Half-yearly Report

12th May 2010 11:14

Baronsmead VCT2 plcHalf Yearly Financial Report31 March 2010

The Directors announce the unaudited half-yearly financial report for the six months to 31 March 2010 as follows:-

Copies of the half yearly report can be obtained from the following website: www.baronsmeadvct2.co.uk .

Investment Objective

Baronsmead VCT 2 plc 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.

Dividend policy

The 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 significantly onthe level and timing of profitable realisations and it cannot be guaranteed.There will be variations in the amount of dividends paid year on year.Since launch the average annual tax-free dividend paid to ordinary shareholdershas been 6.3p per share (equivalent to a pre-tax return of 9.4p per share for ahigher rate taxpayer). For shareholders who claimed tax reliefs on initialsubscription of 20 per cent, 30 per cent or 40 per cent, their returns wouldhave been higher.

Secondary market in the shares of Baronsmead VCT 2 plc

Shares can be bought and sold using a stockbroker, just like shares in anyother listed company. Qualifying purchasers (individuals over the age of 18 andUK resident for tax purposes) can receive VCT dividends (including capitaldistributions of realised gains on investments) that are not subject to incometax, and capital gains tax is not payable on disposal of the VCT shares.There is no minimum time for which VCT shares bought in the secondary marketneed to be held, and they can be sold in the normal way. The UK tax treatmentof VCTs is on a first in first out basis and therefore tax advice should beobtained before shareholders dispose of their shares and also if they deferredCapital Gains Tax in respect of new shares acquired prior to 6 April 2004.

FINANCIAL HEADLINES

● 2.5p - Interim dividend of 2.5p per share payable on 7 June 2010 to shareholders on the register as at 21 May 2010, for the six month period to 31 March 2010.

● +3.7% - NAV per ordinary share increased by 3.7 per cent over the six monthperiod to 31 March 2010 from 86.06p to 89.23p before payment of a 2.5p interimdividend.● 75.9p - Cumulative dividends total 75.9p per share for founder shareholderssince 1998, equivalent to an average annual tax free dividend of 6.3p equal to9.4p for higher rate taxpayers.● + 90.6% - NAV total return to shareholders since inception, equivalent to anannualised total return of 5.5 per cent before 20 per cent income tax relief(on subscription, at launch) and 6.9 per cent afterwards.● + 85.5% - Share Price total return since launch in 1998, compared to theincrease in the FTSE All-Share return of 51.5% over the same period. Whentaking the VCT tax reliefs into account, the positive differential is higherstill.

Performance Summary to 31 March 2010

Since launch Total return 6 1 3 5 10 %* month year years Years years % % % % % Net Asset 3.7 8.4 (7.1) 13.0 41.6 90.6Valueâ€

Share Price†3.5 9.6 (6.1) 15.6 23.8 85.5

FTSE All 12.2 52.3 (0.7) 41.3 29.7 51.5 Share

* Source: ISIS EP LLP and AIC.

†These returns for Baronsmead VCT 2 ignore upfront tax relief and the impact of receiving dividends tax free.

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 cash dividends Net Gross tax annual price reclaim invested Paid* yield± yield †Year p p p p % %subscribed 1998 (April) 100.0 20.0 80.0 75.9 7.9 11.7- Ordinary 1999 (May) - 102.0 20.4 81.6 72.4 8.1 12.0Ordinary 2000 137.0 27.4 109.6 69.2 6.2 9.1(February) - Ordinary 2000 (March) 130.0 26.0 104.0 69.2 6.6 9.8- Ordinary 2004 100.0 40.0 60.0 27.6 8.4 12.4(October) - C 2009 (April) 91.6 27.5 64.1 8.0 12.5 18.5

C Share dividend calculated using conversion ration of 0.9657 which is the rate the c shares were converted into ordinary shares.

* Includes proposed interim dividend of 2.5p to be paid 7 June 2010.

± Represents the cumulative dividends paid expressed as an annualised percentage of the net cash invested.

†The gross equivalent yield had the dividends been subject to higher rate tax (32.5 per cent on dividend income at 31 March 2010).

CHAIRMAN'S STATEMENT

The3.7 per centgrowth in Net Asset Value per share continues the positive trendsince the October 2008 low point and is supported by increasing operatingprofits from many of our portfolio companies. The 2.5p interim dividend is wellcovered by two excellent realisations from unquoted investments held for lessthan three years.RESULTSIn the six months to 31 March 2010, the Net Asset Value (NAV) per shareincreased by 3.7 per cent from 86.06p to 89.23p before payment of a 2.5p pershare interim dividend. This dividend is being paid largely from the capitalprofits realised from the sale of ScriptSwitch and Active Assistance. Theincrease in NAV per share is due primarily to the 9 per cent increase in thevalue of the unquoted portfolio. The FTSE All-Share Index increased 12.2 percent over the same period.

