Downing TWO VCT plc

Half-Yearly Report
for the six months ended 30 June 2016

Performance summary

'C' Share pool	30 Jun 2016		31 Dec 2015		30 Jun 2015
	Pence		Pence		Pence
Net asset value per 'C' Share	-		53.9		50.0
Net asset value per 'A' Share	-		0.1		0.1
Cumulative distributions per 'C' Share	120.8		75.0		75.0
Adjusted for performance fee estimate	-		(7.6)		(7.0)
Total return per 'C' Share and 'A' Share	120.8		121.4		118.1

'D' Share pool	30 Jun 2016		31 Dec 2015		30 Jun 2015
	Pence		Pence		Pence
Net asset value per 'D' Share	34.8		51.8		73.1
Net asset value per 'E' Share	0.1		0.1		0.1
Cumulative distributions per 'D' Share	66.5		49.5		22.5
Total return per 'D' Share and 'E' Share	101.4		101.4		95.7

'F' Share pool	30 Jun 2016		31 Dec 2015		30 Jun 2015
	Pence		Pence		Pence
Net asset value per 'F' Share	70.0		71.9		72.0
Cumulative distributions per 'F' Share	22.5		20.0		17.5
Total return per 'F' Share	92.5		91.9		89.5

'G' Share pool	30 Jun 2016		31 Dec 2015		30 Jun 2015
	Pence		Pence		Pence
Net asset value per 'G' Share	85.4		86.3		88.5
Cumulative distributions per 'G' Share	17.5		15.0		12.5
Total return per 'G' Share	102.9		101.3		101.0

'K' Share pool	30 Jun 2016		Initial
	Pence		Pence
Net asset value per 'K' Share	99.7		100.0

CHAIRMAN'S STATEMENT
Introduction
I am pleased to present the Half-Yearly Report for the six months ended 30 June 2016. The period has seen the Company complete the process of returning capital to 'C' Shareholders and make a start in returning funds to investors in the 'D' Share pool. The Company has also made good progress in fundraising for the new 'K' Share pool.

Net asset values and overview
'C' Share pool
The task of returning funds to investors in the 'C' Share pool was completed with final dividends paid on 24 March 2016. The Total Return to Shareholders was 120.83p for a holding of one 'C' Share and one 'A' Share, compared to the cost net of income tax relief in 2009 of 70p.

The Company is now taking steps to cancel the 'C' Shares and 'A' Shares and will update relevant Shareholders on progress shortly.

'D' Share pool
The 'D' Share pool has now commenced the process of exiting from its investments. During the period sufficient realisations were completed to allow the payment of a dividend of 17.0p per 'D' Share in March 2016.

At 30 June 2016, the remaining net asset value ("NAV") for a combined holding of one 'D' Share and one 'E' Share was 34.9p, the same value as at the period end after adjusting for the dividend payment of 17.0p per 'D' Share in the period. Total Return (NAV plus dividends paid to date) is now 101.4p for a combined holding, compared to the original cost, net of income tax relief, of 70p per share.

'F' Share pool
The 'F' Share pool launched in 2012 and is scheduled to start exiting from investments in early 2018.

At 30 June 2016, the NAV for a holding of one 'F' Share was 70.0p, a net increase of 0.6p (0.8%) over the period (after adjusting for dividends paid during the period of 2.5p per 'F' Share). Total Return (NAV plus dividends paid to date) is now 92.5p, compared to the original cost, net of income tax relief, of 70p per share.

'G' Share pool
The 'G' Share pool raised funds in 2013 and has now completed its initial investment phase. The target date to start realising investments is late 2018.

At 30 June 2016, the NAV for a holding of one 'G' Share was 85.4p. This represents a net increase of 1.6p (1.9%) over the period (after adjusting for the dividends paid during the period of 2.5p per 'G' Share).  Total Return (NAV plus dividends paid to date) is now 102.9p, compared to the initial NAV of 100.0p and the original cost to investors (net of income tax relief) of between 70.4p and 76.2p (depending on initial costs).

'K' Share pool
The 'K' Share fundraising offer opened in December 2015 and has to date raised £15.4 million. A good start has been made to build the portfolio with a large proportion already invested. The closing date for the offer has now been extended to 30 September 2016.

At 30 June 2016 the NAV for a holding of one 'K' Share was 99.7p, compared to the initial NAV of 100.0p. The small deficit arises from holding a large proportion of funds as cash during the fundraising period. We expect this "cash drag" to reduce as the funds become invested.

Dividends
In line with the Company's stated policies, interim dividends will be paid as follows:

'F' Shares              2.5p per share
'G' Shares             2.5p per share

Each of the above dividends will be paid on 16 December 2016 to Shareholders on the register at 18 November 2016.

No interim dividend is being declared in respect of the 'D' Shares as further return of capital dividends will be declared once further investment realisations have been completed.

Share buybacks
The Company has a general policy in the first five years after the launch of a share class, of buying in its own shares that become available in the market for cancellation. As a result, the Company will currently buy 'F' Shares, 'G' Shares and 'K' Shares that become available in the market and will, subject to liquidity and regulatory constraints, buy at prices approximately equal to net asset value i.e. with no discount.

No share buybacks in any share class were undertaken during the period.

