter includes high quality accommodation around the BBC's new northern base at Salford.

- Nexus Vehicle Holdings, a leading provider of vehicle rental services to the UK corporate market, is growing both organically and by acquisition.

- Crew Clothing Holdings, an active and casual wear clothing brand, continues to grow its portfolio of sites, creating jobs as well as experiencing growth from its direct mail/website retailing

- Staffline Group is a specialist provider of blue-collar labouroutsourcing for UK industry. The investment was made by the Baronsmead VCTs in2000 and the company was floated on the AIM market in 2004. It is now a marketleader in its field with turnover increasing from £29 million at the date ofinvestment to £206 million in the year to 31 December 2010 with profits inthat year of £7 million.

OUTLOOK

The economic optimism of 2010 has diminished during 2011 withwidespread concern about growth prospects. Many of the portfolio companies arenow more experienced at handling the economic uncertainties. However thisenvironment does not help to encourage the entrepreneurial spirit so vital forthe development of the SME sector that will be key to the regeneration of theeconomy. It is simply much more difficult to evaluate the future and theassociated risks.As an active investment manager ISIS continues to work with ourinvestee companies to help to steer them on an appropriate course in thesedifficult conditions. Few of the portfolio companies are reliant on bankfinance and so the focus will be on sustaining sales growth whilst continuingto enhance customer service so as to build resilient businesses with continuedmomentum.ISIS EP LLPInvestment Manager's18 November 2011

Table of Investments and Realisations

Investments in the year to 30 September 2011

Book CostCompany Location Sector Activity (£'000)Unquoted investmentsNew

Valldata Group Limited Melksham Business Payment

1,616 Services processing for non-profit sector Arcas Investments London Business Company seeking 1,000Limited Services to acquire businesses in the business services sector Quest Venture Partners London Business Company seeking 1,000Limited Services to acquire businesses in the business travel sector HealthTech Innovation London Healthcare & Company seeking 1,000Partners Limited Education to acquire businesses in the healthcare IT sector Music Festivals Plc London Consumer Owner and 400Loan Note Markets operator of live music festivals and event Follow onIndependent Living Healthcare & Care at homeServices Limited Alloa Education services 438Total unquoted investments 5,454AIM-traded & listed investmentsNewEscher Group Holdings Dublin IT & Media Postal automation 614Plc software and servicesAccumuli Plc Salford IT & Media Managed IT 333 security Tristel Plc Newmarket Healthcare & Infection Control 217 Education Brady Plc Cambridge IT & Media Commodities 176 trading software Ubisense Group Plc Cambridge IT & Media Technology & 130 Services offering real time location systems solutions Music Festivals Plc London Consumer Owner and 100 Markets operator of live music festivals and events Hangar8 Plc Oxford Business Business Jet 44Follow on Services Management Green Compliance Plc Cirencester Business Small business 476 Services compliance SpecialistIS Pharma Plc Chester Healthcare & hospital 278 Education medicines group Electric Word plc London IT & Media Business to 238 business publisher Netcall Plc St Ives IT & Media Communications 157 software Active Risk Group Plc Maidenhead IT & Media Risk management 124 software Tangent Communications London Business Digital directPlc Services marketing 88 Driver Group Plc Rossendale Business Dispute 64 Services resolution STM Group Plc Gibraltar Financial Offshore trust 22 Services and company administration servicesTotal AIM-traded & listedinvestments 3,061Collective investment vehiclesFollow onWood Street Microcap InvestmentFund 1,000Total collective investmentvehicles 1,000

Total investments in the year

9,515

Realisations in the year to 30 September 2011

30 September First 2010 Realised profit/(loss) Overall Investment valuation this period MultipleCompany date £'000 £'000 Return*Unquoted realisationsQuantrix Limited Full trade sale Mar 07 1,984 920 3.1Getting PersonalLimited Full trade sell Jun 10 988 823 ND^Reed& MackayLimited Full trade sell Nov 05 4,247 761 4.8Credit SolutionsLimited Full trade sell May 05 1,253 40 1.8CarnellcontractorsLimited Loan repayment Mar 08 558 0 0.6MLS Limited Loan repayment Jul 06 250 0 1.0Total unquoted realisations 9,280 2,544AIM-traded, listed PLUS & NYSERealisationsChemistrycommunicationsGroup Plc Full trade sell Dec 00 136 266 0.8Mount EngineeringPlc Full trade sell Jun 07 413 39

1.2

Advanced computer Full marketsoftware Group Plc sale Jul 08 494 31

2.1

Full marketCraneware Plc sale Sep 07 302 (4)

2.7 Full marketAlere Inc sale Aug 09 150 (40) 0.8

Total AIM-traded & listed realisations 1,495 292

Total realisations in theyear 10,775 2,836â€

* Includes interest/dividends received, loan note redemptions and partial realisations accounted for in prior periods.

†Proceeds of £23,000 were also received in respect of Country Artists And afurther £6,000 in respect of MKM Group Plc, both of which had been written

offin a prior period.^ Not disclosedInvestment Portfolio

Investment Classification at 30 September 2011

Sector* Percentage Business Services 38Consumer Markets 17Financial Services 3Healthcare & Education 10IT & Media 32 100

* at 30 September 2011 valuation.

Total Assets* Percentage Unquoted - Loan stock 30Ordinary and preference Shares 15AIM, Listed & CollectiveInvestment Vehicles 30Interest bearing securities 24Net current Assets 1 100

* at 30 September 2011 valuation

Time Investments Held* Percentage

Less than 1 year 25Between 1 and 3 years 22Between 3 and 5 years 32Greater than 5 years 21 100

* at 30 September 2011 valuation.

30 September

30 September % of total % of

2010

2011 % of held by Equity

Book cost valuation valuation net Baronsmead held byCompany Sector £'000 £'000†£'000 assets VCT 2 plc all Funds*UnquotedNexus Vehicle Holding Business Services 2,367 4,197 5,627 8.6 12.6 57.4LimitedCableCom NetworkingHoldings Limited IT & Media 1,381 2,200 3,686 5.7 10.6 48.0 Crew Clothing CompanyLimited Consumer Markets 984 2,519 2,714 4.2 5.4 22.8 CSC (World) Limited IT & Media 1,606 1,687 2,148 3.3 8.8 40.0

Kaf©vend Holdings Limited Consumer Markets 1,252 1,786

2,039 3.1 15.8 66.5 Fisher Outdoor Leisure Consumer Markets 1,423 1,777 1,777 2.7 10.5 44.0Holdings Limited Valldata Group Limited Business Services 1,616 - 1,616 2.5 8.9 40.6 Inspired Thinking Group Business Services 796 979 1,275 2.0 5.0 22.5Limited MLS Ltd IT & Media 531 1,136 1,011 1.6 5.3 22.5

Arcas Investments Limited Business Services 1,000 -

1,000 1.5 9.6 48.6 Quest Venture PartnersLimited Business Services 1,000 - 1,000 1.5 9.6 48.6HealthTech InnovationPartners Limited Healthcare & Education 1,000 - 1,000 1.5 9.6 48.6

Independent Living Services Healthcare & Education 1,599 1,755

980 1.5 16.2 68.1Limited TVC Group Limited IT & Media 1,233 698 766 1.2 13.0 59.3

Empire World Trade Limited Business Services 1,297 833

715 1.1 ...¦ ...¦ Surgi C Limited Healthcare & Education 1,102 1,102 626 1.0 9.8 44.7

Playforce Holdings Limited Business Services 1,033 1,024

512 0.8 9.7 44.0 Music Festivals Plc Loan Consumer Markets 400 - 400 0.6 N/A N/ANote

Kidsunlimited Group Limited Business Services 113 113

113 0.2 N/A N/A

Carnell Contractors Limited Business Services 941 674

0 0.0 # #

Xention Discovery Limited Healthcare & Education 316 55

0 0.0 0.4 3.0Total unquoted 22,990 22,535 29,005 44.6 AIMIDOX Plc IT & Media 1,038 1,276 2,440 3.8 3.2 9.6Staffline Group plc Business Services 249 1,534 2,013 3.1 4.2 8.4Green Compliance plc Business Services 882 656 870 1.3 4.0 19.8Netcall plc IT & Media 869 504 854 1.3 4.1 20.2Jelf Golf plc Financial Services 761 548 792 1.2 1.4 6.3Murgitroyd Group plc Business Services 319 711 777 1.2 3.1 6.2

