COIF Charities Deposit Fund - CCLA

Report of the Boardfor the year ended 31 December 2011On behalf of the Board, I have pleasure inpresenting the annual report of the COIFCharities Deposit Fund (the Fund).Structure and management of theFundThe Fund originated from the Charities DepositFund that was formed in 1985 as a CommonDeposit Fund. The Fund was established undersection 25 of the Charities Act 1993. TheCharity Commission Scheme dated 2 April 2008replaced the previous Scheme dated 27 June1995.The Board acts as an independent body tocontrol and supervise the Fund, for the benefitof participating charities, meeting at least fourtimes per annum. Together, these individualshave wide experience of finance, investments,charities and the law. The management andadministration of the Fund have been delegatedto CCLA Investment Management Limited (theManager).Deposits taken by the Fund are exempted fromthe Financial Services and Markets Act 2000(FSMA) by virtue of the Financial Services andMarkets Act (Exemption) Order 2001. Depositsin the Fund are not covered by the FinancialServices Compensation Scheme. The Managerwill pay fair compensation on eligible claimsarising from its negligence or error in themanagement and administration of the Fund.Objective and benchmark of theFundThe Fund aims to provide the strongest level ofsecurity together with daily liquidity and a goodlevel of interest. The Fund is rated AAA/V1 byFitch Ratings.The total return performance benchmark of theFund is the London Inter-Bank Sterling 7-day BidRate (LIBID) as measured by the BritishBankers’ Association, before managementexpenses.Investment policyThe Fund may invest cash in deposits in Sterlingwith Banks, Building Societies and LocalAuthorities in the United Kingdom (UK). TheFund must maintain at least 5% of theinvestments of the Fund in deposits repayablewithin five business days. It places Sterling cashbalances with identified and permittedcounterparties. The weighted average maturitymust be maintained at no more than 60 days.The maximum maturity of a single deposit isone year. The Manager must have regard to theneed for diversification of deposits and to thesuitability of the institutions with which it placesdeposits. Funds are placed with counterpartieswhich are regularly reviewed and approvedannually by the Board.Review of investment activities andpolicies of the FundThe Board met quarterly during the year to carryout their responsibility for the approval ofstrategy, for setting interest rate policy, tomonitor investment diversification, suitabilityand risk, and to review the performance of theFund. In addition, the Board monitored theadministration and expenses of the Fund and isalso responsible for the appointment of theFund’s Manager and the Auditor.During the year, the Board also met quarterlywith the Manager to review the investments,transactions and policies of the Fund. TheManager’s report on the Fund, which appears3

Report of the Boardfor the year ended 31 December 2011later, provides further details. In addition toreceiving regular reports on the management ofthe Fund, the Board also met to approve theannual and half year report and accounts.Delegation of functionsFollowing regular meetings and consideration ofthe reports and papers received, the Board aresatisfied that the Manager, to whom they havedelegated the administration and managementof the Fund, has complied in all materialrespects with the terms of the Scheme andwith the relevant Management Agreement.Controls and risk managementThe Board receives and considers regularreports from the Manager. Ad hoc reports andinformation are supplied to the Board asrequired. The Manager has established aninternal control framework to providereasonable, but not absolute, assurance on theeffectiveness of the internal controls operatedon behalf of its clients. The effectiveness of theinternal controls is assessed by the directorsand senior management of the Manager on acontinuing basis.During the year, the Board, assisted by theManager, reviewed the Fund’s systems ofinternal control. The Board receives from theManager, and reviews, a formal riskmanagement report setting out the main risksfacing the Fund, the controls in place to mitigatethe risks and the assessment of each risk interms of both gross and residual exposure afterapplication of mitigating controls.D HendersonChairman of the Board22 March 20124

