The UK economic outlook deteriorated further in September. In the US, the failure of Lehman Brothers and the rescue of AIG, along with the forced mergers in the US and Europe, stunned the financial world. Equities tumbled around the globe and credit markets ceased to function normally.In the UK, Lloyds TSB is on the verge of taking over HBOS, while Bradford and Bingley has been partly nationalised and partly sold off to Spain's Banco Santander. Bank of England policymakers voted 8-1 in favour of the status quo at their interest rate setting meeting. The dissenting member voted for a half-point cut from the 5% rate.The asset-backed FRN market remains illiquid and many of these securities are subject to wide dealing spreads. These exceptional market conditions have undermined the fund's performance.At the end of the month, approximately 33% of the fund was invested in Floating Rate Notes, a further 1% in Fixed Rate Bonds, 7% on overnight deposit and the balance in Certificates of Deposit and Commercial Paper. The average maturity of the Floating Rate Notes is currently around 4 years (where interest rates re-fix quarterly), whereas the rest of the holdings have durations of 35 days.