Escher Group Holdings plc IT & Media 614 -

614 1.0 2.1 10.6Tasty plc Consumer Markets 469 364 607 0.9 2.5 17.1Brulines Group plc Business Services 646 621 482 0.8 1.8 9.6Sinclair IS Pharma plc^ Healthcare & Education 524 - 446 0.7 0.5 2.5Electric Word plc IT & Media 616 450 429 0.7 5.2 28.8FFastFill plc IT & Media 251 288 427 0.7 0.9 6.1Accumuli plc IT & Media 333 - 384 0.6 3.6 20.7PROACTIS Holdings plc IT & Media 619 563 341 0.5 5.4 26.2Plastics Capital plc Business Services 473 180 331 0.5 1.7 9.8

Kiotech International plc Healthcare & Education 275 321

327 0.5 2.1 15.5InterQuest Group plc Business Services 310 309 281 0.4 1.8 7.0EG Solutions plc IT & Media 375 397 273 0.4 3.1 14.2Quadnetics Group plc Business Services 296 196 224 0.4 0.6 2.1Real Good Food Company Consumer Markets 620 101 218 0.3 0.7 2.3(The) plcSanderson Group plc IT & Media 387 170 209 0.3 1.8 6.9Brady plc IT & Media 176 - 208 0.3 0.5 3.1Driver Group plc Business Services 503 120 194 0.3 3.5 16.2

Tangent Communications plc Business Services 268 42 175 0.3 2.0 10.3Dos Group plc IT & Media 666 246 162 0.3 1.7 4.4Stagecoach Theatre Arts plc Consumer Markets 419 198

153 0.2 4.5 9.0Tristel plc Healthcare & Education 217 - 152 0.2 1.0 5.4Ubisense Group plc IT & Media 130 - 139 0.2 0.3 1.7

Active Risk Group plc IT & Media 159 36 136 0.2 1.1 5.6Autoclenz Holdings plc Business Services 400 122 122 0.2 3.1 12.3Begbies Traynor Group plc Financial Services 231 425

110 0.2 0.6 2.5Cohort plc Business Services 179 47 105 0.2 0.3 1.4Prologic plc IT & Media 310 103 103 0.2 4.1 15.0Music Festivals plc Consumer Markets 100 - 91 0.2 1.0 5.2STM Group plc Financial Services 162 49 44 0.1 0.8 4.9Bglobal plc Business Services 176 218 42 0.1 0.4 2.5

AorTech International plc Healthcare & Education 285 25 32 0.0 0.3 0.6Hangar8 Plc Business Services 44 - 31 0.0 0.5 2.6Colliers International plc Financial Services 470 63 27 0.0 0.3 0.8Clarity Commerce Solutions IT & Media 50 48

26 0.0 0.3 6.0plcAdventis Group plc IT & Media 361 163 22 0.0 3.1 20.7Zoo Digital Group plc IT & Media 438 36 19 0.0 0.2 0.6RTC Group plc Business Services 355 37 11 0.0 2.8 5.7Highams Systems ServicesGroup plc Business Services 197 6 5 0.0 0.3 1.0Total AIM 17,222 11,200 15,448 23.8 ListedVectura Group plc Healthcare & Education 578 615 1,031 1.6 0.4 1.3Chime Communications plc IT & Media 369 343 323 0.5 0.2 1.3

Marwyn Management Partners Financial Services 525 - 117 0.2 0.3 1.8plc^^Marwyn Value Investors Financial Services 64 59 45 0.1 1.3 6.0LimitedTotal Listed 1,536 1,017 1,516 2.4Interest bearing securitiesUK T-Bill 03/10/11 9,498 - 9,498 14.6Blackrock Cash Market OEIC 3,000 7,000 3,000 4.6JP Morgan Europe OEIC 3,000 4,800 3,000 4.6Total interest bearing 15,498 11,800 15,498 23.8securitiesCollective investmentvehicleWood Street MicrocapInvestment Fund 2,525 1,654 2,863 4.4

Total Collective investment vehicle 2,525 1,654

2,863 4.4Total investments 59,771 48,206 64,330 99.0Net current assets 669 1.0Net assets 64,999 100.00

^^ Marwyn Management Partners plc shares received in exchange for Prasepe plc shares following a takeover.

†The total investment valuation at 30 September 2010 per the table above does not agree to the audited accounts due to purchases and sales since that date.

* All funds managed by the same investment manager, ISIS EP LLP, including Baronsmead VCT 2.

Unquoted, AIM and Listed Portfolio Concentration Analysis at 30 September 2011Investment ranking Book cost Valuation % ofby valuation £'000 £'000 portfolioTop Ten 12,712 25,335 55.111-20 8,539 9,315 20.321-30 8,034 5,688 12.430+ 12,463 5,631 12.2Total 41,748 45,969 100.0Ten Largest InvestmentsThe top ten investments by current value at 30 September 2011 illustrate thediversity and size of investee companies within the portfolio. This financialinformation is taken from publicly available information, which has beenaudited by the auditors of the investee companies.

1. NEXUS VEHICLE HOLDINGS LIMITED - Leeds

All ISIS EP LLP managed funds

First Investment: February 2008Total Cost: £9,500,000Total equity held: 57.38%

Baronsmead VCT 2 only

Cost: £2,367,000Valuation: £5,627,000Valuation basis: Earnings Multiple% of equity held: 12.62%Year ended 30 2010 2009September £ million £ millionSales 33.0 19.2EBITA 4.0 2.0Profit/(Loss) before 1.3 (0.3)taxNet Assets/ 0.8 (0.2)(Liabilities) No. of Employees 73 32

(Source: Nexus Vehicle Holdings Limited, Financial Statements 2010).#

2. CABLECOM NETWORKING HOLDINGS LIMITED - Clevedon

All ISIS EP LLP managed funds

First Investment: May 2007Total Cost: £5,600,000Total equity held: 48.00%Baronsmead VCT 2 onlyCost: £1,381,000Valuation: £3,686,000Valuation basis: Earnings Multiple% of equity held: 10.56%Year ended 30 2010 2009September £ million £ millionSales 8.2 8.1EBITA 0.9 0.9Loss before tax (0.5) (0.4)Net Assets 0.5 0.9 No. of Employees 52 40

(Source: Cablecom Networking Holdings Limited, Audited Annual Report and Accounts 2010)

3. CREW CLOTHING HOLDINGSLIMITED - London

All ISIS EP LLP managed funds

First Investment: November 2006Total Cost: £3,955,000Total equity held: 22.79%Baronsmead VCT 2 onlyCost: £984,000Valuation: £2,714,000Valuation basis: Earnings Multiple% of equity held: 5.41%Year ended 31 2010 2009October £ million £ millionSales 34.6 29.3EBITA 2.7 0.8Profit before tax 2.0 0.2Net Assets 3.8 2.3 No. of Employees 284 273

(Source: Crew Clothing Holdings Limited, Consolidated Financial Statements 2010)

4. IDOX PLC - London

All ISIS EP LLP managed funds

First Investment: June 2006Total Cost: £3,015,000Total equity held: 9.60%Baronsmead VCT 2 onlyCost: £1,038,000Valuation: £2,440,000Valuation basis: Bid Price% of equity held: 3.21%Year ended 31 2010 2009October £ million £ millionSales 31.3 32.2EBITA 7.5 6.6Profti before tax 4.9 4.5Net Assets 31.0 28.2 No. of Employees 332 304

(Source: IDOX plc Annual Report and Accounts 2010).

