September 24, 1998

We believe the value/growth effect may be influenced by the interaction of the tax code, government regulations and the inflation rate. To test our hypothesis, we looked for apparent systematic patterns among returns accounting for these variables. Encouraged by our findings, we apply, on an ongoing process, the Selector Methodology to our value and growth proxies -- the S&P 500 value and growth indices -- to estimate the likelihood of the value index outperforming the growth index, and vice versa. In an ideal world, the two probabilities would add to 100 percent. But, because of measurement errors, the statistical procedure will, on occasion, render a sum slightly different.

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