Robert Bruce of the Bruce Fund

Bruce began investing in the stock about a year ago, when it was priced at about $6. America Service shares closed at $17.83 today.

Another of the fund’s largest stock positions is in Team, Inc (TMI), which repairs leaks in oil and chemical pipelines and makes machines for cutting metal. The Alvin, Texas-based company is very well managed, Bruce says. He’s owned Team for 15 years. His shares cost about $2.50 on average. They closed at $8.10 today.

One of Bruce’s favorite stocks is Atrix Laboratories (ATRX), which makes drug delivery systems, including those used in treating prostate cancer. Atrix, Bruce says, expects to become profitable in the fourth quarter this year and to break even in 2003. The fund manager says he envisions the company generating “reasonably good” earnings over the next two to three years. Bruce has owned Atrix for about seven years. His shares cost $13 on average. The stock closed at $22.45 today.

Another pharmaceuticals manufacturer Bruce likes is Elan Corp ADS (ELN). American Depositary Receipts in the Irish biotechnology company fell last year on concerns over its complex accounting. Bruce, though, says he was drawn to the company in part because he believes its developmental Antegren drug for multiple sclerosis and Crohn’s disease may become a blockbuster. In addition, Bruce is optimistic about the recent appointment of G. Kelley Martin as Elan’s president and chief executive. The former Merrill Lynch executive is known as a turnaround artist and “comes with a pretty good pedigree,” says Bruce.

His average cost in the ADRs, which he has owned for about a year and a half, is $2. They closed at $5.63 today.

Biotechnology companies also account for the bulk of the fund’s investments in convertible bonds, which make up about 28% of his portfolio, Bruce says. He also has stakes in Alexion Pharmaceuticals (ALXN), Cubist Pharmaceuticals (CBST) and CuraGen Corp (CRGN).

A good chunk of his biotech holdings, Bruce says, are in so-called “busted convertibles.” These trade so low that they are unlikely to reach the price where they can be converted into common stock. However, they can become valuable if the stock rises.

Investments in these kind of companies can be speculative, Bruce acknowledges, but he thinks the rewards they can offer outweigh their risks. “Not all of them come through,” he says. “But they’re all looking in interesting areas for drugs that have big potential.”

Convertible bonds appeal to Bruce, he says, because they tend to decline less than common stock, and many can provide attractive yields.

An IBasis Inc (IBAS) 5.75% convertible bond that matures in March 2005 is Bruce’s top convertible holding. The company, which provides Internet-based communications services, has been growing rapidly and could turn cash flow positive by the middle of next year, he says.

Treasury bonds make up another 21% of the fund. Bruce has a somewhat optimistic outlook for bonds, which he thinks are in the “latter stages” of a bull market. If stocks tumble before the year ends, bonds will get “one last push up,” he says.