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Octopus Apollo VCT2 plc (OAP2)

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Friday 07 May, 2010

Octopus Apollo VCT2 plc

Final Results






Octopus Apollo VCT 2 plc
Final Results
7 May 2010
Octopus Apollo VCT 2 plc, managed by Octopus Investments Limited, today
announces the final results for the year ended 31 January 2010.
These results were approved by the Board of Directors on 6 May 2010.
You may, in due course, view the Annual Report in full at
www.octopusinvestments.com <

http://www.octopusinvestments.com/> by navigating to
Services, Investor Services, Venture Capital Trusts, Octopus Apollo VCT 2 plc.
 All other statutory information will also be found there.

About Octopus Apollo VCT 2 plc

Octopus Apollo VCT 2 plc ('Apollo 2, 'Company' or 'Fund') is a venture capital
trust ('VCT') and is managed by Octopus Investments Limited ('Octopus' or
'Manager').

The Fund was launched in May 2006 together with Octopus Apollo VCT 1 plc.  Both
companies have identical constitutions, Boards of Directors and investment
policies, and together launched an offer for subscription comprising 25,000,000
Ordinary shares each, or 50,000,000 in aggregate (the 'Offer').  The Offer
closed on 5 April 2007 having raised £17.6 million in aggregate (£16.8 million
net of expenses).  The objective of the Fund is to invest in a diversified
portfolio of UK smaller companies in order to generate income and capital growth
over the long-term.


Venture Capital Trusts (VCTs)

VCTs were introduced in the Finance Act 1995 to provide a means for private
individuals to invest in unlisted companies in the UK.  Subsequent Finance Acts
have introduced changes to VCT legislation. The tax benefits currently available
to eligible new investors in VCTs include:

·                     up-front income tax relief of 30%
·                     exemption from income tax on dividends paid
·                     exemption from capital gains tax on disposals of shares in
VCTs

The Company has been provisionally approved as a VCT by HM Revenue & Customs.
In order to maintain its approval the Company must comply with certain
requirements on a continuing basis.  By the end of the Company's third
accounting period at least 70% of the Company's investments must comprise
'qualifying holdings' of which at least 30% must be in eligible Ordinary
shares.  A 'qualifying holding' consists of up to £1 million invested in any one
year in new shares or securities in an unquoted company (including companies
listed on AIM) which is carrying on a qualifying trade and whose gross assets do
not exceed £7 million at the time of investment, and whose total number of
employees is less than 50, also at the time of investment.  The Company will
continue to ensure its compliance with these qualification requirements.

Financial Summary


                                 Year to 31 January 2010 Year to 31 January 2009



Net assets (£'000s)                                8,167                   8,119

Net  revenue  profit  after  tax
(£'000s)                                             135                     112

Net   total   profit  after  tax
(£'000s)                                             306                   (106)

Net asset value per share (NAV)                    94.0p                   92.3p

Proposed dividend per share                        2.50p                   1.00p


Chairman's Statement

I am pleased to present the fourth Annual Report of Octopus Apollo VCT 2 plc for
the year ended 31 January 2010.

Performance
At 31 January 2010 the NAV plus cumulative dividends paid of the Fund was
97.25p, which compares to 93.60p at 31 January 2009. This increase is largely
due to the successful exit of Funeral Services Partnership (FSP) which resulted
in a return of almost 1.4 times the original investment of £875,000 in October
2007. Further details of this exit can be found in the Investment Managers
Review on pages  to .  Aside from this the performance of the Fund has been
relatively stable as there have been no changes in the valuations of the
companies in its portfolio and because a proportion of its assets remain held in
cash and cash equivalent securities.  The investments held are valued in
accordance with the International Private Equity and Venture Capital (IPEVC)
valuation guidelines and Financial Reporting Standards, and are therefore
subject to regular valuation reviews.

Both the nature and structure of investments have been selected to provide
stable returns to investors. However, as a result of the successful exit of
Funeral Services Partnership (FSP), your Board has decided to propose a higher
final dividend of 2.5 pence per share (comprising 1.0 pence from revenue
reserves and 1.5 pence from capital reserves) in respect of the year ended 31
January 2010.  This dividend represents the realised profits of the FSP
investment. If approved by shareholders at the AGM, it will be paid on 9 July
2010 to shareholders on the register on 11 June 2010. In addition to the 1.0
pence interim dividend paid in October 2009, this will take dividends for the
year ended 31 January 2010 to 3.5 pence.

Investment Portfolio
The year under review, particularly the first six months, proved to be difficult
for  many businesses due to the challenging economic environment. However, it is
encouraging  to  report  that  none  of  your Company's investments suffered any
reductions in their fair values. Some operational and financial matters relating
to  specific portfolio companies were brought to the attention of the Investment
Manager during the year, but in general our level of confidence in the portfolio
improved  steadily as we approached  the end of the  period.  Although we remain
cautious  about the broader economy,  our view of the  outlook for the portfolio
continues to be optimistic..

During  the year the Fund has made nine new investments totalling £4,956,000 and
completed  one follow investment into existing  portfolio company Bruce Dunlop &
Associates International, amounting to £9,000.

New investments include CSL DualCom, the UK's leading supplier of dual path
signalling devices, which link burglar alarms to the police or a private
security firm, Diagnos, which develops and sells sophisticated automotive
diagnostic software and hardware, and Clifford Thames Group, a provider of data
and support services for the auto industry. There have also been six investments
into companies that have been established to seek suitable qualifying
investments across a range of sectors.

All of these investments are discussed in more detail in the Investment Managers
Review on pages  to

Investment Strategy
The Fund is being invested on the basis of taking less risk than a typical VCT.
Principally 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 the equity exposure to boost
returns.  As portfolio companies are unquoted, the Fund will receive a return
from an equity holding when a company is sold.

The  Manager of the  Fund aims to  reduce risk by  investing in well-managed and
profitable  businesses with strong recurring  cash flows.  Furthermore, with the
majority  of the investments  being made in  the form of  a secured loan, in the
event  of the business failing, the Fund  will rank ahead of unsecured creditors
and equity investors.

