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Internet Fund Split Called a Gimmick

With the recent downturn in the fortunes of the equity markets, there has been little cause for levity, but the Monument Funds Group provided a source of amusement to some financial analysts when it announced a three-for-one share split for its extraordinarily successful Internet fund.

Since its inception in November 1998 to Sept. 30, 1999, the Monument Internet Fund has returned, after the deduction of its 4.75 percent front-end sales charge, 154.57 percent. Still, it has only been able to attract $47 million in assets, compared to $579 million garnered by The Internet Fund and $2.4 billion by the Munder NetNet Fund, its rivals.

"These guys are used to Internet stock investors who are used to stocks jumping as soon as they announce a split, which is silly to begin with," said Pat Dorsey, a stock analyst with Morningstar in Chicago. "What makes this sillier is that people buy mutual funds in dollar amounts. They don't call a fund and say, I want a hundred shares of your fund.'"

Dorsey's colleague, Mutual Fund Editor Russel Kinnel, also dismissed the value of the stock split.

"If it takes $2500 to get into a fund this week, it's going to take $2500 to get in next week [with or without a split] so [the split] is completely meaningless," Kinnel said.

The action by Monument seeks to play on perception, not substance, said Dorsey.

"The theory is, when a company says, We're going to split our stock,' it's a signal from management that they see good times ahead, and they expect the stock price to continue to rise," said Dorsey. "But for a mutual fund, it makes no difference at all. It's a marketing gimmick, pure and simple."

That is not Monument's spin on the split, however. In a statement Oct. 13 announcing the move, David A. Kugler, Monument's president said, "We received numerous requests from shareholders and financial advisers who missed our fund when it was originally priced in the $10 per share range. In response to these requests, the fund board decided to move forward with the stock dividend."

The statement said that the split will have a record date of Oct. 29, 1999. Its ex-date and payable date is Nov. 1, 1999. Shareholders of the Monument Internet Fund who buy or own shares as of the close of business on October 29 will receive two shares for every share of the fund that they own. The net asset value of the fund will be reduced by two-thirds on November 1 to reflect that split.

In addition to disclosing the split in its Internet fund, Monument announced the issuing of Class B shares for all its funds. Class B shares will not have front-end sales charges but will have contingent deferred sales charges.

Stock splits and reverse splits by mutual funds are not uncommon, said Ed Rosenbaum, director of research at Lipper, Inc. in Summit, N.J. There were 16 splits in 1998 and there have been four thus far this year, he said.

"It may not be an uncommon occurrence, but it is insignificant because it has absolutely no impact on the investment that the investor holds," he said.

While it is not unusual for a fund to do a split, it is unusual for a fund to trumpet it in a press release, according to Morningstar's Kinnel.

"It clearly means that they're trying to attract people too dumb to know that NAV doesn't matter for mutual funds," he said. "They're essentially pandering for suckers."

A spokesperson for Monument referred questions about the split to the Internet Fund's manager, Alexander Cheung. When asked if the fund's share split was a marketing gimmick, Cheung said he was not in a position to answer the question.

"It's a management decision. It's not an investment decision," he said. Cheung said he did not know whether the split would attract more investors to the fund. "My job is to make the NAV go up."

At least one study, has shown that there is a relationship between share price and mutual fund marketability.