Final Results

 
TIDMOPV 
 
Octopus Protected VCT 2 plc 
Final Results 
 
22 May 2009 
 
Octopus Protected VCT 2 plc (the "Company"), managed by Octopus 
Investments Limited, today announces the final results for the year 
ended 31 January 2009. 
 
These results were approved by the Board of Directors on 22 May 2009. 
 
You may view the Annual Report in full at www.octopusinvestments.com 
by navigating to VCT Meetings & Reports under the 'Services' section. 
 
About Octopus Protected VCT 2 plc 
 
Octopus Protected VCT 2 plc ("Protected 2," "Company" or "Fund") is a 
venture capital trust ("VCT") and is managed by Octopus Investments 
Limited ("Octopus" or "Manager"). 
 
Protected 2 was incorporated on 9 June 2008 with the first allotment 
of equity occurring on 6 October 2008. Protected 2 opened for 
subscription (the "Offer") on 17 July 2008 and, pursuant to the 
supplementary prospectus dated 3 April 2009, was extended to close no 
later than 30 June 2009 or such earlier date on which the Offer is 
fully subscribed. The Company will invest primarily in unquoted UK 
smaller companies and aims to deliver absolute returns on its 
investments. 
 
Financial Summary 
 
 
                            As at 31 January 2009 
                                             GBP000 
Net assets (GBP'000s)                         2,087 
Net loss after tax (GBP'000s)                  (84) 
Net asset value per share                   90.8p 
 
 
Chairman's Statement 
 
Introduction 
 
I am pleased to present the first Annual Report of Octopus Protected 
VCT 2 plc for the period ended 31 January 2009. 
 
In the period to 31 January 2009, the Company had raised gross 
proceeds of GBP2.3 million and a further GBP7.9 million has been raised 
between 31 January 2009 and the signing of this report.  The Offer 
for new subscriptions for shares will close on 30 June 2009. 
 
Investment Strategy 
The Fund is being invested on the basis of taking lower risk than a 
typical VCT. Typically the Fund will receive its return from interest 
paid on secured loan notes as well as an exposure to the value of the 
shares of a company. The investment strategy is to derive sufficient 
return from the secured loan notes to achieve the Fund's investment 
aims and to use any equity exposure to boost returns.  As portfolio 
companies will be predominately unquoted the Fund will receive a 
return from an equity holding when a company is sold or restructured. 
 
The Manager of the Fund aims to reduce risk by investing in well 
managed and profitable businesses with strong recurring cash-flow. 
Furthermore, with the majority of the investment being in the form of 
a secured loan, in the unlikely event of the business failing, the 
Fund will rank ahead of unsecured creditors and equity investors. 
 
Performance 
As at 31 January 2009 the Company's net asset value per share ("NAV") 
has declined from the initial NAV of 94.5p to 90.8p at the period 
end.  This has been largely due to fixed costs being high relative to 
the size of the Fund, and low interest rates providing insufficient 
income on cash to cover the Company's expenses since its formation. 
As the Fund has continued to be subscribed, these fixed costs are 
spread over a greater number of assets and thus the NAV will rise 
back towards the initial offer NAV.  In time, as qualifying 
investments are made, income should flow from the investment 
portfolio allowing for the expenses to be covered. Over the longer 
term as the underlying portfolio of investments is created, the 
Company's NAV will be linked increasingly to the value of the 
investments in the portfolio companies. 
 
Investment Portfolio 
No investments had been made in the period under review. However, 
since the period end the Fund has made six new investments. 
 GBP250,000 has been invested into CSL Dualcom Limited and GBP350,000 
into Diagnos Limited. As noted in the Investment Manager's Review, 
the Fund also invested a further GBP2.4 million into four companies set 
up to seek acquisitions across a range of sectors, bringing the total 
amount invested in VCT qualifying companies to GBP3.0 million as of the 
date of signing this report. 
 
The investments held are valued in accordance with the International 
Private Equity and Venture Capital valuation guidelines and Financial 
Reporting Standards and are therefore subject to regular valuation 
reviews. 
 
