(MONEY Magazine) – They're out there. Two thousand funds and counting. Three hundred twelve new ones in 1986 alone. Two hundred twenty more through July of this year. And all too often with the newest, most promoted entrants, you get the greenest, least tested managers. So how do you pick the right mutual fund out of such maddening multiplicity? To help you, Money surveyed the nation's top mutual fund portfolio managers and asked them where they would invest their money. To ensure that we included only the best, we limited ourselves first to experienced managers who had run their funds for at least five years. Second, he or she had to have achieved an outstanding performance ranking in the top 100 stock and taxable bond funds tracked by Lipper Analytical Services for either the five- or the 10-year periods that ended March 31 of this year. Our question for this elite panel was straightforward but not simple: Which five stock or bond funds -- in order of preference -- would you choose personally over the next five to 10 years? We asked participants to exclude funds that they managed as well as those run by the company for which they worked. Highlights from the pros' picks: -- The No. 1 fund, by a margin of nearly 20 points (five points were awarded for a first-place vote, four for a second and so on), was Vanguard's Windsor Fund, managed for the past 23 years by probably the top growth and income investor in the business, John Neff, 56. (For more on the pros' pro, see the box below.) -- The second-place fund, Mutual Shares, is also a growth and income entry with a highly regarded management team. Its principal manager is 36-year-old Michael Price, the hand-picked successor to one of America's most venerated investors, fund founder Max Heine. Price had co-managed the fund with Heine for the past 13 years. -- In contrast to our top two funds, both of which employ a primarily conservative (and contrarian) approach, eight of the top 10 and 14 of the 23 funds that scored high enough to make our list (see the table on page 68) are either aggressive growth or long-term growth funds. Only one income fund, T. Rowe Price International Bond, received repeated mentions. But it scored too low to make our final cut. -- Though international funds have dominated mutual fund standings for the past five years, principally because of the declining dollar, only two made Money's choice for the future. One of those, Templeton Growth, is actually a global fund, which means that it is not restricted to foreign shares. (In late summer, 42% of its portfolio was in U.S. stocks.) -- Perhaps surprisingly, the world's largest, best-known and far-and-away top- performing equity fund over the past 10 years, growth-oriented Fidelity Magellan (up 1,795% to July 1, compared with 590% for Windsor), finished in eighth place. The $11 billion fund was edged out by such lesser-known entries as the Acorn and Nicholas funds (which tied for third), Sequoia (fifth), Pennsylvania Mutual (sixth) and Evergreen (seventh). One of the reasons for Magellan's downgrading is that the fund, like many growth seekers that remain fully invested in stocks at all times, is likely to stumble in declining markets. Clearly, foul-weather stability was prized by the managers we polled, and three of Money's top six -- and seven of the 23 nominees -- fared better than the S&P 500 during its most recent pronounced dip. That falloff, according to Lipper Analytical Services, took place between June 23, 1983 and July 26, 1984, when the S&P 500 dropped roughly 6%. By contrast, Magellan lost 18.4%. Although the managers we interviewed were divided on when a market downturn would come, almost all agreed that one is long overdue. When it does happen, many fear stock prices could sink 20% to 40%. Another criterion favored by the pros we polled -- and hence a guide for any savvy investor in making a fund choice -- was continuity of management. The top votes went to individuals who are committed to a single, time-proven investment strategy. Four of the seven leaders on our list -- Acorn, Evergreen, Nicholas and Sequoia -- are still steered by their founders. Of the 21 funds included that are run by individuals (as opposed to committees), 15 have managers who have been at the helm for 10 years or more. Their average age is 53, and many have much of their personal fortunes in their fund. John Neff, for instance, says he has ''a good seven-figure sum'' in Windsor. No manager on Money's list of All-Stars is a rookie. For example, though Howard Schow, 60, has been at Vanguard's 12th-ranked PrimeCap for only three years, that's how old the fund is, and in the 16 years before that he founded and directed the top-performing AMCAP fund, up 683% in the 10 years to July 1, compared with 436% for the average growth fund. (As proof of the importance that fund professionals place on management continuity, the AMCAP fund did not receive even one vote in our survey.) Sector funds scored poorly. None cracked our top 23, though gold funds and energy funds earned sporadic mentions. The top vote getter in those two categories was Franklin Gold, up 962% in the 10 years to July 1. Similarly low in our experts' esteem were index funds -- the increasingly popular vehicles that aim to match the returns of a major market barometer such as the S&P 500. Ralph Wanger, manager of the third-place Acorn Fund, was the one maverick in our survey, awarding a vote to Vanguard's $900 million no- load Index Trust, up 27.3% for the six months to July 1, compared with 27.4% for the S&P 500 that it attempts to duplicate. Says Wanger: ''At least you're assured of approximating the market averages with an index fund. The S& P 500 is one tough bogey.'' Wanger has topped the S&P 500 in only six of Acorn's 17 years. The most consistent S&P beater on our list with a tenure of five or more years at the helm of his fund is Magellan's Peter Lynch. He has whipped the index in eight of the nine calendar years since he began managing the fund in 1977. In second place is Bruce Johnstone of Fidelity Equity- Income. His record against the S&P 500: 