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Top-10 Preview: Japan, Tech Dominate Year's Top Funds

No. 1 is a new technology fund available only to institutional and well-heeled investors.

The race is on to qualify for the perennial -- and not-always-helpful -- year-end list of the 10 top-performing mutual funds.

Here's a look at the contenders.

As usual, the top-10 funds invest in sectors that have had the wind at their backs, namely Japanese and technology stocks. Apparently, it's a strong breeze because for the first time in recent memory, all top-10 funds are returning 200% or better for the year.

The Japanese economy's real and perceived recovery, combined with Japanese investors' restored faith in their own stock market, boosted Japan and Asia funds this year, according to Ed Rosenbaum, director of research for fund-tracker


, whose rankings are widely cited.

There are five Japan/Pacific Rim funds among the top 10, three managed by

Warburg Pincus

Japan-stock specialists Nicholas Edwards and Todd Jacobson.

Technology's solid performance and a highly successful flurry of tech initial public offerings in the late summer and fall boosted the returns of tech funds and small- and mid-cap growth funds. Two technology funds and three small- and mid-cap growth funds with big technology bets round out the list.

Beyond eye-popping performance, the list also has a forbidden fruit theme. Three of the leaders, most notably runaway front-runner


Nicholas-Applegate Global Technology, are available only to institutions and wealthy individuals who can come up with a $250,000 minimum investment. And


Van Wagoner Emerging Growth just closed to new investors.

While year-end lists will sell financial magazines and newspapers (hey, maybe even Web sites), they aren't necessarily useful for investors.

"To take nothing away from these managers, this list identifies what sectors are hot. Every year, the list will be different. This is not a way to pick great funds, but a way to pick sectors that worked this year," Rosenbaum says.

History proves him right -- and wrong. Four of 1997's top-10 funds are in the red this year. That's because many were financial sector funds or funds that invested heavily in financials. This year's rate hikes have punished these past winners.

But 29 of the 30 funds in the top 10 for 1995, 1996 and 1998 are in the black for '99. This makes sense because these lists were dominated by technology funds and tech-heavy small-cap funds. But if the tech bubble ever bursts, they'll all go down together.

One other note of caution about the 1999 list: This year's leaders aren't long in the tooth. Four lack three-year records, and only one has been around for five years, according to



Here's a capsule look at each of the current leaders heading into this year's final lap. Not all will be on the year-end list, and all won't be good long-term investments, but this year they've been in the right place at the right time.



Nicholas-Applegate Global Technology

A team of seven managers runs this highflying institutional fund. Started in August 1998, the fund has ridden a feverish technology rally to mind-boggling returns. Nicholas-Applegate spokesman Rick Shaughnessy wouldn't comment in detail on the fund's strategy, but its June 30 portfolio shows big, familiar names among the top-five holdings (including


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) and a 32% foreign stake.

Nicholas-Applegate exited the retail business, selling 11 funds to Phoenix-based

Pilgrim Capital

in May. There's no plan to offer a clone of the fund to retail investors anytime soon, according to a Pilgrim company spokesman.



Warburg Pincus Japan Small Company

This fund's communications and software picks and savvy currency hedging vaulted it to the top of an impressive Japan fund heap. In fact, managers Edwards and Jacobson have ridden many winners into large-cap territory -- Morningstar classifies it as a large-cap growth fund. Apparently, investors don't mind. The fund's assets have grown tenfold since January. A 1% redemption fee for investments held less than six months was added recently to protect long-term investors from expense-inflating market-timers.

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Lipper calls this fund, the only offering from Baltimore-based

Nevis Capital

, a large-cap growth fund, and Morningstar calls it a small-cap/mid-cap growth fund. But it looks most like a communications/technology sector fund. On June 30, its 1-year birthday, David Wilmerding and Jon Baker had a 52% tech bet, and the fund held 21 stocks. Investors should look at it as a focused, aggressive tech fund -- no matter what anyone calls it.



Van Wagoner Emerging Growth

Like most of Garrett Van Wagoner's hyper-aggressive, tech-heavy funds, this one has had a torrid 1999. Unfortunately, for interested investors -- and fortunately for current shareholders -- the fund

closed to new investors Nov. 22.


Warburg Pincus Institutional Japan Growth

Another Edwards/Jacobson Japan fund and another institutional fund beyond the Average Joe's grasp. Or is it? If you're hungry for shares, skip down to No. 9 where you'll find a retail version you can afford.


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Fidelity Japan Small Companies

Manager Kenichi Mizushita, who's run the fund for nearly three years, truly focuses on smaller companies. He owned practically no large-caps as of the fund's latest public portfolio data, which date back to April 30. A small-cap focus can increase volatility. It's gained as much as 40% and lost as much as 20% in a quarter since its 1995 inception, according to Morningstar.



MAS Small Cap Growth Institutional

Here's another small-cap institutional fund you can't buy that's shooting the lights out. Co-managers Arden C. Armstrong, David Pao-Kang Chu and Steve Chulik don't manage a retail fund, according to Morningstar's database. The fund's $500,000 minimum makes Nicholas-Applegate Global Tech's $250,000 minimum look cheap.


Driehaus: Asia Pacific Growth

Manager Eric Ritter is betting on Internet, networking and financial-services stocks. This isn't just a Japan fund either. Ritter says he's currently investing around the Pacific Rim, allocating assets to Korea (12%), Hong Kong (8%), Australia (7%), Singapore (6%) and Taiwan (5%). While the fund is no-load, investors should consider its expense ratio, 2.5%, according to a June prospectus. Lower expenses might be a comfort when Japanese stocks lose their luster.



Warburg Pincus Japan Growth

This large-cap fund, which is open to retail investors, has many holdings in common with Edwards and Jacobson's small-cap fund. It's also betting on software and communications stocks, in addition to Net-related names such as





Amerindo Technology

If this fund were a pepper, it would be a jalapeno. Recently reclassified as an Internet fund, it's as high-octane as you'll find.


reported how the fund's manager, Alberto Vilar, is not afraid to make big bets and drastic moves. In the past, he's made sudden cash calls and ridden winners well into double-digit weightings. This broker-sold fund is also pricey: The average tech fund's expense ratio is 1.76%, compared with 2.25% for this fund.