(MONEY Magazine) – With stock prices doubling and then doubling again in the past decade, you'd think that dozens of funds would have racked up 10 straight moneymaking years. Think again. According to Chicago fund researcher Morningstar, 189 diversified-stock and balanced portfolios have been run by the same skipper (or at least one management team member) during the past 10 years. But only seven cruised through that high-flying stretch without posting a loss in any calendar year--and just three of 179 bond funds avoided an annual minus sign.

What made this seemingly simple feat so devilishly difficult were three separate tough years. In 1987, 67 of those 189 stock funds in our original group lost money in the wake of the Dow's single-day 22% meltdown that October. In the recession year of 1990, the typical stock portfolio dropped 5.7%, and 154 of the funds slipped into the negative column. In 1994, when Federal Reserve interest-rate hikes kept a lid on stock prices, the average equity fund fell 1.5%, and 101 ended the year in the red. And those rate increases gave bonds one of their worst years on record: The average taxable fund fell 3.6% and the typical muni fund tumbled 5.8%.

Below, we profile the seven stock funds that defied the odds to post 10-year winning streaks. Those stalwarts employ a variety of strategies to stay in the black. Brandywine, the only one of our choices that is more volatile than the average equity fund, seeks out rapidly growing small and large companies. FPA Paramount manager Bill Sams (pictured on page 98), keeps a hefty cash position and buys undervalued stocks. Franklin Growth I, Nationwide and Investment Company of America invest in large-company stocks. Dodge & Cox Balanced blends stocks and bonds. And Analytic Optioned Equity uses a sophisticated options-trading strategy to keep an even keel during market squalls.

Reliable gainers like our seven wonders make especially compelling buys today, since experts such as Money's investment strategist Michael Sivy warn that stock prices could slide 15% or more by the end of the year. (See "Today's Six Best Investments" on page 78.) Of course, no equity fund is completely immune to market downdrafts. While these seven funds have avoided calendar-year losses in the past decade, they have had to ride out short-term setbacks. Brandywine, for example, tumbled 41% from September through November 1987, when Standard & Poor's 500-stock index skidded 30%. (For a look at the worst quarterly return and other performance details on our seven stock and three bond funds, turn to the table on page 104.)

Finally, only two funds featured here--Brandywine and FPA Paramount--have managed the doubly daunting coup of avoiding annual losses and outpacing Standard & Poor's 500-stock index during the past decade. We profile the funds in order of their annualized gains for the 10 years that ended March 24.

BRANDYWINE Founded: 1985 Has never had a losing year Talk about a spotless record. Manager Foster Friess, 57, and his crew of 25 co-managers and analysts have not had a calendar-year loss at this $6.5 billion growth fund since they launched it 12 years ago. True, Brandywine barely squeaked by in 1994 with a minuscule 0.02% return, which translates to a five-buck gain on a $25,000 investment (the fund's minimum initial ante). But why quibble? Brandywine's 15.6% annualized return for the 10 years that ended March 24 handily outpaced the S&P 500's 13.4% gain.

Friess and Co. have compiled their enviable record by ferreting out firms they believe can exploit a new product, service or management change to boost annual earnings by 20% or more. These days, the squad has 40% of the portfolio's assets invested in tech companies like $6.3 billion (estimated 1997 sales) Gateway 2000 and $28 billion Intel.

Behind the fund's stolid facade of calendar-year gains, there's a whole lotta shakin' going on. Based on Morningstar's proprietary risk measure, which calculates how often and by how much a fund's monthly performance lags the return of 90-day Treasury bills, Brandywine has taken 34% more risk than the average equity fund in the past 10 years. So this 243- issue portfolio would seem the most likely of our seven picks to break its streak during an extended market correction. Still, as Friess points out, risk has its rewards: "I have long maintained that higher volatility brings better long-term returns."

FPA PARAMOUNT Founded: 1958 Last losing year: 1974 Friess may be right, but Bill Sams proves you don't need volatility to beat the market. Sams, 59, has guided his $750 million portfolio to an index-beating 13.9% annualized gain during the past 10 years, while taking 32% less risk than the average equity fund. Fund aficionados usually had to admire his work from afar, since the fund was closed to new investors for all but three months of that stretch. Thankfully, Sams swung open the door to new investors in February, and he says he will keep it ajar at least until assets hit $1 billion or so.