Report of the Investment Managerfor the year ended 31 December 2011PerformanceOver the reporting period the Fund achieved atotal return before management expenses of0.95%; this was higher than the Fund’sbenchmark, the London Inter-Bank Sterling 7-Day Bid rate (7-day LIBID), which averaged0.54%.The Deposit Fund’s declared interest rate hasbeen steady over the reporting period averaging0.71% (an annual equivalent rate (AER) of0.71%). As at the 31 December 2011 thedeclared rate was 0.80%, (0.80% AER).The Fund continued to experienced netwithdrawals as many clients drew down fromtheir financial reserves to meet the shortfall inincome that has resulted from lower interestrates. Client deposits (excluding those of otherCOIF Funds) as at 31 December 2011 totaled£911 million, a net outflow of £168 million.Market ReviewThe economic data in early 2011 initially dividedthe Bank of England’s Monetary PolicyCommittee (MPC), splitting it three ways. Somemembers voted for an immediate increase inrates, one favoured more quantitative easing,but the majority of the committee memberssignalled they were prepared to accommodatehigher prices as the economy tried to adjustfrom recession to a sustainable recovery.Domestically there have been two major factorsinfluencing the division. Firstly, the headline rateof inflation (CPI) continued to be persistentlyhigh relative to the Bank of England’s MPC’starget. CPI, which has actually not fallen below3% since December 2009, reached a high of5.2% in September 2011. The other factor hasbeen the struggle to recover from the severerecession.Headline inflation has been above target for 40of the past 46 months. The inflationarypressures in 2011 were caused by one-off taxrises such as VAT, the effect of sterling’sdevaluation and rising commodity and foodprices. These are all expected not to berepeated in 2012 and so the MPC is forecastingthat the headline inflation data will drop sharplyas a result.After the release of the Bank of England’sAugust Inflation Report it became clearer theMPC was growing very concerned about therisks the Eurozone sovereign crisis posed to theUK economy as well as the banking system.Though possible it is still assumed that the Bankof England’s official bank rate, which was lastlowered to the historical low of 0.5% over twoand half years ago will not be lowered anyfurther within the immediate future, so ifrequired, any additional monetary stimuluswould have to come from other means.Following many indications that Europeanleaders would unite and formulate a resolutionto solve the crisis it became apparent that asuccessful resolution was not imminent.Coupled with a marked weakening in domesticeconomic data and the expected fall in the rateof inflation the MPC, at its October monthlymeeting, decided to conduct a second round ofquantitative easing. The additional assetpurchases of £75 billion, like the previous £200billion in 2009/10, would be financed by theissuance of central bank reserves.Interest rates quoted on the London MoneyMarket are notably higher than the Bank ofEngland’s Official Bank Rate and the market’sinterest rate outlook. This is a reflection of thefunding stress within the financial systemcaused by the Eurozone problems which are5

