Dear Mr. Berko:

I have $10,000 to invest in two mutual funds. My portfolio manager (he will charge me 2 percent to buy the funds and 2 percent a year to watch over them) has researched four funds for me: Jensen, Marsico Focus, Fairholme and TCW Galileo Dividend Focus. I will invest in just two of these funds and would appreciate your opinion on which of the four to own.

W.O., Destin, Fla.

Dear W.O.:

These funds are a bit different from their 6,000 brethren. The average mutual fund has between 150 and 185 issues in its portfolio, but each of these funds invests in fewer than 50 stocks. By the way, I think your portfolio manager is a thief. You should not have to pay 2 percent to buy those funds (they’re no-load) and a 2 percent annual fee to watch them for you is criminal. I’m afraid to ask what he charges you to handle the rest of your investments.

Fairholme Fund (FAIRX-$24.34) is a $1.06 billion no-load mid-cap blend fund with a portfolio of just 30 issues and a minimum initial investment of $2,500. Bruce Berkowitz, who manages the fund, eschews risk as much as possible. He purchases issues at prices he perceives to be at a deep discount to their intrinsic value. His concept is to own issues with prices so low that there is almost no room for them to decline further in value. He has been quite successful during the first five years of this fund’s life. The year-to-date return hovers at 8 percent, the three-year return is 18.70 percent and the five-year is 18.05 percent. Berkowitz’s top portfolio holdings are MCI Inc., AT&T Corp. New, Leucadia National Corp., Mercury General Corp., Berkshire Hathaway Inc., Canadian Natural Resources Ltd., EchoStar Communications Corp., Penn West Petroleum Ltd. and USA Mobility Inc. Now that’s an eclectic mix of issues. Berkowitz is currently 25 percent in cash, which is one reason why the beta is a low 0.51, and Morningstar has rewarded the fund with its coveted four-star rating. Buy it.

Jensen Fund (JENSX-$23.25) is a four-star rated, large-cap growth fund with a $2.53 billion portfolio. This no-load fund (based in Portland, Ore.) has been run since 1992 by Gary Hibler, who likes to keep his portfolio at fewer than 30 issues. Hibler and co-manager Robert Millen elect to own companies that have earned a minimum return on equity of at least 15 percent annually for the past 10 years. That’s a heck of a ROE, if you can find it. This style has earned Jensen shareholders a 10-year average return of 13.71 percent, a five-year average return of 3.65 percent, and last year JENSX was plus 6.62 percent. These numbers don’t excite me, and neither do the top issues in the JENSX portfolio: Stryker Corp., MBNA Corp., Omnicom Group Inc., Patterson Cos. Inc., Abbott Laboratories, Procter & Gamble Co., General Electric Co. and McGraw-Hill Cos. Inc. Though JENSX has a low 0.84 beta, I can’t find a compelling reason to invest $5,000 in this fund, which has a minimum initial investment requirement of $2,500.

TCW Galileo Dividend Focused Fund (TGIGX-$11.16) is a small, five-star rated, $755 million fund that typically invests in a portfolio of fewer than 50 issues. Dianne Jaffee, who has been running this no-load fund since 1986, typically invests about 80 percent of her portfolio in equity securities of companies that have an established record of paying dividends. At times, she might use part of the portfolio assets to write covered call options that could increase the fund’s current dividend yield, which is 1.53 percent. This large-cap value fund has a one-year return of 16.13 percent, a three-year average return of 16.71 percent, a five-year average return of 12.69 percent and a 10-year average return of 15.87 percent. TGIGX’s top holdings are Wyeth, Hewlett-Packard Co., Alltel Corp., CSX Corp., General Motors Corp., St. Paul Travelers Cos. Inc., Mattel Inc., Nokia Corp. and Advanced Micro Devices Inc. A $5,000 investment seems reasonable for this fund, which has a low 0.83 beta.

Marsico Focus Fund (MFOCX-$16.78) is a $3.6 billion portfolio fund with a four-star Morningstar rating. Thomas Marsico, who has been running MFOCX since 1997, keeps a trim portfolio of fewer than 30 issues in large-cap growth stocks and manages to maintain a low 0.83 beta. The high expense ratio reflects the aggressive portfolio turnover rate of 90 percent. Marsico’s one-year return was a rather hot 17.67 percent in 2004; however, his three-year average return of 14.32 percent and his five-year average return of -2.48 percent don’t butter my toast. Marsico’s 10-year average of 13.85 percent was made possible by returns of 51 percent in 1998 and 55 percent in 1999. Some of the top issues in Marsico’s aggressive style are Qualcomm Inc. SLM Corp., Lowe’s Cos. Inc., Zimmer Holdings Inc., Genentech Inc., Caterpillar Inc. and Unitedhealth Group. This fund doesn’t turn on my lights. I will not advise you to own it.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

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