5. CSC (WORLD) LIMITED - Pudsey, Leeds

All ISIS EP LLP managed funds

First Investment: January 2008Total Cost: £6,450,000Total equity held: 40.03%Baronsmead VCT 2 onlyCost: £1,606,000Valuation: £2,148,000Valuation basis: Earnings Multiple% of equity held: 8.81%Year ended 31 March 2011 2010 £ million £ millionSales 7.3 6.4EBITA 2.3 1.9Loss before tax (0.4) (0.8)Net (Liabilities)/ (1.3) (0.6)Assets No. of Employees 58 55

(Source: Cobco 867 Limited, Directors Report and Consolidated Financial Statements 2010)

6. KAF‰VEND HOLDINGS LIMITED - Crawley

All ISIS EP LLP managed funds

First Investment: October 2005Total Cost: £5,024,000Total equity held: 66.50%Baronsmead VCT 2 onlyCost: £1,252,000Valuation: £2,039,000Valuation basis: Earnings Multiple% of equity held: 15.79%Year ended 30 2010 2009September £ million £ millionSales 15.6 14.7EBITA 2.0 1.9Profit before tax 0.8 0.5Net Assets 1.2 0.8 No. of Employees 95 98

(Source: Kafevend Holdings Limited, audited Annual Report and Accounts 2010)

7. STAFFLINE RECRUITMENT GROUP PLC - Nottingham

All ISIS EP LLP managed funds

First Investment: July 2000Total Cost: £498,000Total equity held: 8.42%Baronsmead VCT 2 onlyCost: £249,000Valuation: £2,013,000Valuation basis: Bid Price% of equity held: 4.23%Year ended 31 2010 2009December £ million £ millionSales 206.2 115.0EBITA 7.8 3.7Profit before tax 7.0 3.5Net Assets 30.5 26.1 No. of Employees 319 243

(Source: Staffline Group Plc Financial Statements 2010)

8. FISHER OUTDOOR LEISURE HOLDINGS LIMITED - St. Albans

All ISIS EP LLP managed funds

First Investment: June 2006Total Cost: £5,700,000Total equity held: 44.0%Baronsmead VCT 2 onlyCost: £1,423,000Valuation: £1,777,000Valuation basis: Earnings Multiple% of equity held: 10.45%Year ended 31 2010 2009January £ million £ millionSales 26.5 22.2EBITA 2.3 1.8Profit before tax 0.7 0.1Net Assets 1.4 1.0 No. of Employees 96 83

(Source: Fisher Outdoor Leisure Holdings Limited, Directors Report and Financial Statements 2010)

9. VALLDATA GROUP LIMITED - Wiltshire

All ISIS EP LLP managed funds

First Investment: January 2011Total Cost: £6,475,000Total equity held: 40.57%Baronsmead VCT 2 onlyCost: £1,616,000Valuation: £1,616,000Valuation basis: Cost% of equity held: 8.92%Year ended 31 March 2011 2010** £ million £ millionSales 6.3 5.4EBITA 0.9 0.8Profit before tax 0.8 0.7Net (Liabilities)/ 0.6 0.4Assets No. of Employees 292 234**restated

(Source: Valldata Services Limited, Directors Report and Financial Statements 2011)

10. INSPIRED THNKING GROUP LIMITED - Birmingham

All ISIS EP LLP managed funds

First Investment: May 2010Total Cost: £3,200,000Total equity held: 22.50%Baronsmead VCT 2 onlyCost: £769,000Valuation: £1,275,000Valuation basis: Earnings Multiple% of equity held: 4.95%Year ended 31 August 2010 £ millionSales 12.9EBITA 0.5Profit before tax 0.4Net Assets 0.9 No. of Employees 96

(Source: Inspired Thinking Group Holdings, Directors Report and Consolidated Financial Statements for the year end 31 August 2010)

Extract from Report of the Directors

The chairman's statement and the Corporate Governance Statement from part of the report of the Directors

Results and Dividends

The Directors present the fourteenth Report and audited financial statements of the Company for the year ended 30 September 2011.

Ordinary Shares £'000

Profit on ordinary activities after taxation 6,975

Final dividend for 2010 of 3.0p per ordinaryshare paid on 14 January 2011 (2,077)Interim dividend of 2.5p per ordinary sharepaid on 17 June 2011 (1,715)Second interim dividend of 4.5p per ordinaryshare paid on 29 September 2011 (3,077)Total dividends paid during the year (6,869)

Principal Activity and Status

The Company is registered in England as a Public Limited Company (Registrationnumber 03504214). The Directors have managed, and intend to continue tomanage, the Company's affairs in such a manner as to comply with Section 274of the Income Tax Act 2007 which grants approval as a VCT.

Business Review

The Business Review has been prepared in accordance with the requirements ofSection 417 of the Companies Act 2006 and best practice. The purpose of thisreview is to provide shareholders with a summary setting out the businessobjectives of the Company, the Board's strategy to achieve those objectives,the risks faced, the regulatory environment and the key performance indicators("KPIs") used to measure performance.

Strategy for achieving objectives

Baronsmead VCT 2 plc is a tax efficient Company listed on the London Stock Exchange's main market for listed securities.

Investment Objective

The investment objective of the Company is to achieve long-term investment returns for private investors, including tax-free dividends.

Investment Policy

The Company's investment policy is to invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM.

Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value.

Investment securities

The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stocks, convertible securities, and fixed-interest securities as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks, while AIM investments are primarily held in ordinary shares. Pending investment in unquoted and AIM-traded securities, cash is primarily held in an interest bearing money market open ended investment company ("OEIC"), UK gilts and Treasury Bills.

UK companies

Investments are primarily made in companies which are substantially based inthe UK, although many of these investees will trade overseas. The companies inwhich investments are made must have no more than £15 million of gross assetsat the time of investment (or £7 million if the funds being invested wereraised after 5 April 2006) to be classed as a VCT qualifying holding.

VCT regulation

The investment policy is designed to ensure that the Company continues toqualify and is approved as a VCT by HM Revenue and Customs. Amongst otherconditions, the Company may not invest more than 15 per cent of itsinvestments in a single company and must have at least 70 per cent by value ofits investments throughout the period in shares or securities comprised inqualifying holdings, of which 30 per cent by value must be ordinary shareswhich carry no preferential rights. In addition, it must have at least 10 percent by value of its total investments in any qualifying company in ordinaryshares which carry no preferential rights.

Asset mix

The Company aims to be at least 90 per cent invested in growth businesses subject always to the quality of investment opportunities and the timing of realisations. Any un-invested funds are held in cash and interest bearing securities. It is intended that at least 75 per cent of any funds raised by the Company will be invested in VCT qualifying investments.

Risk diversification and maximum exposures

Risk is spread by investing in a number of different businesses withindifferent qualifying industry sectors using a mixture of securities. Generallyno more than £2.5 million at cost is invested in the same company. The valueof an individual investment is expected to increase over time as a result oftrading progress and a continuous assessment is made of its suitability forsale.

Investment style

Investments are selected in the expectation that the application of private equity disciplines including an active management style for unquoted companies will enhance value and enable profits to be realised from planned exits.

Co-investment

The Company aims to invest in larger more mature unquoted and AIM companiesand to achieve this it invests alongside the other Baronsmead VCTs. Currently,ISIS EP LLP (`the Manager') and its executive members are mandated to investin unquoteds alongside the Company on terms which align the interests ofshareholders and the Manager.

Borrowing powers

The Company's Articles permit borrowing to give a degree of investment flexibility. The Company's policy is to use borrowing for short term liquidity purposes only.

Management

The Board has delegated the management of the investment portfolio to the Manager. The Manager also provides or procures the provision of company secretarial, administrative, accounting and custodian services to the Company.

The Manager has adopted a `top-down, sector-driven' approach to identifyingand evaluating potential investment opportunities, by assessing a forward viewof firstly the business environment, then the sector and finally the specificpotential investment opportunity. Based on its research, the Manager hasselected a number of sectors that it believes will offer attractive growthprospects and investment opportunities. Diversification is also achieved byspreading investments across different asset classes and making investmentsfor a variety of different periods.

The Manager's Review above provides a review of the investment portfolio and of market conditions during the year.

Principal risks, risk management and regulatory environment

The Board believes that the principal risks faced by the Company are:

- Economic risk - events such as an economic recession and movement in interest rates could affect smaller companies' valuations

- Loss of approval as a Venture Capital Trust - the Company must comply withSection 274 of the Income Tax Act 2007 which allows it to be exempted fromcapital gains tax on investment gains. Any breach of these rules may lead tothe Company losing its approval as a VCT, qualifying shareholders who have notheld their shares for the designated holding period having to repay the incometax relief they obtained and future dividends paid by the Company becomingsubject to tax. The Company would also lose its exemption from corporation taxon capital gains.

