The value of equity will increase, but the increase in the value of liabilities will exceed the increase in the value of equity. This is because, for pension funds, when liabilities consist mainly of nominal payments, their value, in general, will behave like a short position in a long-term bond. Therefore, decreases in interest rates, while beneficial for equities on the asset side, can increase even more the value of liabilities, thereby negatively affecting the surplus. This means that even though the value of equities might increase due to the decrease in interest rates, the increase in the value of liabilities due to the same decrease in interest rates will be greater. This is because the liabilities are behaving like a short position in a long-term bond, and the value of a bond increases when interest rates decrease. Therefore, the overall effect on the portfolio will be negative, as the increase in the value of liabilities will exceed the increase in the value of equity.

Choice A is incorrect. The value of equities on the asset side will not necessarily decrease with a downward trend in interest rates. In fact, lower interest rates often lead to an increase in equity prices as borrowing costs are reduced, making investments more attractive.

Choice B is incorrect. The value of liabilities will not decrease with a downward trend in interest rates. Since the fund's liabilities are primarily composed of nominal payments, they are fixed and do not change with fluctuations in interest rates.

Choice D is incorrect. This choice incorrectly suggests that both equity values and liability values would decrease with falling interest rates. As explained above, lower interest rates typically lead to increased equity prices while having no impact on the fixed nominal payments that make up the majority of the fund's liabilities.