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Wednesday, October 13, 1999

Monument to Split Internet Fund

Reported by Hayley Green

Investors in the Monument Internet Fund will be the "beneficiaries" of a three-for-one stock split effective October 29, 1999, the Bethesda, Maryland-based fund company said today.

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The Monument Internet Fund has returned 154.57% from its inception in November 1998 through September 30, 1999, after the deduction of a maximum sales charge of 4.75%, heady numbers to potential investors. But the NAV has obviously climbed as well, and the price per share makes it harder to attract the same small investors as at the fund's inception. Thus the decision to lower the share price via a split.

Monument Funds Group president David Kugler referred to the "numerous requests (received) from shareholders and financial advisers who missed our fund when it was originally priced in the $10.00 per share range" as the reason for the decision to split the fund's shares.

Of course the value for existing shareholders remains the same, but potential investors see a lower intial price hurdle. Most industry experts seem to be in agreement that fund companies simply split shares for marketing reasons. What it all boils down to is the investors' perception of "what's a low enough price?".

"There is no advantage to the shareholder," said Marvin Appel, CEO, Appel Asset Management, an RIA with $110 million under management. "The Internet (stocks have) been doing well and maybe they didn't want the price going way off the charts."

"From our point it does not change the perception at all. It does make the statement more confusing," Appel said. "I've never had a client contact me about the price of a mutual fund share. Nobody has ever said, 'gee this seems like an expensive fund.'"

A study done at The Wharton Financial Institutions Center by Fernando, et al. on the relationship between share price and the marketability of mutual funds does seem to show that at some level investors are affected by price. The study shows an increase in subsequent inflows and number of shareholders after a split. In the study most mutual fund managers believe that a lower share price adds to the attractiveness of a fund, bringing it into a "preferred trading range."

Shlomo Benarzti, a professor of behavioral finance at UCLA said, "I've never figured out why the heck they do share splits in mutual funds. I have no idea why. I hear stories that they want the price in the right range. I'm not even sure the investor knows the price per share."

Early in 1999, ProFunds reverse split its ProFund Bear and five others one-for-five, because the fund's NAV, shorting the exploding market, had gotten too low causing, among other things, rounding issues. One of the other five funds split was the ProFund Bull, tracking the same index as the Bear.

Louis Mayberg, president of ProFunds said the split, "took the fund up to a high NAV level. We had a lot of investors that found it too high. People felt they couldn't afford to buy it, investment advisors as well." In reaction, ProFunds subsequently split two of the funds four-to-one, bringing the NAVs down to a $40-$45 range.

"The NAV financial reasoning is meaningless," Mayberg said. "Psychological marketing can make many people happy as long as you don't do anything to impune your integrity." 

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