VCT Qualifying Status 
PricewaterhouseCoopers LLP provides the Board and Investment Manager 
with advice on the ongoing compliance with Her Majesty's Revenue & 
Customs ("HMRC") rules and regulations concerning VCTs.  The Manager 
does not foresee any issues with reaching the required investment 
hurdle of 70% before the third anniversary of the end of the 
financial period in which investors subscribed to the Fund. 
 
Outlook 
The general outlook remains uncertain. Significant steps have been 
taken to stabilise the world's financial system but it is difficult 
to predict how long this will take to feed through to consumer and 
business confidence. Whilst smaller companies can suffer in these 
circumstances, tighter management structures mean that they have the 
ability to respond quickly to changing economic conditions. Looking 
forward, our anticipated portfolio companies will also benefit from 
the Manager who will be fully involved and committed to supporting 
them though these tough times. These companies will be selected for 
their relatively high level of financial security, stable trading 
history and predictable revenues. The current economic conditions 
make these criteria harder to achieve in the short-term and thus the 
challenge is to ensure that they remain well positioned to exploit 
the longer-term opportunities. 
 
Your Board remains confident that the Fund will be able to meet its 
investment objectives and produce good returns for shareholders. 
However, the Board and the Manager remain cautious about investing 
too readily in the current economic environment.  The imperative is 
to find lower risk investments and take advantage of current market 
conditions whenever possible. 
 
Protected 2 invests alongside three other VCTs with the same 
investment strategy under the management of Octopus.  It is expected 
that co-investment will allow Protected 2 to invest in larger, safer 
companies and to invest on more favorable terms.  Your Board monitors 
the development of Octopus closely.  The growing resources of Octopus 
as well as its day-to-day management of the Fund continue to give us 
confidence that the company will perform well as Manager of the 
Fund. 
 
Murray Steele 
Chairman 
22 May 2009 
 
Investment Manager's Review 
 
Personal Service 
At Octopus, we have a dual focus on managing your investments and 
keeping you informed throughout the investment process.  We are 
committed to providing our investors with regular and open 
communication. Our updates are designed to keep you informed about 
the progress of your investment. During this time of economic 
upheaval, we consider it particularly important to be in contact with 
our investors. We are working hard to manage your money in the 
current climate. 
 
Octopus Investments Limited was established in 2000 and has a strong 
commitment to both smaller companies and to VCTs.  Currently it 
manages 15 VCTs, including this Company, and manages over GBP200m in 
the VCT sector.  Octopus has over 100 employees and has been voted as 
"Best VCT Provider of the Year" by the financial adviser community 
for the last three years. 
 
Investment Policy 
The investment approach of Protected 2 is to invest in a broad range 
of unquoted UK smaller companies in order to generate income and 
capital growth over the long-term.  Investments will be made 
selectively across a range of sectors in companies that have the 
potential to grow and enhance their value. The portfolio will be 
diversified by investing in a broad range of industry sectors and by 
holding investments in companies at various stages of maturity in the 
corporate development cycle, though it is not intended that 
investments will be made in early stage unquoted companies which have 
yet to achieve profitability and cash generation. 
 
Investment Strategy 
Our investment strategy centres on taking lower risk than a typical 
VCT and provides development and expansion funding to unquoted 
companies. These are companies we have identified that we believe 
have great potential but need some financial support to realise it. 
We will follow our strategy of investing in companies where there is 
a relatively high level of financial security. Our selected companies 
will be established and profitable, with a stable trading history, 
and ideally have predictable revenues from financially sound 
customers. 
 
During the period to 31 January 2009, no investments were made.  We 
will be patient in finding the right opportunities for investment; 
and for the time being, continue to hold your investment in cash or 
near cash. In this environment there will be opportunities - 
historically investment into small companies during a downturn brings 
especially high returns in subsequent years. Prior to investment in 
qualifying holdings, we will hold the Fund's cash in a number of low 
risk, high liquidity cash funds.  These will be Standard & Poor 'AAA' 
rated funds, which is the highest credit rating available for such 
products. 
 
