Notes to the Financial Statements
June 30, 2013
NOTE A ORGANIZATION
Bruce Fund, Inc. (the Fund) is a Maryland
corporation incorporated on June 20, 1967. The Fund is an open end diversified management investment company and the Funds primary investment objective is long-term capital appreciation. The investment adviser to the Fund is Bruce and
Co., Inc. (the Adviser).
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The following is a summary of significant accounting policies followed by the Fund in preparation of their financial statements.
These policies are in conformity with the generally accepted accounting principles in the United States of America (US GAAP).
Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period.
Actual results could differ from those estimates.
Securities Valuation
All investments in securities are recorded at their fair value as
described in Note C.
Federal Income Taxes
The Fund makes no provision for federal income or excise tax. The Fund intends to qualify each
year as a regulated investment company (RIC) under subchapter M of the Internal Revenue Code of 1986, as amended, by complying with the requirements applicable to RICs and by distributing substantially all of its taxable income. The Fund
also intends to distribute sufficient net investment income and net capital gains, if any, so that it will not be subject to excise tax on undistributed income and gains. If the required amount of net investment income or gains is not distributed,
the Fund could incur a tax expense.
As of and during the fiscal year ended June 30, 2013, the Fund did not have a liability for any unrecognized
tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the period, the Fund did not incur any interest or penalties. The Fund is subject to
examination by U.S. federal tax authorities for tax year 2010 through 2013.
Security Transactions and Related Income
Investment
transactions are accounted for no later than the first calculation of the Net Asset Value (NAV) on the business day following the trade date. For financial reporting purposes, however, security transactions are accounted for on the trade
date on the last business day of the reporting period. The specific identification method is used for determining gains or losses for financial statements and income tax purposes. Dividend income is recorded on the ex-dividend date and interest
income is recorded on an accrual basis. Discounts and premiums on securities purchased are accreted or amortized using the effective interest method. Withholding taxes on foreign dividends have been provided for in accordance with the Funds
understanding of the applicable countrys tax rules and rates. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic and political development in specific country or region.
13
Notes to the Financial Statements (continued)
June 30, 2013
Distributions
Distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. The
Fund intends to distribute substantially all of its net investment income as dividends to its shareholders on at least an annual basis. The Fund intends to distribute its net realized long-term capital gains and its net realized short-term capital
gains at least once a year. The treatment for financial reporting purposes of distributions made to shareholders during the year from net investment income or net realized capital gains may differ from their ultimate treatment for federal income tax
purposes. These differences are caused primarily by differences in the timing of the recognition of certain components of income, expenses or realized capital gain for federal income tax purposes. Where such differences are permanent in nature, they
are reclassified in the components of the net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications will have no effect on net assets, results of operations or net asset values per share of the
Fund.
For the fiscal year ended June 30, 2013, the Fund made the following reclassifications to increase (decrease) the components of net assets:
|
|
|
|
|
|
|
|
|
Paid in Capital
|
|
|
Accumulated Undistributed
Net Investment Income
|
|
Accumulated Net
Realized Gain
|
|
|
$(2)
|
|
|
$173
|
|
$
|
(171
|
)
|
Subsequent Events
In accordance with US GAAP, management has evaluated subsequent events through the date these
financial statements were issued. All subsequent events determined to be relevant and material to the financial statements have been disclosed.
New
Accounting Pronouncement
In December 2011, Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities
(ASU 2011-11). ASU 2011-11 relates to disclosures about offsetting assets and liabilities. In January 2013, the Financial Accounting Standards Board issued Accounting Standards Update No. 2013-01, Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities (ASU 2013-01). This update gives additional clarifications to ASU 2011-11. The amendments in ASU 2013-01 require an entity to disclose information about offsetting and related
arrangements to enable user of its financial statements to understand the effect of those arrangements on its financial position. ASU 2013-01 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods
within those annual periods. At this time, management is evaluating the implications of ASU 2013-01 and its impact on the financial statements. However, management believes the adoption of these ASUs will not have a material impact on the
financial statements.
NOTE C SUMMARY OF SECURITIES VALUATION AND FAIR VALUE MEASUREMENTS
In accordance with Accounting Standards Codification 820, Fair Value Measurements and Disclosures (ASC 820), fair value is defined as the
price that the Fund would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. ASC 820 established a three-tier hierarchy to maximize the use of the
observable market data and minimize the use of unobservable inputs and to establish classification of the fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the
asset or liability, including
14
Notes to the Financial Statements (continued)
June 30, 2013
assumptions about risk (the risk inherent in a particular valuation technique used to measure fair value such as pricing model and/or the risk inherent in the inputs to the valuation technique).
Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the reporting
entity. Unobservable inputs are inputs that reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the
circumstances. The three-tier hierarchy of inputs is summarized in the three broad levels listed below:
|
|
|
Level 1 quoted prices in active markets for identical securities
|
|
|
|
Level 2 other significant observable inputs (including, but not limited to, quoted prices for an identical security in an inactive market,
quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)
|
|
|
|
Level 3 significant unobservable inputs (including the Funds own assumptions in determining fair value of investments based on the best
information available)
|
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such
cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Equity securities, including common stocks and American Depositary Receipts (ADRs) are generally valued by using market quotations, but may be
valued on the basis of prices furnished by a pricing service when the Adviser believes such prices more accurately reflect the fair value of such securities. Securities that are traded on any stock exchange are generally valued by the pricing
service at the last quoted sale price. Lacking a last sale price, an exchange traded security is generally valued by the pricing service at its last bid price. Securities traded in the NASDAQ over-the-counter market are generally valued by the
pricing service at the NASDAQ Official Closing Price. When using the market quotations or close prices provided by the pricing service and when the market is considered active, the security will be classified as a Level 1 security. Sometimes, an
equity security owned by the Fund will be valued by the pricing service with factors other than market quotations or when the market is considered inactive. When this happens, the security will be classified as a Level 2 security.
When market quotations are not readily available, when the Adviser determines that the market quotation or the price provided by the pricing service does not
accurately reflect the current fair value, or when restricted or illiquid securities are being valued, such securities are valued as determined in good faith by the Adviser, in conformity with guidelines adopted by and subject to review by the
Board. These securities will be categorized as Level 3 securities.
Investments in mutual funds, including money market mutual funds, are generally
priced at the ending NAV provided by the service agent of the funds. These securities will be categorized as Level 1 securities.
Fixed income
securities, including convertible preferred stocks, corporate bonds, convertible corporate bonds, U.S. government bonds, and U.S. municipal bonds are valued on the basis of prices
15
Notes to the Financial Statements (continued)
June 30, 2013
furnished by a pricing service. A pricing service utilizes electronic data processing techniques based on yield spreads relating to securities with similar characteristics to determine prices for
normal institutional-size trading units of debt securities without regard to sale or bid prices. These securities will generally be categorized as Level 2 securities. If the Adviser decides that a price provided by the pricing service does not
accurately reflect the fair value of the securities, when prices are not readily available from a pricing service, or when restricted or illiquid securities are being valued, securities are valued at fair value as determined in good faith by the
Adviser, in conformity with guidelines adopted by and subject to review of the Board. These securities will be categorized as Level 3 securities. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by
economic and political developments in a specific country or region.
Short-term investments in fixed income securities, (those with maturities of less
than 60 days when acquired, or which subsequently are within 60 days of maturity), are valued by using the amortized cost method of valuation, which the Board has determined will represent fair value. These securities will be classified as Level 2
securities.
The following is a summary of the inputs used to value the Funds investments as of June 30, 2013, based on the three levels
defined above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Common Stocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
$
|
15,195,160
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
15,195,160
|
|
Consumer Staples
|
|
|
16,431,625
|
|
|
|
|
|
|
|
|
|
|
|
16,431,625
|
|
Energy
|
|
|
8,245,242
|
|
