COIF Charity Funds - CCLA

COIF Charities Fixed Interest FundReport of the Investment Managerfor the six months ended 30 June 2006Risk WarningThe COIF Charities Fixed Interest Fund’s incomeyield is an indication of the expected level ofincome. The corresponding gross redemptionyield is an estimate of total return over the longterm. The Fund's income and gross redemptionyields are not guaranteed and will change overtime, due to changes in interest rates and theaverage maturity date of the securities held bythe Fund. When the Fund's income yield ishigher than the gross redemption yield, income isbeing paid at the expense of capital.OutlookContrary to expectations at the start of the year,the UK economy has remained on a steadycourse. The assumption that a further reductionin base rate may be required has now receded.Inflation may move higher in the comingmonths as increased household energy pricesfeed through, but we expect this to be atemporary factor. The recent rise in gilt yields ismore a reflection of higher global interest ratesand a change in UK base rate looks premature.The yield curve remains inverted with theshorter end of the curve, our preferred sector,offering the more attractive prospects andhigher yields. The Pension Regulator and theDebt Management Office have eased some ofthe pressures in terms of longer dated securitiesthough it is unclear where long yields will go inthe near term. Despite the recent fall in bondprices they continue to look extremelyexpensive by historic measures and are likely tounderperform other asset classes.Stuart P. FreemanFund ManagerCCLA Investment Management Limited27 July 200632