Report of the Investment Managerfor the year ended 31 December 2011increasing wholesale deposit rates. Banks arealso finding it more difficult to secure wholesaledeposits after the major rating agenciesdowngraded the short and long term ratings ofmany global banks. The elevated deposit rates,particularly for longer term deposits, are likely topersist for some time.StrategyThe Fund is structured to provide both capitalsecurity and adequate daily liquidity. The shorttermnature of the Fund allows us to alterquickly the portfolio composition to reflect ourassessment of changing market conditions. Theassets of the Fund are placed strictly withinagreed limits with a diversified list of qualitycounterparties in order to achieve a very lowoverall level of risk and high security of capital.The list of approved counterparties is constantlymonitored and lending limits immediatelyamended following credit rating changes. TheFund has maintained a high level of liquidity toensure that sufficient money is always readilyavailable to meet client withdrawals. Thebalance of the Fund was deposited for periodsof up to one year with the aim of boosting theoverall yield of the Fund for the benefit of thedepositors. The weighted average maturity as at31 December 2011 was 52 days.Rated AAA/V1 by Fitch RatingsThe Fund has been assigned a AAA/V1 creditand volatility rating by Fitch Ratings, which wasaffirmed on 5 January 2012. This rating reflectsthe high quality of the Fund's approved lendinglist, the employment of an appropriateRisk warningThe Manager undertakes to exercisereasonable care in its placing of deposits with aselected list of banks and building societies inthe UK but it cannot give guarantees regardinginvestment policy, a low overall level of riskthrough diversification, and the quality ofmanagement and internal controls. The rating isawarded to funds that have the lowest creditrisk and where the total returns exhibit relativestability, performing consistently across a broadrange of interest rate scenarios and changingmarket conditions.Responsible investment policyWe monitor our counterparties’ Environmental,Social and Governance risk management on aregular basis and take action if necessary. Ourresearch process is based on the work of ourEthical and Responsible Investment team anddata provided by EIRiS, an ethical investmentresearch company.OutlookThe prospects for the UK economy remain poorand the MPC will be nervous about raising ratesin 2012, even if the rate of inflation remainsabove its target level. The one signal that maycause the MPC to alter its present stance wouldbe a sudden increase in wage inflation, althoughthere is no expectation that this will occur. Wetherefore believe that a rise in the Bank ofEngland’s Official Bank Rate is a distantprospect, possibly not until 2014.S FreemanFund ManagerCCLA Investment Management Limited22 March 2012repayment of deposits. The daily rate on theFund is variable and past performance is noguarantee of future returns. Deposits in theFund are not covered by the Financial ServicesCompensation Scheme.6

Report of the Independent Auditorto the depositors of COIF Charities Deposit FundMatters on which we are requiredto report by exceptionWe have nothing to report in respect of thefollowing matters where the Charities Act 1993requires us to report to you if, in our opinion:●the information given in the Annual Report isinconsistent in any material respect with thefinancial statements; or●sufficient accounting records have not beenkept; or●the financial statements are not in agreementwith the accounting records and returns; or●we have not received all the information andexplanations we require for our audit.Ernst & Young LLPStatutory AuditorLondon22 March 20128

Average rates of interest paidfor the year ended 31 December 2011ActualGross AER*Month % p.a. % p.a.January 2011 0.65 0.65February 2011 0.66 0.66March 2011 0.70 0.70April 2011 0.70 0.70May 2011 0.70 0.70June 2011 0.70 0.70July 2011 0.70 0.70August 2011 0.70 0.70September 2011 0.75 0.75October 2011 0.75 0.75November 2011 0.75 0.75December 2011 0.77 0.77ActualGross AER*Year to 31 December % p.a. % p.a.2007 5.49 5.602008 5.35 5.462009 1.22 1.222010 0.52 0.522011 0.71 0.71*Annual Equivalent Rate (A.E.R.) illustrates what the annual interest rate would be if the quarterlyinterest payments were compounded.The rates are published in the Financial Times and on the Manager’s website at www.ccla.co.uk.9

Interest paid tablefor the year ended 31 December 2011Average rates ofinterest paidTotal 2011 2010Year ended Date of payment £' 000 % %31 March 2011 7 April 2011 1,799 0.67 0.5030 June 2011 6 July 2011 1,787 0.70 0.5030 September 2011 7 October 2011 1,748 0.72 0.5031 December 2011 9 January 2012 1,787 0.76 0.577,121 0.71 0.52Summary of deposits placed by maturityat 31 December 201131.12.2011 31.12.2010Repayable £' 000 % £' 000 %On call 144,029 15.66 234,887 21.18Within 5 business days 59,000 6.41 70,000 6.31Within 30 days 160,000 17.39 240,000 21.64Between 31 and 60 days 191,000 20.76 235,000 21.19Between 61 and 91 days 160,000 17.39 190,000 17.14Between 92 and 182 days 181,000 19.67 107,000 9.65Between 183 days and one year 25,000 2.72 32,008 2.89Total deposits 920,029 100.00 1,108,895 100.0010