VCT Qualifying Status
PricewaterhouseCoopers LLP provides the Board and Investment Manager with advice
concerning ongoing compliance with Her Majesty's Revenue & Customs (HMRC) rules
and regulations concerning VCTs. The Board has been advised that Octopus Apollo
VCT 2 plc is in compliance with the conditions laid down by HMRC for maintaining
approval as a VCT. This is discussed further on page .

A key requirement is to now maintain at least the 70% qualifying investment
level. As at 31 January 2010, 92.8% of the portfolio, as measured by HMRC rules,
was invested in VCT qualifying investments.

VAT on Management Fees
The Government announced that VCTs are now exempt from paying VAT on investment
management fees with effect from 1 October 2008 and with retrospective
application.  This follows a European Court of Justice Judgement against the
Government in a case relating to VAT payable by investment trusts.  I am pleased
to report that an amount of £31,730 has been received post year end. This is
below the £35,000 originally accrued; however, we are pursuing HMRC for the full
rebate together with interest.  On this basis, and with guidance from our
advisers, the £35,000 remains accrued in these accounts.

Outlook
Your Board remains confident that the Fund will be able to meet its investment
objectives and produce good returns for shareholders.  The imperative is to find
lower risk investments that are well positioned in current market conditions.
Since 31 January 2010, the Fund has made one such investment into Carebase (Col)
and has successfully deployed the funds of Salus Services into the investment of
a care home. Further details of these investments can be found in the Investment
Managers Review.

Your board continues to monitor the performance of the Investment Manager very
closely.  I am pleased to report that we remain satisfied with its approach to
investment selection, structuring and monitoring.  We are also satisfied with
its timely and professional execution of the important administrative tasks that
underpin the operation of your Company and the management of its portfolio.
Octopus has now raised a significant amount of VCT funds with defensive
investment criteria.  Its strategic focus on this sector is allowing Apollo 2 to
invest in larger, safer companies and to invest on favourable terms.

Andrew Boyle
Chairman
6 May 2010

Investment Manager's Review

Personal Service
At Octopus, we focus on both 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 regular contact with
our investors and 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. We currently manage 17 VCTs, including
this Company, and manage almost £300 million in the VCT sector. Octopus has over
140 employees and has been voted as 'Best VCT Provider of the Year' by the
financial adviser community for the last four years.


Investment Policy

The investment approach of Apollo 2 is to seek lower risk investments.  The
majority of companies in which Apollo 2 invests operate in sectors where there
is a high degree of predictability.  Ideally, we seek companies that have
contractual revenues from financially sound customers and will provide an exit
to shareholders within three to five years.


Portfolio Review

As at 31 January 2010 the NAV stood at 94.0p, compared to 92.3p at 31 January
2009, and when adding back the 2.0p of dividends paid in the year, this
represents a positive total return of 4.0%.

The positive return is largely due to the successful exit of Funeral Services
Partnership (FSP).  Apollo 2 originally invested £875,000 in FSP in October
2007 which together with a loan note redemption premium of £231,000 and capital
profits realised on equity of £100,000, generated a return of almost 1.4 times
the original investment, the Directors have proposed to distribute these profits
by way of a 2.5 pence dividend.

FSP had the characteristics we typically look for in our investments, having an
experienced management team and being a successful business with strong
recurring cash flows along with a clear market opportunity. The investment also
had a defensive structure being low initial bank debt and an equity investor
taking the main financial risk. The returns therefore predominantly came from
our loan notes rather than our equity. A quote from Philip Greenfield, the
managing director of FSP, corroborates the commitment and integrity we strive to
provide here at Octopus and goes a long way to showing why the investment was
such a success:

"We know from experience that when growing a business there can be conflicts and
differing agendas between management teams and institutional investors. We found
the approach of Stuart and Octopus very refreshing with a real focus on what is
right for the business, providing assistance and support to us throughout. This
created a strong and trusting relationship that really helped us all to make
great progress. We very much look forward to working with them again."

Elsewhere, the Fund made nine new investments totalling £4,956,000 and completed
one follow investment into existing portfolio company Bruce Dunlop & Associates
International Limited, amounting to £9,000.

Since the date of these accounts we have completed a non-qualifying investment
into Carebase (Col) Limited of £110,000, a company involved in the purchasing of
land in order to construct a care home. We have also successfully deployed the
funds of Salus Services Limited, an acquisition vehicle originally set up to
invest in the healthcare sector. These Funds have been invested into the
development of a care home.

The table below details the realisations during the year:

+------------------+-----------+-------------+-----------------+---------------+
|Investee company  |Cost - debt|Cost - equity|Disposal proceeds|Profit realised|
+------------------+-----------+-------------+-----------------+---------------+
|Funeral Services  |   £612,500|     £262,500|       £1,206,000|       £331,000|
|Partnership       |           |             |                 |               |
|Limited           |           |             |                 |               |
+------------------+-----------+-------------+-----------------+---------------+



Outlook

Recent improvements in the economy have created a better environment for the
companies in the portfolio. There is a sense that the worst of the recession is
over and that we may be on the road to recovery. We are optimistic about the
stability in the market for the smaller private companies included in your
portfolio.

In this context we will continue to consider low risk investments in sound
companies and to support existing holdings that merit capital for sensible
expansion plans, including well-priced acquisitions.  Taking a longer term view,
which a VCT affords, we expect to be able 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 2396.

Stuart Nicol
Director
Octopus Investments
6 May 2010

Investment Portfolio

                               Cost of                                                 %
                            investment            Fair value                      equity       %
                                at 31   Movement      at 31                         held  equity
Unquoted                       January        in     January          Movement in     by managed
Qualifying                       2010  valuation 2010        year                 Apollo      by
Investments   Sector           (£'000)   (£'000)     (£'000)              (£'000)      2 Octopus



Clifford
Thames Group
Limited       Automotive           966         -         966                       1.50%   8.00%

Diagnos
Limited*      Automotive           825         -         825                       0.00%   0.00%

PubCo
Services      Restaurants &
Limited       bars                 750         -         750                      11.40%  56.90%

CSL DualCom   Security
Limited*      devices              700         -         700                       0.00%   0.00%

Salus
Services 1
Limited       Care homes           615         -         615                      15.70% 100.00%

Bruce Dunlop
& Associates
International
Limited       Media                509         -         509                       1.74%  35.05%

Tristar       Chauffeur
Limited       services             500         -         500                       1.25%  35.00%

