March 16, 1998

For the first quarter, the economic environment favored the large-cap stocks, and the estimated probability of this result was 54.1%. This estimate, however, as previously mentioned, could be slightly biased due to measurement error. So, to test this probability we also measured the likelihood small-cap shares would outperform. That probability totaled 38.8%. Since both estimates concurred, our analysis - predicting large caps to outperform - was well-grounded. The probability predicted a continuous size related effect. And the empirical data support this prediction. As of March 15, the S&P 500, S&P 400 and S&P600 appreciated 10.5%, 8.7% and 8.3% respectively. The larger-cap shares outperformed.

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