- Investment and strategic - an inappropriate strategy, poor asset allocation or consistent weak stock selection might lead to under performance and poor returns to shareholders. Therefore the Company's investment strategy is periodically reviewed by the Board which considers at each meeting the performance of the investment portfolio.

- Regulatory - the Company is required to comply with the Companies Act 2006,the rules of the UK Listing Authority and United Kingdom Accounting Standards.Breach of any of these might lead to suspension of the Company's StockExchange listing, financial penalties or a qualified audit report. Generalchanges in legislation, regulations or government policy could significantlyinfluence the decisions of investors or impact upon the markets in which theCompany invests

- Reputational - inadequate or failed controls might result in breaches of regulations or loss of shareholder trust.

- Operational - failure of the Manager's and administrator's accounting systems or disruption to its business might lead to an inability to provide accurate reporting and monitoring.

- Financial - the Board has identified the Company's principal financial riskswhich are set out in the notes to the Financial Statements below. Inadequatecontrols might lead to misappropriation of assets. Inappropriate accountingpolicies might lead to misreporting or breaches of regulations.- Market Risk - investment in AIM traded, PLUS traded and unquoted companiesby nature involve a higher degree of risk than investment in companies tradedon the main market. In particular, smaller companies often have limitedproduct lines, markets or financial resources and may be dependent for theirmanagement on a smaller number of key individuals. In addition, the market forstock in smaller companies is often less liquid than that for stock in largercompanies, bringing with it potential difficulties in acquiring, valuing anddisposing of such stock.

Liquidity Risk - the Company's investments may be difficult to realise. The fact that a share is traded on AIM does not guarantee its liquidity. The spread between the buying and selling price of such shares may be wide and thus the price used for valuation may not be achievable.

- Competitive Risk - retention of key personnel of the Manager is vital to the success of the Company. Appropriate incentives are in place to ensure retention of such personnel.

The Board seeks to mitigate the internal risks by setting policy, regularreview of performance, enforcement of contractual obligations and monitoringprogress and compliance. In the mitigation and management of these risks, theBoard applies rigorously the principles detailed in the FRC's "RevisedGuidance for Directors on the Combined Code".

Details of the Company's internal controls are contained in the Corporate Governance section of the Company's Annual Report for the year ended 30 September 2011.

Performance and key performance indicators ("KPIs")

The Board expects the Manager to deliver a performance which meets the objective of achieving long term investment returns, including tax-free dividends.

Performance, measured by dividends paid to shareholders and the change in NAVper share, is also measured against the FTSE All-Share Total Return Index.This index, as the widest measure of UK quoted equities, has been adopted asan informal benchmark. Investment performance, cash returned to shareholdersand share price are also measured against the Company's peer group of sevenother generalist venture capital trusts. A review of the Company's performanceduring the financial period, the position of the Company at the year end andthe outlook for the coming year is contained within the Chairman's statementabove.

The Board assesses the performance of the Manager in meeting the Company's objective against the primary KPIs highlighted above.

Issue and Buy-Back of Shares

During the period the Company issued 2,068,746 ordinary shares, 9,756 of whichwere cancelled following their forfeiture on 16 May 2011. During the periodthe Company bought back 920,000 ordinary shares with a nominal value of 10p tobe held in Treasury, representing at an aggregate cost of £813,262.50. Theseshares will not be sold at a discount wider than the discount prevailing atthe time the shares were initially bought back by the Company. The Companyholds 8,473,906 ordinary shares in Treasury representing 11.04 per cent of theissued share capital as at 18 November 2011. The maximum number of shares heldin Treasury during the year was 8,473,906 shares representing 11.04 per centof the issued share capital at the year end.

Directors

On 3 February 2011 Ms C McComb was appointed as a Director and having beenappointed during the year will submit herself for election as a Director atthe forthcoming Annual General Meeting being the first General Meeting sinceher appointment. Mr Goldring will, in accordance with the Articles ofAssociation, will retire by rotation and submit himself for re-election at theforthcoming Annuall General Meeting.

As explained in more detail under Corporate Governance below in accordance with the provisions of the AIC Code of Corporate Governance, the Board has agreed that Directors who have held office for more than nine years will retire annually. Accordingly, as Mr C Parritt and Mrs G Nott have held office for a period of more than nine years, they will retire at the forthcoming Annual General Meeting of the Company and, being eligible, offer themselves for re-election. Mrs G Nott who is a director of Baronsmead VCT 3 plc and Baronsmead VCT 5 plc is also required to seek annual re-election under the terms of the UKLA's Listing Rules.

The Board confirms that, following formal performance evaluations, theperformance of each of the Directors continues to be effective anddemonstrates commitment to the role; the Board believes that it is thereforein the best interests of shareholders that these Directors be re-elected. Theinterests of the Directors in the shares of the Company, at the beginning andat the end of the year, or date of appointment, if later, were as follows: 30 September 2011 30 September 2010 Ordinary Ordinary shares 10p Shares 10pClive Parritt 85,316 73,941Gillian Nott 48,462 23,341Howard Goldring - -Christina McComb* - -Total shares held 133,778 97,282*Appointed on 3February 2011

There have been no changes in the holdings of the Directors between 30 September 2011 and 18 November 2011.

No Director has a service contract with the Company.

All Directors are members of the Audit, Management Engagement and Remuneration, Nomination and Valuation Committees.

The Directors who held office at the date of approval of this Directors'Report confirm that, so far as they are each aware, there is no relevant auditinformation of which the Company's auditors are unaware; and each Director hastaken all the steps that they ought to have taken as a Director to makethemselves aware of any relevant audit information and to establish that theCompany's auditors are aware of that information.

Directors' Professional Development

When a new director is appointed he or she is provided with an induction programme that is held by the Manager. Directors are also provided on a regular basis with key information on the Company's policies, regulatory and statutory requirements and internal controls. Changes affecting directors' responsibilities are advised to the Board as they arise. Directors also regularly participate in industry seminars.

Management

ISIS EP LLP manages the investments for the Company. The liquidassets within the portfolio (being cash, gilts and other assets, which are notcategorised as venture capital investments for the purpose of the FSA's rules)have been managed by FPPE LLP. This is a limited partnership, which isauthorised and regulated by the FSA and which has the same controlling membersas the Manager. The Manager has continued to act as the Manager of the Companyand as the Investment Manager of the Company's illiquid assets (being allAIM-traded and other venture capital investments).The Manager also provides or procures the provision of secretarial,administrative and custodian services to the Company. The management agreementmay be terminated at any date by either party giving twelve months' notice oftermination. Under the management agreement, the Manager receives a fee of 2.0per cent per annum of the net assets of the Company. If the managementagreement is terminated, the Manager is only entitled to the management feespaid to it and any interest due on unpaid fees.In addition, the Manager receives an annual secretarial andaccounting fee of £36,380 (linked to the movement in the UK Retail Price Index("RPI")), subject to annual review, plus a variable fee of 0.125 per cent ofthe net assets of the Company which exceed £5 million. The annual secretarialand accounting fee is subject to a maximum of £105,634 per annum (linked tothe movement in RPI) subject to annual review.

Annual running costs are capped at 3.5 per cent of the net assets of the Company (excluding any performance fee payable to the Manager and irrecoverable VAT), any excess being refunded by the Manager by way of an adjustment to its management fee.

It is the Board's opinion that the continuing appointment of ISISEP LLP on the terms agreed is in the best interests of shareholders as awhole. The Board believes that the knowledge and experience accumulated by theManager in the period since the launch of the first Baronsmead VCT in 1995 isreflected in processes which are designed to find, manage and realise goodquality growth businesses.

Directors' Indemnity

Directors and officers' liability insurance cover is in place in respect ofthe directors. The Company's Articles of Association provide, subject to theprovisions of UK legislation, an indemnity for directors in respect of costswhich they may incur relating to the defence of any proceedings broughtagainst them arising out of their positions as directors, in which they areacquitted or judgement is given in their favour by the Court.

Save for such indemnity provisions in the Company's Articles of Association and in the Directors' letters of appointment, there are no qualifying third party indemnity provisions.