Vulcan
Services II   Oil & gas
Limited       services             500         -         500                      12.25%  49.00%

GreenCo
Services
Limited       Environmental        500         -         500                       8.20%  57.40%

BusinessCo2
Services      Business
Limited       services             200         -         200                       5.00%  49.00%

Ticketing
Services 1    Ticketing
Limited       services             200         -         200                      25.30% 100.00%

Ticketing
Services 2    Ticketing
Limited       services             200         -         200                      25.30% 100.00%

Hydrobolt
Limited       Manufacturing        197         -         197                       0.89%  48.00%



Total
qualifying
investments                      6,662         -       6,662



Money market
funds                            1,421                 1,421

Cash at bank                        94                    94

Total
investments                      8,177         -       8,177

Debtors less
creditors                                               (10)

Total net
assets                                                 8,167




*Debt based investment


Valuation Methodology


The investments held by Apollo 2 are all unquoted and as such there is no
trading platform from which prices can be easily obtained. As a result, the
methodology used in fair valuing the investments is the transaction price of the
recent investment round. Subsequent adjustment to the fair value has then been
made according to any significant under or over performance of the business.

If you would like to find out more regarding the International Private Equity
and Venture Capital (IPEVC) valuation guidelines, please visit their website at:
www.privateequityvaluation.com <

http://www.privateequityvaluation.com/>.

Investments are valued in accordance with the accounting policy set out on page
●, which takes account of current industry guidelines for the valuation of
venture capital portfolios and is compliant with IPEVC valuation Guidelines and
current financial reporting standards.


Investment Portfolio - Ten Largest Qualifying Portfolio Holdings

Clifford Thames Group Limited ('CT')
Clifford Thames is a market leading provider of consultancy and business
outsourcing services for the automotive industry, and is a key partner of most
of the world's leading car manufacturers.  With offices in eight countries,
having recently opened up in China and Poland, Clifford Thames has a
well-established and impressive client list including Ford, GM Europe, Jaguar
Land Rover, Mazda and Fiat. Our investment into CT was made via BusinessCo
Services Limited. This was a company that we had previously created to invest in
this type of business. Further information can be found at the company's website
www.clifford-thames.com <

http://www.clifford-thames.com/>.

Investment date:                                  January 2009
Cost:                                                      £1.0 million
Valuation:                                              £1.0 million
Equity held:                                           1.5%
Last audited accounts:                       N/A

Diagnos Limited
Diagnos develops and sells sophisticated automotive diagnostic software and
hardware 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. Further information can be found at the company's
website www.autologic-diagnos.co.uk <

http://www.autologic-diagnos.co.uk/>.

Investment date:                                  February 2009
Cost:                                                      £0.8 million
Valuation:                                              £0.8 million
Equity held:                                           0.0%
Last audited accounts:                       N/A
Revenues                                               £0.4 million
Loss before interest & tax:                                 £(0.02) million
Net assets:                                            £2.7 million

PubCo Limited
PubCo Services Limited ('PubCo') has been set up to acquire and operate freehold
pubs.

Investment date:                                  April 2009
Cost:                                                      £0.8 million
Valuation:                                              £0.8 million
Equity held:                                           11.4%
Last audited accounts:                       N/A

CSL DualCom Limited (subsidiary of Dualcom Holdings Limited)
CSL DualCom Limited ('DualCom') 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. DualCom has developed a number of new products for the sector, which have
enabled the business to steadily grow its market share of new connections and
its profitability since the initial investment. Further information can be found
at the company's website www.csldual.com <

http://www.csldual.com/>.

Investment date:                                  February 2009
Cost:                                                      £0.7 million
Valuation:                                              £0.7 million
Equity held:                                           0.0%
Last audited accounts:                                       31 March 2009
Revenues                                               £7.2 million
Profit before interest & tax:                                £0.8 million
Net assets:                                            £0.7 million

Salus Services 1 Limited
Salus Services I Limited has been set up to investigate and seek the acquisition
of companies engaged in the provision of products or services into the health
care sector.

Investment date:                                  January 2010
Cost:                                                      £0.6 million
Valuation:                                              £0.6 million
Equity held:                                           15.7%
Last audited accounts:                       N/A

Bruce Dunlop & Associates International Limited ('BDA')
BDA provides promotion and design services to broadcasters and advertisers
worldwide and also creates brand films and internal communications for leading
UK corporations, including Hallmark, Barclays, Discovery and Sony. After a tough
early 2009 the business stabilised its trading in summer 2009 and since then has
been trading in line with a revised budget. Further information can be found at
the company's website www.bdacreative.com <

http://www.bdacreative.com/>.

Investment date:                                  December 2007
Cost:                                                      £0.5 million
Valuation:                                              £0.5 million
Equity held:                                           1.7%
Last audited accounts:                       N/A
Revenues                                               £4.5 million
Profit before interest & tax:                                £0.3 million
Net assets:                                            £1.0 million


Tristar Worldwide Limited
Tristar is one of the world's leading chauffeur companies, carrying over
500,000 passengers for 400 clients in the last year alone. The business operates
in 70 countries with its own vehicles in the UK and a rapidly expanding service
in the US. It has a blue-chip customer base which includes Virgin, Emirates, BP,
Goldman Sachs and Bank of America-Merrill Lynch.  The market for chauffeur
services has been heavily affected in the current economic environment but we
believe has now stabilised.  Tristar has achieved a good performance in the
circumstances where many of its competitors are suffering to a greater extent.
The company's focus on a joined up international service is proving to be an
important selling feature for clients, and the latest office opening in Hong
Kong has been well received.  Further information can be found at the company's
website www.tristarworldwide.com <

http://www.tristarworldwide.com/>.

Investment date:                                  January 2008
Cost:                                                      £0.5 million
Valuation:                                              £0.5 million
Equity held:                                           1.25%
Last audited accounts:                       31 May 2009
Revenues:                                             £35.1 million
Profit before interest & tax:                                £ 0.7 million
Net assets:                                            £ 2.0 million

Vulcan Services II Limited
Vulcan Services II has been established to seek the acquisition of businesses
engaged in any of the activities of design, manufacture, development, marketing
or sale of equipment and components for use in the oil and gas sector.