At the period end, over 70 per cent of the ordinary capital raised (net of launch costs) prior to 30 September 2007 was invested in VCT qualifying investments and all of the 5 other VCT qualifying tests had also been met.

LONG TERM PERFORMANCE

The interim dividend will take the cumulative tax free dividends paid tofounder shareholders to 75.9p per share. For an investment of £1 (80p afterinitial tax relief) this is encouraging and represents an average annual taxfree dividend of 6.3p (equivalent to 9.4p for higher rate taxpayers).Importantly shareholders who have invested in any of the six prospectus fundraisings by Baronsmead VCT 2 have to date achieved positive absolute totalreturns. The comparable returns for the FTSE All-Share Index over differingtime periods are set out above and show that Baronsmead VCT 2 NAV total returnshave exceeded this index over 10 years and since launch. In additioncomparisons with returns achieved by other VCTs can be seen on the website ofthe Association of Investment Companies (AIC) who publish monthly data,www.theaic.co.uk.The returns to shareholders are enhanced by the tax benefits available for VCTinvestors. At a time of lower investment returns and interest rates, theproportional benefit from these reliefs is greater. The benefit of VCT taxreliefs on dividends, in terms of annual net and gross yields, is shown in thetable above titled `Cash Returned to Shareholders'. Over the long term, thebenefit of the tax free dividends can be very significant. Had this tax reliefnot been available since launch an individual, who had been a higher rate taxpayer throughout the period, would have needed another 37p per share individends to have received the same after tax income from Baronsmead VCT 2.Receipt of tax free VCT dividends will be of significantly increased value in2010/2011 to those shareholders whose annual income exceeds £150,000 as thereis a new dividend tax rate of 42.5%.

PORTFOLIO REVIEW

Following the sale of six AIM investments and the write down of three, the total portfolio now comprises 66 companies. 41 per cent of the portfolio by value was invested in unquoted companies, 21 per cent in AIM companies, 2 per cent in Wood Street Microcap Investment Fund and the balance of 36 per cent remained in cash or government securities.

Ahead of the downturn the Manager targeted investments with reduced exposure tocyclical factors and with distinctive growth strategies less reliant on generaleconomic conditions. This has been justified with relatively robust unquotedvaluations throughout the recessionary period and two recent profitable exits. The Manager is also aware of the expected public sector spending cuts and isendeavouring to manage this risk. Some of the portfolio companies do haveexposure to the public sector, although the portfolio as a whole is not overlyexposed to discretionary public spending which may be cut suddenly.

UNQUOTED PORTFOLIO

Overall the current portfolio of unquoted investments is valued 26% higher thanoriginal cost. Thirteen companies are valued at or higher than cost while fiveare valued below cost.These period end figures exclude two unquoted company realisations. The sale ofScriptSwitch in October 2009 for 3.7 times cost was covered in the last annualreport. Active Assistance was sold in March 2010 for 2.8 times cost, anexcellent result over the two years since March 2008 when the investment wasmade. Based in Sevenoaks, the business provides a national live-in care servicefor adults and children with spinal cord injuries and neurological conditions.The sale involved a merger with another health care business, First Call CareServices Limited, to create a national provider of both live-in and live-outcare to individuals with complex long term conditions.Throughout the recent recession, the focus has been on helping each investeecompany to manage with relatively low levels of external debt. Within theunquoted portfolio there have been financial restructurings of two companieswhich converted some of their shareholder loan notes into equity to strengthenthe balance sheets and both of these companies continue to trade profitably.Pleasingly profits are also growing in the majority of the remaining unquotedportfolio, which augurs well for the development of future shareholder value.The Manager, ISIS EP LLP, continues to be very actively involved in thestrategic development of the Company's investments.

AIM-TRADED PORTFOLIO

The value of the AIM share portfolio stayed relatively flat over the six monthsunder review following the recovery in share prices in the six months toSeptember 2009. Interest from trade buyers highlighted value in the portfolioand supported ratings. There were two bids during the period and third partiesacquired strategic minority stakes in Ffastfill and IDOX which triggered shareprice gains.

Over the six month period new qualifying and non-qualifying investments totalled £620,000 and £614,000 respectively. The holding in the Wood Street Microcap Investment Fund is now valued at £1.03m across 17 non-qualifying investments following a further £500,000 of investment.

NEW INVESTMENT

The market for investing in unquoted transactions is improving slowly asconfidence in the achievability of business plans has returned. The first newunquoted investment for some time was completed just after the period end on 7April 2010. This was in Surgi C, the UK's leading independent distributor ofspinal implants. Based in Birmingham, the business has grown strongly, as aresult of a growing product portfolio and the high levels of education andsupport offered to spinal surgeons. The Manager has an active programme for directly approaching prospectiveinvestee companies in selected sectors and this is building a strong pipelineof entrepreneurs who would like to work with the Manager when the timing isright. This continued investment in future dealflow should deliver excellentopportunities in the future.The volume of qualifying AIM opportunities has increased from the depressedlevels of 2009. However, conversion rates have so far remained relatively lowas the Manager seeks to maintain a high quality threshold for new investments.With capital still scarce for smaller AIM companies and support from the recentrecovery in equity markets, prospects for new AIM investment during theremainder of the year are improving. The Manager's intention is to take moreinfluential stakes in a smaller number of AIM investments, where a likely exitstrategy to a trade buyer can be envisaged.