Co-investment Scheme

The Scheme is intended to help attract, retain and incentivisecertain executive members of the Manager and reflects schemes which are usedelsewhere in the private equity industry in the UK. It requires all themembers of the Scheme to invest their own capital into a proportion of theordinary shares of each and every unquoted investment made by the BaronsmeadVCTs (except those life sciences transactions where the Manager is not thelead investor).The shares held by the members of the Co-investment Scheme in anyportfolio company can only be sold at the same time as the investment held bythe generalist Baronsmead VCTs. In addition, any prior ranking financialinstruments, e.g. loan stock, held by the Baronsmead VCTs have to be repaid infull prior to any gain accruing to the ordinary shares.As at 30 September 201 1 forty-five executives of the Manager hadinvested a total of approximately £14 3,000 in the ordinary shares oftwenty-six unquoted investments through the Co-investment Scheme alongsideBaronsmead VCT 2 plc. The amount invested by Baronsmead VCT 2 in those twenty-six companies' totals approximately £29.1 million. As at September 201 1 eightof the investments in the scheme has been sold realising total proceeds of £18.9 million for Baronsmead VCT 2 and £ 1.0 million for the members of theCo-investment Scheme.

The Board reviews the operation of the Co-investment Scheme at each quarterly valuation meeting. The Co-investment Scheme was also independently reviewed during the period by Singer Capital Markets who confirmed that the investments were compliant with Co-investment Scheme rules.

Performance Incentive

A performance fee will not be payable to the Manager until the total return onshareholders' funds exceeds an annual threshold of base rate plus 2 per centcalculated on a compound basis. To the extent that the total return exceedsthe threshold of base rate plus 2 per cent on shareholders' funds compoundedover the relevant period then a performance fee will be paid to the Manager of10 per cent. The amount of any performance fee which is paid in an accountingperiod shall be capped at 5 per cent of shareholders' funds for that period.

ISIS Equity Partners - Arrangement Fees

During the year to 30 September 2011, ISIS EP LLP received net income of £37,500 (2010: £92,750) from investee companies in connection with arrangement fees and incurred abort fees of £15,246 (2010: £12,896), with respect to investments attributable to Baronsmead VCT 2.

VCT Status Adviser

The Company has retained PricewaterhouseCoopers LLP ("PwC") as their VCT TaxStatus Advisers to advise it on compliance with VCT requirements. PwC reviewnew investment opportunities, as appropriate, and review regularly theinvestment portfolio of the Company. PwC work closely with the Manager butreport directly to the Board.

Creditor Payment Policy

The Company's payment policy is to settle investment transactions in accordance with market practice and to ensure settlement of supplier invoices in accordance with stated terms. At 30 September 2011, there were no outstanding supplier invoices (2010: none).

Environment

The Company seeks to conduct its affairs responsibly and environmental factors are, where appropriate, taken into consideration with regard to investment decisions.

Substantial Interests in Share Capital

At 18 November 2011 the Company was not aware of any beneficial interests exceeding 3 per cent of the ordinary share capital in circulation.

Going Concern

After making enquires, and bearing in mind the nature of the Company'sbusiness and assets, the Directors consider that the Company has adequateresources to continue in operational existence for the foreseeable future. Inarriving at this conclusion the Directors have considered the liquidity of theCompany and its ability to meet obligations as they fall due for a period ofat least twelve months from the date that these financial statements wereapproved. As at 30 September 2011 the Company held cash balances & investmentsin UK Gilts and Money Market Funds with a combined value of £16,040,000. Cashflow projections have been reviewed and show that the Company has sufficientfunds to meet both its contracted expenditure and its discretionary cashoutflows in the form of the share buyback programme and dividend policy. TheCompany has no external loan finance in place and therefore is not exposed

toany gearing covenants.By Order of the Board,ISIS EP LLPSecretary100 Wood StreetLondon EC2V 7AN18 November 2011

Statement of Directors' Responsibilities

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards ("UK GAAP").

The financial statements are required by law to give a true and fair view ofthe state of affairs of the Company and of the profit or loss of the Companyfor that period.

In preparing these financial statements, the Directors are required to:

- select suitable accounting policies and then apply them consistently;

- make judgments and estimates that are reasonable and prudent;

- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records thatdisclose with reasonable accuracy at any time the financial position of theCompany and enable them to ensure that its financial statements comply withthe Companies Act 2006. They have general responsibility for taking such stepsas are reasonably open to them to safeguard the assets of the Company and toprevent and detect fraud and other irregularities.Under applicable law and regulations, the Directors are also responsible forpreparing a Directors' Report (including Business Review), Directors'Remuneration Report and Corporate Governance Statement that comply with thatlaw and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website, www.baronsmeadvct2.co.uk. Visitors to the website should be aware that legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement of the Directors in respect of the annual financial report

We confirm that to the best of our knowledge:

- the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

- the Annual Report of the Directors includes a fair review of the developmentand performance of the business and the position of the issuer together with adescription of the principal risks and uncertainties that they face.On behalf of the Board,Clive A ParrittChairman18 November 2011Income Statement

For the year ended 30 September 2011

- - 2011 2010 Revenue Capital Total Revenue Capital Total- Notes £'000 £'000 £'000 £'000 £'000 £'000 Unrealised gains oninvestments 8 - 3,346 3,346 - 4,924 4,924 Realised gains on 8 - 2,865 2,865 - 1,875 1,875investments Income 2 2,425 - 2,425 2,218 - 2,218 Investment (323) (970) (1,293) (304) (910) (1,214)management fee 3 - - Other expenses 4 (368) (368) (360) (360) Profit on ordinaryactivities beforetaxation 1,734 5,241 6,975 1,554 5,889 7,443Taxation on ordinaryactivities 5 (379) 379 - (354) 354 - Profit on ordinary 1,355 5,620 6,975 1,200 6,243 7,443activities aftertaxation Return per ordinary 7 1.98p 8.21p 10.19p 1.77p 9.19p 10.96pshare: Basic

The `Total' column of this statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations.

No operations were acquired or discontinued in the year.

There are no recognised gains or losses other than those disclosed in the Income Statement, therefore a separate statement of total recognised gains or losses has not been prepared

Reconciliation of Movements in Shareholders' Funds

For the year ended 30 September 2011

2011 2010 Note £'000 £'000 Opening shareholders' funds 63,673 61,215Profit for the year 6,975 7,443Gross proceeds of share issues 11/12 2,111 -Purchase of shares for treasury 12 (813) (1,225)

Expenses of share issue and buybacks 12 (78) (6) Dividends paid

6 (6,869) (3,754) Closing shareholders' funds 64,999 63,673-

The accompanying notes are an integral part of these statements.

Balance SheetAs at 30 September 2011 2011 2010- Notes £'000 £'000 Fixed assetsInvestments 8 64,330 61,739 Current assetsDebtors 9 586 479 Cash at bank and on deposit 542 1,868 1,127 2,347

Creditors (amounts falling due within one year) 10 (459) (413)

Net current assets 669 1,934 Net assets 64,999 63,673 Capital and reservesCalled-up share capital 11 7,679 7,473Share premium account 12 14,404 12,573Capital redemption reserve 12 9,254 9,254Capital reserve 12 28,849 27,590Revaluation reserve 12 4,559 5,378Revenue reserve 12 254 1,405 Equity shareholders' funds 13 64,999 63,673 Net asset value per share- Basic 13 95.15p 94.79p- Treasury 13 94.16p 93.42p- - - -

The financial statements were approved by the Board of Directors on 18 November 2011 and were signed on its behalf by:

CLIVE A PARRITT FCA (Chairman)

The accompanying notes are an integral part of this balance.

Cash Flow Statement

For the year ended 30 September 2011

2011 2010- Notes £'000 £'000 Operating activitiesInvestment income received 2,082 1,991Deposit interest received - 4Other interest received 63 -Investment management fees (1,286) (1,202)Other cash payments (371) (373) Net cash inflow from operating activities 15 488

420

Capital expenditure and financial investmentPurchases of investments (52,054)

(58,627)

Disposals of investments 55,844

63,391

Net cash inflow/(outflow) from capital expenditureand financial investment 3,792 4,764 DividendsEquity dividends paid (6,869) (3,754) Net cash inflow/(outflow) before financing (2,589)

1,430

Financing

Gross proceeds of share issues 2,111 -Purchase of shares for treasury (770)

(1,225)

Expenses on share issue and buybacks (78)

(21)

Net cash (outflow)/inflow from financing 1,263

(1,246)

(Decrease)/increase in cash in the year (1,326)

184

Reconciliation of net cash flow to movement in netcash(Decrease)/increase in cash (1,326) 184Opening cash position 1,868 1,684 Closing cash position 14 542 1,868- - - -

The accompanying notes are an integral part of this statement.

