Fund Objective

The Standard Life Investments Ethical Corporate Bond Fund aims to provide a level of income, before charges, above that available on UK Government bonds by investing predominantly in investment grade bonds.

View on Past Performance

Investment grade bond returns turned negative during the month of January, as the spread premium over gilts that companies pay to borrow in the bond market widened steadily, driven by the impact of falling interest rates. Medium-dated corporate bonds outperformed long and short-dated bonds during the period, while the high-yield sector had its worst month since June 2002.Bond markets remain volatile with unexpected pricing behaviour in the midst of ongoing concerns about the full effects of the sub-prime mortgage crisis and an uncertain growth, inflation rate and interest rate environment.The Ethical Corporate Bond Fund returned - 0.71% over the month, ahead of its IMA sector average return of -0.87%. The Fund held up relatively well in volatile markets due to its structurally overweight position in investment grade supranational bonds such as KfW and European Investment Bank. These positives were partially offset by weakness in some of our property related holdings, including Slough Estates and Hammerson.We continue to monitor the average weighted maturity of the Fund and our exposure to the financial sector. We have spent considerable effort assessing our current positioning and remain satisfied with the portfolio structure for the time being.

Future Expectations

Credit markets remain nervous as investors try to gauge the likelihood of further sub-prime losses and commercial paper markets remain dislocated. The emergence of possible downgrades to bond insurance companies raised the spectre of forced selling within bond markets.Looking further out, the market remains concerned about the potential for an economic slowdown in the US that might cause an increase in default rates, although we do not think this will be as bad as some are predicting.We remain focused on investing in companies with robust cashflows that will continue to pay their coupons without difficulty, even in a less benign economic environment.

Fund Details