Recent Transactions 
Since the end of the period under review, a number of investments 
have been made. The Fund invested GBP250,000 in CSL Dualcom Limited and 
GBP350,000 in Diagnos Limited. Furthermore, in April 2009, your VCT 
invested a total of GBP2.4 million into four companies which are 
actively seeking investments in the healthcare, environment, business 
support and pub sectors. 
 
CSL DualCom Limited 
CSL DualCom (www.csldual.com) is the UK's leading supplier of dual 
path signalling devices, which link burglar alarms to the police or a 
private security firm. The devices communicate using a telephone line 
or broadband connection and a wireless link from Vodafone, which has 
been a partner since 2000. CSL DualCom is a profitable business that 
is growing sales in the current market. Our investment was made 
alongside other VCTs managed by Octopus. We have taken the position 
of the primary lender by replacing the company's original bank. 
 
Diagnos Limited 
Diagnos (www.autologic-diagnos.co.uk) develops and sells 
sophisticated automotive diagnostic software and hardware (branded as 
"Autologic") that enables independent mechanics, dealerships and 
garages to service and repair vehicles. Mechanics require a 
diagnostic tool to communicate with the in-car computer in order to 
measure, monitor and, where necessary, fix the electronic process or 
system. 
 
Outlook 
Experience of previous recessionary periods shows that financial 
support for investments has to be considered very carefully and is 
dependent on having a strong business model and an exceptional 
management team. We will look to consider investments in sound 
companies that merit capital for sensible expansion plans, including 
well priced acquisitions.  Taking a longer term view, which a VCT 
affords, we expect economic conditions to improve, enabling the 
portfolio to develop and generate successful exits that will bring 
rewards for shareholders. 
 
If you have any questions on any aspect of your investment, please 
call one of the team on 0800 316 2347. 
 
Simon Rogerson 
Chief Executive 
Octopus Investments Limited 
 
Directors' Responsibility Statement 
 
The Directors are responsible for preparing the Annual Report and the 
financial statements in accordance with applicable laws and 
regulations. 
 
Company law requires the Directors to prepare financial statements 
for each financial year which give a true and fair view of the 
assets, liabilities, financial position and profit or loss of the 
Company. Under that law the Directors have elected to prepare 
financial statements in accordance with United Kingdom Accounting 
Standards (United Kingdom Generally Accepted Accounting Practice). 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 
* 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 
that disclose with reasonable accuracy at any time the financial 
position of the Company and enable them to ensure that the financial 
statements comply with the Companies Act 2006. They are also 
responsible for safeguarding the assets of the Company and hence for 
taking reasonable steps for the prevention and detection of fraud and 
other irregularities. 
In so far as each of the Directors is aware: 
 
* there is no relevant audit information of which the Company's 
  auditors are unaware; and 
* the Directors have taken all steps that they ought to have taken to 
  make themselves aware of any relevant audit information and to 
  establish that the auditors are aware of that information. 
 
To the best of my 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 undertakings included in the consolidation 
  taken as a whole; and 
* the management report includes a fair review of the development and 
  performance of the business and the position of the Company and the 
  undertakings included in the consolidation taken as a whole, 
  together with a description of the principal risks and 
  uncertainties that they face. 
The Directors are responsible for the maintenance and integrity of 
the corporate and financial information included on the Company's 
website. Legislation in the United Kingdom governing the preparation 
and dissemination of financial statements may differ from legislation 
in other jurisdictions. 
 
On Behalf of the Board 
 
Murray Steele 
Chairman 
22 May 2009 
 
 
Income Statement 
                                           Period to 31 January  2009 
                                             Revenue  Capital   Total 
                                     Notes     GBP'000    GBP'000   GBP'000 
 
Investment management fees             2         (2)      (7)     (9) 
Other expenses                         3        (75)        -    (75) 
 
Return on ordinary activities before 
tax                                             (77)      (7)    (84) 
 
Taxation on return on ordinary 
activities                             5           -        -       - 
 
Return on ordinary activities after 
tax                                             (77)      (7)    (84) 
Loss per share - basic and diluted     6      (4.8)p   (0.4)p  (5.2)p 
 
 
 
  * The 'Total' column of this statement is the profit and loss 
    account of the Company; the supplementary revenue return and 
    capital return columns have been prepared under guidance 
    published by the Association of Investment Companies 
  * all revenue and capital items in the above statement derive from 
    continuing operations 
  * the accompanying notes are an integral part of the financial 
    statements 
  * the Company has only one class of business and derives its income 
    from investments made in shares and securities and from bank and 
    money market funds 
 
 
The Company has no recognised gains or losses other than the results 
for the period as set out above. 
 