INVESTMENT AND TAX PLANNING

In the 2008/09 tax year Baronsmead VCT and Baronsmead VCT 2 raisedapproximately £17.5m in aggregate through a Joint Offer. Having raised thesefunds, Baronsmead VCT 2 did not raise further new funds in the 2009/10 tax yearalthough in the period between mid January to mid March 2010, Baronsmead VCT 3and Baronsmead VCT 4 similarly raised £16 million in aggregate through a jointoffer for subscription. The Board is aware that a number of shareholders wouldwelcome the opportunity to make further tax effective investments in theCompany. However, while no plans have yet been considered for fundraising inthe 2010/2011 tax year, the Board will advise shareholders as early as possiblewhether or not raising extra funds for the Company is appropriate. This willenable shareholders to make fully informed personal investment and tax planningdecisions as early as possible.In December 2009 participants in the Dividend Reinvestment Plan collectivelyacquired 308,193 shares. In addition, approximately 43,000 existing shares werebought by other purchasers through the market. 1,060,000 shares were boughtback by the Company during the six months to 31 March 2010.The new arrangements applicable to taxpayers with incomes over £100,000 makeVCT investments attractive, whether the shares are bought on issue or as apurchase in the market, as dividends will not form part of the taxable incomefor a qualifying investor. Hopefully this will encourage more activity in thesecondary market and thus provide improved opportunities for investors.

COMPANY SECRETARY

With effect from 1 March 2010 ISIS EP LLP has engaged Capita Sinclair Henderson to provide the Company Secretarial service on its behalf, although ISIS continues to remain responsible and is the named Company Secretary.

RECENT HM REVENUE &CUSTOMS/HM TREASURY ANNOUNCEMENTS

The Manager, in conjunction with our trade association, the AIC, and other VCTManagers has worked hard over many years to inform HMRC and HM Treasury of thepositive economic impact from unquoted private equity backed companies.The resulting AIC report "Supporting enterprise and growth: the role of VentureCapital Trusts" published in March 2010 is based on evidence submitted by 15VCT Managers and has helped the Government understand the economic return tothe State which is generated as a result of encouraging investment in VCTs byproviding tax relief. Most notably "of the 303 investee companies who provideddata, the net employment impact since VCT investment, has been a 48% increasein the total workforce to over 25,402 employees." The percentage increase inemployment was slightly higher for the 24 companies from within the Baronsmeadportfolios that were used in the survey.Importantly the size restrictions applying to investee companies are going tobe re-examined. A number of new rules introduced since 2006 mean that fewercompanies are able to receive newly raised VCT funds. The Government wasobliged to introduce these measures at the behest of the European authorities.However in the March 2010 Budget, HM Treasury announced its intention to seekevidence to support the case for revisiting these issues with the EuropeanCommission. Specifically, the Government is interested in examining whetherthere is a case for:

* increasing the employee limit to fewer than 100 or 250 full-time employees

(from the current limit of 50);

* increasing the gross assets limit to £15 million before investment and £16

million after;

* increasing the annual investment limit to £5 million per target company;

* considering the effectiveness of `gross assets' as a proxy for company

size.

HM Treasury's action is very welcome and the AIC anticipates working closelywith them on these issues. However it is important to note that any changes tothe VCT regime would need to be approved by the European Commission.

OUTLOOK

These recent announcements by the Government and the rhetoric across all thepolitical parties in the 2010 General Election recognises that entrepreneurialcompanies such as those backed by Baronsmead VCT 2 are believed to be importantparticipants in helping to create UK growth and jobs. We have the funds toinvest into such situations. There is also a solid platform within ourportfolio companies for further growth and we believe there may be more groundsfor optimism than for a few years.Clearly the economic situation necessitates a Government austerity plan, but webelieve that it is the growth of smaller companies which will enable the UK todevelop in the future. An increasing drive for efficiency in Governmentspending will provide opportunities for innovation. Many of our investees areshowing the resilience and entrepreneurial flair which will enable them tosurvive and grow in such an environment. The Manager is confident that suitablecompanies will continue to need finance and, with the continuing famine in costeffective bank finance, Baronsmead VCT 2 is well placed to help and benefitfrom the future success of such companies.Clive ParrittChairman12 May 2010