12 for 14. Still, Wanger's reference to the difficulty of beating the S&P 500 is achingly correct, especially in a runaway bull market like the recent one. In the 12 months to July 1, for instance, the S&P 500, up 25%, outperformed two- thirds of the funds on our all-pros' list. Indeed, just one of our top nine -- Windsor, up 26% -- bested the index in that period. Yet in the first half of this year, the index evened the score with Windsor, edging it by about four percentage points, 27.4% to 23.5%. An index-lagging performance over a period as short as six months or even a year, however, does not justify bailing out of a fund with a solid history. Note that all but two of the funds on our list with 10-year records beat the S&P 500 and the Dow Jones industrial average for that period. The lone laggards were Selected American Shares and Loomis-Sayles Mutual, up 340% and 364%, respectively, compared with 388% for the S&P and 347% for the Dow. In truth, what you are paying for in fund fees, perhaps more than anything else, is stewardship in rocky periods -- and for a shrewd manager's ability to anticipate those times, thus sparing you from painful losses. Some managers are obviously looking ahead toward harsher times even now. The top six funds on the Money roster were recently 10% to 45% in cash. Of the 23 funds that made the Money list, all but two -- Twentieth Century Growth and Twentieth Century Select -- are managed by a lone individual or a two-person team. Those two Kansas City-based growth funds, founded by James Stowers, are run by a group of managers who rely heavily on computer programs that screen for stocks with accelerating earnings. Score two for the silicon chip. But chalk up three for G. Kenneth Heebner, 47, who is maestro of a list- leading three of the funds most favored by rivals. Two are growth funds: New England Growth and Loomis-Sayles Capital Development, which has outgained the S&P 500 in eight of the past 10 calendar years. The other, Heebner's Loomis- Sayles Mutual, which finished in a tie for 11th place, is the only balanced fund that made our cut of 23. Balanced funds typically keep roughly half of their holdings in stocks and half in corporate bonds. Our survey also singled out a pair of small-company growth funds: Acorn and Pennsylvania Mutual. True, their managers -- Ralph Wanger and Charles Royce, respectively -- are renowned stock pickers. But the funds' high rankings also reflect the expectation that small-company stocks could enjoy a run-up before the five-year-old bull market tires. Historically, bulls have blessed small- company stocks as one of their last acts before pulling in their horns. Acorn's and Pennsylvania Mutual's greatest gains, therefore, may still be ahead of them. That said, the funds are both up more than 200% for the five years to July 1, compared with 180.2% for the average equity fund. If there is any cause for disappointment in our survey results, it is that three of our top 23 -- No. 1-ranked Windsor, fifth-ranked Sequoia and Ken Heebner's Loomis-Sayles Capital Development (tied for 18th) -- were closed to new investors as of mid-September. The reason for the closings is simple: prudent fund managers do not want to be forced by a flood of new investments to throw money at a stock market that they believe is short on value and long ! on overpriced issues. But funds don't necessarily close forever. Our second- and sixth-place finishers, Mutual Shares and Pennsylvania Mutual, were locked up earlier in the summer before reopening in mid-July. Unfortunately, John Neff says Vanguard has no intention of accepting new investors in Windsor soon (see the box on page 66). So how do you invest with a manager whose fund isn't open? In the case of Ken Heebner you have two ready alternatives: Loomis-Sayles Mutual and New England Growth. But it is trickier to get your money managed by John Neff. To do so, you must purchase shares in another of his Vanguard funds, Gemini II, a dual-purpose closed-end that trades on the New York Stock Exchange. Dual- purpose funds are divided into two components, usually income and capital appreciation, that are sold separately. The funds also normally have a set life span of 10 to 20 years. Gemini Income's shares traded in early September at $13.25, a steep premium of 38.2% over their net asset value. Shares of Gemini Capital Appreciation, on the other hand, were selling at the same time for $17, a discount of 17%. Gemini II will dissolve in early 1997, at which point shareholders are paid off according to predetermined formulas. One final heartening fact: though our managers' salaries (some in seven figures) come out of fees collected by their firms, 20 of the funds they recommend charged a lower annual expense ratio than the 1.1% equity fund average. Then too, of the 23 funds on our list, 16 have no front-end loads, and none levy back-end loads. In any case, whatever fund you consider purchasing from our roster of stars, remember that the managers Money polled made their picks largely on the reputations of the people at the helm. It is therefore especially important, except perhaps in the case of the largely computer-driven Twentieth Century funds, to stay alert for staff changes or deterioration in performance. Money's monthly Fund Watch column will keep you abreast of management turnover, but you should monitor your holdings regularly. If your fund's performance lags that of others in its category for a year or more, consider taking some of your business elsewhere. And since the superstar managers we polled leaned so strongly toward funds that hold up well in down markets, you probably should also. Aggressive funds that stay locked into stocks -- like Twentieth Century's entrants or Fidelity Magellan -- should probably be considered only by truly long-term investors. Such funds are costly in an extended bear market, the most recent of which occurred nearly 15 years ago. The S&P 500 plunged 37.3% between Jan. 1, 1973 and Jan. 1, 1975, but precious few fund managers now even remember those days. On our list, however, are some of the best who do.