|
|
|
|
|
|
8,738
|
|
|
|
8,253,980
|
|
Financials
|
|
|
18,591,706
|
|
|
|
|
|
|
|
|
|
|
|
18,591,706
|
|
Health Care
|
|
|
36,004,853
|
|
|
|
|
|
|
|
|
|
|
|
36,004,853
|
|
Industrials
|
|
|
43,449,997
|
|
|
|
|
|
|
|
|
|
|
|
43,449,997
|
|
Information Technology
|
|
|
8,599,950
|
|
|
|
|
|
|
|
|
|
|
|
8,599,950
|
|
Materials
|
|
|
16,085,481
|
|
|
|
|
|
|
|
|
|
|
|
16,085,481
|
|
Utilities
|
|
|
22,707,944
|
|
|
|
|
|
|
|
|
|
|
|
22,707,944
|
|
Convertible Preferred Stocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Staples
|
|
|
|
|
|
|
2,757,810
|
|
|
|
|
|
|
|
2,757,810
|
|
Energy
|
|
|
|
|
|
|
8,959,640
|
|
|
|
|
|
|
|
8,959,640
|
|
Utilities
|
|
|
|
|
|
|
507,500
|
|
|
|
|
|
|
|
507,500
|
|
Corporate Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
|
|
|
|
1,485,000
|
|
|
|
|
|
|
|
1,485,000
|
|
Energy
|
|
|
|
|
|
|
10,348,071
|
|
|
|
|
|
|
|
10,348,071
|
|
Financials
|
|
|
|
|
|
|
|
|
|
|
6,390,000
|
|
|
|
6,390,000
|
|
Health Care
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
|
|
|
|
11,420,391
|
|
|
|
|
|
|
|
11,420,391
|
|
Convertible Corporate Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Discretionary
|
|
|
|
|
|
|
4,765,625
|
|
|
|
67,500
|
|
|
|
4,833,125
|
|
Energy
|
|
|
|
|
|
|
7,424,281
|
|
|
|
|
|
|
|
7,424,281
|
|
Health Care
|
|
|
|
|
|
|
30,714,748
|
|
|
|
496,844
|
|
|
|
31,211,592
|
|
Industrials
|
|
|
|
|
|
|
1,900,625
|
|
|
|
|
|
|
|
1,900,625
|
|
U.S. Government Bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Strips
|
|
|
|
|
|
|
64,359,285
|
|
|
|
|
|
|
|
64,359,285
|
|
16
Notes to the Financial Statements (continued)
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
U.S. Municipal Bonds
|
|
$
|
|
|
|
$
|
19,884
|
|
|
$
|
|
|
|
$
|
19,884
|
|
Money Market
|
|
|
49,333,648
|
|
|
|
|
|
|
|
|
|
|
|
49,333,648
|
|
Total
|
|
$
|
234,645,606
|
|
|
$
|
144,662,860
|
|
|
$
|
6,963,082
|
|
|
$
|
386,271,548
|
|
The Fund did not hold any securities during the reporting period which transferred between Level 1, 2 and 3.
In the absence of a listed price quote, or a supplied price quote which is deemed to be unrepresentative of the actual market price, the Adviser shall use any or
all of the following criteria to value Level 3 securities:
|
|
|
Price given by pricing service
|
|
|
|
Last quoted bid & asked price
|
|
|
|
Third party bid & asked price
|
|
|
|
Indicated opening range
|
The significant
unobservable inputs that may be used in the fair value measurement of the Funds investments in common stock, corporate bonds and convertible corporate bonds for which market quotations are not readily available include: broker quotes,
discounts from the most recent trade or stale price and estimates from trustees (in bankruptcies) on disbursements. A change in the assumption used for each of the inputs listed above may indicate a directionally similar change in the
fair value of the investment.
The following provides quantitative information about the Funds significant Level 3 fair value measurements as of
June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Significant Level 3 Fair Value Measurements
|
Asset Category
|
|
Fair Value At
June 30, 2013
|
|
|
Valuation
Techniques
|
|
Unobservable Input(s)
|
|
Range
|
Corporate Bonds
|
|
$
|
6,390,000
|
|
|
Adjusted Broker Quotes
|
|
Non-Binding Broker Quotes
|
|
N/A
|
Convertible Corporate Bonds
|
|
$
|
564,344
|
|
|
Adjusted Broker Quotes
|
|
Non-Binding Broker Quotes
|
|
N/A
|
|
|
|
|
|
|
|
|
Discount for Lack of Marketability
|
|
1%20%
|
17
Notes to the Financial Statements (continued)
June 30, 2013
Following is a
reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value for the Fund:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as
of June 30,
2012
|
|
|
Realized
gain
|
|
|
Amortization/
Accretion
|
|
|
Change in
unrealized
Appreciation
|
|
|
Purchases
|
|
|
Sales
|
|
|
Transfer
in
Level
3*
(a)
|
|
|
Transfer
out
Level
3*
(b)
|
|
|
Balance as of
June 30,
2013
|
|
Common Stock
|
|
$
|
8,738
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,738
|
|
Corporate Bonds
|
|
|
6,900,000
|
|
|
|
|
|
|
|
9,633
|
|
|
|
1,080,367
|
|
|
|
|
|
|
|
(1,600,000
|
)
|
|
|
|
|
|
|
|
|
|
|
6,390,000
|
|
Convertible Corporate Bonds
|
|
|
1,674,476
|
|
|
|
713,037
|
|
|
|
146,630
|
|
|
|
1,454,106
|
|
|
|
185,780
|
|
|
|
(3,609,685
|
)
|
|
|
|
|
|
|
|
|
|
|
564,344
|
|
Total
|
|
$
|
8,583,214
|
|
|
$
|
713,037
|
|
|
$
|
156,263
|
|
|
$
|
2,534,473
|
|
|
$
|
185,780
|
|
|
$
|
(5,209,685
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,963,082
|
|
*
|
|
The amount of transfers in and/or out are reflected at the reporting period end.