Investment date:                                  November 2008
Cost:                                                      £0.5 million
Valuation:                                              £0.5 million
Equity held:                                           12.25%
Last audited accounts:                       N/A

GreenCo Limited
GreenCo Services Limited ('GreenCo') has been set up to investigate and seek the
acquisition of companies engaged in the provision of environmental products or
services.

Investment date:                                  April 2009
Cost:                                                      £0.5 million
Valuation:                                              £0.5 million
Equity held:                                           8.20%
Last audited accounts:                       N/A

BusinessCo 2 Services Limited
BusinessCo Services 2 Limited ('BusinessCo') has been set up to investigate and
seek the acquisition of companies engaged in the provision of business support
services.

Investment date:                                  January 2010
Cost:                                                      £0.2 million
 Valuation:                                             £0.2 million
Equity held:                                           5.0%
Last audited accounts:                       N/A

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 judgements 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 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 Director is aware:
-  there is no relevant audit information of which the Company's auditor is
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
auditor is 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 management report includes a fair review of the development and
performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that it faces.

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




Andrew Boyle
Chairman
6 May 2010


Income Statement
                                                    +----------------------+
                                                    |Year ended 31 January |
                                                    |         2010         |
                                                    |                      |
                                                    |Revenue Capital  Total|
                                                    |                      |
                                               Notes|  £'000   £'000  £'000|
                                                    |                      |
                                                    |                      |
                                                    |                      |
Gain on disposal of fixed asset investments     10  |      -     223    223|
                                                    |                      |
Gain on disposal of current asset investments       |      -       7      7|
                                                    |                      |
                                                    |                      |
                                                    |                      |
Gain on valuation of current asset investments      |      -      61     61|
                                                    |                      |
                                                    |                      |
                                                    |                      |
Investment income                                2  |    341       -    341|
                                                    |                      |
                                                    |                      |
                                                    |                      |
Investment management fees                       3  |   (40)   (120)  (160)|
                                                    |                      |
VAT on management fee rebate                     3  |      -       -      -|
                                                    |                      |
                                                    |                      |
                                                    |                      |
Other expenses                                   4  |  (157)       -  (157)|
                                                    |                      |
                                                    |                      |
                                                    |                      |
Profit on ordinary activities before tax            |    144     171    315|
                                                    |                      |
                                                    |                      |
                                                    |                      |
Taxation on profit on ordinary activities        6  |    (9)       -    (9)|
                                                    |                      |
                                                    |                      |
                                                    |                      |
Profit on ordinary activities after tax             |    135     171    306|
                                                    |                      |
Earnings per share - basic and diluted           8  |   1.5p    2.0p   3.5p|
                                                    +----------------------+

  * 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
year as set out above.


Income Statement

                                                     Year ended 31 January
                                                              2009

                                                     Revenue Capital  Total

                                               Notes   £'000   £'000  £'000



Gain on disposal of fixed asset investments     10         -       -      -

Gain on disposal of current asset investments              -      19     19



Loss on valuation of current asset investments             -   (206)  (206)



Investment income                                2       461       -    461



Investment management fees                       3      (47)   (143)  (190)

VAT on management fee rebate                     3         9      26     35



Other expenses                                   4     (225)       -  (225)



Profit on ordinary activities before tax                 198   (304)  (106)



Taxation on profit on ordinary activities        6      (86)      86      -



Profit on ordinary activities after tax                  112   (218)  (106)

Earnings per share - basic and diluted           8      1.3p  (2.5p) (1.2p)


  * 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
year as set out above.

Reconciliation of Movements in Shareholders' Funds
                                              +---------------+
                                              |     Year ended|     Year ended
                                              |31 January 2010|31 January 2009
                                              |               |
                                              |          £'000|          £'000
                                              |               |
Shareholders' funds at start of year          |          8,119|          8,355
                                              |               |
Profit/(loss) on ordinary activities after tax|            306|          (106)
                                              |               |
Cancellation of own shares                    |           (84)|           (20)
                                              |               |
Dividends paid                                |          (174)|          (110)
                                              |               |
Shareholders' funds at end of year            |          8,167|          8,119
                                              +---------------+













Balance Sheet
                                       +-------------------+
                                       |   As at 31 January|    As at 31 January
                                       |               2010|    2009 (re-stated)
                                       |                   |
                                  Notes|£'000         £'000|£'000          £'000
                                       |                   |
                                       |                   |
                                       |                   |
Fixed asset investments*           10  |              6,662|               2,572
                                       |                   |
Current assets:                        |                   |
                                       |                   |
Debtors                            11  |   42              |   86
                                       |                   |
Investments - money market funds*  10  |1,421              |3,971
                                       |                   |
Cash at bank                           |   94              |1,575
                                       |                   |
                                       |1,557              |5,632
                                       |                   |
Creditors: amounts falling due         |                   |
within one year                    12  | (52)              | (85)
                                       |                   |
Net current assets                     |              1,505|               5,547
                                       |                   |
Net assets                             |              8,167|               8,119
                                       |                   |
                                       |                   |
                                       |                   |
Called up equity share capital     13  |  869              |  879
                                       |                   |
Capital redemption reserve         14  |   16              |    6
                                       |                   |
Special distributable reserve      14  |7,343              |7,427
                                       |                   |
Capital reserve - gains & losses       |                   |
on disposals                       14  | (60)              |(115)
                                       |                   |
                         -             |                   |
holding gains & losses             14  |(129)              |(158)
                                       |                   |
Revenue reserve                    14  |  128              |   80
                                       |                   |
Total shareholders' funds              |              8,167|               8,119
                                       |                   |
Net asset value per share           9  |              94.0p|               92.3p
                                       +-------------------+

































*At fair value through profit and loss

The  statements were approved by the Directors and authorised for issue on 6 May
2010 and are signed on their behalf by:





Andrew Boyle
Chairman
Company number: 05770752

The accompanying notes are an integral part of the financial statements.