Statement of total returnfor the year ended 31 December 201131.12.2011£’00031.12.2010£’000Revenue 9,540 9,191Expenses 2 (2,520) (3,152)Net revenue and total return 7,020 6,039Finance costs: distributions (7,121) (6,626)Net decrease in income reserve (101) (587)The notes on pages 13 to 17 form part of these accounts.11

Balance sheetat 31 December 201131.12.2011 31.12.2010Notes £’000 £’000ASSETSDebtors 4 1,744 1,448Cash and bank balances 323 4,474Deposits 920,029 1,108,895Total assets 922,096 1,114,817LIABILITIESCurrent deposits 5 916,173 1,107,510Creditors 6 398 1,681Income reserve 7 5,525 5,626Total liabilities 922,096 1,114,817Approved on behalf of the Board22 March 2012D Henderson, ChairmanThe notes on pages 13 to 17 form part of these accounts.12

Notes to the accounts1. Accounting policies(a) Basis of accountingThe accounts have been prepared under the historical cost basis, as modified by therevaluation of investments, and in accordance with policies set out below, the Statementof Recommended Practice (Accounting and Reporting by Charities) issued by the CharityCommission in March 2005 and the Statement of Recommended Practice for AuthorisedFunds issued by the Investment Management Association (IMA) in October 2010.(b)(c)(d)Revenue recognitionInterest on bank and building society deposits is accrued on a daily basis.ExpensesThe Manager’s periodic charge paid to the Manager is charged to the revenue of the Fundbefore distribution. The fee is based on a fixed percentage of the value of the Fund, whichis currently 0.20% pa plus VAT. Each month, the value at the end of the previous month istaken to calculate the fee due. This fee covers the provision of investment services andother expenses incurred by the Manager. Audit fees, insurance, bank charges and theTrustee’s administration fee are charged separately to the revenue of the Fund beforedistribution.DistributionsInterest is paid quarterly. The Fund utilises an income reserve to facilitate the payment ofinterest to depositors (see note 7).2. Expenses 31.12.2011£’000Payable to the Manager, associates of theManager and agents of either of them:31.12.2010£’000Manager’s periodic charge – see note 1(c) 2,460 3,083Manager’s fee for ethical services 9 62,469 3,089Other expensesTrustees administration fee 23 6Insurance fee 12 22Audit fee 8 8Bank charges - 14Other expenses 8 1351 63Total expenses 2,520 3,152The above expenses include VAT where applicable.13

Notes to the accounts3. TaxationThe Fund is exempt from UK income and capital gains tax due to its charitable status pursuantto Part 11 Chapter 3 of the Corporation Tax Act 2010 and Section 256 of the Taxation ofChargeable Gains Act 1992. Distributions are paid and reinvested revenue credited gross todepositors.4. Debtors 31.12.2011£’00031.12.2010£'000Interest receivable 1,731 1,421Prepayments 13 271,744 1,4485. Current deposits 31.12.2011£’00031.12.2010£'000Charities and Trusts 910,668 1,078,411COIF Charities Investment Fund 1,213 18,933COIF Charities Ethical Investment Fund 187 6,349COIF Charities Fixed Interest Fund 211 1,348COIF Charities Property Fund 3,035 1,295COIF Charities Global Equity Income Fund 859 1,174916,173 1,107,510Deposits are repayable to clients on demand.6. Creditors 31.12.2011£’00031.12.2010£'000Interest payable 390 1,659Accrued expenses 8 22398 1,68114