 
Reconciliation of Movements in Shareholders' Funds 
 
                                        Period ended 31 January 2009 
                                                               GBP'000 
Shareholders' funds at incorporation                               - 
Return on ordinary activities after tax                         (84) 
Issue of equity (net of expenses)                              2,171 
Shareholders' funds at end of year                             2,087 
 
 
 
Balance Sheet 
 
                                                As at 31 January 2009 
                                          Notes      GBP'000      GBP'000 
 
Current assets: 
Debtors                                     8            1 
Investments                                 9        2,000 
Cash at bank                                           240 
                                                     2,241 
Creditors: amounts falling due within one 
year                                       10        (154) 
Net current assets                                              2,087 
 
Total assets less current liabilities                           2,087 
 
Called up equity share capital             11          230 
Share premium                              12        1,941 
Capital reserve  - realised                12          (7) 
Revenue reserve                            12         (77) 
Total shareholders' funds                                       2,087 
Net asset value per share                   7                   90.8p 
 
 
 
The statements were approved by the Directors and authorised for 
issue on 22 May 2009 and are signed on their behalf by: 
 
Murray Steele 
Chairman 
 
The accompanying notes are an integral part of the financial 
statements. 
 
 
Cash Flow Statement 
                                                 Period to 31 January 
                                                                 2009 
                                      Notes                     GBP'000 
 
Net cash inflow from operating 
activities                                                         69 
 
Management of liquid resources 
Purchase of current asset investments  11                     (2,000) 
 
Financing : 
Issue of shares                                                 2,249 
Share issue expenses                                             (78) 
Increase in cash                                                  240 
 
 
 
Reconciliation of Net Cash Flow to Movement in Net Funds 
 
                                         Period to 31 January  2009 
                                                              GBP'000 
Increase in cash at bank                                        240 
Movement in cash equivalent securities                        2,000 
Opening net funds                                                 - 
Net funds at 31 January                                       2,240 
 
 
 
Net Funds at 31 January comprised: 
 
 
                        Period to 31 January  2009 
                                             GBP'000 
Cash at bank                                   240 
Money market funds                           2,000 
Net funds at 31 January                      2,240 
 
 
 
Reconciliation of Loss before Taxation to Cash Flow from Operating 
Activities 
 
                                           Period to 31 January  2009 
                                                                GBP'000 
Loss on ordinary activities before tax                           (84) 
Increase in debtors                                               (1) 
Increase in creditors                                             154 
Inflow from operating activities                                   69 
 
 
Notes to the Financial Statements 
 
1.         Principal accounting policies 
 
The financial statements have been prepared under the historical cost 
convention, and in accordance  with UK Generally Accepted  Accounting 
Practice (UK GAAP), and the Statement of Recommended Practice  (SORP) 
"Financial  Statements  of  Investment  Trust  Companies",   (revised 
December 2005). 
 
Current asset investments 
Current asset investments comprise money market funds.  Gains and 
losses arising from changes in fair value of investments are 
recognised as part of the capital return within the Income Statement 
and allocated to the capital reserve - realised. 
 
The current asset investments are all invested with the Company's 
cash manager and are readily convertible into cash at the choice of 
the Company.  The current asset investments are held for trading, are 
actively managed and the performance is evaluated on a fair value 
basis in accordance with a documented investment strategy. 
Information about them has to be provided internally on that basis to 
the Board. 
 
Investments are recognised as financial assets on legal completion of 
the investment contract and are de-recognised on legal completion of 
the sale of the investment. 
 