Cash Flow Statement
                                               +---------------+
                                               |        Year to|        Year to
                                               |31 January 2010|31 January 2009
                                               |               |
                                          Notes|          £'000|          £'000
                                               |               |
                                               |               |
                                               |               |
Net cash inflow from operating activities      |             35|            114
                                               |               |
                                               |               |
Taxation                                    6  |            (9)|              -
                                               |               |
                                               |               |
                                               |               |
Financial investment:                          |               |
                                               |               |
Purchase of fixed asset investments        10  |        (4,965)|          (697)
                                               |               |
Sale of fixed asset investments            10  |          1,098|              -
                                               |               |
                                               |               |
                                               |               |
Management of liquid resources:                |               |
                                               |               |
Purchase of current asset investments          |        (4,443)|        (3,431)
                                               |               |
Sale of current asset investments              |          7,061|          5,710
                                               |               |
                                               |        (1,223)|          1,696
                                               |               |
                                               |               |
                                               |               |
Dividends                                   7  |          (174)|          (110)
                                               |               |
                                               |               |
                                               |               |
Financing                                      |               |
                                               |               |
Purchase of own shares                     13  |           (84)|           (20)
                                               |               |
                                               |          (258)|          (130)
                                               |               |
(Decrease)/increase in cash                    |        (1,481)|          1,566
                                               +---------------+---------------

Reconciliation of Profit/(loss) before Taxation to Cash Flow from Operating
Activities
                                  +----------------------+
                                  |    Year to 31 January|    Year to 31 January
                                  |                  2010|                  2009
                                  |                      |
                                  |                 £'000|                 £'000
                                  |                      |
Profit on ordinary activities     |                      |
before tax                        |                   315|                 (106)
                                  |                      |
Decrease in debtors               |                    44|                    10
                                  |                      |
(Decrease)/increase in creditors  |                  (33)|                    23
                                  |                      |
Gain on disposal of current asset |                      |
investments                       |                   (7)|                  (19)
                                  |                      |
Gain on disposal of fixed asset   |                      |
investments                       |                 (223)|                     -
                                  |                      |
(Gain)/loss on valuation of       |                      |
current asset investments         |                  (61)|                   206
                                  |                      |
Inflow from operating activities  |                    35|                   114
                                  +----------------------+


Reconciliation of Net Cash Flow to Movement in Net Funds
                                    +---------------------+
                                    |   Year to 31 January|   Year to 31 January
                                    |                 2010|                 2009
                                    |                     |
                                    |                £'000|                £'000
                                    |                     |
(Decrease)/increase in cash at      |                     |
bank                                |              (1,481)|                1,566
                                    |                     |
Movement in cash equivalent         |                     |
securities                          |              (2,550)|              (2,466)
                                    |                     |
Opening cash resources              |                5,546|                6,446
                                    |                     |
Net funds at 31 January             |                1,515|                5,546
                                    +---------------------+

Net funds at 31 January comprised:
                         +-----------------------+
                         | As at 31 January 2010 | As at 31 January 2009
                         |                       |
                         |                 £'000 |                 £'000
                         |                       |
 Cash at bank            |                    94 |                 1,575
                         |                       |
 Bonds                   |                     - |                 1,433
                         |                       |
 Money market funds      |                 1,421 |                 2,538
                         |                       |
 Net funds at 31 January |                 1,515 |                 5,546
                         +-----------------------+

Notes to the Financial Statements

1.         Principal accounting policies

The financial statements have been prepared under the historical cost
convention, except for the measurement at
fair value of certain financial instruments, 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 2009).

The principal accounting policies have remained unchanged from those set out in
the Company's 2009 Annual
Report and financial statements. A summary of the principal accounting policies
is set out below.

The Company has designated all fixed asset investments as being held at fair
value through profit and loss; therefore all gains and losses arising from such
investments held are attributable to financial assets held at fair value through
profit and loss. Accordingly, all interest income, fee income, expenses and
investment gains and losses are attributable to assets designated as being at
fair value through profit and loss.

Current asset investments compromising money market funds are held for trading
and therefore automatically classified as fair value through profit and loss.

The preparation of the financial statements requires Management to make
judgements and estimates that affect the application of policies and reported
amounts of assets, liabilities, income and expenses. Estimates and assumptions
mainly relate to the fair valuation of the unquoted fixed asset investments.
Estimates are based on historical experience and other assumptions that are
considered reasonable under the circumstances. The estimates and the assumptions
are under continuous review with particular attention paid to the carrying value
of the investments.

Capital valuation policies are those that are most important to the depiction of
the Company's financial position and that require the application of subjective
and complex judgements, often as a result of the need to make estimates about
the effects of matters that are inherently uncertain and may change in
subsequent periods. The critical accounting policies that are declared will not
necessarily result in material changes to the financial statements in any given
period but rather contain a potential for material change. The main accounting
and valuation policies used by the Company are disclosed below. Whilst not all
of the significant accounting policies require subjective or complex judgements,
the Company considers that the following accounting policies should be
considered critical.

Investments are regularly reviewed to ensure that the fair values are
appropriately stated. Unquoted investments are valued in accordance with current
International Private Equity and Venture Capital ('IPEVC') valuation guidelines,
although this does rely on subjective estimates such as appropriate sector
earnings multiples, forecast results of investee companies, asset values of
subsidiary companies and liquidity or marketability of the investments held. For
the avoidance of doubt, Octopus Apollo VCT 2 plc only invests in unquoted
investments.

Although the Company believes that the assumptions concerning the business
environment and estimate of future cash flows are appropriate, changes in
estimates and assumptions could require changes in the stated values. This could
lead to additional changes in fair value in the future.

Fixed asset investments
Purchases and sales of investments are recognised in the financial statements at
the date of the transaction (trade date).

These investments will be managed and their performance evaluated on a fair
value basis in accordance with a documented investment strategy and information
about them has to be provided internally on that basis to the Board.
Accordingly as permitted by FRS 26, the investments will be designated as fair
value through profit or loss ("FVTPL") on the basis that they qualify as a group
of assets managed, and whose performance is evaluated, on a fair value basis in
accordance with a documented investment strategy.  The Company's investments are
measured at subsequent reporting dates at fair value.

In the case of unquoted investments, fair value is established by using measures
of  value such as price of recent transaction, earnings multiple and net assets.
This is consistent with IPEVC valuation guidelines.

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 - holding gains/(losses).

In preparation of the valuations of assets the Directors are required to make
judgements and estimates that are reasonable and incorporate their knowledge of
the performance of the investee companies.