Paramount's low-risk/high-reward formula combines a hefty cash stake--currently 37%--with a concentrated portfolio of two dozen or so stocks that Sams believes are priced below their intrinsic value. Sams recently turned his attention to the moribund gold sector, plunking 12% of fund assets into $705 million Homestake Mining, $845 million Newmont Mining and $1.3 billion Placer Dome. "We're starting to see consolidations in the industry, which is a plus," says Sams. "Besides, I don't see much risk other than these stocks move sideways rather than up."

Sams has not had a losing calendar year since he arrived at Paramount in November 1981. His closest call was a 1.6% gain in 1990, a year when the average equity fund skidded 5.7%. The fund has also held up better than its peers during market declines. Paramount's 22% drop during the tumultuous September through November 1987 stretch was far less painful than the 30% drop for the S&P 500. Not that Sams is invincible. Paramount's 12.7% 1995 return, for example, lagged the market by 25 percentage points. Stick around for an extended period that includes both market climbs and collapses, though, and Sams is the man. For the past 15 years, FPA Paramount ranks as the No. 1 portfolio among the 73 growth and income funds Morningstar tracked over that stretch.

Wary of today's blimpish stock prices, Sams has stashed 37% of his fund assets in cash--that's more than five times the level of the average equity fund. But even that hefty lode pales in comparison to 1973, when Sams moved 60% of the pension assets he was managing into cash just as the market was tanking. "I'm not calling for a collapse right now, but I do think we are playing with fire," says the 30-year investment vet. "If the market continues to go up, my shareholders will participate, and if it goes down, we should not be hurt as badly."

FRANKLIN GROWTH I Founded: 1948 Last losing year: 1981 Jerry Palmieri adds a new dimension to the term buy-and-hold investor. "In a perfect world, I would keep a stock forever," says Palmieri, pictured on the opposite page. "That would mean I was right on its long-term growth prospects." He's right a lot. Palmieri, 68, has typically held an investment for more than 20 years, vs. about one year for the typical stock fund manager. His 87-issue portfolio still includes a handful of securities--including $12.7 billion Pfizer, $15.8 billion Eastman Kodak and $15.5 billion Minnesota Mining--that Palmieri bought back in 1965, when he assumed control of the $1.3 billion fund.

Sticking with such reliable earners has helped Franklin Growth notch a 12.5% annualized gain for the past 10 years, keeping it within a percentage point of the S&P 500's 13.4% return while incurring 25% less risk than the average equity fund. Franklin Growth's last negative calendar-year performance was a 5.2% slide in 1981, when the S&P fell 5.1%.

Palmieri protects his shareholders from heartbreaking losses by hunkering down in cash--recently 28% of assets--when he sees the market going head over heels. And his preference for established companies with sustainable annual earnings growth of 10% to 15%, rather than unpredictable high-fliers, also helps buttress the portfolio. This Steady Eddie strategy may strike some as passionless, but Palmieri doesn't mind. "I've been called the Lawrence Welk of the investing business, and that's fine with me," he says. "My shareholders know we won't fall apart on the downside."

NATIONWIDE Founded: 1933 Last losing year: 1977 Since taking the reins of the $1.1 billion Nationwide portfolio in 1985, manager Chuck Bath, 42, has posted profits in 12 consecutive years. A portfolio of large, rapidly growing firms that dominate their markets, such as $5.2 billion Avon Products and $11.4 billion McDonald's, has helped Bath notch a 12.5% annualized gain for the past 10 years. Nationwide placed in the top 30% of growth and income funds during that time, while incurring 18% less volatility than the average equity fund.

Bath generates outsize gains with undersize risks by grabbing large-company growth stocks at reasonable prices. His fund's trailing 12-month P/E ratio of 22.5 is right in line with the S&P 500's, while five-year earnings growth was 16% higher than the market level.

Bath isn't interested in a watered-down portfolio of hundreds of names. He currently owns 56 issues, vs. 141 for his average peer, and has 40% of fund assets crammed into his 10 biggest holdings. "It's important to find an attractive situation and make it have an impact on the portfolio," says Bath. "I don't know what other managers are doing with so many stocks."

