The century ended with the kind of blockbuster year many mutual fund managers dream about--an astounding 326 mutual funds had triple-digit returns.

But the typical mutual fund investor may feel a bit crestfallen when reading of these huge numbers, such as the 494 percent gain by top-performing Nicholas-Applegate Global Technology Fund or the 328.66 percent gain by Warburg Pincus Japan Small Company Fund.

That's because this was not a rising tide that lifted all boats to the same level. Rather, it rewarded most those who took the biggest stomach-wrenching risks on the Internet, technology and the new economy, and those willing to bet on the economic upheaval in Japan, where attempts to transform its capital markets caused an explosion in the stock prices of small, entrepreneurial companies.

"A lot of investors did not beat the market, whether in mutual funds or stocks. This year's rally was very narrow. Technology and Japan tended to be the sectors of the market that outperformed," said Edward Rosenbaum, research director at Lipper Inc. "Those that did not participate in those sectors fell behind those that did."

But even funds that did not get astronomical gains still did well.

More than half the funds--52.5 percent--did not beat the market. In fact, of the 25 largest mutual funds, none had triple-digit returns, and 11 gained less than the Standard & Poor's 500-stock index. So the majority of investors in mutual funds probably did not beat the market, although because of the bull market they should feel wealthier.

"This is one of those situations where a large number of investors will be comparing the end-of-the-year performance of their funds to what they see in the newspaper headlines, and they may be disappointed. That would be a mistake," said Rosenbaum, who argued that returns of even 15 percent or 18 percent are considered good in most years.

The nation's largest mutual fund, Fidelity Magellan, which has assets of $99 billion, had a return of 24 percent. The nation's second-largest fund, Vanguard 500 Index, which tracks the the S&P, returned 21 percent.

In the competition between index funds, which are designed to track an index such as the S&P, and funds run by managers who pick stocks, Lipper is declaring the managed funds the winner in 1999, since managed mutual funds on average outperformed the index funds by 6.94 percentage points.

But Vanguard's Brian Mattes disagreed, because the majority of managed funds did not beat the S&P index. It was just those highflying funds that skewed the average, and most of those were small funds.

Russ Kinnel, senior analyst for Morningstar Inc., which tracks mutual funds' performance, agreed that it was the smaller funds that really soared. "This has been an amazing time for mutual funds, and a lot of the really amazing returns came from smaller funds."

He said that smaller funds can put a bigger percentage of their assets in initial public offerings of Internet companies and other technology ventures. Of two funds that are allocated several thousand shares of a stock that soars, it will have a bigger impact on a fund holding, say, $125 million in assets than on one holding $99 billion.

Until the fourth quarter, mutual funds were not having much of a year. The third quarter was dismal for both managed and index funds.

"But the fourth quarter made the year," said Michael Lipper, chairman of Lipper. "In fact, the fourth quarter of 1999 was better than the gains for all of 1998. . . . The fourth quarter was driven largely by technology stocks."

The technology sector overall returned 63.82 percent for the fourth quarter, giving it a 134.77 percent return for the year. The worst-performing fund in the sector was Franklin Dynatech, which rose 37 percent, still leaving the S&P in the dust. Many of these tech funds are newcomers, such as Monument Internet Fund of Bethesda, which was started in November 1998. Monument, which invests solely in Internet or Internet-related businesses, ranked No. 7, with a return of 273.14 percent.

Van Wagoner Emerging Growth Fund, which ranked No. 5, invested heavily in electronic commerce and other tech companies. Among their top holdings are Ariba Inc., the business-to-business software company that went public in June, and Phone.com, a company that enables handheld wireless phones to have Internet access, which went public in July.

"We don't think there is an enormous bubble that is going to burst," said Peter Kris, managing director of Van Wagoner Funds in San Francisco. Economic growth "could slow down a little bit, which could slow things down in tech stocks and bring valuations down for a while. But that's a short-term view. In the long term, there is so much change happening, and the catalyst is technology," he said.

The technology stock run-up in the fourth quarter benefited many other funds, because technology issues are so widely held, according to Lipper.

Global equity funds did better than domestic ones, led by Japan funds, which rose 120 percent for the year. The worst-performing category was the gold sector, which returned 3.63 percent for the year. European region funds returned 24.42 percent, while most other categories were up more than 50 percent.

But the winning sectors of 1999 got off to a rough start in 2000. Technology and Japan funds were hit the hardest, according to Lipper. Japan funds dropped 10.6 percent through Thursday, and technology funds lost 9.74 percent of their value. Telecommunications funds lost 8 percent. S&P 500 funds also got hit, dropping 4.5 percent through Thursday before rebounding 3 percent on Friday.

"Japanese funds were the talk of the town," said the Lipper report for last week. "While Japanese funds posted remarkable gains over the last 52 weeks, rising 96 percent, the latest week was not a stellar one. . . . The downward trend also appears to have carried over into the other economies in the Asian region, as Pacific region funds and China region funds dropped 7.93 percent and 7.28 percent respectively."

Tech, Asia on Top

Of the 100 funds with the highest returns for 1999, more than a quarter were technology funds, and more than a tenth were Japan funds. Category of top 100 mutual funds, 1999

Tech 27%

Japan 12%

Other 61%

SOURCE: Lipper Inc. (data and categories)