Income 
Investment income includes interest earned on bank balances and money 
market securities and includes income tax withheld at source. 
 
Fixed returns on debt and money market securities are recognised on a 
time apportionment basis so as to reflect the effective interest 
rate, provided there is no reasonable doubt that payment will be 
received in due course. 
 
Expenses 
All expenses are accounted for on an accruals basis.  Expenses are 
charged wholly to revenue with the exception of the investment 
management fee, which has been charged 25% to the revenue account and 
75% to the realised capital reserve to reflect, in the Directors' 
opinion, the expected long term split of returns in the form of 
income and capital gains respectively from the investment portfolio. 
 
Revenue and Capital 
The revenue column of the Income Statement includes all income and 
revenue expenses of the Company.  The capital column includes 
realised and unrealised gains and losses on investments.  Gains and 
losses arising from changes in fair value are considered to be 
realised only to the extent that they are readily convertible to cash 
in full at the balance sheet date. 
 
Taxation 
Corporation tax payable is applied to profits chargeable to 
corporation tax, if any, at the current rate. The tax effect of 
different items of income/gain and expenditure/loss is allocated 
between capital and revenue return on the "marginal" basis as 
recommended in the SORP. 
 
Deferred tax is recognised on an undiscounted basis in respect of all 
timing differences that have originated but not reversed at the 
balance sheet date where transactions or events have occurred at that 
date that will result in an obligation to pay more, or a right to pay 
less tax, with the exception that deferred tax assets are recognised 
only to the extent that the Directors consider that it is more likely 
than not that there will be suitable taxable profits from which the 
future reversal of the underlying timing can be deducted. 
 
Cash and liquid resources 
Cash, for the purposes of the cash flow statement, comprises cash in 
hand and deposits repayable on demand, less overdrafts payable on 
demand.  Liquid resources are current asset investments which are 
disposable without curtailing or disrupting the business and are 
either readily convertible into known amounts of cash at or close to 
their carrying values or traded in an active market.  Liquid 
resources comprise term deposits of less than one year (other than 
cash), government securities, investment grade bonds and investments 
in money market managed funds. 
 
Financial instruments 
The Company's principal financial assets are its investments and the 
policies in relation to those assets are set out above.  Financial 
liabilities and equity instruments are classified according to the 
substance of the contractual arrangements entered into. An equity 
instrument is any contract that evidences a residual interest in the 
assets of the entity after deducting all of its financial 
liabilities. Where the contractual terms of share capital do not have 
any terms meeting the definition of a financial liability then this 
is classed as an equity instrument. Dividends and distributions 
relating to equity instruments are debited direct to equity. 
 
Dividends 
Dividends payable are recognised as distributions in the financial 
statements when the Company's liability to make payment has been 
established.  This liability is established when the dividends 
proposed by the Board are approved by the shareholders. 
 
2.         Investment management fees 
 
 
                             31 January 2009 
                          Revenue Capital Total 
                            GBP'000   GBP'000 GBP'000 
Investment management fee       2       7     9 
                                2       7     9 
 
 
As mentioned in the principal accounting policies, for the purposes 
of the revenue and capital columns in the Income Statement, the 
management fee has been allocated 25 per cent to revenue and 75 per 
cent to capital, in line with the Board's expected long term return 
in the form of income and capital gains respectively from the 
Company's investment portfolio. 
 
Octopus provides investment management and accounting & 
administration services to the Company under a management agreement 
which runs for five years with effect from 16 July 2008 and may be 
terminated at any time thereafter by not less than twelve months' 
notice given by either party.  No compensation is payable in the 
event of terminating the agreement by either party, if the required 
notice is given.  The fee payable, should insufficient notice be 
given, will be equal to the fee that would have been paid should 
continuous service be provided, or the required notice was given. 
The basis upon which the management fee is calculated is disclosed 
within note 16 to the financial statements. 
 
The Chancellor of the Exchequer announced in his budget statement on 
12 March 2008 that the Finance Act 2008 would contain draft 
legislation exempting VCTs from VAT on management fees with effect 
from 1 October 2008. This legislation was passed in July 2008 and as 
such all VCTs are now exempt from paying VAT on management fees from 
this date. 
 