Notes to the Accounts1. Accounting polices(a) Basis of accounting

These financial statements have been prepared under UK Generally Accepted Accounting Practice ("UK GAAP") and in accordance with the Statement of Recommended Practice ("SORP") for investment trust companies and venture capital trusts issued by the Association of Investment Companies ("AIC") in January 2009 and on the assumption that the Company maintains VCT status.

The Company is no longer an investment company as defined by Section 833 of the Companies Act 2006, as investment company status was revoked on 10 March 2003 in order to permit the distribution of capital profits.

The principal accounting policies adopted are set out below.

Presentation of the Income Statement

In order to better reflect the activities of a VCT and in accordance with theSORP, supplementary information which analyses the income statement betweenitems of a revenue and capital nature has been presented alongside the incomestatement. Net revenue is the measure the Directors believe appropriate inassessing the Company's compliance with certain requirements set out inSection 274 of the Income Tax Act 2007.

(b) Valuation of investments

Purchases or sales of investments are recognised at the date of transaction.

Investments are valued at fair value. For AIM traded & listed securities thisis either bid price or the last traded price, depending on the convention ofthe exchange on which the investment is quoted.In respect of unquoted investments, these are fair valued by the Directorsusing methodology which is consistent with the International Private Equityand Venture Capital Valuation ("IPEV") guidelines. This means investments arevalued using an earnings multiple, which has a discount or premium appliedwhich adjusts for points of difference to appropriate stock market orcomparable transaction multiples. Alternative methods of valuation willinclude application of an arm's length third party valuation, a provision oncost or a net asset value basis.Gains and losses arising from changes in the fair value of the investments areincluded in the Income Statement for the period as a capital item. Transactioncosts on acquisition are included within the initial recognition and theprofit or loss on disposal is calculated net of transaction costs on disposal.

(c) Income

Interest income on loan stock and dividends on preference shares are accruedon a daily basis. Provision is made against this income where recovery isdoubtful. Where the terms of unquoted loan stocks only require interest or aredemption premium to be paid on redemption, the interest and redemptionpremium is recognised as income once redemption is reasonably certain. Untilsuch date interest is accrued daily and included within the valuation of theinvestment.

Income from fixed interest securities and deposit interest is included on an effective interest rate basis.

Dividends on quoted shares are recognised as income on the date that the related investments are marked ex dividend and where no dividend date is quoted, when the Company's right to receive payment is established.

(d) Expenses

All expenses are recorded on an accruals basis.

(e) Revenue/capital

The revenue column of the Income Statement includes all income and expenses.The capital column accounts for the realised and unrealised profit and loss oninvestments and the proportion of management fee charged to capital.

(f) Issue costs

Issue costs are deducted from the share premium account.

(g) Deferred taxation

Deferred taxation is recognised in respect of all timing differences that haveoriginated but not reversed at the balance sheet date where transactions orevents that result in an obligation to pay more, or the right to pay less, taxin future have occurred at the balance sheet date. This is subject to deferredtax assets only being recognised if it is considered more likely than not thatthere will be suitable profits from which the future reversal of theunderlying timing differences can be deducted. Timing differences aredifferences arising between the Company's taxable profits and its results asstated in the financial statements which are capable of reversal in one or

more subsequent periods.(h) Capital reserves(i) Capital ReserveGains and losses on realisation of investments of a capital nature are dealtwith in this reserve. Purchase of the Company's own shares to be either heldin treasury or cancelled are also funded from this reserve. 75 per cent ofmanagement fees are allocated to the capital reserve in accordance with theBoard's expected split between long term income and capital returns.

(ii) Revaluation Reserve

Changes in fair value of investments are dealt with in this reserve.

2. Income 2011 2010- £'000 £'000 Income from investments†UK franked 331 290UK unfranked 1,502 1,413UK unfranked - reinvested - 201Redemption premium 528 310 2,361 2,214Other income*Deposit Interest 1 4Other interest 63 - Total income 2,425 2,218 Total income comprises:Dividends 333 291Interest 2,092 1,927 2,425 2,218 Income from investments:AIM-traded & listed securities 347 319Unquoted securities 2,014 1,895 2,361 2,214- - -†All investments have been designated fair value through profit or loss oninitial recognition, therefore all investment income arises on investments atfair value through profit or loss.* Other income on financial assets not designated fair value through profitor loss.3. Investment management fee 2011 2010- £'000 £'000 Investment management fee 1,293 1,214Performance fee - - 1,293 1,214- - -For the purposes of the revenue and capital columns in the Income Statement,the management fee (including VAT) has been allocated 25 per cent to revenueand 75 per cent to capital, in line with the Board's expected long term returnin the form of income and capital gains respectively from the Company'sinvestment portfolio.

The management agreement may be terminated by either party giving twelve months notice of termination. The Manager, ISIS EP LLP, receives a fee of 2 per cent per annum of the net assets of the Company, calculated and payable on a quarterly basis.

The Manager is entitled to a performance fee if at the end of any calculationperiod, the total return on shareholders' funds, exceeds the threshold of UKbase rate plus 2 per cent on shareholders' funds (calculated on a compoundbasis). The Manager is entitled to 10 per cent of the excess. The amount ofany performance fee payable in a year will be capped at 5 per cent ofshareholders' funds at the end of the period.In addition, the Manager receives an annual secretarial and accounting fee of£36,380 (linked to the movement in the UK Retail Price Index ("RPI")), subjectto annual review, plus a variable fee of 0.125 per cent of the net assets ofthe Company which exceed £5 million. The annual secretarial and accounting feeis subject to a maximum of £105,634 per annum (linked to the movement in RPI)subject to annual review. It is chargeable 100 per cent to revenue.

Amounts payable to the Manager at the year end are disclosed above.

4. Other expenses 2011 2010- £'000 £'000 Directors' fees 69 71Secretarial and accounting fees 121

110

Remuneration of the auditors and their associates: - audit

21

20

- other services supplied pursuant to legislation (interim 5 5review)- other services supplied relating to taxation 5

5Other 147 149 368 360

The Chairman received £24,750 per annum (2010: £23,500). Each of the other Directors received £16,500 per annum (2010: £15,500).

The Audit Committee reviews the nature and extent of non-audit services to ensure that independence is maintained. The Directors consider that the auditors were best placed to provide such services.

All figures include irrecoverable VAT, where applicable. The Company is not registered for VAT.

5. Tax on ordinary activities

5a. Analysis of charge for the year

2011 2010 £'000 £'000 UK corporation tax - -

The income statement shows the tax change allocated between revenue and capital.

5b. Factors affecting tax charge for the year

The tax charge for the year is lower than the standard rate of corporation tax in the UK for a company. The differences are explained below:

2011 2010 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Profit on ordinaryactivities before tax 1,734 5,241 6,975 1,554 5,889 7,443 Corporation tax at [27%] 468 1,415 1,883 435 1,649 2,084(2010: 28%)Effect of:Non-taxable dividend income (89) - (89) (81) - (81)Non-taxable gains - (1,676) (1,676) - (1,904) (1,904)Brought forward losses - (118) (118) - (99) (99)utilised Tax charge/(credit) for theyear (note 6a) 379 (379) - 354 (354) - At 30 September 2011 the Company had surplus management expenses of £834,592(30 September 2010: £1,268,823) which have not been recognised as a deferredtax asset. This is because the Company is not expected to generate taxableincome in a future period in excess of the deductible expenses of that futureperiod and, accordingly, the Company is unlikely to be able to reduce futuretax liabilities through the use of existing surplus expenses. Due to theCompany's status as a VCT, and the intention to continue meeting theconditions required to obtain approval in the foreseeable future, the Companyhas not provided deferred tax on any capital gains and losses arising on therevaluation or disposal of investments.6. Dividends 2011 2010 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000Amounts recognised asdistributions to equityholders in the year:For the year ended 30September 2011- First interim dividend of2.5p per ordinary share paidon 17 June 2011 515 1,200 1,715 - - -- Second interim dividend of4.5p per ordinary share paidon 29 September 2011 1,299 1,778 3,077 - - -For the year ended 30September 2010- First interim dividend of2.5p per ordinary share paidon 7 June 2010 - - - 338 1,354 1,692- Final dividend of 3.0p perordinary share paid on 14January 2011 692 1,385 2,077 - - -For the year end 30September 2009- Final dividend of 3.0p perordinary share paid in 30December 2009 - - - 138 1,924 2,062 2,506 4,363 6,869 476 3,278 3,754 7. Returns per shareThe 10.19p return per ordinary share (2010: 10.96p) is based on the net profiton ordinary activities after taxation of £6,975,000 (2010: £7,443,000) and on68,443,702 ordinary shares (2010: 67,917,384), being the weighted averagenumber of shares in issue during the year.