Current asset investments
Current asset investments comprise money market funds and are classified as
FVTPL.  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 - gains/(losses) on valuation/disposal.

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.

Income
Investment income includes interest earned on bank balances and money market
funds and includes income tax withheld at source. Dividend income is shown net
of any related tax credit.

Dividends receivable are brought into account when the Company's right to
receive payment is established and there is no reasonable doubt that payment
will be received.  Fixed returns on debt and money market funds are recognised
on a time apportionment basis, 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 gains and losses on
disposal and holding gains and losses on investments.  Gains and losses arising
from changes in fair value of investments are recognised as part of the capital
return within the income statement.


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),
and investments in money market managed funds.

Loans and receivables
The Company's loans and receivables are initially recognised at cost and
subsequently measured at fair value,
being amortised cost using the effective interest method.

Financing strategy and capital structure
FRS 29 'Financial Instruments: Disclosures' comprises disclosures relating to
financial instruments. We define capital as shareholders' funds and our
financial strategy in the medium term is to manage a level of cash that balances
the risks of the business with optimising the return on equity. The Company
currently has no borrowings nor does it anticipate that it will drawdown any
borrowing facilities in the future to fund the acquisition of investments.

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.

Capital management is monitored and controlled using the internal control
procedures set out on page ● of this
report. The capital being managed includes equity and fixed-interest
investments, cash balances and liquid
resources including debtors and creditors. The Company does not have any
externally imposed capital requirements.

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.         Income
                                                 31 January 2010 31 January 2009

                                                           £'000           £'000

Income  from money market  funds, bonds and bank
balances                                                      49             359

Loan note interest receivable                                292             102

                                                             341             461


3.         Investment management fees
                                31 January 2010       31 January 2009

                          Revenue Capital Total Revenue Capital Total

                            £'000   £'000 £'000   £'000   £'000 £'000

Investment management fee      40     120   160      41     127   168

Irrecoverable VAT thereon       -       -     -       6      16    22

VAT rebate                      -       -     -     (9)    (26)  (35)

                               40     120   160      38     117   155


For the purposes of the revenue and capital columns in the income statement, the
management fee (including VAT where applicable) has been allocated 25% to
revenue and 75% 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 and administration
services to the Company under a management agreement which runs for a period of
five years with effect from 16 October 2006 and may be terminated at any time
thereafter by not less than 12 months' notice given by either party.  No
compensation is payable in the event of terminating the agreement by either
party, if the required notice period 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 period was given.
The basis upon which the management fee is calculated is disclosed within note
19 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.  VAT has not been included on management fees
since 1 November 2008 and £31,730 has been refunded since the year end.

4.         Other expenses
                                                 31 January 2010 31 January 2009

                                                           £'000           £'000

Directors' remuneration                                       35              33

Fees payable to the Company's auditor for the
audit of the financial statements                             12               9

Fees  payable to the Company's auditor for other
services - tax compliance                                      4               5

Accounting and administration services                        23              30

Legal and professional expenses                                3               6

Other expenses                                                80             142

                                                             157             225



5.         Directors' remuneration

                              31 January 2010   31 January 2009

                                        £'000             £'000

 Directors' emoluments

 Mr Andrew Boyle (Chairman)                11                 9

 Mr Roger Penlington                        8                 7

 Mr Stuart Brocklehurst                     8                 8

 Mr Matt Cooper                             8                 8

                                           35                32

None of the Directors received any other remuneration or benefit from the
Company during the year.  The Company has no employees other than non-executive
Directors.  The average number of non-executive Directors in the year was four
(2009: four).

6.         Tax on ordinary activities
The corporation tax charge for the year was £9,000 (2009: £nil).

The current tax charge for the year differs from the standard rate of
corporation tax in the UK of 28% (2009: 20%).  The differences are explained
below.

 Current tax reconciliation:                  31 January 2010   31 January 2009

                                                        £'000             £'000

 Non-taxable capital gains/(loss)                         291             (187)

 Net profit/(loss) on ordinary activities                  24                81

 Current tax at 28% (2009: 20%)                             7                16

 Unrelieved tax losses and other deductions                53                 -

 Adjustment in respect of prior period                      -                18

 Marginal relief                                            -              (12)

 Income not deductable for tax                           (69)              (22)

 Total current tax charge                                 (9)                 -


The Company has excess management charges of approximately £190,000 (2009: nil)
to carry forward to offset against future taxable profits.

Approved VCTs 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 VCT, no current deferred tax has been provided in
respect of any capital gains or losses arising on the revaluation or disposal of
investments.

7.         Dividends
                                                 31 January 2010 31 January 2009

                                                           £'000           £'000

Recognised  as  distributions  in  the financial
statements for the year

Previous year's final dividend                                87              66

Current year's interim dividend                               87              44
--------------------------------------------------------------------------------
                                                             174             110

                                                 31 January 2010 31 January 2009

                                                           £'000           £'000

Proposed in respect of the year

Interim  dividend paid -  1.00p per share (2009:
0.50p per share)                                              87              44

Final  dividend 2.50p per share (2009: 1.00p per
share)                                                       217              88
--------------------------------------------------------------------------------
                                                             304             132

The final dividend of 2.50p per share for the year ended 31 January 2010,
subject to shareholder approval at the Annual General Meeting, will be paid on
9 July 2010 to shareholders on the register on 11 June 2010.

8.         Earnings/(loss) per share
The revenue per share is based on the revenue profit after tax of £135,000
(2009: £112,000) and on 8,751,722 (2009: 8,813,950) shares, being the weighted
average number of shares in issue during the year.

The capital per share is based on the capital profit after tax of £171,000
(2009: (£218,000)) and on 8,751,722 (2009: 8,813,950) shares, being the weighted
average number of shares in issue during the year.

The total earnings per share is based on total profit after tax of £306,000
(2009: £106,000) and on 8,751,722 (2009: 8,813,950) shares, being the weighted
average number of shares in issue during the year.

There are no potentially dilutive capital instruments in issue and, as such, the
basic and diluted earnings per share are therefore identical.

9.        Net asset value per share

The calculation of NAV per share as at 31 January 2010 is based on net assets of
£8,167,000  (2009: £8,119,000) divided by the 8,693,486 (2009: 8,793,986) shares
in issue at that date.