Table of Investments and Realisations

Investments in the six months to 31 March 2010

Number Company Location Sector Activity Investment cost (£'000) Unquoted investments Follow on 1 Crew Clothing London Consumer Branded 51 Company Ltd± Markets clothing retailer Total Unquoted investments 51 AIM-traded and listed investments New investments 1 Green Cirencester Business Small 250 Compliance plc Services business compliance 2 Marwyn Value London Financial Investment 64 Investors plc Services fund Follow on 1 Electric Word London IT & Media Business to 41 plc business publisher 2 Adventis Group London IT & Media Marketing 81 plc services agency 3 Proactis York IT & Media Procurement 219 Holdings plc software 4 Jelf Group plc Bristol Business Financial 210 Services solutions consultancy Paper consideration 1 Chime London IT & Media Marketing 369 Communications services Group plc* agency Total AIM-traded and 1,234 listed investments Collective investment vehicle Follow on 1 Wood Street 500 Microcap Investment Fund Total Collective 500 investment vehicle Total investment in the 1,785 period

± Loan stock received in consideration for accrued interest.

* Paper consideration from sale of Essentially Ltd.

Realisations inthe six months to 31 March 2010

Value at Realised First 30 September profit/(loss) Overall Investment 2009 this period†multiple Number Company date £'000 £'000 return * AIM-traded realisations 1 Essentially Trade Jun 07 283 86 0.7 Group ltd sale

2 Silverdell plc Market May 08 1 -

0.1 sale 3 Ffastfill plc Part Jun 07 226 133 1.6 sale

4 Research Now plc Market Dec 07 306 70

1.4

sale 5 Character Group Market Feb 08 86 46 0.9 plc sale 6 Cobra Trade May 03 7 (1) - Biomanufacturing sale plc 7 INVU plc Market May 07 4 (3) - sale 913 331 Written off 1 MKM Group plc May 04 6 (6) - 2 Optimisa plc Oct 07 - - - 3 Relax Group plc Feb 08 70 (70) - 76 (76) - Total AIM-traded 989 255 realisations Unquoted realisations 1 Scriptswitch Trade May 07 2,959 189 3.7 sale 2 Active Trade Mar 08 1,044 525 2.8 Assistance sale Total Unquoted reali 4,003 714 sations Total realisations 4,992 969 †Proceeds of £6,000 were also received in respect of an investment, InteractiveProspect Targeting plc, written off in a prior period. A Loss of £15,000 wasrealised during the period on the redemption on 7 December 2009 of a UKTreasury Gilt which had paid a rate of interest of 5.75%.

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

Investment Portfolio % of & of 30 September 31 March Equity Equity 2009 2010 held by held by Book valuation╪ valuation % of Baronsmead all cost Net funds*Company Nature of £'000 £'000 £'000 assets VCT 2 plc business Unquoted

Reed & Mackay Business 1,211 2,984 3,320 5.5 9.5

40.0 Services

Nexus Vehicle Business 1,868 2,528 2,677 4.4 12.6

57.4Holdings Services Carnell Business 1,499 2,468 1,988 3.3 8.3 37.5Contractors Services CableCom IT & Media 1,381 1,846 1,858 3.1 10.6 48.0Networking Holdings Quantix IT & Media 1,194 1,801 1,823 3.0 11.4 48.0 Fisher Outdoor Consumer 1,423 1,433 1,777 2.9 10.5 44.0Leisure Holdings Markets

CSC (World) IT & Media 1,606 1,250 1,666 2.8 8.8 40.0 Independent Healthcare & 801 1,568 1,621 2.7 14.4 60.5

Living Services Education

Kafevend Holdings Consumer 1,252 1,346 1,583 2.6 15.8

66.5 Markets Crew Clothing Consumer 983 1,286 1,309 2.2 5.9 24.0Company Markets

Credit Solutions Financial 1,032 1,126 1,128 1.9 8.6

35.0 Services Playforce Business 1,033 1,096 1,113 1.8 9.7 44.0Holdings Services MLS IT & Media 781 1,132 1,098 1.8 5.3 22.5 Empire World Business 1,297 765 698 1.2 ††Trade Services TVC Group IT & Media 1,233 293 452 0.7 6.4 59.3 Occam DM IT & Media 517 121 362 0.6 5.8 55.2 Kidsunlimited Business 113 113 113 0.2 0.0 0.0Group Services

Xention Discovery Healthcare & 316 63 63 0.1 1.2

5.6 Education Total Unquoted 19,540 23,219 24,649 40.8 AIM IDOX plc IT & Media 1,038 1,081 1,276 2.1 3.2 9.6

Advanced Computer IT & Media 525 1,158 1,204 2.0 0.9

4.5Software plc Staffline Business 249 499 738 1.2 4.5 9.0

Recruitment Group Services

plc

Brulines Holdings Business 646 595 647 1.1 1.9

9.6plc Services

Murgitroyd Group Business 319 711 632 1.0 3.1

6.2plc Services

Green Compliance Business 250 - 500 0.8 2.4

14.6plc Services

Jelf Group plc Financial 761 381 475 0.8 1.6

6.9 Services WIN plc IT & Media 413 315 459 0.8 4.3 19.0

Begbies Traynor Financial 231 625 440 0.7 0.7

2.5Group plc Services

Proactis Holdings IT & Media 619 326 426 0.7 5.5

27.0plc Mount Engineering Business 385 319 330 0.5 2.3 13.4plc Services Ffastfill plc IT & Media 251 475 325 0.5 0.9 6.6 Kiotech Healthcare & 275 342 298 0.5 2.2 15.8

