Dear Mr. Berko:

My brother-in-law is one of the few honest brokers I know. About four years ago, he recommended five no-load funds, and I invested $25,000 in each with excellent results as of today. He charges me 1 percent per year to manage my portfolio, and now he wants me to invest $25,000 in the T. Rowe Price Capital Appreciation fund, which has a good record.

A friend of mine owns shares in The Bruce Fund, and when I mentioned it to my brother-in-law, he said he had never heard of it. He finally looked it up and said it was OK, but he thinks I would be better off owning the T. Rowe Price Capital Appreciation Fund.

What can you tell me about The Bruce Fund, and would you recommend it over the T. Rowe Price Capital Appreciation Fund?

W.N., Jonesboro, Ark.

Dear W.N.:

It may not be listed in your local paper, but The Bruce Fund Inc. (BRUFX-$405.30) is as real as a heartbeat. It’s run by Robert Bruce, as fine a man whose family hails from Scotland as you could ever know. His fund is a wee one with just less than $200 million in assets, but as fine a record you as you’ll ever see.

Virtually a quiet loner among the glitter and hype, BRUFX has returned a remarkable 13.6 percent annually since 1985. During the past three years, R. Jeffrey Bruce (president, compliance officer, founder, marketing manager, portfolio manager) has earned a 14.6 percent average annual return.

R.J. runs this small-cap growth fund all by his lonesome and invests primarily in U.S. common stocks, plus corporate and convertible bonds. Its portfolio turnover is just under 10 percent of assets versus a 75 percent average for the small-cap growth category, suggesting that this wise Scot knows his stuff and enjoys enormous confidence in his portfolio choices.

His major positions are Arena Resources, Amerc O, AirBoss of America, Isis Pharmaceuticals convertibles, Curagen bonds, Elan Corp., Teremark Worldwide bonds, Amerigon and Gainsco. Certainly not household names nor prominent companies. But with a 22 percent cash position, BRUFX has returned 12.56 percent so far this year.

This no-load fund has a low total expense ratio of 1.03 percent; the minimum initial investment is $1,000 with additional minimum investments of $500. You can invest in the fund by writing R.J. at The Bruce, 20 N. Wacker Drive, Suite 2414, Chicago, Ill. 60606. This man has quiet style and I enjoy watching the few portfolio changes he makes each year.

On the other end of the fund spectrum is world-renowned T. Rowe Price Capital Appreciation Fund (PRWCX-$20.65) with more than $8 billion in assets, and it’s certainly listed in the fund section of your paper. About 60 percent of the portfolio contains issues that management believes have been too severely punished by the market, plus stocks with relatively high yields and cheap valuations. Managers Jeff Arrical and David Giroux keep between 15 percent and 20 percent of the PRWCX portfolio in what we call “busted” convertibles, or issues that are trading way below their conversion premiums.

These boys are not enthusiastic about traditional fixed-income issues and would rather hold cash. So the use of common stocks, convertible bonds, convertible preferreds and cash allows this large-cap blend/value fund to create management’s definition of a risk-averse portfolio. So far this year, the fund has appreciated 7.2 percent. Its three-year return is 15.62 percent, its five-year return is 11.37 percent, its 10-year return is 12.4 percent and its 15-year return is 13.05 percent. Those are mighty fine numbers for this five-star, no-load fund.

Now I would suggest that you follow your brother-in-law’s advice. After all, he is the one who is calling the shots. He is the one who takes responsibility for the performance of your portfolio and he has done quite well for you so far. If you want to own The Bruce, I suggest you do it in a separate account, and its performance will be your sole responsibility.

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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