June 30, 1998

For the second quarter just ended, the economic environment favored large-cap stocks, and the estimated probability of this result was 82.7%. This estimate, however, as previously mentioned, could be slightly biased due to measurement error. So, to test this probability we also measured the likelihood that small-cap shares would outperform. That probability totaled 41.2%. Since both estimates concurred, our analysis -- predicting large caps to outperform - was well grounded. The selector predicted a continuous size related effect. And the empirical data support this prediction. As of June 24, the S&P 500, S&P 400 and S&P 600 appreciated 15.4%, 6.7% and 3.0% respectively. The larger-cap shares outperformed.

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