8. Investments

All investments are designated fair value through profit or loss at initial recognition, therefore all gains and losses arise on investments designated at fair value through profit or loss.

Financial Reporting Standard 29 `Financial Instruments: Disclosures' (theStandard) requires an analysis of investments valued at fair value based onthe reliability and significance of the information used to measure their fairvalue. The level is determined by the lowest (that is the least reliable orindependently observable) level of input that is significant to the fair valuemeasurement for the individual investment in its entirety as follows:

- Level 1 - investment prices quoted prices in an active market.

- Level 2 - investments whose fair value is based directly on observable current market prices or indirectly being derived from market prices.

- Level 3 - investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or based on observable market data.

2011 2010- £'000 £'000 Level 1Interest bearing securities 15,498 14,994Investments traded on AIM 15,448 12,781Investment listed on LSE 1,516 1,017Investments traded on NYSE - 150Investment traded on PLUS - 136 32,462 29,078 Level 2Collective investment vehicle (Wood Street Microcap 2,863 1,654Investment Fund) Level 3Unquoted investments 29,005 31,007 64,330 61,739 - - - 2011 2010 £'000 £'000 Equity shares 29,441 25,696Loan notes 19,391 20,994Preference shares - 55Fixed income securities 15,498 14,994 64,330 61,739 Level 1 Level 2 Level 3 Interest Collective bearing Traded Listed Traded Traded investment securities on AIM on LSE on NYSE on PLUS vehicle Unquoted Total £'000 £'000 £'000 £'000 £'000

£'000 £'000 £'000

Opening book cost 14,994 15,405 1,011 157 500 1,525 22,769 56,361Opening unrealised - (2,624) 6 (7) (364) 129 8,238 5,378(depreciation)/appreciation Opening valuation 14,994 12,781 1,017 150 136 1,654 31,007 61,739 Movements in the year:Reclassification in the - (525) 525 - - - - -yearPurchases at cost 42,539 3,061 - - - 1,000 5,454 52,054Sales - proceeds (42,035) (1,303) - (110) (402) - (11,824) (55,674)- realised gains/ (losses) - 95 - (40) 266 - 2,544 2,865on salesUnrealised gains/ (losses)realised during the year - 489 - (7) (364) - 4,047 4,165Increase/(decrease) in - 850 (26) 7 364 209 (2,223) (819)unrealised appreciationClosing valuation 15,498 15,448 1,516 - - 2,863 29,005 64,330Closing book cost 15,498 17,222 1,536 - - 2,525 22,990 59,771Closing unrealised - (1,774) (20) - - 338 6,015 4,559(depreciation)/appreciation 15,498 15,448 1,516 - - 2,863 29,005 64,330

During the year the Company incurred brokerage costs on purchases of £3,100 (2010: £4,000) and brokerage costs on sales on £2,500 (2010: £3,500) in respect of Ordinary Shareholder interests.

The gains and losses included in the above table have all been recognised in the Income Statement above

The Standard requires disclosure, by class of financial instruments, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of the investee company. The portfolio has been reviewed and both downside and upside reasonable possible alternatives have been identified and applied to the valuation of each of the unquoted investments. The inputs flexed in determining the reasonably possible alternative assumptions include the earnings stream and marketability discount. Applying the downside alternatives the value of the unquoted investments would be £3.0 million or 10.3 per cent lower. Using the upside alternative the value would be increased by £1.9 million or 6.6 per cent.

9. Debtors 2011 2010- £'000 £'000 Prepayments and accrued income 586 307Amounts due from escrow - 172 586 479

10. Creditors (amounts falling due within one year)

2011 2010 £'000 £'000 Management, performance, secretarial and accounting fees 357 348due to ManagerAmounts due to brokers (for buybacks) 43

-Other creditors 59 65 459 413

11. Called-up share capital

Allotted, called-up and fully paid:

£'000

Ordinary shares74,730,194 ordinary shares of 10p each listed at 30 September 2010 7,4732,068,746 ordinary shares of 10p each issued during the year

207

9,756 ordinary shares of 10p each cancelled during the year

(1)

76,789,184 ordinary shares of 10p each listed at 30 September 2011 7,679 7,553,906 ordinary shares of 10p each held in treasury at 30 September 2010

(755)

920,000 ordinary shares of 10p each repurchased during the year and

held in treasury

(92)

8,473,906 ordinary shares of 10p each held in treasury at 30 September 2011

(847)

68,315,278 ordinary shares of 10p each in circulation at 30 September 2011 6,832

As at 18 November 2011 the Company's issued share capital was 76,789,184 ordinary shares, of which 8,743,906 shares were held in treasury. The number of shares in circulation was 68,315,278 ordinary shares carrying one vote each.

Treasury shares

The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003came into force on 1 December 2003 and allowed the Company to hold sharesacquired by way of market purchase as treasury shares, rather than having tocancel them. Shareholders have previously approved a resolution permitting theCompany to issue shares from treasury at a discount to the prevailing NAV ifthe Board considers it in the best interests of the Company to do so. However,treasury shares will not be sold at a discount wider than the discountprevailing at the time the shares were initially bought back by the Company.It is the Board's intention only to use the mechanism of re-issuing treasuryshares when demand for the Company's shares is greater than the supplyavailable in the market place. Such issues would be captured under the termsof the Prospectus Directive and subject to the annual cap of Euro 5 million onfunds raised before requiring a full prospectus, although they would not beconsidered by HM Revenue & Customs to be new shares entitling the purchaser toinitial income tax relief.

The Company does not have any externally imposed capital requirements.

Where shares are bought back but not cancelled the share capital remains unchanged. The NAV is calculated by using the number of shares in issue less those bought back and held in treasury.

12. Reserves Capital Share redemption Capital Revaluation Revenue premium reserve reserve reserve reserve £'000 £'000 £'000 £'000 £'000 At 1 October 2010 12,573 9,254 27,590 5,378 1,405Gross proceeds of shares 1,905 - - - -issuesPurchase of shares fortreasury (74) - (4) - -Expenses of share issue andbuy backs - - (813) - -Reallocation of prior yearunrealised gains - - 4,165 (4,165) -Realised on disposal ofinvestments* - - 2,865 - -Net increase in value ofinvestments* - - - 3,346 -

Management fee capitalised* - - (970) - -Revenue return on ordinaryactivities after taxation* - - - - 1,355Dividends paid in the year - - (4,363) - (2,506)

Taxation relief fromcapital expenses* - - 379 - - At 30 September 2011 14,404 9,254 28,849 4,559 254

At 30 September 2011, reserves distributable by way of dividend amounted to £27,309,000 (2010: £26,006,000) comprising the capital reserve, revenue reserve and the net unrealised loss on those level one investments whose prices are quoted in an active market and deemed readily realisable in cash.

* The total of these items is £6,975,000, which agrees to the total profit on ordinary activities after taxation above.

13. Net asset value per share

The net asset value per share and the net asset values attributable to the ordinary shares at the year end are calculated in accordance with their entitlements in the Articles of Association and were:

Net asset value per Net asset value Number of shares share attributable attributable 2011 2010 2011 2010 2011 2010 number number pence pence £'000 £'000

Ordinary shares (basic) 68,315,278 67,176,288 95.15 94.79 64,999

63,673Ordinary shares 76,789,184 74,730,194 94.16 93.42 72,308 69,811(treasury)

Basic net asset value per share is based on net assets at the year end, and on68,315,278 (2010: 67,176,288) ordinary shares, being the respective number ofshares in circulation at the year end.