BOX: THE MANAGER HIS PEERS ADMIRE MOST

John Neff revs the engine of his ink-black '84 Corvette. It's not just any car. Neff, who insisted on four on the floor, had it custom-ordered. ''I had to wait a long time,'' he says over the engine noise. ''But it was worth it.'' The gent in the driver's seat has become the man top mutual fund managers would trust most with their personal cash because of his consummate mastery at waiting. As portfolio manager of Vanguard's $6 billion Windsor growth and income fund, Neff buys companies shunned by the market and hangs on until they are recognized. That can take a year. Sometimes 10. ''If we think the fundamentals are right and the market is wrong,'' says Neff, ''we will wait forever.'' Neff's patience has rewarded Windsor's shareholders as much as it has impressed rival fund managers. From June 1964, when he began running the six- year-old Valley Forge, Pa. fund, to Sept. 1, 1987, Windsor's total return was 2,505%. That means $1,000 invested in '64 would have grown to $26,055 today. The S&P 500, meanwhile, gained 924%, little over a third as much, and Windsor has bettered the S&P 500 in 17 of the 22 calendar years since Neff came to the fund from a bank trust department in Cleveland. Of managers on our top-funds list, only five have a higher batting average against the S&P than Neff, and none have been at their funds more than 15 years. Perhaps more remarkable is that Windsor has not had a down year since 1974, when it fell 17% (compared with a 26% drop for the S&P 500). Such consistency inspires awe among Neff's peers, many of whom secretly regard his performance as the true benchmark to meet. Proprietors of growth and income funds are particularly cognizant of Neff's long shadow. Says one: ''When I beat him, it's by an inch. When he beats me, it's by a mile.'' Comments Neff: ''There are 120,000 Windsor shareholders with a hunk of their financial future on my back. That's a fearsome responsibility, and I'd better measure up.'' To make John Neff's 50-issue portfolio, a stock must be, in his words, ''woebegone, misunderstood and forgotten.'' In short, it must be a textbook out-of-favor equity with a price/earnings ratio ordinarily 35% to 40% lower than the market average. It must also have the prospect of increased earnings and, usually, a yield 50% higher than the market's. In bearish times, Neff says, a steady yield is ''something to hang your hat on.'' Among Windsor's largest holdings in late summer 1987 were blue chips Ford, General Motors and Citicorp. Neff is as tough on himself as he is on the stocks he buys. Every October, for instance, the summa cum laude 1955 graduate of the University of Toledo grades himself hard in the fund's annual report. In the 1986 edition, he gave himself a D- for his investment in International Minerals & Chemical, an agricultural products company that sank 33.7% the year before. Neff's terse critique: ''Except for sale of 40% of position at decent price earlier in the year, an F.''

Obviously, though, Windsor gets better grades overall, especially from investors. By the spring of 1985, $150 million was barreling into the fund each month, and Neff was having a hard time finding stocks with low P/E ratios. So in May of that year, at the urging of its star manager, Vanguard closed Windsor to all but existing shareholders in retirement plans such as Keoghs and Individual Retirement Accounts. The fund may reopen to existing shareholders, Neff says, but only after a major stock market correction and only if he feels comfortable having his holdings fully invested. Recently the fund was a defensive 20% in cash. ''Vanguard is full of honor and good faith and all that,'' he says wryly. ''On the other hand, they'd just as soon sell fund shares.'' Neff's current view of the stock market is jaundiced. ''The market is pushy, aggressive -- assuming the best,'' he says. He wouldn't be surprised, he adds, to see a drop of 20% to 25% at any moment. ''I'm paid to be realistic,'' he says. ''We've come an awful long way'' since the bull market began in August 1982. To be precise, the S&P 500 more than tripled in the five years to Aug. 13, which marked the bull's fifth birthday. Warns Neff: ''There are a lot of black holes out there, some of which we don't even know about yet.'' To keep up, Neff puts in 60 to 70 hours a week, 49 weeks a year, escaping best in ferocious tennis on the private court at his Berwyn, Pa. home or in international travel. Each year Neff and his wife Lilly (they have two grown children) try to take what he calls ''a big trip.'' Last spring the couple was off to Hong Kong, Japan and China. Two years earlier it was southern France. Yes, the world turns, but what about the value approach that the Windsor manager began to develop in his native Ohio? ''Of course, the stocks have changed,'' says John Neff. ''We haven't.'' -- L.N.V.

CHART: TEXT NOT AVAILABLE CREDIT: NO CREDIT CAPTION: THE PROS' MUTUAL FUND PICKS DESCRIPTION: Twenty-three recommended mutual funds.