SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-2815
COPLEY FUND, INC.
(Exact name of registrant as specified in charter)
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245 Sunrise Ave.
Palm Beach, FL 33480
(Address of principal executive offices) (Zip code)
Irving Levine, President
245 Sunrise Ave.
Palm Beach, FL 33480
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-561-665-8050
DATE OF FISCAL YEAR END: FEBRUARY 28, 2005
DATE OF REPORTING PERIOD: FEBRUARY 28, 2005
Form N-CSR is to be used by management investment companies to file reports
with the commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to
stockholders under Rule 30e-1 under the Investment Company Act of 1940
(17 CFR 270.30e-1). The Commission may use the information provided
on Form N-CSR in its regulatory, disclosure review, inspection, and
policymaking roles.
A registrant is required to disclose the information specified by
Form N-CSR, and the Commission will make this information public. A
registrant is not required to respond to the collection of information
contained in Form N-CSR unless the Form displays a currently valid Office
of Management and Budget ("OMB") control number. Please direct comments
concerning the accuracy of the information collection burden estimate
and any suggestions for reducing the burden to Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609.
The OMB has reviewed this collection of information under the clearance
requirements of 44 U.S.C. ss. 3507.
<page>
ITEM 1. REPORTS TO SHAREHOLDERS
Annual Report February 28, 2005
(Copley Fund Logo Omitted)
Copley Fund, Inc.
A No-Load Fund
<page>
COPLEY FUND, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDING
FEBRUARY 28, 2005
TABLE OF CONTENTS
Title Page
- ----- ----
Shareholder Letter and
Management's Discussion of Fund Performance..... 1-2
Stock Performance Graph......................... 3
Per Share Value Graph........................... 4
Independent Auditor's Report.................... 5
Portfolio of Investments........................ 6-8
Statement of Assets and Liabilities............. 9
Statement of Operations......................... 10
Statement of Changes in Net Assets.............. 11
Statement of Cash Flow.......................... 12
Notes to Financial Statements...................13-17
Financial Highlights............................ 18
Supplemental Data............................... 19
About the Fund's Directors and Officers..Inside Back Cover
<page>
Copley Fund, Inc.
Copley Financial Services Corp. - Investment Manager
P.O. Box 3287, Fall River, Massachusetts 02722
(508)674-8459
April 2005
Dear Fellow Shareholder:
Copley Fund had a good year in 2004 gaining 12.99%. Also,
the first quarter of 2005 shows a gain of 1.85%. During
this quarter Copley reached an all time interim high in
net asset value. These gains, we believe, are the result
of successfully pursuing the Fund's primary investment
objective of the generation and accumulation of dividend
income. The gains were enhanced by capital appreciation.
The Fund's gains in 2004 are attributable primarily to our
exposure in energy stocks and utilities which generated
most of the gain. We had neutral performance in our financial,
drug, telephone and insurance stocks. Keep in mind however,
that practically all our stocks pay substantial dividends
(adding to our net asset value) no matter the market
performance. Our dividend income increased substantially
during the last year because the majority of our stocks have
increased their dividends. This in essence is our basic
investment philosophy, i.e., the receipt of dividends in ever
increasing amounts from profitable, well capitalized and
highly visible companies.
In addition to dividend increases the underlying value of our
dividend paying stock has increased because the investing
community is becoming more aware of the value of dividend
income. Hence, the Fund's performance during the past year
is the result of our continuing focus on companies with
strong balance sheets and histories of dividend increases
in an environment where dividend paying stocks have become
more appealing to the investor.
As we wrote in our last letter, Congress and the powers that
be have put extra expense burdens on all mutual funds. These
expenses are unimportant to larger institutions from a
percentage standpoint, but we smaller funds are subject to
the same over sight rules with a much smaller base. We are
making every effort to keep our expenses in line.
Our operating division has just added inventory to an
additional chain whose hand bag departments we are supplying.
We look forward to increased volume from this entity.
Burton S. Stern has retired from our Board of Directors after
serving for twenty-seven years. He was one of the original
Directors at the start of Copley Fund, Inc. in 1978. We will
miss his guidance, his incisive questions and his loyalty to
shareholders. It was truly an honor to serve with him.
It is gratifying that our philosophy has proven itself in
that from our $3.00 per share start in 1978, we are now
almost $44.00 per share with a structure that we feel has
low investment risk. The following is our resulting
performance from 1984 till now.
1
<page>
1984* +23.9% (Top performing Fund in 1984)
1985 +25%
1986 +18%
1987 -8%
1988 +20%
1989 +16% (Including a reserve for taxes on
unrealized gains)
1990 -2%
1991 +18%
1992 +18%
1993 +10%
1994 -7%
1995 +26%
1996 + 5%
1997 +25%
1998 +14%
1999 -6.86%
2000 +22.50%
2001 -9.30%
2002 -13.9%
2003 +14.31%
2004 +12.99%
2005 +2.98% (as of February 28, 2005)
The performance data quoted represents past performance and
investment return. Principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may
be worth more or less than the original cost. Please remember
that past performance does not guarantee future results and
current performance may be higher or lower than the performance
data quoted.