International plc Education

Huveaux plc IT & Media 666 201 291 0.5 1.7 4.4

Vero Software plc IT & Media 500 390 279 0.5 6.2

14.3 Adventis Group IT & Media 361 197 275 0.5 3.1 20.8Plc InterQuest Group Business 310 270 270 0.4 1.8 7.4plc Services

Electric Word plc IT & Media 241 207 267 0.4 2.8

21.0

EG Solutions plc IT & Media 375 110 216 0.4 3.1

14.2 Driver Group plc Business 438 372 216 0.4 2.3 10.4 Services Cranewave plc IT & Media 71 180 216 0.4 0.2 1.1 Praesepe plc Consumer 525 179 197 0.3 1.1 6.2 Markets

Sanderson Group IT & Media 387 102 194 0.3 1.8

6.9plc Stagecoach Consumer 419 248 189 0.3 4.5 9.1Theatre Arts plc Markets IS Pharma plc Healthcare & 246 268 179 0.3 1.0 5.9 Education

Quadnetics Group Business 296 176 173 0.3 0.6

2.2plc Services Autoclenz Business 400 134 150 0.2 3.1 12.3Holdings plc Services

Plastics Capital Business 473 151 132 0.2 1.8

10.0plc Services Tasty plc Consumer 356 226 116 0.2 1.7 13.0 Markets Cohort plc Business 179 189 107 0.2 0.3 1.4 Services Prologic plc IT & Media 310 132 103 0.2 4.1 15.0

Colliers CRE plc Financial 470 158 90 0.2 0.3

0.8 Services

Brainjuicer Group IT & Media 50 65 69 0.1 0.4

1.8plc Marwyn Value Financial 64 - 62 0.1 1.3 6.0Investors plc Services STM Group plc Financial 140 72 56 0.1 0.5 3.8 Services Tangent Business 180 90 55 0.1 0.8 4.7Communications Services plc Real Good Food Consumer 620 31 51 0.1 0.7 2.3

Company (The) plc Markets

Clarity Commerce IT & Media 50 50 50 0.1 0.3

6.4Solutions plc

Mission Marketing IT & Media 247 60 30 0.1 0.5

1.3Group (The) plc RTC Group plc Business 355 37 30 0.0 4.2 8.5 Services AorTech Healthcare & 285 28 23 0.0 0.3 0.6

International plc Education

Zoo Digital Group IT & Media 438 12 14 0.0 0.3

1.0plc Higham Systems Business 197 3 6 0.0 0.3 1.0Services Group Services plc Payzone plc Consumer 109 2 - 0.0 0.1 0.1 Markets Total AIM 15,720 11,167 11,856 19.6 Listed

Vectura Group plc Healthcare & 578 1,019 561 0.9 0.4

1.3 Education Chime IT & Media 369 - 301 0.5 0.2 1.5Communications plc Total Listed 947 1,019 862 1.4 PLUS Chemistry Business 500 109 130 0.2 3.1 6.3Communications Services Group plc Total PLUS 500 109 130 0.2 New York Stock Ex change

Inverness Medical Healthcare & 180 212 225 0.4 0.0

0.1Inc. Education Total New York 180 212 225 0.4 Stock Exchange Interest bearing securities UK T-Bill 12/04/ 5,998 - 5,998 9.9 10 BlackRock Cash 7,000 7,000 7,000 11.6 Market OEIC JP Morgan Cash 4,800 - 4,800 8.0 Market OEIC Total interest 17,798 7,000 17,798 29.5 bearing secu rities Collective Investment Vehi cles Wood Street 1,025 525 1,034 1.7 Microcap Investment Fund Total Collective 1,025 525 1,034 1.7 Investment Vehi cles Total investments 55,710 56,554 93.6 Net current as 3,836 6.4 sets Net assets 60,390 100.0

╪ The total investment valuation at 30 September 2009 per the table above does not agree to the audited accounts due to the purchases and sales since that date.

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

†Following a restructuring the effective ownership % is dependent on final exit proceeds.