3.         Other expenses 
 
                                                   31 January 2009 
                                                Revenue Capital Total 
                                                  GBP'000   GBP'000 GBP'000 
Accounting and administration services                2       -     2 
Directors' remuneration                              30       -    30 
Fees payable to the Company's auditor for the 
audit of the financial statements                     6       -     6 
Fees payable to the Company's auditor for other 
services - tax compliance                             1       -     1 
Other expenses                                       36       -    36 
                                                     75       -    75 
 
 
Total annual running costs are capped at 3.2% of net assets.  For the 
period to 31 January 2009 the running costs were 2.1% of net assets. 
 
4.         Directors' remuneration 
 
                                          31 January 2009 
                                                    GBP'000 
Directors' emoluments 
Murray Steele                                          11 
Chris Powles                                            9 
Chris Hulatt (paid to Octopus Investment)              10 
                                                       30 
 
 
None of the Directors received any other remuneration from the 
Company during the period however they did receive a small number of 
additional shares upon application, resulting from a discount of the 
Offer charges. The Company has no employees other than non-executive 
Directors.  The average number of non-executive Directors in the 
period was three. 
 
5.         Tax on ordinary activities 
The corporation tax charge for the period was GBPnil. 
 
The current tax charge for the period differs from the standard rate 
of corporation tax in the UK of 28.0%.  The differences are explained 
below. 
 
 
Current tax reconciliation:            31 January 2009 
                                                 GBP'000 
Loss on ordinary activities before tax            (84) 
Current tax at 28.0%                              (24) 
Unrelieved tax losses                               24 
Total current tax charge                             - 
 
 
The Company has excess management charges of GBP50,000 available to 
offset against future taxable profits. 
 
Approved venture capital trusts are exempt from tax on capital gains 
within the Company.  Since the Directors intend that the Company will 
continue to conduct its affairs so as to maintain its approval as a 
venture capital trust, no current deferred tax has been provided in 
respect of any capital gains or losses arising on the revaluation or 
disposal of investments. 
 
6.         Loss per share 
The loss per share is based on loss after tax of GBP(84,000) and on 
1,609,161 shares, being the weighted average number of shares in 
issue during the period. 
 
There are no potentially dilutive capital instruments in issue and 
therefore no diluted returns per share figures are relevant. The 
basic and diluted earnings per share are therefore identical. 
 
7.        Net asset value per share 
The calculation of net asset value per share as at 31 January 2009 is 
based on net assets of GBP2,087,000 divided by 2,297,666 ordinary 
shares in issue at that date. 
 
8.         Debtors 
 
                               31 January 2009 
                                         GBP'000 
Prepayments and accrued income               1 
 
 
9.         Current asset investments 
Current asset investments at 31 January 2009 comprised money market 
funds. 
 
 
                                31 January 2009 
                                          GBP'000 
Movement in the period: 
Purchases at cost                         2,000 
 
Valuation as at 31 January 2009           2,000 
Book cost at 31 January 2009: 
- Money market funds                      2,000 
 
Valuation as at 31 January 2009           2,000 
 
 
When the Company revalues its fixed asset investments, any gains or 
losses arising are credited / charged to the Capital reserve - 
unrealised unless any diminution in value is considered to be 
permanent, in which case it is charged to the Capital reserve - 
realised. 
 
When an investment is sold any balance held on the Capital reserve - 
unrealised is transferred to the Capital reserve - realised as a 
movement in reserves. 
 
 
10.       Creditors: amounts falling due within one year 
 
 
                31 January 2009 
                          GBP'000 
Accruals                     59 
Other creditors              95 
                            154 
 
 
11.       Share capital 
 
                                  31 January 2009 
                                            GBP'000 
Authorised: 
50,000,000 Ordinary shares of 10p           5,000 
Allotted and fully paid up: 
2,297,666 Ordinary shares of 10p              230 
 
 
The capital of the Company is managed in accordance with its 
investment policy with a view to the achievement of its investment 
objective as set on page 13.  The Company is not subject to any 
externally imposed capital requirements. 
 