|
(a)
|
|
Transfers in relate primary to securities for which observable inputs became
unavailable during the period. Therefore, the securities were valued at fair value by the Adviser, in conformity with guidelines adopted by and subject to review by the Board, and are categorized as Level 3 inputs as of June 30, 2013.
|
(b)
|
|
Transfer out relate primary to securities for which observable inputs became available
during the period, and as of June 30, 2013, the Fund was able to obtain quotes from its pricing service. These quotes represent Level 2 inputs, which is the level of the fair value hierarchy in which these securities are included as of June 30,
2013.
|
The total change in unrealized appreciation included in the Statements of Changes in Net Assets attributable to Level 3
investments still held at June 30, 2013 was $2,330,533.
|
|
|
|
|
|
|
Total Change in
Unrealized Appreciation
|
|
Corporate Bonds
|
|
$
|
920,367
|
|
Convertible Corporate Bonds
|
|
|
1,410,166
|
|
Total
|
|
$
|
2,330,533
|
|
NOTE D PURCHASES AND SALES OF SECURITIES
For the fiscal year ended June 30, 2013, cost of purchases and proceeds from maturities and sales of securities, other than short-term investments and
short-term U.S. Government obligations were as follows:
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
Sales
|
|
U.S. Government Obligations
|
|
$
|
10,124,050
|
|
|
$
|
|
|
Other
|
|
|
25,427,245
|
|
|
|
22,891,632
|
|
18
Notes to the Financial Statements (continued)
June 30, 2013
NOTE E RELATED PARTIES
Bruce & Co., Inc., an Illinois corporation, is
the investment adviser of the Fund and furnishes investment advice. In addition, it provides office space and facilities and pays the cost of all prospectuses and financial reports (other than those mailed to current shareholders). Compensation to
the Adviser for its services under the Investment Advisory Contract is paid monthly based on the following:
|
|
|
Annual Percentage Fee
|
|
Applied to Average Net Assets of Fund
|
1.00%
|
|
Up to $20,000,000; plus
|
0.60%
|
|
$20,000,000 to $100,000,000; plus
|
0.50%
|
|
over $100,000,000
|
At June 30, 2013, Robert B. Bruce was the beneficial owner of 16,349 Fund shares, R. Jeffrey Bruce was the beneficial
owner of 6,595 Fund shares, Robert DeBartolo was the beneficial owner of 247 Fund shares, and W. Martin Johnson was the beneficial owner of 4 Fund shares. Robert B. Bruce, Robert DeBartolo, and W. Martin Johnson are directors of the Fund; both
Robert B. Bruce and R. Jeffrey Bruce are officers of the Fund and are officers, directors and owners of the Adviser.
NOTE F DISTRIBUTION TO SHAREHOLDERS
On December 21, 2012, the Fund paid a dividend from net investment income of $14.7107 per share or $12,687,935 for shareholders of record on December 20, 2012.
NOTE G FEDERAL INCOME TAXES
At June 30, 2013, the breakdown of net unrealized appreciation and tax cost of investments for federal income tax purpose is as follows:
|
|
|
|
|
Gross Unrealized Appreciation
|
|
$
|
90,624,594
|
|
Gross Unrealized (Depreciation)
|
|
|
(46,125,183
|
)
|
Net Unrealized Appreciation on Investments
|
|
$
|
44,499,411
|
|
Tax Cost
|
|
$
|
341,772,137
|
|
At June 30, 2013, the components of distributable earnings (accumulated losses) on a tax basis were as follows:
|
|
|
|
|
Undistributed Ordinary Income
|
|
$
|
6,684,798
|
|
Capital Loss Carryforwards
|
|
|
(14,115,367
|
)
|
Unrealized Appreciation
|
|
|
44,498,786
|
|
Total
|
|
$
|
37,068,217
|
|
19
Notes to the Financial Statements (continued)
June 30, 2013
At June 30,
2013, the Fund has available for federal tax purposes an unused capital loss carryforward of $10,170,640, which is available for offset against future taxable net capital gains. This loss carryforward expires on June 30, 2018 through
June 30, 2019 as shown in the table below. To the extent these carryforwards are used to offset future capital gains, it is probable that the amount offset will not be distributed to shareholders.