The treasury net asset value per share as at 30 September 2011 included ordinary shares held in treasury valued at the mid share price of 86.25p at 30 September 2011(2010: 81.25p).

14. Analysis of changes in cash

2011 2010 £'000 £'000 Beginning of year 1,868 1,684Net cash outflow)/inflow (1,326) 184As at 30 September 2011 542 1,868

15. Reconciliation of profit on ordinary activities before taxation to net cash inflow from operating activities

2011 2010 £'000 £'000

Profit on ordinary activities before taxation 6,975 7,443 Gains on investments

(6,211) (6,799)Increase in debtors (279) (24)Increase in creditors 3 1Income reinvested - (201)Net cash inflow from operating activities 488 420

16. Contingencies, guarantees and financial commitments

There were no contingencies, guarantees or financial commitments of the Company as at 30 September 2011 (2010: nil).

17. Significant interests

There are no interests of 20 per cent or more of any class of share capital in any underlying holdings in investee companies.

Further information on the significant interests is disclosed above.

18. Financial instruments and associated risks

The Company's financial instruments comprise equity and fixed interest investments, cash balances and liquid resources. The Company holds financial assets in accordance with its investment policy to invest in a diverse portfolio of established and profitable UK unquoted companies and companies raising new share capital on AIM.

Fixed asset investments held (see note 8) are valued at fair value. For quotedsecurities this is either bid price or the last traded price, depending on theconvention of the exchange on which the investment is quoted. In respect ofunquoted investments, these are fair valued by the Directors (using rulesconsistent with IPEV guidelines). The fair value of all other financial assetsand liabilities is represented by their carrying value in the Balance sheet.The Company's investing activities expose it to various types of risk that areassociated with financial instruments and markets in which it invests. Themost important types of financial risk to which the Company is exposed aremarket risk, credit risk and liquidity risk. The nature and extent of thefinancial instruments held at the balance sheet date and the risk managementpolicies employed by the Company are discussed in notes 19 to 22.

19. Market risk

Market risk embodies the potential for both loss and gains and includes interest rate risk and price risk.

The Company's strategy on the management of investment risk is driven by theCompany's investment objective as outlined in note 18. The management ofmarket risk is part of the investment management process and is typical ofprivate equity investment. The portfolio is managed in accordance withpolicies and procedures in place as described in more detail in the Report ofthe Directors, with an awareness of the effects of adverse price movementsthrough detailed and continuing analysis, with an objective of maximisingoverall returns to shareholders. Investments in unquoted stocks and AIM tradedcompanies, by their nature, involve a higher degree of risk than investmentsin the main market. Some of that risk can be mitigated by diversifying theportfolio across business sectors and asset classes. The Company's overallmarket positions are monitored by the Board on a quarterly basis.

Details of the Company investment portfolio at the balance sheet date are disclosed in the schedule of investments set out above. An analysis of investments between debt and equity instruments is disclosed in note 8.

26 per cent (2010: 23 per cent) of the Company's investments are listed on theLondon Stock Exchange or traded on AIM. A 5 per cent increase in stock pricesas at 30 September 2011 would have increased the net assets attributable tothe Company's shareholders and the total profit for the year by £848,000(2010: £704,000); an equal change in the opposite direction would havedecreased the net assets attributable to the Company's shareholders and thetotal profit for the year by an equal amount.45 per cent (2010: 49 per cent) of the Company's investments are in unquotedcompanies held at fair value. Valuation methodology includes the applicationof earnings multiples derived from either listed companies with similarcharacteristics or recent comparable transactions. Therefore the value of theunquoted element of the portfolio may also be indirectly affected by pricemovements on the listed exchanges. A 5 per cent increase in the valuations ofunquoted investments at 30 September 2011 would have increased the net assetsattributable to the Company's shareholders and the total profit for the yearby £1,450,000 (2010: £1,550,000); an equal change in the opposite directionwould have decreased the net assets attributable to the Company's shareholdersand the total profit for the year by an equal amount.

20. Interest rate risk

At 30 September 2011 £9,498,000 (2010: £3,194,000) fixed rate securities wereheld by the Company. As a result, the Company is subject to exposure to fairvalue interest rate risk due to fluctuations in the prevailing levels ofmarket interest rates.At 30 September 2011 £19,391,000 (2010: £20,994,000) fixed rate loan noteswere held by the Company. The weighted average effective interest rate for theloan note securities is 9.59 per cent as at 30 September 2011 (2010: 10.87 percent). Due to the complexity of the instruments and uncertainty surroundingtiming of redemption the weighted average time for which the rate is fixed hasnot been calculated.

The table below summarises weighted average effective interest rates for the fixed interest-bearing financial instruments:

Fixed Rate 2011 2010 Weighted Weighted Total Weighted average Total Weighted average fixed average time for fixed average time for rate interest which rate rate interest which rate portfolio rate is fixed portfolio rate is fixed £'000 % days £'000 % daysFixed rateFixed interest 9,498 0.43 3 3,194 0.51 57instruments

Floating rate When the Company retains cash balances, the majority of cash is ordinarily held on interest bearing deposit accounts and, where appropriate, within an interest bearing money market open ended investment company ("OEIC"). The benchmark rate which determines the interest payments received on interest bearing cash balances is the bank base rate which was 0.5 per cent as at 30 September 2011 (2010: 0.5 per cent).

2011 2010 £'000 £'000Floating rateFloating rate instruments ("OEIC") 6,000 11,800Cash at bank and on deposit 542 1,868 6,542 13,668

21. Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Investment Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date.

At the reporting date, the Company's financial assets exposed to credit riskamounted to the following: 2011 2010 £'000 £'000

Investments in floating rate instruments 6,000 11,800 Investments in fixed rate instruments

9,498 3,194Cash at bank and on deposit 542 1,868Interest, dividends and other receivables 586 479 16,626 17,341

Credit risk arising on fixed interest instruments is mitigated by investing in UK Government Stock.

Credit risk arising on floating rate instruments is mitigated by investing inmoney market open ended investment companies managed by BlackRock and JPMorgan Chase ("JPM"). Credit risk on unquoted loan stock held within unlistedinvestments is considered to be part of market risk as disclosed in note 19.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Board monitors the quality of service provided by the brokers used to further mitigate this risk.

All assets of the Company which are traded on a recognised exchange are held by JPM, the Company's custodian. The Board monitors the Company's risk by reviewing the custodian's internal controls reports as described in the Corporate Governance section in the Annual report.

Substantially all of the cash held by the Company is held by JPM. The Board monitors the Company's risk by reviewing regularly JPM's internal controls reports as previously described. Should the credit quality or the financial position of JPM deteriorate significantly the Investment Manager will seek to move the cash holdings to another bank.

There were no significant concentrations of credit risk to counterparties at30 September 2011 or 30 September 2010. No individual investment exceeded 14.6per cent of the net assets attributable to the Company's shareholders at 30September 2011 (2010: 11.0 per cent).

22. Liquidity risk

The Company's financial instruments include investments in unquoted companieswhich are not traded in an organised public market as well as AIM tradedequity investments both of which generally may be illiquid. As a result, theCompany may not be able to liquidate quickly some of its investments in theseinstruments at an amount close to their fair value in order to meet itsliquidity requirements, or to respond to specific events such as deteriorationin the creditworthiness of any particular issuer.The Company's liquidity risk is managed on an ongoing basis by the InvestmentManager in accordance with policies and procedures in place as described inthe Report of the Directors above. The Company's overall liquidity risks aremonitored on a quarterly basis by the Board.

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses. At 30 September 2011 these investments were valued at £16,040,000 (2010: £16,862,000).

23. Related parties

Related party transactions include Management, Secretarial, Accounting andPerformance fees payable to the Manager, ISIS EP LLP, as disclosed in notes 3,4 and 10, and fees paid to the Directors as disclosed in note 4. In addition,the Manager operates a Co-investment Scheme, detailed in the Report of theDirectors detailed above, whereby employees of the Manager are entitled toparticipate in certain unquoted investments alongside the Company.

Annual General Meeting

The Company's Annual General Meeting will be held on 11 January 2012 at 10.45am at the London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.

END

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on this announcement (or any other website) is incorporated into, or forms part of, this announcement.