Our thanks to our Board and our many shareholders for their
support during our twenty seven years of operation.
Cordially yours,
Irving Levine
PRESIDENT
P.S. The Wall Street Journal no longer lists Copley Fund under Mutual
Funds as its minimum assets listing is one hundred million dollars.
However, one can get our net asset value daily over the internet.
2
<page>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return
on the Fund's Common Stock (consisting solely of stock price
performance) for the last ten years with the cumulative total return
(including the reinvestment of all dividends of (i) Standard &
Poor's 500 Stock Index and (ii) the Dow Jones Wilshire 5000 Total
Market Index. There can be no assurance that the performance of
the Fund will continue into the future with the same or similar
trends depicted in the graph below. The graph does not reflect the
deduction for taxes that a shareholder may pay on the redemption of
shares.
<table>
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Copley Fund, Inc. 11,789 12,680 15,461 16,290 15,244 19,218 18,119 15,073 18,888 21,111
S&P 500 13,411 16,341 21,835 27,663 30,857 27,740 24,800 19,319 24,380 29,561
Dow Jones Wilshire 5000 13,341 15,861 20,492 23,173 30,432 32,758 29,106 22,679 29,301 32,466
Assumes $10,000 invested on January 1, 1995 in each of (i) the Fund's
stock; (ii) the S&P 500 Composite Stock index and (iii) the Dow Jones
Wilshire 5000 Total Market Index.
The above comparisons do not reflect net amounts after taxes to shareholders.
Copley Fund, Inc., files its tax returns as a regular corporation and
accordingly its financial statements include provisions for current and
deferred income taxes.
The accompanying notes are an integral part of the financial statements
3
<page>
Copley Fund, Inc. Per Share Value
CALENDAR YEAR ENDED DECEMBER 31, 2004
PERIOD ENDED FEBRUARY 28, 2005
1983 6.06
1984 7.51
1985 9.36
1986 11.00
1987 10.11
1988 12.12
1989 14.28
1990 14.06
1991 16.47
1992 19.38
1993 21.35
1994 19.71
1995 24.65
1996 26.05
1997 32.58
1998 37.04
1999 34.50
2000 42.26
2001 38.33
2002 32.99
2003 37.71
2004 42.61
2005 43.88 (AS OF FEBRUARY 28, 2005)
4
Shareholders and Board of Directors
Copley Fund, Inc.
Palm Beach, Florida
INDEPENDENT AUDITOR'S REPORT
I have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Copley Fund, Inc., as of
February 28, 2005, and the related statement of operations for the year
then ended, the statement 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 Fund's management.
My responsibility is to express an opinion on these financial statements
and financial highlights based upon my audit.
I conducted my audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that I plan and perform the audit to obtain reasonable assurance
about whether the financial statements and financial highlights are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
My procedures included confirmation of securities owned at February 28,
2005 by receipt of correspondence from the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides
a reasonable basis for my opinion.
In my opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Copley Fund, Inc., as of February 28, 2005, the results of its
operations for the year then ended, the changes in its net assets, and
the financial highlights for each of the five years in the period then
ended, in conformity with U.S. generally accepted accounting principles.
Roy G. Hale
Certified Public Accountant
La Plata, Maryland
April 19, 2005
5
<page>
COPLEY FUND, INC.
PORTFOLIO OF INVESTMENTS
February 28, 2005
<table>
<c>
COMMON STOCKS - 96.72% Shares Value
BANKING - 6.67%
Bank of America Corp. ............ 20,000 $ 933,000
J.P. Morgan Chase & Company ...... 42,000 1,535,100
KeyCorp. ......................... 15,000 495,000
PNC Financial Services Group ..... 35,000 1,842,400
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4,805,500
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DIVERSIFIED UTILITY COMPANIES - 9.80%
Alliant Energy Corp. ............. 20,000 535,000
Dominion Resources, Inc. ......... 30,000 2,160,900
FPL Group ........................ 55,000 4,364,250
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7,060,150
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DRUG COMPANIES - 4.57%
Bristol Myers Squibb Co. ......... 100,000 2,503,000
Pfizer, Inc. ..................... 30,000 788,700
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3,291,700
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ELECTRIC AND GAS - 15.72%
American Electric Power .......... 35,000 1,169,000
Cinergy Corp. .................... 35,000 1,415,750
First Energy Corp. ............... 40,000 1,649,600
Great Plains Energy, Inc. ........ 40,000 1,239,600
Progress Energy, Inc. ............ 40,000 1,733,600
Public Service Enterprise Group .. 15,000 818,250
Scana, Corp. ..................... 50,000 1,902,000
Sempra Energy, Inc. .............. 35,000 1,400,000
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11,327,800
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</table>
The accompanying notes are an integral part of the financial statements.
6
COPLEY FUND, INC.