|
|
|
|
|
Amount
|
|
Expires June 30,
|
|
$7,586,342
|
|
|
2018
|
|
2,584,298
|
|
|
2019
|
|
Capital losses generated during the fiscal year ending June 30, 2013 will be subject to the provisions of the Regulated
Investment Company Modernization Act of 2010 (the Act). Effective for taxable years beginning after the enactment date of the Act (December 22, 2010), if capital losses are not reduced by capital gains during the fiscal year, the losses
will be carried forward with no expiration and with the short-term or long-term character of the loss retained. Capital loss carryforwards generated in future years must be fully utilized before those capital loss carryforwards listed with the noted
expiration dates above.
Losses incurred that will be carried forward under the provision of the Act are as follows:
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Loss Carryforward Character
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Short Term
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Long Term
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$111,985
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$
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3,832,742
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The tax character of distributions paid during fiscal years 2013 and 2012 was as follows:
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2013
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2012
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Distributions paid from:
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Ordinary Income
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$
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12,687,935
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|
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$
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11,722,055
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NOTE H RESTRICTED SECURITIES
The Fund has acquired several securities, the sale of which is restricted, through private placement. At June 30, 2013, the aggregate market value of such securities listed below amounted to $18,573,437 or 5%
of the Funds net assets. 66% of the restricted securities are valued using quoted market prices, while the other 34% are valued according to fair value procedures approved by the Board of Directors. It is possible that the estimated value may
differ significantly from the amount that might ultimately be realized in the near term, and the difference could be material.
20
Notes to the Financial Statements (concluded)
June 30, 2013
The chart below
shows the restricted securities held by the Fund as of June 30, 2013:
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Issuer Description
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Acquisition
Date
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Principal
Amount
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Cost
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Value
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Corporate Bonds
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Land O' Lakes Capital Trust I, 7.450%, 3/15/28
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1/23/09
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$
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1,500,000
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$
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1,002,229
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$
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1,485,000
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Hercules Offshore, Inc. 10.500%, 10/15/17
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10/29/10
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2,000,000
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1,695,456
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2,145,000
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Security Benefit Life Insurance Co., 7.450%, 10/1/33
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(a
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)
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6,000,000
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5,479,157
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6,390,000
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Convertible Corporate Bonds
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XM Satellite Radio, Inc., 7.000%, 12/1/14
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(b
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)
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2,500,000
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2,657,402
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4,765,625
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Supernus Pharmaceuticals, Inc., 7.500%, 5/1/19
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(c
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)
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1,500,000
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1,520,743
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1,887,187
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Titan International, Inc., 5.625%, 1/15/17
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2/5/10
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1,000,000
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994,193
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1,900,625
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(a)
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Purchased multiple taxlots beginning on 4/21/11.
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(b)
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Purchased multiple taxlots beginning on 10/22/10.
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(c)
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Purchased multiple taxlots beginning on 4/26/13.
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21
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Bruce Fund, Inc.
We have audited the accompanying statement of assets and liabilities of the Bruce Fund, Inc. (the Fund) (a Maryland corporation),
including the schedule of investments, as of June 30, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund was not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of the securities owned as of June 30, 2013, by correspondence with the Funds custodian and broker. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of
Bruce Fund, Inc. as of June 30, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the United States of America.
Chicago, Illinois
August 27, 2013
22
Directors and Officers (Unaudited)
The Fund is managed by its officers and directors. It has no advisory board, and no standing committees of the board of directors. Directors serve until the successor of each shall have been duly elected and shall
have qualified. Independent Directors constitute a majority of the board.
The following table provides information regarding the Independent Directors:
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Name, Address*, (Age)
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Position with Fund**,
Term of Position
with Fund
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Principal Occupation During Past 5 Years
and Other Directorships
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Ward M. Johnson (76)
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Independent Director, December 1985 to present
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2002 to present Real Estate Sales, Landings Co.
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Robert DeBartolo (53)
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Independent Director, March 2007 to present
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2011 to present Director, Global Franchise Marketing, Novartis/Alcon
2009 to 2011 Senior Director, Goble and Associates
2008 to 2009 Vice President, Client Engagements,
Cadient Group
2000 to 2008 Managing Director, Executive Vice President, Corbett Accel Healthcare Group, Omnicom
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*
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The address for each director is 20 North Wacker Drive, Suite 2414, Chicago, Illinois 60606.