Fixed asset investments at fair value through profit or loss

Effective  from 1 January  2009 the Company  adopted the  amendment to Financial
Reporting  Standard  29 Financial  Instruments:  Disclosures regarding financial
instruments  that are measured in the balance sheet at fair value; this requires
disclosure  of  fair  value  measurements  by  level of the following fair value
measurement hierarchy:

Level  1: quoted prices in active markets  for identical assets and liabilities.
The  fair value of  financial instruments traded  in active markets  is based on
quoted  market prices at the balance sheet  date. A market is regarded as active
if quoted prices are readily and regularly available, and those prices represent
actual and regularly occurring market transactions on an arm's length basis. The
quoted  market price used  for financial assets  held is the  current bid price.
These  instruments  are  included  in  level  1 and  comprise money market funds
classified as held at fair value through profit or loss (FVTPL).

Level  2: the fair  value of  financial instruments  that are  not traded  in an
active  market  is  determined  by  using  valuation techniques. These valuation
techniques maximise the use of observable date where it is available and rely as
little  as  possible  on  entity  specific  estimates. If all significant inputs
required  to fair value an instrument are observable, the instrument is included
in level 2. The Company holds no such investment in the current or prior year.

Level  3: the fair  value of  financial instruments  that are  not traded  in an
active  market (for example investments in  unquoted companies) is determined by
using  valuation techniques such  as earnings multiples.  If one or  more of the
significant  inputs is  not based  on observable  market data, the instrument is
included in level 3.

There  have been no transfers between these classifications in the period (2009:
none).  The change in fair value for the current and previous year is recognised
through the profit and loss account.

All  items  held  at  FVTPL  were  designated  as such upon initial recognition.
Movements  in  investments  at  FVTPL  during  the  year  to 31 January 2010 are
summarised below.


Fixed asset investments:
                        Level 3: Unquoted equity       Level 3:
                                     investments   Unquoted loan  Total unquoted
                                                     investments     investments

                                           £'000           £'000           £'000

Valuation    and
net book amount:

Book  cost at 1                              770
February 2009                                              1,802           2,572

Cumulative                                     -
revaluation                                                    -               -

Valuation  at 1                              770
February 2009                                              1,802           2,572

Movement  in the
year:

Purchases     at                           1,838
cost                                                       3,127           4,965

Proceeds    from                           (262)
the    sale   of
investments                                                (836)         (1,098)

Gain          on                               -
realisation   of
investments                                                  223             223

Change  in  fair                               -
value in year                                                  -               -

Closing     fair                           2,346
value   at   31
January 2010                                               4,316           6,662





Closing  cost at
31 January 2010                            2,346           4,316           6,662



Closing                                        -
unrealised
movement at 31
January 2010                                                   -               -



Valuation at 31                            2,346
January 2010                                               4,316           6,662


Level 3 valuations include assumptions based on non-observable market data, such
as  discounts applied either to  reflect fair value of  financial assets held at
the  price of  recent investment,  or, in  the case  of unquoted investments, to
adjust  earnings multiples. The sensitivity of  these valuations to a reasonable
possible change in such assumptions is given in note 15.

Further details of the fixed asset investments held by the Company are shown
within the Investment Manager's Review on pages ● to ●.

Current asset investments
Level  1 money  market  funds:  Level  1 valuations  are  based on quoted prices
(unadjusted)  in  active  markets  for  identical  assets  or  liabilities.  The
valuation  of  money  market  funds  at  31 January  2010 was  £1,421,000 (2009:
£3,971,000).

At 31 January 2010 and 31 January 2009 there were no commitments in respect of
investments approved by the Manager but not yet completed.

11.        Debtors
                                  31 January 2010   31 January 2009

                                            £'000             £'000

 Prepayments and accrued income                42                86

                                               42                86
--------------------------------------------------------------------

12.        Creditors: amounts falling due within one year
                   31 January 2010   31 January 2009

                             £'000             £'000

 Accruals                       52                84

 Other creditors                 -                 1

                                52                85
-----------------------------------------------------

13.        Share capital
                                                 31 January 2010 31 January 2009

                                                           £'000           £'000

Authorised:

25,000,000 Ordinary shares of 10p                          2,500           2,500





Allotted and fully paid up:

8,693,486 Ordinary shares of 10p (2009:
8,793,986)                                                   869             879


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 out on page
●.  The Company is not subject to any externally imposed capital requirements.

No shares were issued in the year (2009: nil).

On 5 June 2009, the Company repurchased for cancellation 100,500 Ordinary shares
at a price of 83.4p per share

The total nominal value of the shares repurchased was £10,050, representing
1.16% of the issued share capital.

14.        Reserves
                                                                 Capital
                      Special     Capital Capital reserve        reserve
                distributable  redemption  gains/(losses)        holding Revenue
                      reserve     reserve     on disposal gains/(losses) reserve

                        £'000       £'000           £'000          £'000   £'000

      As at 1
 February 2009          7,427           6           (273)              -      80

   Transfer in
line with SORP
         2009*              -           -             158          (158)       -

      As at 1
February 2009
      restated          7,427           6           (115)          (158)      80

 Repurchase of
  own shares -
  cancellation           (84)          10               -              -       -

 Profit/(loss)
   on ordinary
    activities
     after tax              -           -               -              -     135

    Management
fees allocated
    as capital
   expenditure              -           -           (120)              -       -

  Current year
  gains/losses
   on disposal              -           -             230              -       -

  Prior period
       holding
  gains/losses
  now realised                                         32           (32)       -

Current period
  gains/losses
 on fair value
of investments                                                        61

Dividends paid              -           -            (87)              -    (87)

 Balance as at
   31 January
          2009        7,343**          16            (60)          (129)   128**


*This transfer is to comply with SORP 2009 whereby gains or losses held by the
Company are to be maintained in capital reserve holding gains/(losses)
**Reserves available for distribution

All investments are designated as FVTPL from the time of acquisition, and all
capital gains or losses on investments so designated.

When the Company revalues the investments still held during the period, any
gains or losses arising are credited /
charged to the Capital reserve - holding gains/(losses).

When an investment is sold any balance held on the Capital reserve - holding
gains/(losses) is transferred to the
Capital reserve - gains/(losses) on disposal as a movement in reserves.