PORTFOLIO OF INVESTMENTS
February 28, 2005
Shares Value
ELECTRIC POWER COMPANIES - 14.24%
Ameren Corporation ............... 30,000 $ 1,544,100
DTE Energy Company ............... 55,000 2,432,100
Exelon Corporation ............... 23,200 1,052,352
Nstar Corp. ...................... 25,000 1,387,500
PP&L Corp. ....................... 50,000 2,727,000
Southern Company ................. 35,000 1,124,200
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10,267,252
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GAS UTILITIES & SUPPLIES - 12.96%
Delta Natural Gas Co. ............ 20,000 534,400
Energy East Corp ................. 40,000 1,028,800
Keyspan Energy Corp. ............. 45,000 1,779,750
New Jersey Resources Corp. ....... 37,500 1,665,000
Northwest Natural Gas Co. ........ 40,000 1,457,200
Peoples Energy Corp. ............. 40,000 1,711,200
WGL Holdings, Inc................. 38,000 1,166,600
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9,342,950
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HEALTH CARE PRODUCTS - 1.19%
*Zimmer Holdings, Inc. ........... 10,000 859,000
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INSURANCE - 3.31%
Arthur J. Gallagher & Company .... 80,000 2,388,800
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OILS - 19.03%
BP Amoco PLC. .................... 25,500 1,655,460
Chevron Texaco Corp. ............. 46,200 2,868,096
Exxon-Mobil Corp. ................ 106,086 6,716,305
Sunoco, Inc. ..................... 25,000 2,477,500
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13,717,361
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The accompanying notes are an integral part of the financial statements.
7
<page>
COPLEY FUND, INC.
PORTFOLIO OF INVESTMENTS
February 28, 2005
Shares Value
RETAIL - 1.43%
Wal-Mart Stores, Inc. ............ 20,000 $ 1,032,200
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TELEPHONE - 7.80%
Bell South Corp. ................. 20,000 516,000
Citizens Communications Company .. 20,000 266,800
SBC Communications, Inc. ......... 60,430 1,453,342
Verizon Communications, Inc. ..... 94,232 3,389,525
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5,625,667
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Total value of investments (Cost $28,775,762) 69,718,380
Excess of cash and other assets over liabilities 2,360,680
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NET ASSETS................................... $72,079,060
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*Non-income producing securities.
Federal Tax Information: At February 28, 2005, the net unrealized
appreciation based on cost for Federal income tax purposes of
$40,942,618 was as follows:
Aggregate gross unrealized appreciation for
all investments for which there was an excess
of value over cost.............................. $40,969,618
Aggregate gross unrealized depreciation for all
investments for which there was an excess of
cost over value.............................. ( 27,000)
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Net unrealized appreciation................... $40,942,618
=============
The accompanying notes are an integral part of the financial statements.
8
<page>
COPLEY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
February 28, 2005
ASSETS
Investments in securities, at value
(identified cost $28,775,762) (Note 1) $69,718,380
Cash ................................ 3,027,409
Receivables:
Subscriptions ..................... $ 182
Trade (Notes 7 & 8)................ 20,799
Dividends and interest ............ 175,863 196,844
--------
Inventory (Notes 1,7 & 8)............ 155,582
Prepaid Expenses .................... 110
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Total Assets .................... 73,098,325
LIABILITIES
Payables:
Redemptions........................ 64,248
Trade.............................. 27,336
Accrued income taxes-current....... 112,656
Accrued expenses.................... 56,259
Deferred income taxes (Notes 1 and 4) 758,766
--------
Total Liabilities .............. ( 1,019,265)
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Commitments and Contingencies (Note 7)
Net Assets ........................ $72,079,060
===========
Net assets consist of:
Capital paid in ................... $ 4,563,964
Undistributed net investment and
operating income ................. 25,290,237
Accumulated net realized gain on
investment transactions .......... 1,282,241
Net unrealized appreciation in value
of investments (Note 4) ........... 40,942,618
-----------
Total............................. $72,079,060
===========
Net Asset Value, Offering and Redemption
Price Per Share (5,000,000 shares authorized,
1,642,667 shares of $1.00 par value capital
stock outstanding) $ 43.88
==========
The accompanying notes are an integral part of the financial statements.
9
<page>
COPLEY FUND, INC.