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**
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The Fund consists of one series. The Fund is not part of a Fund Complex.
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The following table provides information regarding each Director who is an interested person of the Fund, as defined in the 1940 Act, and each officer of the Fund.
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Name, Address*, (Age)
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Position with Fund,**
Term of Position
with Fund
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Principal Occupation During Past 5 Years
and Other Directorships
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Robert B. Bruce*** (81)
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Chairman, Director, President, and Treasurer, 1983 to present; Chief Compliance Officer, 2004 to present
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1974 to present principal, Bruce and Co. (investment adviser); 1982 to present Chairman of Board of Directors, Treasurer, Professional Life & Casualty Company (life
insurance issuer), previously Assistant Treasurer.
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R. Jeffrey Bruce*** (53)
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Vice President and Secretary, 1983 to present
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1983 to present analyst/manager, Bruce and Co. (investment adviser); 1993 to present Director, Professional Life & Casualty Company (life insurance issuer)
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*
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The address for each of the directors and officers is 20 North Wacker Drive, Suite 2414, Chicago, Illinois 60606.
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**
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The Fund consists of one series. The Fund is not part of a Fund Complex.
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***
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Mr. Robert Bruce and Mr. Jeffrey Bruce are interested persons because they are officers, directors, and owners of the Adviser. Robert Bruce is the father of
Jeffrey Bruce.
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The Funds Statement of Additional Information (SAI) includes information about the directors and is
available, without charge, upon request. You may call toll-free (800) 872-7823 to request a copy of the SAI or to make shareholder inquiries.
23
Other Tax Information (Unaudited)
The form 1099-DIV you receive in January 2014 will show the tax status of all distributions paid to your account in the calendar year 2013. Shareholders are advised to consult their own tax adviser with respect to
the tax consequences of their investment in the Fund. As required by the Internal Revenue Code regulations, shareholders must be notified within 60 days of the Funds fiscal year end regarding the status of qualified dividend income for
individuals and the dividends received deduction for corporations.
Qualified Dividend Income.
The Fund designates 36.54% of the dividends paid as
qualified dividend income eligible for the reduced rate of 15% pursuant to the Internal Revenue Code.
Dividend Received Deduction.
Corporate
shareholders are generally entitled to take the dividends received deduction on the portion of the Funds dividend distribution that qualifies under tax law. For the Funds fiscal 2013 ordinary income dividends, 36.80% qualifies for the
corporate dividends received deduction.
24
Privacy Policy
The following is a description of the Funds policies regarding disclosure of nonpublic personal information that you provide to the Fund or that the Fund
collects from other sources. In the event that you hold shares of the Fund through a broker-dealer or other financial intermediary, the privacy policy of your financial intermediary would govern how your nonpublic personal information would be
shared with unaffiliated third parties.
Categories of Information the Fund Collects.
The Fund collects the following nonpublic personal
information about you:
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Information the Fund receives from you on or in applications or other forms, correspondence, or conversations (such as your name, address, phone number, social
security number, assets, income and date of birth); and
|
|
|
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Information about your transactions with the Fund, or others (such as your account number and balance, payment history, parties to transactions, cost basis
information, and other financial information).
|
Categories of Information the Fund Discloses.
The Fund does not disclose any
nonpublic personal information about its current or former shareholders to unaffiliated third parties, except as required or permitted by law. The Fund is permitted by law to disclose all of the information it collects, as described above, to its
service providers (such as the Funds custodian, administrator and transfer agent) to process your transactions and otherwise provide services to you.
Confidentiality and Security.
The Fund restricts access to your nonpublic personal formation to those persons who require such information to provide products or services to you. The Fund maintains physical,
electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
Disposal of Information.
The Fund, through its transfer agent, has taken steps to reasonably ensure that the privacy of your nonpublic personal information is maintained at all times, including in connection with the disposal of information that is no longer required to
be maintained by the Fund. Such steps shall include whenever possible, shredding paper documents and records prior to disposal, requiring off-site storage vendors to shred documents maintained in such locations prior to disposal, and erasing and/or
obliterating any data contained on electronic media in such a manner that the information can no longer be read or reconstructed.
25
Proxy Voting
A
description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted those proxies during the most recent twelve month period ended June 30
are available without charge upon request by (1) calling the Fund at (800) 872-7823 and (2) from Fund documents filed with the Securities and Exchange Commission (SEC) on the SECs website at www.sec.gov.
BRUCE FUND