AIM, Listed and PlusPortfolio Concentration Analysisas at 31 March 2010

% of Investment Book cost Valuation Quotedranking by £'000 £'000 Portfoliovaluation Top Ten 5,012 6,932 53.0 11-20 3,975 3,063 23.4 21-30 3,338 1,955 15.0 30+ 5,022 1,123 8.6 Total 17,347 13,073 100.0

Independent Review Report to Baronsmead VCT 2 plc

Introduction

We have been engaged by the Company to review the condensed set of financialstatements in the half-yearly financial report for the six months ended 31March 2010 which comprises the Income Statement, Reconciliation of Movement inShareholders' Funds, Balance Sheet and Statement of Cash Flows and the relatedexplanatory notes. We have read the other information contained in thehalf-yearly financial report and considered whether it contains any apparentmisstatements or material inconsistencies with the information in the condensedset of financial statements.This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the Disclosureand Transparency Rules (``the DTR'') of the UK's Financial Services Authority(``the UK FSA''). Our review has been undertaken so that we might state to theCompany those matters we are required to state to it in this report and for noother purpose. To the fullest extent permitted by law, we do not accept orassume responsibility to anyone other than the Company for our review work, forthis report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

As disclosed in note 1, the annual financial statements of the Company are prepared in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the

Statement Half-Yearly Financial Reports as issued by the UK Accounting Standards Board.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensedset of financial statements in the half-yearly financial report based on ourreview.Scope of review

We conducted our review in accordance with International Standard on ReviewEngagements (UK and Ireland) 2410 Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity issued by the AuditingPractices Board for use in the UK. A review of interim financial informationconsists of making enquiries, primarily of persons responsible for financialand accounting matters, and applying analytical and other review procedures. Areview is substantially less in scope than an audit conducted in accordancewith International

Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of

financial statements in the half-yearly financial report for the six monthsended 31 March 2010 is not prepared, in all material respects, in accordancewith the Statement Half-Yearly Financial Reports as issued by the UK AccountingStandards Board and the DTR of the UK FSA.Simon Pasbyfor and on behalf ofKPMG Audit PlcChartered AccountantsEdinburgh12 May 2010

Responsibility statement of the Directors in respect of the half-yearly fi nancial report

We confirm that to the best of our knowledge:

●the condensed set of financial statements has been prepared in accordance with the Statement `Half-yearly financial reports' issued by the UK Accounting Standards Board;

● the Chairman's Statement (constituting the interim management report) includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements;

● the Statement of Principal Risks and Uncertainties below is a fair review of the information required by

DTR 4.2.7R; and

● the financial statements include a fair review of the information required byDTR 4.2.8R of the Disclosure and Transparency Rules, being related partytransactions that have taken place in the first six months of the currentfinancial year and that have materially affected the financial position orperformance of the entity during that period; and any changes in the relatedparty transactions described in the last annual report that could do so.By Order of the Board,Clive ParrittChairman12 May 2010Unaudited Income Statement

For the six months to 31 March 2010

Six months to 31 March Six months to 31 March Year to 30 September 2010 2009 2009* Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Unrealised gains/ - 944 944 - (2,581) (2,581) - 343 343 (losses) on investments Realised gains/ - 960 960 - (283) (283) - (154) (154)(losses) on investments Income 932 - 932 715 - 715 1,297 - 1,297 Recoverable VAT - - - 101 303 404 68 299 367 Investment management (151) (454) (605) (138) (414) (552) (291) (872) (1,163)fee Other expenses (161) - (161) (155) - (155) (405) - (405) Profit/(loss) on 620 1,450 2,070 523 (2,975) (2,452) 669 384 285 ordinary activities before taxation Taxation on ordinary (98) 98 - (80) 80 - (120) 120 - activities Profit/(loss) on 522 1,548 2,070 443 (2,895) (2,452) 549 (264) 285 ordinary activities after taxation Return per ordinary 0.76p 2.27p 3.03p 0.71p (4.66p) (3.95p) 0.83p (0.40p) 0.43pshare: Basic

* These figures are audited.

Unaudited Reconciliation of Movement in Shareholders' Funds

For the six months to 31 March 2010

Six Six months to months to Year to 31 March 31 March 30 September 2010 2009 2009* £'000 £'000 £'000 Opening shareholders' funds 61,215 54,822 54,822 Profit/(loss) for the period 2,070 (2,452) 285 Purchase of shares for treasury (830) (582) (582) Increase of shares - 7,188 8,881 Expenses of share issues and buybacks (3) (398) (477) Dividends paid (2,062) 4 (1,714) Closing shareholders' funds 60,390 58,582 61,215 * These figures are audited.Notes

1. The unaudited interim results which cover the six months to 31 March 2010 have been prepared in accordance with applicable accounting standards and adopting the accounting policies set out in the statutory accounts of the Company for the period ended 30 September 2009.

2. Return per share is based on a weighted average of 68,375,739 ordinary shares in issue (30 September 2009 - 65,802,901 ordinary shares, 31 March 2009 - 62,168,370 ordinary shares).

3. Earnings for the six months to 31 March 2010 should not be taken as a guide to the results of the full financial year to 30 September 2010.

4. During the six months ended 31 March 2010 the Company purchased 1,060,000ordinary shares to be held in Treasury at a cost of £829,902. At 31 March 2010the Company holds 7,053,906 ordinary shares in Treasury. These shares may bere-issued below Net Asset Value as long as the discount at issue is narrowerthan the average discount at which the shares were bought back.

