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PATIENCE HELPS BOND CHIEF GET FUNDS BACK ON TRACK

Worth Bruntjen became the poster boy for the dangers of derivatives when each of the bond mutual funds he ran posted a total return of minus 25 percent in 1994.

So what's he doing today? Still managing money - and doing well at it.Bruntjen, who works for Piper Jaffray, was lead manager of three unrelated funds (Piper Jaffray Institutional Government Income, Managers Intermediate Mortgage and Monitor Mortgage) during 1994's bond-market debacle. All three funds were jam-packed with volatile derivatives - that is, securities whose price depends upon the prices of other securities.

The funds proved far more sensitive to rising interest rates than Piper Jaffray had said they would be, and they had by far the worst performance among mortgage funds in 1994. Piper eventually was fined $1.9 million by the National Association of Securities Dealers and state authorities, and it paid $67.5 million to settle a suit by shareholders, who said they were ill-informed of the fund's risks.

But Bruntjen is making a comeback. He's running tamer funds, and he's leading his peers. Monitor is the top-performing mortgage fund over the past 12 months and Piper is No. 2. After 1994's disaster, Managers replaced Bruntjen; Piper kept him but told him to sell his derivatives; and Monitor basically left him alone.

"We felt that if we were patient, derivatives would recover," says Norman Jacobs, president of Huntington Trust Co., which administers the Monitor funds.

Paul Dow, chief investment officer for Piper Capital Management, says Bruntjen and the firm's investment committee decided to wait until 1995's strong bond market before unloading the derivatives - a smart move, as they rose considerably in value. The Piper fund now has no derivatives, while Monitor still has 9 percent of assets in derivatives.

As bonds rallied in 1995, Bruntjen became worried that rates would rise, so he gradually (and presciently) made the funds less sensitive to another run-up in interest rates by shortening the maturities of his mortgage securities.

Because of the huge rise in rates this year, Bruntjen has again lengthened his funds' maturities.

"We've seen rates run up and inflation stay low," Dow says. "Value has returned to the bond market."

Investors don't need to fear thrills and spills from the Piper fund. Piper has taken a number of steps to ensure against a replay of 1994 no matter what happens to interest rates.