At 31 January 2010 there were no commitments in respect of investments approved
by the Manager but not yet completed.

Reserves available for potential distribution by way of a dividend are:

                         £'000

 As at 1 February 2009   7,507

 Movement in year         (36)

 As at 31 January 2010   7,471


15.        Financial instruments and risk management
The Company's financial instruments comprise equity investments, unquoted loans,
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.

Fixed and current asset investments (note 10) are valued at fair value. The fair
value of all other 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.

For fixed asset investments made this year, in accordance with IPEVC valuation
guidelines, these are held at cost for the first year of investment as this is
considered to be the best approximation to fair value if there have been no
significant changes in circumstances since the time of investment.

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.

Fair value methods and assumptions
Where investments are in quoted stocks, fair value is set as market price,
discounted if appropriate. Unquoted investments are valued in line with IPEVC
valuation guidelines.



Market risk
The Company's strategy for managing investment risk is determined with regard to
the Company's investment objective, as outlined on page ●. 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 ● to ●, having regard to the possible effects of
adverse price movements, with the objective of maximising overall returns to
shareholders. Investments in smaller companies, by their nature, usually involve
a higher degree of risk than investments in larger 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.

Details of the Company's investment portfolio at the balance sheet date are set
out on page ●.

81.6% (31 January 2009: 31.7%) by value of the Company's net assets comprises
investments in unquoted companies held at fair value.  The valuation methods
used by the Company include the application of a price/earnings ratio derived
from listed companies with similar characteristics, and consequently the value
of the unquoted element of the portfolio can be indirectly affected by price
movements on the London Stock Exchange. A 10% overall increase in the valuation
of the unquoted investments at 31 January 2010 would have increased net assets
and the total profit for the year by £666,200 (31 January 2009: £257,000) an
equivalent change in the opposite direction would have reduced net assets and
the total profit for the year by the same amount.

17.4% (31 January 2009: 48.9%) by value of the Company's net assets comprises of
money market funds held at fair value.  A 1% overall increase in the valuation
of the money market funds at 31 January 2010 would have increased net assets and
the total profit for the year by £14,210 (31 January 2009: £39,700)  an
equivalent change in the opposite direction would have reduced net assets and
the total profit for the year by the same amount.

Interest rate risk
Some of the Company's financial assets are interest-bearing.  As a result, the
Company is exposed to fair value interest rate risk due to fluctuations in the
prevailing levels of market interest rates. All interest-bearing assets are held
at FVTPL.

Fixed rate
The table below summarises weighted average effective interest rates for the
fixed interest-bearing financial instruments:
                      As at 31 January 2010           As at 31 January 2009

                                         Weighted                       Weighted
                                          average      Total             average
                 Total fixed             time for fixed rate            time for
                        rate   Weighted     which  portfolio  Weighted     which
                   portfolio    average   rate is         by   average   rate is
                          by   interest  fixed in      value  interest  fixed in
                 value £'000     rate %     years      £'000    rate %     years



Unquoted
fixed-interest
investments            2,858     15.05%       3.0      1,451    12.75%       4.0

Listed
fixed-interest
investments                -          -         -      1,433     4.68%       0.5


Floating rate
The Company's floating rate investments comprise cash held on interest-bearing
deposit accounts and, where appropriate, within interest bearing money market
funds.  The benchmark rate which determines the rate of interest receivable on
such investments is the bank base rate, which was 0.5% at 31 January 2010 (31
January 2009: 1.5%).  The amounts held in floating rate investments at the
balance sheet date were as follows:





                                31 January 2010   31 January 2009

                                           £000              £000

 Unquoted floating rate notes             1,455               350

 Cash on deposit                          1,515             4,112

                                          2,970             4,462

Every 1% increase or decrease in the base rate would increase or decrease income
receivable from these investments and the total profit for the year by £29,700
(31 January 2009: £44,620)

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 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 2010, the Company's financial assets exposed to credit risk
comprised the following:

                                             31 January 2010   31 January 2009

                                                        £000              £000

 Investments in floating rate instruments              1,455               350

 Investments in fixed rate instruments                 2,858             2,884

 Cash on deposit                                       1,515             4,112

 Accrued dividends and interest receivable                36                80

                                                       5,864             7,426


Credit risk relating to listed money market funds 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. Credit risk
relating to loans to and preference shares in unquoted companies is considered
to be part of market risk.

Those assets of the Company which are traded on recognised stock exchanges are
held on the Company's behalf by third party custodians. 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 Bank plc. The Investment Manager has in place a monitoring procedure in
respect of counterparty risk which is reviewed on an ongoing basis. Should the
credit quality or the financial position of either entity deteriorate
significantly the Investment Manager will move the cash holdings to another
bank.

Other than cash or liquid money market funds, there were no significant
concentrations of credit risk to counterparties at 31 January 2010 or 31 January
2009.

Liquidity risk
The Company's financial assets include investments in unquoted equity securities
which are not traded on a recognised stock exchange and which generally may be
illiquid.  As a result, the Company may not be able to realise some of its
investments in these instruments quickly at an amount close to their fair value
in order to meet its liquidity requirements, or to respond to specific events
such as deterioration in the creditworthiness of any particular issuer.

The Company's listed 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 2010
these investments were valued at £1,515,000 (31 January 2009: £4,112,000).

16.        Post balance sheet events
The following events occurred between the balance sheet date and the signing of
these financial statements:

·        11 March 2010 - the Company invested £110,000 into Carebase (Col)
Limited, a company involved in the purchasing of land in order to construct a
care home

17.        Contingencies, guarantees and financial commitments
There were no contingencies, guarantees or financial commitments as at 31
January 2010 (2009: £nil).

18.        Related party transactions
Matt Cooper, a non-executive Director of Octopus Apollo VCT 2 plc, is the
Chairman of Octopus Investments Limited.  Octopus Apollo VCT 2 plc has employed
Octopus Investments throughout the year as Investment Manager.  Apollo 2 has
paid Octopus £160,000 (2009: £190,000) in the year as a management fee and there
is £nil 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 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 company secretarial services for an
additional fee of £5,000 per annum.
During the year £23,500 (2009: £30,000) was paid to Octopus Investments and
there is £nil outstanding at the balance sheet date, for the accounting and
administrative services.

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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