The Company issued 2,297,666 shares during the period at a price of 
100 per share.  In addition, the Company issued 50,000 redeemable 
preference shares of GBP1 each on 24 June 2008, of which 25p per share 
was paid.  On 26 January 2009, these shares were redeemed by the 
Company and were immediately re-designated as Ordinary shares of 10p 
each. 
 
12.       Reserves 
 
                                              Capital reserve Revenue 
                                Share premium        realised reserve 
                                        GBP'000           GBP'000   GBP'000 
As at date of incorporation                 -               -       - 
Loss on ordinary activities 
after tax                                   -             (7)    (77) 
Issue of equity                         1,941               -       - 
Balance as at 31 January 2009           1,941             (7)    (77) 
 
 
When the Company revalues its investments during the period, any 
gains or losses arising are credited / charged to the Income 
Statement.  Unrealised gains/losses on fixed assets are then 
transferred to the capital reserve - unrealised.  When an investment 
is sold any balance held on the capital reserve-unrealised is 
transferred to the capital reserve - realised as a movement in 
reserves. 
 
13.       Financial instruments and risk management 
 
The Company's financial instruments comprise variable interest 
investments, cash balances and liquid resources including debtors and 
creditors. The Company holds financial assets in accordance with its 
investment policy of investing mainly in a portfolio of VCT 
qualifying unquoted securities whilst holding a proportion of its 
assets in cash or near-cash investments in order to provide a reserve 
of liquidity. 
 
The fair value of all financial assets and liabilities is represented 
by their carrying value in the balance sheet.  The Directors believe 
that the fair value of the assets held at the year end is equal to 
their book value. 
 
In carrying on its investment activities, the Company is exposed to 
various types of risk associated with the financial instruments and 
markets in which it invests. The most significant types of financial 
risk facing the Company are price risk, interest rate risk, credit 
risk and liquidity risk. The Company's approach to managing these 
risks is set out below together with a description of the nature and 
amount of the financial instruments held at the balance sheet date. 
 
Market risk 
The Company's strategy for managing investment risk is determined 
with regard to the Company's investment objective, as outlined on 
page 13. The management of market risk is part of the investment 
management process and is a central feature of venture capital 
investment. The Company's portfolio is managed in accordance with the 
policies and procedures described in the Corporate Governance 
statement on pages 23 to 27, having regard to the possible effects of 
adverse price movements, with the objective of maximising overall 
returns to shareholders. Investments in unquoted companies, by their 
nature, usually involve a higher degree of risk than investments in 
companies quoted on a recognised stock exchange, though the risk can 
be mitigated to a certain extent by diversifying the portfolio across 
business sectors and asset classes. The overall disposition of the 
Company's assets is regularly monitored by the Board. 
 
Interest rate risk 
At the period end, all of the Company's financial assets are 
interest-bearing, all of which are at variable rates.  As a result, 
the Company is exposed to fair value interest rate risk due to 
fluctuations in the prevailing levels of market interest rates. 
 
Floating rate 
The Company's floating rate investments comprise cash held on 
interest-bearing deposit accounts and, where appropriate, within 
interest bearing money market securities.  The benchmark rate which 
determines the rate of interest receivable on such investments is the 
bank base rate, which was 1.5% at 31 January 2009.  The amounts held 
in floating rate investments at the balance sheet date were as 
follows: 
 
 
                                     31 January 2009 
                                                GBP000 
 
Cash on deposit & money market funds           2,240 
 
 
 
A 1% increase in the base rate would increase income receivable from 
these investments and the total return by GBP22,400, on an annualised 
basis. However, due to the timing of cash receipts as the accounts 
which this was held during the period, movements in the base rate 
have not impacted on the results. 
 
Credit risk 
There were no significant concentrations of credit risk to 
counterparties at 31 January 2009. 
 
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 and the Board 
carry out a regular review of counterparty risk. The carrying values 
of financial assets represent the maximum credit risk exposure at the 
balance sheet date. 
 