Outlook
The Board is pleased to have delivered a good final outcome for 'C' Shareholders and the Manager's focus has now shifted to the exit process for the 'D' Share pool. Over the remainder of the year we expect to see significant progress in exiting from the remaining 'D' Share pool investments and hope to be in a position to declare a further dividend later in 2016 or early 2017. 'D' Shareholders should note that the exit process may well present some challenges which could result in the exit process taking some time to complete.

We expect investment activity in the 'F' Share and 'G' Share pools to be reasonably low during the remainder of the year as we look to the portfolio companies to develop further ahead of their planned exit dates in 2018.

The 'K' Share pool has invested in a number of companies that are preparing to commence trading so these will require close monitoring as they start to establish businesses.

In terms of the general outlook for small businesses, the result of the EU Referendum appears to have created a period of uncertainty for the UK economy and some volatility in stock markets. With a large proportion of the Company's funds already invested, the Board believes that any possible negative impact on the Company's performance will be limited.  A weaker longer term economy could result in greater difficulty in exiting from investments at the appropriate time, however the Directors feel that this is not a major risk. The Board will, of course, continue to monitor developments closely.

I look forward to updating Shareholders in my statement with the Annual Report to 31 December 2016.

Hugh Gillespie
Chairman

INVESTMENT MANAGER'S REPORT
'C' SHARE POOL

The 'C' Share pool completed the task of realising its investments in January 2016, and on 24 March 2016, paid final dividends.

Net asset value and results
Over the life of their investment, investors in the 'C' Share pool received total dividends of 105.61p per 'C' Share and 15.22p per 'A' Share making a total return of 120.83p for an original investment of 100p (70p net of income tax relief). We believe that this represents a very good return to Shareholders and brings the investment by 'C' Shareholders to a close.

Investment activity in the period
The 'C' Share pool had two investments at the start of the period. Both Quadrate Spa Limited and Quadrate Catering Limited were sold generating gains over original cost of £160,000.

Outlook
We are very satisfied with the final performance of the 'C' Share pool. Following the payment of the final dividends on 24 March 2016, the 'C' Share pool had negligible value at the period end and, in line with the Articles of the Company, the Company is taking steps to cancel the share class.

Downing LLP

SUMMARY OF INVESTMENT MOVEMENTS
'C' SHARE POOL
for the six months ended 30 June 2016

Disposals	Cost	Market value at 01/01/16	Disposal proceeds	Gain against cost	Total  realised  gain
	£'000	£'000	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Quadrate Spa Limited	258	381	381	123	-
Quadrate Catering Limited	330	367	367	37	-
	588	748	748	160	-

INVESTMENT MANAGER'S REPORT
'D' SHARE POOL

The 'D' Share pool is in the process of seeking to realise its investments in order to return funds to 'D' Shareholders.

Investment activity
During the period under review, there were three full disposals and four partial disposals which produced proceeds of £1.5 million and showed a gain against previous carrying value of £109,000.

At 30 June 2016, the pool held 11 investments with a valuation of £3.0 million. One minor valuation change was made at the period end resulting in a total valuation reduction of £58,000 in Mosaic Spa and Health Clubs Limited. The carrying values adopted at the end of the period are consistent with the values at which we believe the investments can be exited.

The majority of investments have performed to plan although a small number which have underperformed historically are yet to fully recover.

Realisation plans
There are exit plans in place for the remaining 11 investments. The significant holdings in Kidspace Adventures Holdings Limited, Westcountry Solar Solutions Limited and Avon Solar Energy Limited are expected to exit in the next few months.

Although Gara Rock Resort Limited, formerly Aminghurst Limited, was sold in March 2016, the timing of the loan repayments depends on when the underlying apartments are sold. We are exploring some options to draw the investment to a conclusion earlier than might otherwise be the case.

Net asset value and results
At 30 June 2016, the net asset value ("NAV") for a combined holding of one 'D' Share and one 'E' Share was 34.9p. Total Return (NAV plus dividends paid to date) is now 101.4p for a combined holding.

The profit on ordinary activities for the 'D' Shares, after taxation, for the period was £9,000, comprising a revenue loss of £42,000 and a capital profit of £51,000.

Outlook
The remainder of the year will be a busy period in terms of investment realisations and we expect the next major distribution to Shareholders to be made before the end of the year or early 2017.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
'D' SHARE POOL
as at 30 June 2016

	Cost	Valuation	Unrealised  loss in  period	% of  portfolio by  value
	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Kidspace Adventure Holdings Limited	375	465	-	12.9%
Mosaic Spa and Health Clubs Limited*	521	288	(58)	8.0%
Westcountry Solar Solutions Limited	250	250	-	7.0%
Avon Solar Energy Limited	210	218	-	6.1%
Future Biogas (Reepham Road) Limited	451	98	-	2.7%
Camandale Limited*	422	2	-	0.1%
Quadrate Spa Limited	144	-	-	0.0%
Non-qualifying investments
Gara Rock Resort Limited	1,322	1,322	-	36.8%
Fenkle Street LLP	122	220	-	6.1%
Future Biogas (SF) Limited	84	84	-	2.3%
Redmed Limited	21	19	-	0.5%
	3,922	2,966	(58)	82.5%
Cash at bank and in hand		629		17.5%
Total		3,595		100%

*    Partially qualifying investment

SUMMARY OF INVESTMENT MOVEMENTS
'D' SHARE POOL
for the six months ended 30 June 2016