Notes to the accounts7. Income ReserveThe Fund utilises a reserve which is accumulated out of revenue and held by the Board ontrust for depositors for the time being. The principal purpose of the income reserve is tofacilitate the payment of interest to depositors at each quarter end even though a proportion ofthe revenue earned by the Fund over the quarter will not be received until the maturity date ofindividual deposits.The reserve is also available as a provision against potential default of counterparties and isavailable to augment the Fund’s deposit rate.31.12.2011£’00031.12.2010£'000Income reserve at the start of the year 5,626 6,213Transfer from income reserve (101) (587)Income reserve at the end of the year 5,525 5,6268. Financial instrumentsThe main risks arising from the Fund’s financial instruments and the Manager’s policies formanaging these risks are summarised below.Currency riskThere was no foreign currency exposure within the Fund at 31 December 2011 (31.12.2010,£nil).Credit riskThe Fund is exposed to the risk regarding the repayment of deposits from the counterparty. Tominimise this, the assets of the Fund are strictly placed within agreed limits with a diversifiedlist of quality counterparties in order to achieve a very low overall level of risk and high securityof capital. The list of approved counterparties is constantly monitored and credit limitsimmediately amended following credit rating upgrades and downgrades.Interest rate riskThe Fund invests in fixed rate and floating rate deposits. Changes in the interest rate will resultin revenue either increasing or decreasing.15

Notes to the accountsThe interest rate risk profile of the Fund’s financial assets and liabilities at 31 December 2011was as follows:CurrencyFloating ratefinancial assets£’000Fixed ratefinancial assets£’000Financial assets notcarrying interest£’000Total£’000Sterling 323 920,029 1,744 922,096CurrencyFloating ratefinancial liabilities£’000Fixed ratefinancialliabilities£’000Financial liabilitiesnot carrying interest£’000Total£’000Sterling 921,698 - 398 922,09631 December 2010CurrencyFloating ratefinancial assets£’000Fixed ratefinancial assets£’000Financial assets notcarrying interest£’000Total£’000Sterling 234,887 878,482 1,448 1,114,817CurrencyFloating ratefinancial liabilities£’000Fixed ratefinancialliabilities£’000Financial liabilities notcarrying interest£’000Total£’000Sterling 1,113,136 - 1,681 1,114,817All financial liabilities are due to be settled within one year, or on demand.There were no derivatives held by the Fund at 31 December 2011 (31.12.2010, £nil).16

Notes to the accounts9. Related party transactionsThe Manager’s periodic charge and fee for governance services are paid to the Manager, arelated party to the Fund. The amounts paid to the Manager are disclosed in note 2. Therewere no outstanding balances due to the Manager at 31 December 2011 (31.12.2010, £nil).There were no other transactions entered into with the Manager during the period.10. Board remunerationThe Board members receive no remuneration from COIF Charity Funds. Mr R Fitzalan Howardis a Director of the Manager and received remuneration from the Manager, which is disclosedin that Company's accounts.17

Statement of Board and ManagerresponsibilitiesThe Board of the Fund is required by theScheme of the Charity Commission made underthe Charities Act 1993, dated 2 April 2008, toprepare accounts in accordance with any rules,regulations or standards of practice issued bythe Charity Commission affecting the keeping ofaccounts of common deposit funds. The Boardis required to:●select suitable accounting policies that areappropriate for the Fund and apply them on aconsistent basis;The Board has delegated to the Manager theday to day management, accounting andadministration of the Fund as permitted by theScheme.The Manager is required to manage the Fund inaccordance with the Scheme and takereasonable steps for the prevention anddetection of fraud and other irregularities.●keep proper accounting records which enablethem to demonstrate that the accounts, asprepared, comply with the aboverequirements;●make judgments and estimates which arereasonable and prudent; and●prepare the accounts on the basis that theFund will continue in operation unless it isinappropriate to presume this.18