Excluding treasury shares, there were 67,676,288 ordinary shares in issue at 31 March 2010 (30 September 2009 68,736,288 ordinary shares, 31 March 2009 66,896,301 ordinary shares).

5. The interim dividend of 2.5p per share (0.5p revenue and 2.0p capital) will be paid on 7 June 2010 to shareholders on the register on 21 May 2010. The ex-dividend date is 19 May 2010.

6. The financial information contained in this half year report does notconstitute statutory accounts as defined in section 434 of the Companies Act2006. The information for the year ended 30 September 2009 has been extractedfrom the latest published audited financial statements. The audited financialstatements for the year to 30 September 2009, which were unqualified, have beenfiled with the Registrar of Companies. No statutory accounts in respect of anyperiod after 30 September 2009 have been reported on by the Company's auditorsor delivered to the Registrar of Companies.7. Copies of the Half-yearly Report have been made available to shareholdersand are available from the Registered Office of the Company at 100 Wood Street,London EC2V 7AN.Unaudited Balance Sheet

For the six months to 31 March 2010

Six months Six months Year to to to 31 March 31 March 30 September 2010 2009 2009 Total Total Total £'000 £'000 £'000* Fixed Assets Unquoted investments 24,649 27,765 27,222 Traded on AIM 11,856 9,670 11,930 Traded on PLUS 130 82 109 Listed investments 862 651 1,019 Traded on NYSE 225 - 212

Collective investment vehicle 1,034 -

525 Interest bearing securities 17,798 15,567 18,512 56,554 53,735 59,529 Current assets Debtors 207 4,146 554 Cash at bank and on deposit 3,990 1,526 1,684 4,197 5,672 2,238 Creditor (amounts falling due within (361) (825) (552)one year) Net current assets 3,836 4,847 1,686 Total assets less current liabilities 60,390 58,582 61,215 Net assets 60,390 58,582 61,215 Capital and reserves Called-up share capital 7,473 7,289 7,473 Share premium account 12,573 11,143 12,573 Capital redemption reserve 9,254 9,254 9,254 Revaluation reserve 844 (3,108) 1,569 Capital reserve 29,180 33,085 29,665 Revenue reserve 1,066 919 681 Equity shareholders' funds 60,390 58,582 61,215 Six months Six months Year to to to 31 March 31 March 30 September 2010 2009 2009* Total Total Total Net asset value per share 89.23p 87.57p 89.06p Number of shares in issue at balance 67,676,288 66,896,301 68,736,288 sheet date Treasury net asset value per share 88.24p 86.70p

88.13p

Number of ordinary shares in issue 67,676,288 66,896,301 68,736,288

Number of ordinary shares held in 7,053,906 5,993,906 5,993,906 Treasury Number of listed ordinary shares 74,730,194 72,890,207 74,730,194 \* These figures are audited.

Unaudited Statement of Cash Flows

Six months Six months Year to to to 31 March 31 March 30 September 2010 2009 2009 Total Total Total £'000 £'000 £'000*

Net cash inflow from operating activities 136 227 964

Capital expenditure and financial 5,078 (6,301) (9,190)investment Equity dividends recovered/(paid) (2,062) 4

(1,714)

Net cash inflow / (outflow) before 3,152 (6,070) (9,940)financing Issue of shares less buybacks (846) 3,473 7,501 Increase / (decrease) in cash 2,306 (2,597) (2,439)

Reconciliation of net cash flow to

movement in net cash Increase / (decrease) in cash 2,306 (2,597) (2,439) Net cash at beginning of period 1,684 4,123 4,123 Net cash at end of period 3,990 1,526 1,684 Reconciliation of operating profit / (loss) before taxation to net cash flow from operating activities Profit / (loss) on operating activities 2,070 (2,452) 285 before taxation

Realised (gains) / losses on investments (960) 283 154

Unrealised (losses) / gains on investments (944) 2,581 (343)

Changes in working capital and other (30) (185)

868 non-cash items

Net cash inflow from operating activities 136 227 964

\* These figures are audited.

Principal Risks and Uncertainties

The Company's assets consist of equity and fixed interest investments, cash andliquid resources. Its principal risks are therefore market risk, credit riskand liquidity risk. Other risks faced by the Company include economic, loss ofapproval as a Venture Capital Trust, investment and strategic, regulatory,reputational, operational and financial risks. These risks, and the way inwhich they are managed, are described in more detail under the headingPrincipal risks, risk management and regulatory environment within the BusinessReview in the Company's Annual Report and Accounts for the year ended 30September 2009. The Company's principal risks and uncertainties have notchanged materially since the date of that report.