Disposals	Cost	Market value at 01/01/16	Disposal proceeds	Gain/ (loss) against cost	Total  realised gain
	£'000	£'000	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Quadrate Catering Limited	441	539	581	140	42
Future Biogas (Reepham Road) Limited	130	97	130	-	33
Liverpool Nurseries (Holdings) Limited	-	-	11	11	11
Quadrate Spa Limited	352	520	520	168	-
Non-qualifying investments
Future Biogas (SF) Limited	85	85	102	17	17
Kilmarnock Monkey Bar Limited	-	-	6	6	6
Commercial Street Hotel Limited	100	100	100	-	-
Redmed Limited	6	5	5	(1)	-
	1,114	1,346	1,455	341	109

* Adjusted for additions in the year

INVESTMENT MANAGER'S REPORT
'F' SHARE POOL

The 'F' Share pool is fully invested in a portfolio focussed on asset backed businesses and those with predictable revenue streams. The 'F' Share pool is scheduled to start realising investments in 2017 in order to return funds to shareholders in 2018.

Investment activity
Four new investments were made in the period totalling £700,000. £300,000 was invested into Vectis Power Generation Limited which is seeking to build and develop renewable energy plants; £150,000 was invested into Brownfields Energy Limited which is seeking to develop small-scale waste disposal projects; £125,000 was invested into both Rhodes Renewables Limited and Morava Renewables Limited which are both exploring opportunities in the wood refinery sector.

One full exit was completed in the period for Grasshoppper 2007 Limited, the company that owns The Grasshopper Inn, a public house near Westerham, Kent which was sold and generated proceeds equivalent to the original cost of £378,000.

One notable partial divestment took place in the period being the part repayment of a non-qualifying loan to Gara Rock Resort Limited, formerly Aminghurst Limited, which generated proceeds of £494,000.

The majority of investments remain valued at or above cost and there was one small valuation movement in the period on Atlantic Dogstar Limited. The company owns a group of London pubs which are performing to plan and as such the valuation has been increased by £18,000.

Net asset value, results and dividend
At 30 June 2016, the net asset value ("NAV") for a holding of one 'F' Share was 70.0p, an increase of 0.6p (0.8%) over the period. Total Return (NAV plus dividends paid to date) is now 92.5p for a combined holding.

The gain on ordinary activities for the 'F' Shares, after taxation, for the period was £69,000, comprising a revenue profit of £51,000 and a capital gain of £18,000.

The Company will pay an interim dividend of 2.5p per 'F' Share, on 16 December 2016 to 'F' Shareholders on the register at 18 November 2016.

Outlook
The focus now for the 'F' Share portfolio is on close monitoring and support of the portfolio companies to ensure that prospects for growth are optimised in the period until the realisation process commences in 2017.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
'F' SHARE POOL
as at 30 June 2016

	Cost	Valuation	Unrealised  gain in period	% of  portfolio  by value
	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Apex Energy Limited	1,000	1,000	-	13.3%
Vulcan Renewables Limited	653	778	-	10.3%
Goonhilly Earth Station Limited	760	760	-	10.1%
Lambridge Solar Limited	500	543	-	7.2%
Merlin Renewables Limited	500	500	-	6.6%
Augusta Pub Company Limited	290	324	-	4.3%
Kidspace Adventures Holdings Limited	250	310	-	4.1%
Vectis Power Generation Limited	300	300	-	4.0%
Pearce and Saunders Limited	497	248	-	3.3%
Pabulum Pubs Limited	200	229	-	3.0%
Atlantic Dogstar Limited	200	218	18	2.9%
Fresh Green Power Limited	200	200	-	2.7%
City Falkirk Limited	422	177	-	2.3%
Fubar Stirling Limited	268	169	-	2.2%
Brownfields Energy Limited	150	150	-	2.0%
Rhodes Renewables Limited	125	125	-	1.7%
Morava Renewables Limited	125	125	-	1.7%
Green Energy Production UK Limited	100	100	-	1.3%
Cheers Dumbarton Limited	48	17	-	0.2%
Redmed Limited*	13	11	-	0.1%
Lochrise Limited	13	-	-	0.0%
Non-qualifying investments
Baron House Developments LLP	481	481	-	6.4%
Gara Rock Resort Limited	345	345	-	4.6%
London City Shopping Centre Limited	66	66	-	0.9%
Pearce and Saunders DevCo Limited	46	46	-	0.6%
Southampton Hotel Development Limited	298	-	-	0.0%
	7,850	7,222	18	95.8%
Cash at bank and in hand		312		4.2%
Total		7,534		100.0%

*    Partially qualifying investment

SUMMARY OF INVESTMENT MOVEMENTS
'F' SHARE POOL
as at 30 June 2016

Additions	£'000
Qualifying investments
Vectis Power Generation Limited	300
Brownfields Energy Limited	150
Rhodes Renewables Limited	125
Morava Renewables Limited	125
Total	700

Disposals	Cost	Market value at 01/01/16	Disposal proceeds	Loss against cost	Total  realised  gain
	£'000	£'000	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Grasshoppper 2007 Limited	378	378	378	-	-
Redmed Limited	5	3	3	(2)	-
Non-qualifying investments
Gara Rock Resort Limited	494	494	494	-	-
	877	875	875	(2)	-

* adjusted for purchases made in the period

INVESTMENT MANAGER'S REPORT
'G' SHARE POOL

The 'G' Share pool raised funds in 2013 and is planning to start realising investments in 2018. The task of building the initial VCT qualifying portfolio is now complete and the fund is fully qualifying as at 30 June 2016.