CCLA INVESTMENT MANAGEMENT LIMITEDCOIF Charities Deposit Fund(Charity Registration No. 1046249)BoardD Henderson, Chairman of the Board, FCA, Company DirectorT Bell, FRICST Clark, SolicitorA Daws, SolicitorR Fitzalan Howard, Chairman, FF&P Asset Management LimitedG Newson, MRICSSecretaryJ FoxManager, Administrator and RegistrarCCLA Investment Management LimitedAuthorised and regulated bythe Financial Services Authority80 CheapsideLondon EC2V 6DZTelephone: 020 7489 6000Client Service:Freephone: 0800 022 3505Facsimile: 0844 561 5126Email: clientservices@ccla.co.ukwww.ccla.co.ukDirectors responsible for the FundM Quicke (Chief Executive)J Bevan (Chief Investment Officer)S Curran (Chief Operating Officer)C Peters (Investment Director)A Robinson (Director Market Development)Fund ManagerS FreemanCompany SecretaryJ FoxHead of Operational Risk,Internal Audit and ComplianceA Kemp (until 30th November 2011)P Burgess (from 3rd January 2012)Head of Ethical and ResponsibleInvestmentH WildsmithBankerThe Royal Bank of Scotland plc62/63 Threadneedle Street,London EC2R 8LASolicitorsFarrer & Co LLP66 Lincoln’s Inn Fields,London WC2A 3LHIndependent AuditorErnst & Young LLP1 More London Place,London SE1 2AF

CCLA INVESTMENT MANAGEMENT LIMITEDCOIF Charity FundsThe COIF Charity Funds provide a ready and practical means for charities to obtain, at reasonable cost, constantprofessional investment and cash management for their long-term capital and short-term cash. They also provideprotection through diversification combined with simplified administration.A CHOICE OF SIX FUNDSThe six COIF Charity Funds aim to meet most of the investment and deposit needs of Charities.Investment Fund● A suitable ‘all-in-one’ long-term fund for mostcharities● Highly diversified and well-balanced spread ofinvestments● Designed to deliver rising income and meet longtermgrowth requirements● Managed to client-driven responsible investment andUK Stewardship Code principlesEthical Investment Fund● An actively managed fund with a diversified portfoliosuitable for a wide range of charities● Managed to client-driven ethical investment and UKStewardship Code principles● A focus on long term returns and a rising incomestream for investorsGlobal Equity Income Fund● Attractive income● Rising income in the future● Strong growth opportunities from the global economyFixed Interest Fund● Long-term investment focused on income● Gross income paid quarterly● Usually held with other investments such as equitiesand cash to give a broad spread of assets and achievecombined income and growth objectivesProperty Fund● High quality, well-diversified commercial andindustrial property portfolio● Focus on delivering attractive income● Actively managed to add value● Usually held with other investments such as equities,bonds and cash to give a broad spread of assets andachieve combined income and growth objectivesDeposit Fund● An attractive rate● Interest paid gross● No minimum balance● Easy access● Simple operation● Excellent service● Free BACS transfers● AAA/V1 fund ratingThe Deposit Fund is rated AAA by Fitch Ratings. This reflects the high credit quality of the portfolio.The COIF Charity Funds are common investment funds established by the Charity Commission for England andWales under Section 24 of the Charities Act 1993. The Deposit Fund was established under Section 25 of theCharities Act 1993. Any charity in the United Kingdom within the meaning of the Charities Act 1993 (as amendedor replaced) may invest in the Deposit, Investment, Ethical Investment and Global Equity Funds. Any charity inEngland and Wales may invest in the Fixed Interest and Property Funds. CCLA Investment Management Limitedoperates as the Investment Manager and Administrator of the Funds.The value of the investments may fall as well as rise and an investor may not get back the full amount originallyinvested.CCLA Investment Management Limited (registered in England No. 2183088 – registered office 80 Cheapside,London, EC2V 6DZ) is authorised and regulated by the Financial Services Authority.CCLA INVESTMENT MANAGEMENT LTD80 CheapsideLondon EC2V 6DZClient Service:Freephone: 0800 022 3505Facsimile: 0844 561 5126Email: clientservices@ccla.co.ukwww.ccla.co.ukPrinted on 100% post consumer waste and is certified by the Forest Stewardship Council (FSC).