STATEMENT OF OPERATIONS
For the year ending February 28, 2005
Investment Income (Note 1)
Income
Dividend........................... $2,460,104
Interest........................... 48,804
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Investment income................ $2,508,908
Expenses:
Investment advisory fee (Note 7)... 503,783
Professional fees.................. 90,413
Custodian fees..................... 20,651
Accounting and Shareholder Services 67,383
Printing........................... 8,244
Postage and shipping............... 4,768
Directors fees..................... 21,846
Blue Sky fees...................... 4,566
Insurance.......................... 50,055
Office expense and miscellaneous... 2,556
---------
774,265
Less: Investment advisory fee waived 60,000 714,265
--------- ----------
Net investment income before income
taxes........................... 1,794,643
Operating Profit (Notes 4, 7 and 9)
Gross profit....................... 45,619
Less: Operating expenses........... 37,387
---------
Net operating profit before income
taxes 8,232
---------
Net Investment and Operating Income before
Income Taxes ........................ 1,802,875
Less provision for income taxes (Notes
4 and 9)........................... 150,931
---------
Net investment and operating income 1,651,944
Realized and Unrealized Gain (Loss) on
Investments (Notes 4 and 6)
Realized gain/loss from investment trans-
actions during the period........... 0
Increase in unrealized appreciation of
investments during current period... 6,063,307
----------
Net realized and unrealized gain..... 6,063,307
---------
Net Increase in Net Assets Resulting from Operations $7,715,251
==========
The accompanying notes are an integral part of the financial statements.
10
<page>
COPLEY FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Year Ended Year Ended
2/28/05 2/29/04
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Increase (Decrease) in Net Assets
from Operations
Net investment and operating income.. $ 1,651,944 $ 1,539,087
Net realized gain/loss on investment
transactions........................ 0 ( 308,205)
Net change in unrealized appreciation
on investments...................... 6,063,307 13,130,685
----------- ------------
Increase (decrease) in net assets
resulting from operations........... 7,715,251 14,361,567
Net Equalization (Debits) Credits
(Note 1)............................ ( 4,161,656) ( 984,203)
Capital Share Transactions (Note 5)
Increase (decrease) in net assets
resulting from capital share
transactions......................... ( 947,511) ( 1,548,225)
------------ ------------
Total increase (decrease) in net assets 2,606,084 11,829,139
Net Assets
Beginning of Period................... 69,472,976 57,643,837
----------- -----------
End of Period (including undistributed
net investment and operating income
of $25,290,237 and $27,799,949
respectively) $72,079,060 $69,472,976
=========== ===========
The accompanying notes are an integral part of the financial statements.
11
COPLEY FUND, INC.
STATEMENT OF CASH FLOWS
For the year ending February 28, 2005
Increase (Decrease) in Cash
Cash flows from operating activities
Dividends and interest received................ $ 2,534,038
Proceeds from disposition of long-term
portfolio investments......................... 475,000
Receipts from customers........................ 154,040
Payments of taxes, net......................... ( 158,545)
Expenses paid.................................. ( 647,472)
Purchase of long-term portfolio investments.... ( 293,800)
Payments to suppliers.......................... ( 137,767)
------------
Net cash provided by operating activities..... 1,925,494
============
Cash flows provided by financing activities
Fund shares sold ............................... 466,659
Fund shares repurchased ........................ ( 5,580,991)
------------
Net cash used by financing activities......... ( 5,114,332)
============
Net decrease in cash.......................... ( 3,188,838)
Cash at beginning of the year................. 6,216,247
------------
Cash as of February 28, 2005.................. $ 3,027,409
============
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net increase in net assets resulting from
operations $ 7,715,251
-----------
Increase in investments ......................... ( 5,882,107)
Decrease in dividends and interest receivable ... 19,975
Increase in receivables from customers .......... ( 3,402)
Decrease in inventory ........................... 20,243
Decrease in subscriptions receivable ............ ( 771)
Increase in income taxes payable ................ 53,007
Decrease in trade payables ...................... 6,690
Increase in other assets ........................ ( 2)
Decrease in accrued expenses .................... ( 3,390)
------------
Total adjustments ............................. ( 5,789,757)
------------
Net cash provided by operating activities...... $ 1,925,494
===========
The accompanying notes are an integral part of the financial statements.
12
<page>
COPLEY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
The Fund is registered under the Investment Company Act of 1940,
as amended, as a diversified, open-end management company. The following
is a summary of significant accounting policies consistently followed by
the Fund in the preparation of its financial statements. The policies
are in conformity with accounting principles generally accepted in the
United States of America.
Security Valuation
Investments in securities traded on a national securities exchange
are valued at the last reported sales price on the last business day of
the period; securities traded on the over-the-counter market and listed
securities for which no sale was reported on that date are valued at
the mean between the last reported bid and asked prices.
Sales of Securities
In determining the net realized gain or loss from sales of
securities, the cost of securities sold is determined on the basis
of identifying the specific certificates delivered.
Equalization
The Fund follows the accounting practice known as equalization
by which a portion of the proceeds from sales and costs of repurchases
of capital shares, equivalent on a per-share basis to the amount of
distributable net investment and operating income on the date of the
transaction, is credited or charged to undistributed net investment
and operating income.
Distributions
It is the Fund?s policy to manage its assets so as to avoid
the necessity of making annual taxable distributions. Net investment
and operating income and net realized gains are not distributed, but
rather are accumulated within the Fund and added to the value of the
Fund's shares.
Inventory
Inventory is valued at the lower of cost (determined by the
first in/first out method) or market.