Investment activity
Two new qualifying investments were made in the period. £1.45 million was invested into Quadrate Catering Limited which operates a restaurant in the iconic Cube Complex in Birmingham and £1 million was invested into Hermes Renewables Limited which is preparing to build and operate a wood pelleting plant.

One non-qualifying investment was made in Quadrate Spa Limited for £1.45 million which owns and operates a health club business in The Cube complex in Birmingham. 

In the period, total proceeds of £2.3 million were received. Grasshoppper 2007 Limited, the company that owns The Grasshopper Inn, a public house near Westerham, Kent was sold and generated proceeds equivalent to cost of £1.1m.

Two non-qualifying loans were repaid in full in the period. Pub People Limited, the public house operator in the East Midlands, repaid £873,000 and Ludlow Taverns Limited repaid £387,000. 

The majority of investments remain valued at or above cost and there was one small valuation uplift in the period on Atlantic Dogstar Limited. The company owns a group of London pubs which are performing to plan and as such the valuation has been increased by £306,000.

Net asset value
At 30 June 2016, the net asset value ("NAV") for a holding of one 'G' Share was 85.4p which represents a net increase of 1.6p (1.9%) over the period after adjusting for the dividends paid out. Total Return (NAV plus dividends paid to date) is now 102.9p.

Results and dividend
The profit on ordinary activities for the 'G' Shares, after taxation, for the period was £406,000, comprising a revenue profit of £100,000 and a capital profit of £306,000.

The Company will pay an interim dividend of 2.5p per 'G' Share, on 16 December 2016 to 'G' Shareholders on the register at 18 November 2016.

Outlook
The 'G' Share pool is fully qualifying and therefore our focus has now shifted to close monitoring and support of the portfolio companies in order to nurture growth before the ultimate exit date.

Downing LLP

SUMMARY OF INVESTMENT PORTFOLIO
'G' SHARE POOL
as at 30 June 2016

	Cost	Valuation	Unrealised  gain in  period	% of  portfolio  by value
	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Atlantic Dogstar Limited	3,500	3,806	306	17.6%
Kidspace Adventure Holdings Limited	1,977	1,977	-	9.2%
Antelope Pub Limited	1,760	1,760	-	8.2%
Goonhilly Earth Station Limited	1,710	1,710	-	7.9%
Quadrate Catering Limited	1,450	1,450	-	6.7%
Apex Energy Limited	1,300	1,300	-	6.0%
Hedderwick Limited	1,250	1,250	-	5.8%
Hermes Renewables Limited	1,000	1,000	-	4.6%
Augusta Pub Company Limited	580	648	-	3.0%
Pabulum Pubs Limited	400	458	-	2.1%
Oak Grove Renewables Limited	420	315	-	1.5%
Redmed Limited*	26	22	-	0.1%
Non-qualifying investments
Quadrate Spa Limited	1,450	1,450	-	6.7%
Hobblers Health Limited	1,324	1,324	-	6.1%
Baron House Developments LLP	1,093	1,093	-	5.1%
Gara Rock Resort Limited	801	801	-	3.7%
Pearce and Saunders Limited	193	193	-	0.9%
London City Shopping Centre Limited	110	110	-	0.5%
Craft Beer Pub Co Limited	92	92	-	0.4%
	20,436	20,759	306	96.1%
Cash at bank and in hand		832		3.9%
Total		21,591		100%

SUMMARY OF INVESTMENT MOVEMENTS
'G' SHARE POOL
as at 30 June 2016

Additions	£'000
Qualifying investments
Quadrate Catering Limited	1,450
Hermes Renewables Limited	1,000
Non-qualifying investments
Quadrate Spa Limited	1,450
Total	3,900

Disposals	Cost	Market value at 01/01/16	Disposal proceeds	Loss against cost	Total  realised  gain
	£'000	£'000	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Grasshoppper 2007 Limited	1,050	1,050	1,050	-	-
Redmed Limited	10	6	6	(4)	-
Non-qualifying investments
Pub People Limited	873	873	873	-	-
Ludlow Taverns Springhill Limited	387	387	387	-	-
	2,320	2,316	2,316	(4)	-

INVESTMENT MANAGER'S REPORT
'K' SHARE POOL

The 'K' Share pool is currently in the fundraising process with the offer currently open until 30 September 2016.

Investment activity
During the last six months, ten qualifying investments have been made totalling £9.5 million as we start to build the qualifying portfolio of the 'K' Share pool.

The qualifying investments include a £1 million investment in Vectis Power Generation Limited which is seeking to build and develop renewable energy plants.

£1 million in Brownfields Energy Limited which is seeking to develop small-scale waste disposal projects.

£1.3 million was invested in Yamuna Renewables Limited which is seeking investment opportunities in the wood refinery sector.

£736,000 was invested into both Ironhide Generation Limited and Indigo Generation Limited. £591,000 was invested in  Rockhopper Renewables Limited and £337,000 in SF Renewables (Solar) Limited which are all in the process of acquiring land in India to build and operate 15MW ground mounted solar arrays.

Jito Renewables Limited, Rhodes Renewables Limited and Morava Renewables Limited are all exploring opportunities in the wood refinery sector following investments of £1.5 million, £1.25 million and £1.1 million respectively.