INVESTMENT COMPANY OF AMERICA Founded: 1934 Last losing year: 1977 It may not be Chuck Bath's style, but the nine managers at ICA are doing just fine with the 221 large-cap stocks that their rigorous analysis tells them are undervalued. The $32 billion fund has weathered only 10 down years since its 1934 launch, the last back in 1977, when it dipped 2.6%. During the past 10 years, the ICA team, which has a remarkable 228 years of fund investing experience among them, has generated annualized gains of 12.5%, vs. 13.4% for the S&P 500. The fund registered 14% less volatility than the index, however.

One way ICA has sidestepped calendar-year losses in the past 20 years is by loading up on dividend-paying stocks, such as $114 billion Exxon (3.1% yield) and $265 billion (assets) BankAmerica (2.2%). "We are part of a dying breed of growth and income managers who actually still pay attention to the income part of the equation," says ICA team member Jim Lovelace, 41. Overall, ICA's 1.9% yield exceeds the 1.7% yield for the S&P 500, something fewer than 20% of growth and income funds can claim. In some years, those dividend payouts make all the difference. In 1994, the value of the fund's stocks actually fell 2.4%. Thanks to the portfolio's income earnings of 2.6%, however, the fund eked out a 0.2% gain.

DODGE & COX BALANCED Founded: 1931 Last losing year: 1981 Our next calendar-year pinup is $4 billion Dodge & Cox Balanced fund. The 10-person investment team generally keeps 60% or so of assets in large-cap stocks they believe are undervalued relative to their earnings potential or asset value. The remaining 40% of fund assets is in high-grade corporate and government bonds. "We don't swing for the fences, because we don't like the downside of doing that," says co-manager Harry Hagey, 55, who has been with the firm for 30 years.

The 65-year-old fund's far-from-sexy approach has produced alluring results. Its 11.8% annualized gain during the past 10 years trails the all-stock S&P 500 by less than two percentage points, a remarkable feat considering the fund's 40% slug of bonds. The fund even excels when it loses. In 1981, its last negative year, the fund slid just 2.5%, vs. 5.1% for the S&P 500.

While the bond stake provides much of the fund's income, the investing team, like that at ICA, looks for dividend-paying stocks. Financial stocks such as $17 billion American Express (1.4% yield) and $290 billion Citicorp (1.8%) account for 20% of assets, and another 20% is invested in cyclical firms such as $21 billion Dow Chemical (3.6%) and $10 billion Deere (1.8%). The ardent value investors have even managed to build a 13% tech stash--buying firms such as $30 billion Motorola (0.9%) and $45 billion Hewlett-Packard (0.8%) when they were temporarily knocked down.

ANALYTIC OPTIONED EQUITY Founded: 1978 Has never had a losing year A scouting report on $53 million Analytic Optioned Equity would read "great defense, weak offense." Manager Chuck Dobson, 55, has led this fund on an 18-year winning streak by using various kinds of stock options to limit losses. One of his favorite ways to insulate the 145-stock portfolio from market downturns is by selling call options on some of his holdings. Such sales generate steady income that acts as ballast during choppy markets. And indeed, Analytic's 10-year risk score is 40% below the level for the S&P 500. (But note: The income the fund gets from selling options creates big potential annual tax bills for shareholders, so the fund is best suited for tax-deferred accounts.)

The trade-off for Analytic's dazzling defense--you knew there had to be one--is that the fund fields about as much offensive firepower as the Chicago Bulls without Michael Jordan and Scottie Pippen. In large part, that's a result of the options strategy: When stocks rise, the option buyer, not the fund, pockets the gains. Indeed, Analytic Optioned's 9.6% annualized gain during the past 10 years trailed the S&P 500 by nearly four percentage points and ranks in the bottom third of growth and income funds.

Here's how Dobson himself sizes up the fund's prospects: He says his defensive tactics should keep the fund flat when the market declines 5%, and shareholders should experience just half the pain of S&P 500 indexers when the market is down more than 10%. The fund can keep pace in years when the S&P 500's total return is less than 8%. When stocks gain 8% to 20%, he expects the portfolio to collect about two-thirds of that advance. In years that the market soars more than 20%, he predicts his fund will get about half the market's return.

"I don't think anyone should put all their money in this fund," sums up Dobson. "But if someone wants to sleep easy with 10% or so of their stock assets, then we make sense."