The Equity Fund delivered a return of 0.6% for the month, which was slightly below that of the average General Equity Unit Trust which ended the month up 1.2%.

The South African equity market has enjoyed a strong rally over the past two quarters, with the FTSE/JSE All Share Index ending September up almost 40% from the early March low. This rally has been driven by a re-rating of the more cyclical companies, on the market's expectation of eamings recovering for the year ahead. While the Equity Fund has participated in this re-rating of risk assets, its total return has fallen short of the overall market given that the fund has retained a more defensive bias. In addition, we are underweight the Resources sector as we see the risk of further earnings downgrades, particularly in light of the recent Rand strength.

The fund delivered -a flat return for the month of June, which was better than both the average General Equity Unit Trust that was down 0.4% and the FTSEnSE All Share Index that ended the month down 3.0%. Following a strong run since mid-March, it was the Resource shares that led the market lower with the Gold sector fairing the worst (down 17%). The fund benefited from its underweight Resources position, in particular from not
having any exposure to the Platinum sector (down 9%). The Equity Fund remained defensively positioned with its core holdings in Naspers and Tiger Brands performing well. In addition, the fund held above average levels of cash and related instruments which proved to be beneficial in a falling market.

The Fund returned 5.24% for the month.

The Fund has been in defensive mode for some time now, and this is the first month since June 2008 that the fund has underperformed. Markets have been searching for a reason to rally and a positive memo from a crippled financial company (Citi) and a meeting of politicians (the G20) seemed to do the trick. Never mind that the combination of banks and governments created the current mess in the first place. Despite this change in market sentiment, the underlying economic conditions have not improved. When unemployment stops rising that will be the time that we will acknowledge conditions have stopped deteriorating. The recent market rally has also been concentrated in areas which we think face the biggest headwinds for the next 3 years, namely a) very cyclical stocks, such as platinum, b) industries that are overbuilt, such as paper, and c) stocks that are not paying dividends because of leverage or thin margins, such as global financials.

We believe that ultimately share prices will need to follow earnings, and earnings on an aggregate level will match GDP.

Fortunately we are finding areas of value in these economic conditions. Typically these companies are not expanding capacity as they have already begun restructuring, and their business models are not under threat. Good examples are Wooworths, Tigerbrands and Adcock Ingram. We have also added to our position in Anglo American. The latter company has a lot of trapped value in terms of businesses that it can be disposed of, and the selling of Anglogold is a step in the right direction for this company.

The Fund returned 3.4% for the month.

2008 is a year that most fund managers and investors will want to forget!

The year started off well for equities, with the FTSE/JSE All Share index up 16% in the first five months. However, after reaching a new record high on the index of 33232 on 22 May 2008, the market collapsed, reversing the early gains and falling a total of 45% by 20 November 2008. The market then staged a recovery, up 21% off its November low, to end the year down 23.2% on a total return basis.

Although the Prudential Equity Fund also ended the year in negative territory we are pleased to report that we fared better than the overall market and significantly better than a number of our competitors. The Equity Fund delivered a total return for 2008 of -15.1%.

The Fund's outperformance of the market, in particularly during the second half of the year, can be attributed to the underweight position in Resource shares, the increase in cash holdings of approximately 10% and our preference for Industrial shares with their defensive earnings streams.

Within Resources we continue to favour the larger mining companies with diversified earnings and strong balance sheets over the companies which are dependent on a single commodity or are highly indebted. As a result our preferred mining counters remain Billiton and Anglo American.

As discussed over the past few months, we continue to hold positions in domestic industrial companies whose earnings we believe will remain resilient in this period of economic downturn. Our key positions that meet this criteria are Tiger Brands, Naspers, MTN, Pick n Pay, Spar and Adcock Ingram. We recognise that these shares currently trade at a premium to the broader industrial index but feel the premium is justified because of the higher degree of earnings certainty.

We remain cautious on the outlook for the interest rate-sensitive shares given that the outlook for their earnings remains highly uncertain. We have however started to increase our weighting to select shares where we feel we are being paid to take on the risk of uncertain earnings.

We start the year optimistic that we can deliver positive returns for the year ahead but do caution that the first half will remain volatile as the market comes to terms with the current uncertain economic environment.