No valuation adjustments have been made in the period with all investments remaining at cost.

Net asset value, results and dividend
At 30 June 2016, the net asset value ("NAV") for a holding of one 'K' Share was 99.7p compared to the initial NAV of 100.0p.

The loss on ordinary activities for the 'K' Shares, after taxation, for the period was £31,000, being wholly related to revenue.

Outlook
We will continue to seek investment opportunities and develop the current investment portfolio over the remainder of the period and look forward to updating 'K' Shareholders further in the annual report to 31 December 2016.

Downing LLP

SUMMARY OF INVESTMENT MOVEMENTS
'K' SHARE POOL
as at 30 June 2016

	Cost	Valuation	Unrealised  gain in  period	% of  portfolio  by value
	£'000	£'000	£'000
VCT qualifying and partially qualifying investments
Jito Renewables Limited	1,500	1,500	-	11.5%
Yamuna Renewables Limited	1,300	1,300	-	10.0%
Rhodes Renewables Limited	1,250	1,250	-	9.6%
Morava Renewables Limited	1,100	1,100	-	8.4%
Brownfields Energy Limited	1,000	1,000	-	7.7%
Vectis Power Generation Limited	1,000	1,000	-	7.7%
Ironhide Generation Limited	736	736	-	5.7%
Indigo Generation Limited	736	736	-	5.7%
Rockhopper Renewables Limited	591	591	-	4.5%
SF Renewables (Solar) Limited	337	337	-	2.6%
	9,550	9,550	-	73.4%
Cash at bank and in hand		3,469		26.6%
Total		13,019		100%

SUMMARY OF INVESTMENT MOVEMENTS
'K' SHARE POOL
as at 30 June 2016

Additions	£'000
Qualifying investments
Jito Renewables Limited	1,500
Yamuna Renewables Limited	1,300
Rhodes Renewables Limited	1,250
Morava Renewables Limited	1,100
Brownfields Energy Limited	1,000
Vectis Power Generation Limited	1,000
Ironhide Generation Limited	736
Indigo Generation Limited	736
Rockhopper Renewables Limited	591
SF Renewables (Solar) Limited	337
Total	9,550

UNAUDITED SUMMARISED BALANCE SHEET
as at 30 June 2016

			30 Jun 2016						30 Jun 2015		31 Dec 2015
		'C' Shares	'D' Shares	'F' Shares	'G' Shares	'K' Shares	Total		Total		Total
		£'000	£'000	£'000	£'000	£'000	£'000		£'000		£'000
Fixed assets
Unquoted investments		-	2,966	7,222	20,759	9,550	40,497		33,882		31,365
Current assets
Debtors		-	(3)	154	332	1	484		727		879
Cash at bank and in hand		65	629	312	832	3,469	5,307		7,112		7,021
		65	626	466	1,164	3,470	5,791		7,839		7,900
Creditors: amounts falling due within one year		(61)	(96)	(108)	(232)	(1,096)	(1,593)		(534)		(532)
Net current assets		4	530	358	932	2,374	4,198		7,305		7,368
Net assets		4	3,496	7,580	21,691	11,924	44,695		41,187		38,733
Capital and reserves
Called up share capital		18	25	11	25	12	91		79		79
Capital redemption reserve		106	-	-	-	-	106		106		106
Special reserve		-	3,845	8,886	22,341	-	35,072		43,011		40,086
Share premium account		-	-	-	-	12,237	12,237		-		-
Revaluation reserve		(105)	(956)	(627)	322	-	(1,366)		(1,431)		(1,248)
Capital reserve - realised		-	-	(1,033)	(1,221)	-	(2,254)		(1,965)		(2,252)
Revenue reserve		(15)	582	343	224	(325)	809		1,387		1,962
Total equity shareholders' funds		4	3,496	7,580	21,691	11,924	44,695		41,187		38,733
	Basic and diluted net asset value per:
'C' Share		-							50.0p		53.9p
'A' Share		-							0.1p		0.1p
'D' Share			34.8p						73.1p		51.8p
'E' Share			0.1p						0.1p		0.1p
'F' Share				70.0p					72.0p		71.9p
'G' Share					85.4p				88.5p		86.3p
'K' Share						99.7p

STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 June 2016

Called  up share  capital		Capital redemption Reserve	Special Reserve	Share Premium Reserve	Revaluation reserve	Capital reserve realised	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
At 1 January 2015	79	106	47,161	-	(289)	(2,255)	548	45,350
(Loss)/gain on investments	-	-	-	-	(8)	49	-	41
Purchase of own shares	-	-	-	-	-	-	(44)	(44)
Returned revenue	-	-	-	-	-	-	1,458	1,458
Transfer between reserves	-	-	(7,075)	-	(951)	8,026	-	-
Dividends paid	-	-	-	-	-	(8,072)	-	(8,072)
At 31 December 2015	79	106	40,086	-	(1,248)	(2,252)	1,962	38,733
Issue of Shares	12	-	-	12,237	-	-	-	12,249
Share issue costs	-	-	-	-	-	-	(294)	(294)
Gain on investments	-	-	-	-	266	109	-	375
Returned revenue	-	-	-	-	-	-	51	51
Transfer between reserves	-	-	(5,014)	-	(384)	6,308	(910)	-
Dividends paid	-	-	-	-	-	(6,419)	-	(6,419)
At 30 June 2016	91	106	35,072	12,237	(1,366)	(2,254)	809	44,695