Income Taxes
The Fund files tax returns as a regular corporation and
accordingly the financial statements include provisions for current
and deferred income taxes.
Other
Security transactions are accounted for on the date the securities
are purchased or sold. Dividend income is recorded on the ex-dividend
date. Interest income is recorded as earned.
The accompanying notes are an integral part of the financial statements.
13
COPLEY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
2. Portfolio of Investments
Copley Fund, Inc., files its complete schedule of portfolio
holdings with the Securities and Exchange Commission (SEC) for the
first and third quarters of each fiscal year on Form N-Q. The Fund has
60 days after the end of the first and third quarters to file the report
with the SEC. Forms N-Q are available on the SEC website at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied
at the SEC Public Reference Room in Washington, D.C. and information
on the operations of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
A description of the policies and procedures that the Fund used
to determine how to vote proxies relating to portfolio securities is
available without charge, upon request, by calling 1-800-352-9908 and
are available on the SEC website at http://www.sec.gov.
Information regarding how the Fund voted proxies relating to
portfolio securities, during the most recent 12-month period, is
available without charge, upon request, by calling 1-800-352-9908 and
are available on the SEC website at http://www.sec.gov.
3. Shareholder Expenses
As a shareholder of the Fund, you incur ongoing costs, including
management fees and other Fund expenses. The following example is intended
to help you understand your ongoing costs (in dollars) of investing in the
Fund and to compare these costs with the ongoing costs of investing in
other mutual funds.
Actual Expenses
The first line of the table below provides information about
actual account values and actual expenses. You may use the information
in this line, together with the amount you invested, to estimate the
expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by
$1,000 = 8.6), then multiply the result by the number in the first line
under the heading entitled "Expenses Paid During Period" to estimate
the expenses you paid on your account during the period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about
hypothetical account values and hypothetical expenses based on the Fund's
actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not the Fund's actual return. The hypothetical
account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. You may
use this information to compare the ongoing costs of investing in the
Fund and other funds. To do so, compare this 5% hypothetical example
with the 5% hypothetical examples that appear in the shareholder reports
of other funds.
Please note that the expenses shown in the table are meant to
highlight your ongoing costs only and do not reflect any transactional
costs, such as sales charges (loads), redemption fees, or exchange fees.
Therefore, the second line of the table is useful in comparing ongoing
costs only, and will not help you determine the relative costs of owning
different funds. In addition, if these transactional costs were included,
your costs would have been higher.
The accompanying notes are an integral part of the financial statements.
14
<page>
COPLEY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
It is important to consider that Copley Fund, Inc., includes
federal and state income taxes paid by the Fund on current earnings in
the expense ratios used in the following table. Most other funds do
not pay income taxes on current earnings but pass the obligation to
shareholders.
Beginning Ending Expenses Paid
Account Value Account Value During Period
September 1, 2004 February 28, 2005 (9/1/04-2/28/05)
- ----------------------------------------------------------------------------
Actual $1,000 $1,102 $5
- ----------------------------------------------------------------------------
Hypothetical $1,000 $1,045 $5
(5% return before
expenses
- ----------------------------------------------------------------------------
*Expenses are equal to the Fund's annualized expense ratio of 0.923%,
multiplied by the average account value over the period, multiplied by
the number of days in the Fund's most recent fiscal half-year divided
by 365 or 366 (to reflect the one-half year period shown).
The actual return for the Fund during this six month period, which is
not annualized was 10.24%.
4. Federal and State Income Taxes
The income tax provision included in the financial statements is as follows:
Regular tax liability................. $ 149,783
Deferred tax liability................ 65,706
----------
$ 215,489
==========
The Fund provides deferred taxes for unrealized appreciation on
its investment portfolio to the extent that management anticipates that
a liability may exist based upon the Fund being a going-concern entity.
If the Fund's income tax liability should exceed the amount of current
and deferred income taxes, for an unforeseen reason, the Fund's Board
of Directors is prepared to take the necessary steps to convert the Fund
to a Regulated Investment Company (RIC). Income tax obligations
associated with the conversion to RIC status will be recognized when
the Board of Directors directs that a conversion be implemented. It is
not the intent of management or the Board of Directors to convert to RIC
status in the foreseeable future.
The amount of deferred taxes currently available to the Fund is $758,766.
The difference between the effective rate on investment and operating
income and the expected statutory rate is due substantially to the use
by the Fund of the dividends received deduction.
The Fund has $2,348,310 in accumulated capital loss carry forwards
which expire as follows: $418,498 on February 28, 2007; $1,621,607 on
February 28, 2008; and $308,205 on February 28, 2009.
The Fund is qualified and currently conducts business in the State
of Florida. The Fund is subject to Florida corporate taxes but is not
subject to alternative minimum tax in any year in which the Fund does
not pay a federal alternative minimum tax.
The accompanying notes are an integral part of the financial statements.
15
<page>
COPLEY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
In accordance with FASB-109, Accounting for Income Taxes (applicable
for fiscal years commencing after December 31, 1992), the Copley
Fund, Inc., has adopted the liability method of accounting for current
and deferred tax assets and liabilities.