At 31 January 2009 the Company's financial assets exposed to credit 
risk comprised the following: 
 
 
                                     31 January 2009 
                                                GBP000 
 
Cash on deposit & money market funds           2,240 
                                               2,240 
 
 
Credit risk relating to listed money market securities is mitigated 
by investing in a portfolio of investment instruments of high credit 
quality, comprising securities issued by the UK Government and major 
UK institutions. 
 
Those assets of the Company which are traded on recognised stock 
exchanges are held on the Company's behalf by third party custodians 
(Barclays Global Investors Limited in the case of listed money market 
securities). Bankruptcy or insolvency of a custodian could cause the 
Company's rights with respect to securities held by the custodian to 
be delayed or limited. 
 
Credit risk arising on the sale of investments is considered to be 
small due to the short settlement and the contracted agreements in 
place with the settlement lawyers. 
 
The Company's interest-bearing deposit and current accounts are 
maintained with HSBC plc. 
 
Liquidity risk 
The Company's holdings in money market funds are considered to be 
readily realisable as they are of high credit quality as outlined 
above. 
 
The Company's liquidity risk is managed on a continuing basis by the 
Investment Manager in accordance with policies and procedures laid 
down by the Board. The Company's overall liquidity risks are 
monitored 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 31 January 2009 these investments were valued at GBP2,240,084. 
 
14.       Post balance sheet events 
The following events occurred between the balance sheet date and the 
signing of these financial statements: 
 
  * On 5 February 2009, the Fund invested GBP250,000 in CSL Dualcom 
    Limited, acquiring 2,500,000 ordinary shares and GBP225,000 in loan 
    notes. 
  * On 19 February 2009, the Fund invested GBP350,000 in Diagnos 
    Limited, acquiring 35,000 ordinary shares and GBP315,000 in loan 
    notes. 
  * On 2 April 2009, the Fund invested GBP600,000 into each of Salus 
    Services I Limited, PubCo Services Limited, GreenCo Services 
    Limited and BusinessCo Services Limited. These are companies 
    which have been established to seek suitable qualifying 
    investments across a range of sectors. 
 
 
The following shares were allotted between the balance sheet date and 
the signing of these financial statements: 
 
  * 8,168,322 Ordinary Shares of 10 pence each were issued and 
    allotted to subscribers at a price of 100p under the Offer for 
    subscription 
 
 
 
15.       Contingencies, guarantees and financial commitments 
There were no contingencies, guarantees or financial commitments as 
at 31 January 2009. 
 
16.       Related party transactions 
Chris Hulatt, a non-executive director of Octopus Protected VCT 2 
plc, is a director of Octopus Investments Limited.   Octopus 
Protected VCT 2 plc has employed Octopus throughout the period as 
Investment Manager.  Octopus Protected VCT 2 plc has paid Octopus 
GBP9,473 in the period as a management fee all of which is outstanding 
at the balance sheet date.  The management fee is payable quarterly 
in advance and is based on 2.0% of the net asset value calculated at 
annual intervals as at 31 January.  Octopus Investments Limited 
provides accounting and administrative services to the Company, 
payable quarterly in advance for a fee of 0.3% of the net asset value 
calculated at annual intervals as at 31 January.  In addition, 
Octopus also provides secretarial services for an additional fee of 
GBP10,000 per annum.  During the period GBP2,326 was paid to Octopus 
Investments Limited all of which is outstanding at the balance sheet 
date, for the accounting and administrative services. 
 
Some GBP93,369 is also outstanding to Octopus Investments for costs 
relating to share issues. 
 
No performance related incentive fee will be payable over the first 
five years. Thereafter, Octopus will be entitled to an annual 
performance related incentive fee. This performance fee is equal to 
20% of the amount by which the NAV from the start of the sixth 
accounting and subsequent accounting period exceeds simple interest 
of the HSBC Bank plc base rate for the same period. The NAV at the 
start of the sixth accounting period must be at least 100p. Any 
distributions paid out by the Fund will be added back when 
calculating this performance fee. 
 
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This announcement was originally distributed by Hugin. The issuer is 
solely responsible for the content of this announcement.