INCOME STATEMENT
for the six months ended 30 June 2016

Company Total

	Six months ended 30 Jun 2016				Six months ended 30 Jun 2015				Year ended 31 Dec 2015
	Revenue	Capital	Total		Revenue	Capital	Total		Total
	£'000	£'000	£'000		£'000	£'000	£'000		£'000
Income	634	-	634		1,439	-	1,439		2,663
Gains/(losses) on investments
- realised	-	266	266		-	(362)	(362)		49
- unrealised	-	109	109		-	(172)	(172)		(8)
	634	375	1,009		1,439	(534)	905		2,704
Investment management fees	(409)	-	(409)		(383)	-	(383)		(753)
Other expenses	(174)	-	(174)		(126)	-	(126)		(251)
Return/(loss) on ordinary activities before taxation	51	375	426		930	(534)	396		1,700
Tax on total comprehensive income and ordinary activities	-	-	-		(80)	-	(80)		(201)
Return/(loss) attributable to equity shareholders	51	375	426		850	(534)	316		1,499
Return per 'C' Share	(0.4p)	-	(0.4p)		7.9p	(6.5p)	1.4p		5.2p
Return per 'A' Share	-	-	-		-	-	-		-
Return per 'D' Share	(0.4p)	0.5p	0.1p		1.2p	0.4p	1.6p		7.2p
Return per 'E' Share	-	-	-		-	-	-		-
Return per 'F' Share	0.5p	0.2p	0.7p		0.4p	(1.7p)	(1.3p)		1.1p
Return per 'G' Share	0.4p	1.2p	1.6p		0.5p	0.3p	0.8p		1.1p
Return per 'K' Share	(0.4p)	-	(0.4p)		-	-	-		-

A Statement of Total Recognised Gains and Losses has not been prepared as all gains/losses are recognised in the Income Statement as noted above.

INCOME STATEMENT
for the six months ended 30 June 2016

'C' Shares	Six months ended 30 Jun 2016				Six months ended 30 Jun 2015				Year ended 31 Dec 2015
	Revenue	Capital	Total		Revenue	Capital	Total		Total
	£'000	£'000	£'000		£'000	£'000	£'000		£'000
Income	6	-	6		621	-	621		818
Gains/(losses) on investments
- realised	-	-	-		-	(412)	(412)		(340)
- unrealised	-	-	-		-	(53)	(53)		25
	6	-	6		621	(465)	156		503
Investment management fees	(9)	-	(9)		(31)	-	(31)		(57)
Other expenses	(31)	-	(31)		(18)	-	(18)		(35)
Return/(loss) on ordinary activities before taxation	(34)	-	(34)		572	(465)	107		411
Tax on total comprehensive income and ordinary activities	7	-	7		(12)	-	(12)		(39)
Return/(loss) attributable to equity shareholders	(27)	-	(27)		560	(465)	95		372

INCOME STATEMENT
for the six months ended 30 June 2016

'D' Shares	Six months ended 30 Jun 2016				Six months ended 30 Jun 2015				Year ended 31 Dec 2015
	Revenue	Capital	Total		Revenue	Capital	Total		Total
	£'000	£'000	£'000		£'000	£'000	£'000		£'000
Income	(14)	-	(14)		227	-	227		560
Gains/(losses) on investments
- realised	-	109	109		-	50	50		297
- unrealised	-	(58)	(58)		-	(11)	(11)		87
	(14)	51	37		227	39	266		944
Investment management fees	(27)	-	(27)		(49)	-	(49)		(97)
Other expenses	(19)	-	(19)		(24)	-	(24)		(44)
Return/(loss) on ordinary activities before taxation	(60)	51	(9)		154	39	193		803
Tax on total comprehensive income and ordinary activities	18	-	18		(32)	-	(32)		(80)
Return/(loss) attributable to equity shareholders	(42)	51	9		122	39	161		723

INCOME STATEMENT
for the six months ended 30 June 2016

'F' Shares	Six months ended 30 Jun 2016				Six months ended 30 Jun 2015				Year ended 31 Dec 2015
	Revenue	Capital	Total		Revenue	Capital	Total		Total
	£'000	£'000	£'000		£'000	£'000	£'000		£'000
Income	170	-	170		153	-	153		409
Gains/(losses) on investments
- realised	-	-	-		-	-	-		79
- unrealised	-	18	18		-	(179)	(179)		(136)
	170	18	188		153	(179)	(26)		352
Investment management fees	(70)	-	(70)		(73)	-	(73)		(144)
Other expenses	(40)	-	(40)		(37)	-	(37)		(74)
Return/(loss) on ordinary activities before taxation	60	18	78		43	(179)	(136)		134
Tax on total comprehensive income and ordinary activities	(9)	-	(9)		(4)	-	(4)		(16)
Return/(loss) attributable to equity shareholders	51	18	69		39	(179)	(140)		118