The accompanying notes are an integral part of the financial statements.
COPLEY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
5. Capital Stock
At February 28, 2005, there were 5,000,000 shares of $1.00 par value
capital stock authorized. Transactions in capital shares were as follows:
Year Ended Year Ended
2/28/05 2/29/04
Shares Amount Shares Amount
Shares sold........ 10,822 $ 442,939 42,038 $ 1,496,347
Shares repurchased. ( 137,658) ( 5,553,702) (112,226) (4,033,417)
---------- ------------ --------- -----------
Net Change........ ( 126,836) $(5,110,763) ( 70,188) $(2,537,070)
========= ============ ========= ============
6. Purchase and Sale of Securities
Purchases and sales of securities, other than United States government
obligations and short-term notes, aggregated $293,800 and $475,000
respectively.
7. Investment Advisory Fee and Other Transactions with Related Parties
Copley Financial Services Corporation (CFSC), a Massachusetts
corporation, serves as investment advisor to the Fund. Irving Levine,
Chairman of the Board of the Fund, is the owner of all of the
outstanding common stock of CFSC and serves as its President, Treasurer
and a member of its Board of Directors.
Under the Investment Advisory Contract, CFSC is entitled to an annual
fee, payable monthly at the rate of 1.00% of the first $25 million of the
average daily net assets; .75% of the next $15 million; and .50% on average
daily net assets over $40 million.
Since September 1, 1978, in order to encourage the growth of the net
asset value of the Fund by keeping expenses to a minimum, CFSC has
waived a portion of the investment advisory fee on the first $15 million
of average net assets. CFSC has made no commitment to continue this policy.
For the year ended February 28, 2005, the fee for investment advisory
service totaled $503,783 less fees of $60,000 voluntarily waived. Also
during the period unaffiliated directors received $21,846 in directors'
fees.
Operating Division
The Fund's operating division, which imports merchandise for resale,
places a portion of its merchandise on consignment with a company
controlled by Irving Levine. The Fund invoices the consignee when the
merchandise is ultimately sold. Results of the operating division during
this period are as follows:
The accompanying notes are an integral part of the financial statements.
16
<page>
COPLEY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
Sales................................ $ 157,442
Cost of goods sold .................. (116,978)
----------
Gross profit ........................ 40,464
General & administrative expenses ... ( 37,387
) =========
Net income from operations .......... 3,077
Other income (dividends and interest) 5,155
---------
Net Income .......................... $ 8,232
==========
8. Notes Payable
A $3,000,000 line of credit has been secured for the operating
division from Bank of America. The assets of the Fund are pledged
as security for this line of credit. The amount currently outstanding
on this line is zero.
9. Commitments and Contingencies
Since the Fund accumulates its net investment income rather than
distributing it, the Fund may be subject to the imposition of the federal
accumulated earnings tax. The accumulated earnings tax is imposed on a
corporation's accumulated taxable income at a rate of 15% for years
commencing after December 31, 2002.
Accumulated taxable income is defined as adjusted taxable income
minus the sum of the dividends paid deduction and the accumulated earnings
credit. The dividends paid deduction and accumulated earnings credit are
available only if the Fund is not held to be a mere holding or investment
company.
The Internal Revenue Service has, during examinations of the Fund's
federal income tax returns, accepted management's position that the Fund is
not a mere holding or investment company since the Fund is conducting an
operating division. This finding by the Internal Revenue Service is
always subject to review by the Service and a finding different from the
one issued in the past could be made by the Service.
Provided the Fund manages accumulated and annual earnings and profits,
in excess of $250,000, in such a manner that the funds are deemed to be
obligated or consumed by capital losses, redemptions and expansion of the
operating division, the Fund should not be held liable for the accumulated
earnings tax by the Internal Revenue Service.
The accompanying notes are an integral part of the financial statements.
17
<page>
COPLEY FUND, INC.
FINANCIAL HIGHLIGHTS
The following table presents information about the Fund's
financial history. It is based upon a single share outstanding
throughout each fiscal year (which ends on the last day of February).
<table>
Year Ended
February February February February February February
28,2005 29, 2004 28,2003 28,2002 28,2001 29,2000
--------- --------- ------- -------- -------- ---------
Net asset value, beginning of year $39.26 $31.33 $37.66 $39.94 $31.68 $34.22
Income (loss) for investment
Operations:
Net investment income (loss) 0.99 0.85 0.95 0.67 0.97 1.06
Net gains (losses) on
securities (both realized
and unrealized) 3.63 7.08 (7.28) (2.95) 7.29 ( 3.60)
-------------------------------------------------------------------------------------
Total investment operations 4.62 7.93 (6.33) (2.28) 8.26 ( 2.54)
Net asset value, end of year $43.88 $39.26 $31.33 $37.66 $39.94 $31.68
=====================================================================================
Total Return(a) 11.77% 25.31% -16.81% -5.72% 26.07% -7.42%
Net assets, last day of
February (in thousands) 72,079 69,473 57,644 76,607 83,573 71,723
Ratio of expenses to average
net assets(b)(c) 1.01% 1.01% 1.07% 0.98% 1.04% 1.06%
Ratio of net income (loss)
to average net assets(c) 2.33% 2.42% 2.47% 1.70% 2.66% 3.01%
Portfolio turnover rate 0.44% 0.92% 8.65% 3.33% 26.26% 6.77%
Number of shares outstanding
at end of period (in thousands) 1,643 1,770 1,840 2,034 2,092 2,264
</table>
(a)Total return for periods less than one year are not annualized.
