The Fund returned 2.5 % for the month of September.

Resources had one of their strongest months seen on the JSE in some time with the sector returning 13%, driven primarily by Billiton and Impala. This move can be attributed to the sector's lack of exposure to the US sub prime situation as well as the cut in US interest rates. It should be pointed out that most of this rise was in the absence of upward earnings revisions for the sector, but more due to investor confidence in the long-term sustainability of the commodity market. Gold had a good month returning 17.0%; however, the Fund has no exposure to Gold. Year-to-date the Gold mining sector has returned -7.5% compared to the Allshare's return of 23.0%.

Most Industrial and Financial stocks delivered negative returns as Northern Rock's failure, in the UK, dampened sentiment. In addition, poor SA economic data contributed to a poor outlook. In particular, interest rate sensitives performed poorly, hence we now believe that they represent value at these levels. The one set of interest rate-sensitive stocks that preformed well was Property, with our holdings in Emira, Apex and Redefine returning in excess of 8.0% for the month. Two of our small caps delivered good returns with Digicore returning 15.0% and Peregrine 8.7%.

With the possibility that SA interest rates are nearing a peak, combined with a strong underlying economy, we believe the focus of the portfolio will shift more towards the domestic cyclicals in the months ahead.

The Fund outperformed the FTSE/JSE All Share returning -0.4% for the month of June.

The Resource sector was the best performing sector in the JSE with our largest holding Billiton returning 12%. The other notable movement in the sector was the Gold sector in which the Fund has no holdings. The Gold sector declined 7% for the month, which brings a year-to-date return of -15%. It should be pointed out that earnings forecasts have fallen in this sector by some 40% over the last 12 months.

The continued rise in CPI brought an interest rate rise to the market and this had a negative effect on all the interest rate-sensitive stocks such as credit retail, furniture and banks. Although the earnings outlook is quite clouded for these sectors, value has started to emerge in this sector. Across Industrials we have seen a large valuation gap open up between interest rate cyclicals and defensive non-interest rate stocks. Although the Fund has a large weighting in defensive Industrials we do not want to completely exit the interest rate sensitives, despite the poor earnings visibility. The IT sector continues with a good year and, in the Fund, Digicor and Metrofile returned 20% and 15% respectively for the month.

Financials have had a poor year as a sector, underperforming Resources by some 20%. Rising global and local bond yields have been the main reason behind the derating. In addition, the introduction of the NCA is creating another headwind. .

The market has continued its strong performance into the year with small caps and Basic Materials having been the largest contributors to the JSE performance. The fund returned 5.5% for the month with resources returning 12%, Financials 4.4% and Industrials 4.6%.
Within Basic Materials all our holdings performed for the month. The rebound in copper, as well as the continued corporate activity, has been a large driver of returns. Kumba returned 17% with Amplats returning 15%.

Positive macro data as well as the growing involvement of private equity deals have been a boost for the domestic industrial shares. The Fund has exposure to two private equity deals, namely Edgars and Primedia. In general, we are opposed to these private equity takeouts. Investors receive a short term gain, but give up long term rewards.

It should also be noted that private equity firms buying these companies such as Edgars are doing so because of the large amount of value that they see, i.e. they are in agreement with our view. However, just because we are in agreement it makes no sense to hand over the shares so that they can reap the rewards on their own. We fear that most fund managers voting in favour of these deals are doing so more for the emotional satisfaction than for valuation reasons.

As from next month the Total Expense Ratio (TER) will be published.

The Fund name was changed from Prudential Optimiser Fund to Prudential Equity Fund in mid December.

The Fund returned 6.2% for the month outperforming the JSE/FTSE All share index return of 4.2% with the main source of return coming from Platinum, Small caps and food producers. For the 2006 calendar year, the Fund returned 44.19%, taking it to the top of the General Equity category for the three-year period.

Although Anglo and Billiton performed poorly in the Resource sector this was made up for by our holdings in Northam, (22%), Omnia (9.4%) and African Rainbow (32.8%), which enabled the sector to deliver an overall return of 5.1 %. This is the second time in the last quarter that copper weakness has had a dampening effect on the mining houses versus other resource stocks. This weakness in the mining houses will probably persist until investors are satisfied that some bottom has been reached in base metals.

Within Industrials, good returns were achieved in some of our small cap holdings with Busby returning 11 %, Metrofile 21 % and Spur 8%. Other holdings that preformed well have been Naspers 13% and Richemont, which is one of our larger holdings, returning 5.7%. In general industrial stocks that have little influence from the direction of interest rates fared best.

The Bank sector had a very good month returning 8.6%. This however should be seen in the context of the overall year where banks returned a disappointing return of 28% versus 41 %, from the ALSI. Banks have struggled this last year against the backdrop of rising interest rates as well as signs that bad debts are increasing. This framework will probably persist until the top of the interest rate cycle is reached.