INCOME STATEMENT
for the six months ended 30 June 2016

'G' Shares	Six months ended 30 Jun 2016				Six months ended 30 Jun 2015				Year ended 31 Dec 2015
	Revenue	Capital	Total		Revenue	Capital	Total		Total
	£'000	£'000	£'000		£'000	£'000	£'000		£'000
Income	413	-	413		438	-	438		876
Gains on investments
- realised	-	-	-		-	-	-		13
- unrealised	-	306	306		-	71	71		16
	413	306	719		438	71	509		905
Investment management fees	(219)	-	(219)		(230)	-	(230)		(455)
Other expenses	(70)	-	(70)		(47)	-	(47)		(98)
Return on ordinary activities before taxation	124	306	430		161	71	232		352
Tax on total comprehensive income and ordinary shares	(24)	-	(24)		(32)	-	(32)		(66)
Return attributable to equity shareholders	100	306	406		129	71	200		286

INCOME STATEMENT
for the six months ended 30 June 2016

'K' Shares	Six months ended 30 Jun 2016				Six months ended 30 Jun 2015				Year ended 31 Dec 2015
	Revenue	Capital	Total		Revenue	Capital	Total		Total
	£'000	£'000	£'000		£'000	£'000	£'000		£'000
Income	59	-	59		-	-	-		-
Gains on investments
- realised	-	-	-		-	-	-		-
- unrealised	-	-	-		-	-	-		-
	59	-	59		-	-	-		-
Investment management fees	(84)	-	(84)		-	-	-		-
Other expenses	(14)	-	(14)		-	-	-		-
Loss on ordinary activities before taxation	(39)	-	(39)		-	-	-		-
Tax on total comprehensive income and ordinary shares	8	-	8		-	-	-		-
Loss attributable to equity shareholders	(31)	-	(31)		-	-	-		-

UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 June 2016

				30 Jun 2016						30 Jun 2015		31 Dec 2015
		'C' Shares		'D' Shares	'F' Shares	'G' Shares	'K' Shares	Total		Total		Total
Note		£'000		£'000	£'000	£'000	£'000	£'000		£'000		£'000
Net cash inflow from operating activities	1		136	207	15	84	1,064	1,506		725		1,178
Cash flows from investing activities
Purchase of investments		-		-	(700)	(3,900)	(9,550)	(14,150)		(4,542)		(14,043)
Sale of investments		748		1,455	875	2,316	-	5,394		5,361		17,955
Net cash inflow/ (outflow) from investing activities		748		1,455	175	(1,584)	(9,550)	(8,756)		819		3,912
Net cash inflow/ (outflow) before financing activities         before financing activities		884		1,662	190	(1,500)	(8,486)	(7,250)		1,544		5,090
Cash flows from financing activities
Proceeds from share issue		-		-	-	-	12,249	12,249		-		-
Share issue costs		-		-	-	-	(294)	(294)	-	-		-
Equity dividend paid		(3,814)		(1,700)	(270)	(635)	-	(6,419)		(4,468)		(8,072)
Purchase of own shares		-		-	-	-	-	-		(11)		(44)
Net cash (outflow)/ inflow from financing activities		(3,814)		(1,700)	(270)	(635)	11,955	5,536		(4,479)		(8,116)
(Decrease)/increase   in cash                             2		(2,930)		(38)	(80)	(2,135)	3,469	(1,714)		(2,935)		(3,026)

NOTES TO THE UNAUDITED CASH FLOW STATEMENT
for the six months ended 30 June 2016

			30 Jun 2016						30 Jun  2015		31 Dec 2015
		'C' Shares	'D' Shares	'F' Shares	'G' Shares	'K' Shares	Total		Total		Total
		£'000	£'000	£'000	£'000	£'000	£'000		£'000		£'000
1	Cash inflow from operating activities
Return/(loss) on ordinary activities before taxation		(34)	(9)	78	430	(39)	426		396		1,700
Corporation tax		4	6	1	1	-	12		-		(160)
Losses/(gains) on investments		-	(51)	(18)	(306)	-	(375)		534		(41)
Decrease/(increase) in other debtors		175	286	(23)	(42)	(1)	395		(93)		(243)
(Decrease)/increase in other creditors		(9)	(25)	(23)	1	1,104	1,048		(112)		(78)
Net cash inflow from operating activities		136	207	15	84	1,064	1,506		725		1,178
2 Analysis of net funds
Beginning of period		2,995	667	392	2,967	-	7,021		10,047		10,047
Net cash (outflow)/inflow		(2,930)	(38)	(80)	(2,135)	3,469	(1,714)		(2,935)		(3,026)
End of period		65	629	312	832	3,469	5,307		7,112		7,021

NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

1.   General information
Downing Two VCT plc ("The Company") is a venture capital trust established under the legislation introduced in the Finance Act 1995 and is domiciled in the United Kingdom and incorporated in England and Wales.

2.   Accounting policies - Basis of accounting
The unaudited half-yearly results cover the six months to 30 June 2016 and have been prepared in accordance with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" revised January 2009 and in accordance with the accounting policies set out in the statutory accounts for the year ended 31 December 2015, which were prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom accounting standards and applicable law), including Financial Reporting Standard 102, the financial reporting standard applicable in the UK and Republic of Ireland (FRS102).

3.   All revenue and capital items in the Income Statement derive from continuing operations.

4.   The Company has only one class of business and derives its income from investments made in shares, securities and bank deposits.

5.   The comparative figures are in respect of the six month period ended 30 June 2015 and the year ended 31 December 2015 respectively.