Related Parties

ISIS EP LLP (`the Manager') manages the investments of the Company. The Manageralso provides opportunities or procures the provision of secretarial,administrative and custodian services to the Company. Under the managementagreement, the Manager receives a fee of 2.0 per cent per annum of the netassets of the Company. This is described in more detail under the headingManagement within the Report of the Directors in the Company's Annual Reportand Accounts for the year ended 30 September 2009. During the period theCompany has incurred management fees of £605,000 and secretarial fees of £54,000 payable to the Manager.

Going Concern

The Directors are of the opinion that it is appropriate to continue to adoptthe going concern basis in the preparation of the Half-yearly report, as aftermaking enquires and bearing in mind the nature of the Company's business,assets and cash flow forecasts and due consideration, the Directors are of theopinion that the Company has adequate resources to continue in operationalexistence for the foreseeable future.

Shareholder Information and Contact Details

Enquiries

Shareholders should contact the following regarding queries:

Basic contact details, ie change of address, joining the DRIP queries re: share and tax certificates and bank mandate forms:

Computershare (Company Registrar)

www-uk.computershare.com/investor

Investors who hold ordinary shares in their own name can check their holdings on our Registrar's website

www-uk.computershare.com. Please note that to access this facility investors will need to quote the reference number shown on their share certificate.

Alternatively, by registering for the Investors' Centre facility onComputershare's website, investors can view details of all their holdings forwhich Computershare is Registrar, as well as access additional facilities anddocumentation. Please see www.investorcentre.co.uk for further information.

Shareholder Helpline

Tel: 0870 703 0137 (Calls charged at national rate).

The Shareholder Helpline is available on UK business days between Monday andFriday, 8.30 am to 5 pm. The helpline contains automated self-servicefunctionality which is available 24 hours a day, 7 days a week. Using yourShareholder Reference Number which is available on your share certificate ordividend tax voucher, our self-service functionality will enable you achievethe following things:Automated Functions

- confirm the latest share price

- confirm your current share holding balance

- confirm payment history

- order a Change of Address, Dividend Bank Mandate or Stock Transfer Form

e-mail: [email protected]

For information on asset allocations, dividend policies, investment process, DRIP mechanism, share price movements, the share price discount and selling shares:

ISIS EP LLP (the Investment Manager) at www.isisep.com

e-mail: [email protected]; [email protected]

Tel: Michael Probin 020 7506 5796; Margaret Barff 020 7506 5630.

The Baronsmead website (www.baronsmeadvcts.co.uk) links to helpful sites, contains details of the team and some case studies of investments.

Share Price

The Company's shares are listed on the London Stock Exchange. The mid-price ofthe Company's shares is given daily in the Financial Times in the InvestmentCompanies section of the London Share Service. Share price information can alsobe obtained from the link on the Company's website and many financial websites.

Trading Shares

The Company's shares can be bought and sold in the same way as any other quoted company on the London Stock Exchange via a stockbroker.

The market makers in the shares of Baronsmead VCT 2 plc are:

Matrix Corporate Capital LLP (the Company's 020 3206 7000 broker) Singer Capital Markets 020 3205 7500 Winterflood 020 3100 0251 Financial CalendarAugust 2010 Quarterly fact sheet to 30 June 2010 November 2010 Results for the year to 30 September 2010 announced and annual report and accounts sent to shareholders December 2010 Thirteenth Annual General Meeting Corporate InformationDirectors Registrar and Transfer Office Clive Parritt (Chairman)* Computershare Investor Services PLC Howard Goldring PO Box 82 Godfrey Jillings†The Pavilions Gillian Nott OBE╪^ Bridgwater Road Bristol BS99 6ZZ Secretary Tel: 0870 703 0137 ISIS EP LLP Brokers Registered Office Matrix Corporate Capital LLP 100 Wood Street One Vine Street London EC2V 7AN London W1J 0AM Investment Manager Auditors ISIS EP LLP KPMG Audit Plc 100 Wood Street Saltire Court London EC2V 7AN 20 Castle Terrace Edinburgh EH1 2EG Investor Relations Michael Probin Solicitors 020 7506 5796 Martineau No 1 Colmore Square Registered Number Birmingham B4 6AA 03504214 VCT Status Adviser PricewaterhouseCoopers LLP

* Chairman of the Audit Committee 1 Embankment Place †Chairman of Nomination Committee London WC2N 6RH ╪ Chairman of Management Engagement and

Remuneration Committee Website www.baronsmeadvct2.co.uk ^ Senior Independent Director Additional Information

The information provided in this report has been produced in order for shareholders to be informed of the activities of the Company during the period it covers. ISIS EP LLP does not give investment advice and the naming of companies in this report is not a recommendation to deal in them.

Baronsmead VCT 2 plc is managed by ISIS EP LLP which is Authorised andregulated by the FSA. Past performance is not necessarily a guide to futureperformance. Stockmarkets and currency movements may cause the value ofinvestments and the income from them to fall as well as rise and investors maynot get back the amount they originally invested. Where investments are made inunquoted securities and smaller companies, their potential volatility mayincrease the risk to the value of, and the income from, the investment.

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