(b)Ratio of expenses presented exclude income taxes.
(c)Annualized for periods less than one year.
The accompanying notes are an integral part of the financial statements.
18
<page>
SUPPLEMENTAL DATA
VOTING PROXIES ON FUND PORTFOLIO SECURITIES
A description of the policies and procedures that the Fund uses
to determine how to vote proxies relating to the Fund's portfolio
securities, as well as information relating to portfolio securities
during the most recent 12 month period ended February 28, 2005, (i)
is available, without charge and upon request, by calling 1-800-352-9908;
and (ii) on the U.S. Securities and Exchange Commission's website at
http://www.sec.gov.
DISCLOSURE OF PORTFOLIO HOLDINGS
The SEC has adopted the requirement that all funds file a
complete schedule of investments with the SEC for their first and third
fiscal quarters on Form N-Q. The Fund's Forms N-Q, reporting portfolio
securities held by the Fund, is available on the Commission's website
at http://www.sec.gov, and may be reviewed and copied at the Commission's
Public Reference Room in Washington, DC. Information on the operation
of the public reference room may be obtained by calling 800-SEC-0330.
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
On March 18, 2005, the Board of Directors of the Fund approved
the continuation of the advisory agreement with Copley Financial Services
Corp. ("CFSC"). Prior to approving the continuation of the advisory
agreement, the Board considered:
* the nature, extent and quality of the services provided by CFSC
* the investment performance of the Fund
* the costs of the services to be provided and profits to be realized
by CFSC from its relationship with the Fund
* the extent to which economies of scale would be realized as the Fund
grows and whether fee levels reflect these economies of scale
* the expense ratio of the Fund
In considering the nature, extent and quality of the services provided
by CFSC, the Board of Directors reviewed the portfolio management,
operating division supervision and regulatory compliance services
provided by CFSC to the Fund. The Board concluded that CFSC was
providing essential services to the Fund. In particular, the Board
concluded that CFSC was providing unique and specialized supervision
of the Fund's operating division.
The Directors compared the performance of the Fund to benchmark
indices over various periods of time. It also examined the Fund's
investment objective and the dividend paying record of the portfolio
securities selected by CFSC. Based upon this the Board concluded that
the performance of the Fund warranted the continuation of the advisory
agreement.
In concluding that the advisory fees payable by the Fund were
reasonable, the Directors reviewed a report of the costs of services
provided by and the profits realized by CFSC from its relationship with
the Fund and concluded that such profits were reasonable and not excessive.
The Directors also reviewed reports comparing the expense ratio and
advisory fee paid by the Fund to those paid by other comparable mutual
funds and concluded that the advisory fee paid by the Fund was equal to
or lower than the average advisory fee paid by comparable mutual funds,
but the expense ratio of the Fund was lower than the average expense ratio
of comparable mutual funds. They noted that this fee also is adjusted
downward if economies of scale were realized during the current contract
period as the Fund grew, but did not consider that factor to be significant
in light of the other factors considered. They did find significant,
however, the fact that CFSC had voluntarily waived the receipt of $60,000
of its advisory fee, a practice it has engaged in for many years, in an
effort to control the Fund's expense ratio. CFSC can discontinue this
practice at any time.
19
<page>
ABOUT THE FUND'S DIRECTORS AND OFFICERS
The Fund is governed by a Board of Directors that meet to review
investments, performance, expenses and other business matters, and is
responsible for protecting the interests of shareholders. The majority
of the Fund's directors are independent of Copley Financial Services Corp.;
the only "inside" director is an officer and director of Copley Financial
Services Corp. The Board of Directors elects the Fund's officers, who are
listed in the table. The business address of each director and
officer is 245 Sunrise Ave., Palm Beach, FL 33480.
INDEPENDENT DIRECTORS
Name
(Date of Birth) Principal Occupations(s) During Past 5 years
Elected and Other Directorships of Public Companies
_____________________________________________________________________________
Albert Resnick, M.D. Physician Since 1948
(March 23, 1922)
1978
[1]
Kenneth Joblon President, Brittany Dyeing & Printing Corp.
