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Investment Advisors

, or IAI, funds racked up spectacular double-digit returns last week thanks to a big stake in a technology company that recently went public.


IAI Value jumped 28.7% while


Emerging Growth shot up 21.7% in the five trading days through Feb. 4, according to



Both funds, which had unspectacular returns for 1998, got a boost from the same small stock,

Tut Systems


, which went public Jan. 29 at 18 a share. By the end of its first trading day, shares in the communications equipment company closed up 219% at 57 1/2. The stock closed Monday at 62 1/2.

Minneapolis-based IAI, which occasionally buys stakes in privately-held companies, had 7.3% of its $15.2 million Value fund invested in Tut Systems at the end of September. The $77.2 million Emerging Growth fund had 5.2% of its assets in the same company. The stock's meteoric rise has caused those stakes to balloon. As of Feb. 2, Tut Systems accounted for 33% of the assets of IAI Value and 29% of IAI Emerging Growth's assets.

IAI has filed a supplement to the prospectus of each fund with the

Securities and Exchange Commission

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, explaining the added risk posed by holding such a substantial stake in a single company. In addition to limited diversification, the stock is still considered illiquid because IAI has an agreement with Tut System's underwriters not to sell its stake for 180 days after the IPO.

Tut's rise in value brings the Emerging Growth fund's total stake in illiquid investments to 36%, including stakes in at least two other privately-held companies,



Myelos Neurosciences

, as of Sept. 30, 1998, according to



The Value fund now has 65% of its assets in thinly traded securities, including a 28% stake in


, a tiny telecommunications firm whose value soared on news it would go public last year. The firm has since cancelled its public offering.

IAI Value popped 28% on May 11 alone -- on news of Pathnet's public registration. The fund says in its supplement that its board of directors continues to monitor the fund's investment in the firm, adjusting the price when required.

The Value fund remains closed to new investors. It was temporarily closed last year when Pathnet's price leap pushed the fund's stake in the illiquid stock to 26% of assets. The firm says it has no plans to close Emerging Growth.

While these funds have enjoyed their moment in the sun, their overall performance has been nothing to crow about. Despite brief run-up in value due to its Pathnet holding, the Value fund finished 1998 down 0.04%. Emerging Growth returned 5.2% last year compared to a 28.6% return for the

S&P 500


An IAI spokeswoman declined to comment other than to confirm that the Emerging Growth fund remains open to new investment.

None of the fund firm's nine stock funds has beaten the

S&P 500

since 1994.

Franklin Mutual Funds Dodge Inso Bullet

Investors in



have taken a beating since the software company's announcement last week that it would restate earnings for the first three quarters of 1998 and fall short of earnings expectations for the fourth quarter. Since the announcement, the stock has fallen 66.5% through Monday's close.

At least one well-known mutual fund firm managed to dodge Inso's speeding bullet.

Franklin Mutual Advisers

, which oversees the

Mutual Series

group of funds, owned as much as 7% of Inso in February 1998.

"We sold out before the end of year," says Rob Friedman, chief investment officer at the firm. "I cannot say that we spotted the specific issues, but we certainly spotted it as overvalued -- at 25

before the earnings announcement, the value was long since gone," he says.

After all of its stock funds ended last year trailing the market significantly, the Mutual Series group is enjoying a turnaround in 1999. Four of the Short Hills, N.J.-based firm's six stock funds are beating the S&P 500 so far this year.

(MUTHX) - Get Franklin Mutual Shares Z Report

Mutual Shares,

(BEGRX) - Get Franklin Mutual Beacon Z Report

Mutual Beacon,

(MDISX) - Get Franklin Mutual Global Discovery Z Report

Mutual Discovery and

(MEURX) - Get Franklin Mutual European Z Report

Mutual European funds are ahead of the benchmark. The

(MQIFX) - Get Franklin Mutual Quest Z Report

Mutual Qualified and

(TEFAX) - Get Franklin Mutual Financial Serv Z Report

Mutual Financial Services funds continue to lag.