6.   Dividends

			Six months ended 30 June 2016				Year to 31 Dec 2015
	Per share		Revenue	Capital	Total		Total
Paid in period	pence		£'000	£'000	£'000		£'000
'C' Shares
Special 'C' 2016	30.6p		-	2,182	2,182		-
Special 'A' 2016	15.2p		-	1,632	1,632		-
Y/E Dec 2014 Final	50.0p		-	-	-		3,562
			-	3,814	3,814		3,562
'D' Shares
Y/E Dec 2015 Final	17.0p		-	1,700	1,700		-
Y/E Dec 2015 Interim	27.0p		-	-	-		2,700
			-	1,700	1,700		2,700
'F' Shares
Y/E Dec 2015 Final	2.5p		-	270	270		-
Y/E Dec 2015 Interim	2.5p		-	-	-		270
Y/E Dec 2014 Final	2.5p		-	-	-		270
			-	270	270		540
'G' Shares
Y/E Dec 2015 Final	2.5p		-	635	635		-
Y/E Dec 2015 Interim	2.5p		-	-	-		635
Y/E Dec 2014 Final	2.5p		-	-	-		635
			-	635	635		1,270

No dividends have been paid or declared in respect of the 'E' Shares or 'K' Shares.

7.   Basic and diluted return per share

	Weighted average number of shares in issue		Revenue return/(loss)			Capital return
			£'000	Per share		£'000	Per share
'C' Shares	7,126,194		(27)	(0.4p)		-	-
'A' Shares	10,724,029		-	-		-	-
'D' Shares	10,000,000		(42)	(0.4p)		51	0.5p
'E' Shares	14,950,000		-	-		-	-
'F' Shares	10,822,154		51	0.5p		18	0.2p
'G' Shares	25,528,996		100	0.4p		306	1.2p
'K' Shares	6,877,568		(31)	(0.4p)		-	-
			51			375

8. Net asset value per share

	Shares in issue		Net asset value
			£'000		Per share
'C' Shares	7,126,194		4		-
'A' Shares	10,724,029		-		-
'D' Shares	10,000,000		3,481		34.8p
'E' Shares	14,950,000		15		0.1p
'F' Shares	10,822,154		7,580		70.0p
'G' Shares	25,386,546		21,691		85.4p
'K' Shares	11,954,428		11,924		99.7p
			44,695

9. Reserves

The Special reserve, Capital reserve - realised and Revenue reserve are all distributable reserves. The Revaluation reserve includes losses of £2,302,000 which are included in the calculation of distributable reserves. Total distributable reserves are £31,325,000 (31 Dec 2015: £37,759,000).

10. The fair value of investments is determined using the detail accounting policy set out in the statutory accounts for the year ended 31 December 2015.

The Company has categorised its financial instruments using the fair value hierarchy as follows:

Level a Reflects financial instruments quoted in an active market;
Level b Reflects financial instruments that have prices that are observable either directly or indirectly; and
Level c i) Reflects financial instruments that use valuation techniques that are based on observable market date.
ii) Reflects financial instruments that use valuation techniques that are not based on observable market data (unquoted equity investments and loan note investments).

	Level a	Level b	Level c (ii)	Period ended  30 June  2016		Level a	Level  b	Level c (ii)	Year ended 31 Dec 2015
	£'000	£'000	£'000	£'000		£'000	£'000	£'000	£'000
Loan notes	-	-	12,156	12,156		-	-	15,394	15,394
Unquoted equity	-	-	28,341	28,341		-	-	15,971	15,971
	-	-	40,497	40,497		-	-	31,365	31,365

11. The unaudited condensed financial statements set out herein do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The figures for the year ended 31 December 2015 have been extracted from the financial statements for that year, which have been delivered to the Registrar of Companies; the Auditor's report on those financial statements was unqualified.

12. The Directors confirm that, to the best of their knowledge, the half-yearly financial statements have been prepared in accordance with the "Statement: Half-Yearly Financial Reports" issued by the UK Accounting Standards Board and the half-yearly financial report includes a fair review of the information required by:

a)   DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)   DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

13. Risks and uncertainties
Under the Disclosure and Transparency Directive, the Board is required, in the Company's half-yearly results, to report on principal risks and uncertainties facing the Company over the remainder of the financial year.

The Board concluded that the key risks facing the Company over the remainder of the financial period are as follows:

(i)   Compliance risk of failure to maintain approval as a VCT; and
(ii)  Investment risk associated with investing in small and immature businesses.

The Company's compliance with the VCT regulations is continually monitored by the Manager, who reports regularly to the Board on the current position. The Company has also reappointed Philip Hare and Associates LLP to provide regular reviews and advice in this area.

In order to make VCT qualifying investments, the Company has to invest in small businesses which are often immature. It also has a limited period in which it must invest the majority of its funds. The Manager follows a rigorous process in vetting and careful structuring of new investments, including taking a charge over the assets of the business wherever possible and, after an investment is made, closely monitoring the business.

The Board is satisfied that these approaches provide satisfactory management of the key risks.

14. Going concern
The Directors have reviewed the Company's financial resources at the period end and conclude that the Company is well placed to manage its business risks.

The Board confirms that it is satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason, the Board believes that the Company continues to be a going concern and that it is appropriate to apply the going concern basis in preparing the financial statements.

15. Copies of the unaudited half-yearly report will be sent to Shareholders shortly. Further copies can be obtained from the Company's registered office or will be available for download from www.downing.co.uk.