Spectra Fund, the $420 million fund managed by Fred Alger Management of Jersey City, N.J., last week joined a small but successful group of funds that have split their shares in order to drop their share prices and attract more investors.

The Spectra Fund did a three for one share split that reduced the fund's net asset value from $30 per share to $10 per share. As of April 23, Spectra Fund shareholders owned three times as many shares at one-third of the share price.

Shareholders will see the increase on their next Spectra Fund account statement. But, the change has no financial or tax implications for shareholders. Alger sent notices of the planned split to all of its 11,000 Spectra shareholders recently and announced the intended split on its website. Beginning this week, the fund's voice response unit will also remind callers of the split so investors do not panic when they call in to hear the fund's daily net asset price.

Though the splitting of a fund's share price is not a common practice, Spectra's is by no means unique. In fact, two of Spectra's sister mutual funds did their own share splits in recent years. According to Lipper, a dozen funds did share splits in 1998. In 1996 and 1997, eleven companies did share splits in each year.

Spectra Fund started in 1978 as a closed-end fund but became open-ended in 1996 as a domestic all-cap portfolio with only $6 million in assets. Since then, the fund has grown seventy-fold, buoyed in part by a 30 percent holding in technology stocks. The success, in turn, sent Spectra's share price up, said Jim Connelly, senior vice president of Alger.

"When the fund hit $20 per share we said, Okay, we'll wait until it hits $30 then do this,'" he said. While a rising share price is not a typical fund manager's complaint, it can present its own challenges.

With a $30 per share price, many of Spectra's shareholders that invest under an automatic investment program were feeling short-changed, said Connelly. Those who invest $25 per month were not even getting one whole share. Although all mutual funds allow for the purchase of full and fractional shares, investors can feel frustrated. There are psychological factors related to prices, said Connelly.

"All else being equal - performance, service, etc. - it's human nature that people will pick the fund that's perceived as a less expensive product," he said. Alger conducted investor surveys to gauge sentiment regarding share prices, said Connelly. Investors like the fact that they now, for $25, can get 2.5 shares, he said.

"It makes them feel good about their investment," said Connelly.

In splitting shares, the fund industry is adapting the common corporate practice of splitting stock. According to Pat Dorsey, equity analyst at Morningstar in Chicago, stock splits can signal that management believes in the stock and expects the share price to continue to go up.

"Management is signaling that its corporate performance is going to be good," Dorsey said. Of course, that is not a guarantee but a vote of confidence. After all, a company would not risk cutting its share price if it thought the price might sink to significantly lower levels, said Dorsey.

In 1998, Waddell & Reed of Shawnee Mission, Kansas, declared what it calls a stock dividend (virtually identical to a share split) on six of its mutual funds - two Waddell & Reed funds and four United funds. Though the stock dividend rates varied from fund to fund from a 100 percent rate to a 400 percent rate, the end result was the same, said Robert Hechler, president of Waddell & Reed. The mission was to reduce the share price to $10 per share, said Hechler. When a fund's share price gets into the $30 to $50 range, it is time to consider options, he said.

Waddell & Reed's action was driven by its desire to satisfy its current investors who invest small amounts monthly, said Hechler. Waddell & Reed funds are sold through a captive sales force of approximately 2,400, many of whom encourage clients to invest under a dollar-cost-averaging program.

Though investors gain no financial benefits from either a share split or a stock dividend, such a move may help sell funds, Hechler said. A fund adviser never wants to say explicitly that a fund will go up, he said. But, by doing either a share split or stock dividend, there is a strong suggestion that the fund's share price will rise.

"Investors think, I'm growing the number of shares I own,'" he said. Waddell & Reed has no immediate plans to institute similar stock dividends on any of its other funds.

Reverse net asset value splits, which leave fund investors with fewer shares worth more money per share, are even less common. But they do occur.

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