(February 28, 1946) New Bedford, MA
1996
[1]
Burton S. Stern Private Investor
(March 24, 1926)
1978
INSIDE DIRECTORS
Name
(Date of Birth)
Year Elected
(Number of Copley Principal Occupations(s) During Past 5 years
Portfolios Overseen) and Other Directorships of Public Companies
_____________________________________________________________________________
Irving Levine President, Treasurer and a Director of Copley
(September 25, 1921) Financial Services Corp. since 1978; a
1978 Director of Franklin Capital Corp. (an
[1] operating investment company) from March,
1990 to October, 2004; Chairman of the
Board and Treasurer of Stuffco International,
Inc., a ladies handbag processor and retail
chain operator, since February 1978;
Director of US Energy Systems, Inc. from 2000
to October, 2004.
OFFICERS
Name
(Date of Birth) Principal Occupations(s) During Past 5 years
Title and Other Directorships of Public Companies
_____________________________________________________________________________
Irvine Levine See Above
(September 25, 1921)
Chairman of the Board of
Directors and President
Eileen Joinson Clerk-Treasurer of the Fund since 1980; Clerk
(March 14, 1948) and Office Manager of Stuffco International,
Clerk Inc., a ladies handbag processor, since 1978.
COPLEY FUND, INC. Annual Report
A No-Load Fund February 28, 2005
Investment Adviser
Copley Financial Services Corp.
P.O. Box 3287
Fall River, Massachusetts 02722
Custodian
Bank of America
111 Westminster Street
Providence, Rhode Island 02903
Transfer Agent
Gemini Fund Services
4020 South 147th Street
Suite 2
Omaha, Nebraska 68137
Tel. (402)493-4603
(877)881-2751
FAX: (402)963-9094
General Counsel
Roberts & Henry
504 Talbot Street
St. Michaels, MD 21663
Auditors
Roy G. Hale, C.P.A.
624 Clarks Run Road
La Plata, MD 20646
<page>
Item 2. CODE OF ETHICS
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer and principal financial officer. The registrant
has not made any amendments to its code of ethics during the covered period.
The registrant has not granted any waivers from any provisions of the code
of ethics during the covered period. The registrant undertakes to provide
to any person without charge, upon request, a copy of its code of ethics by
mail when they call the registrant at (508)674-8459.
Item 3. AUDIT COMMITTEE FINANCIAL EXPERT
The registrant's Board of Directors has determined that it is not necessary
for the Fund to have either an audit committee or an audit committee
financial expert. This determination was made in light of the Fund's
small size and limited complexity of audit issues.
Item 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The registrant paid the following amounts to Roy G. Hale, CPA, the
registrant's principal accountant, for the audit of the registrant's
annual financial statement and services in connection therewith for the
last two calendar years:
2004 2005
---- ----
(a) Audit Fees $18,250 $17,800
(b) Audit Related Fees None None
(c) Tax Fees None None
(d) All Other Fees None None
(e)(1) The Fund's Independent Directors perform the functions of an audit
committee. The Fund has no standing audit committee. The policy of the
Fund's Directors is to specifically pre-approve (i) all audit and non-audit
services provided by the Fund's independent auditor to the Fund ("Fund
Services") and (ii) all non-audit services provided by the Fund's
independent auditor to the Fund's advisor.
If such Fund Services are required during the period between the Fund's
regularly scheduled meetings, the President must seek approval from the
Independent Directors.
(e)(2) The Fund's Independent Directors approved 100% of the fees described
paragraphs (b) through (d) of this item.
(f) Not applicable.
(g) See above table.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. Schedule of Investments
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Board of Directors has no audit or other standing committees.
Rather the Independent Directors function as the audit and nominating
committee. The Independent Directors, in performing the functions of
the nominating committee advise the Board of Directors on the selection
and nomination of individuals to serve as Directors of the Fund.
Nominations for director, including nominations submitted by shareholders
are evaluated according to the Fund's specific needs and the nominees'
knowledge, expertise background and reputation. The Independent Directors
do not have a formal procedure by which shareholders may recommend
director candidates but will consider appropriate candidates recommended
by shareholders. A shareholder wishing to submit such a recommendation
should send a letter to the Fund's Clerk at PO Box 3287, Fall River, MA
02722. The mailing envelope should have a clear notation that the
enclosed letter contains a DIRECTOR NOMINEE RECOMMENDATION. The letter
must identify the writer as a shareholder and provide a summary of the
candidate's qualifications.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The certifying officer, whose certification is included herewith, has
concluded that the registrant's disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940
(the "Act") are effective as of a date within 90 days of the filing date
of the report that includes the disclosure required by this paragraph,
based on the evaluation of these controls and procedures required by
Rule 30a-3(b) under the Act.
There were no significant changes in the registrant's internal controls
or in other factors that could significantly affect these controls
subsequent to the date of his evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act) that
occurred during the registrant's fiscal year that has materially affected,
or is reasonable likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 12. EXHIBITS.
(a) The Exhibits listed below are filed as a part of this Form:
(1) Code of Ethics, that is the subject of the disclosure required by
Item 2, filed as Exhibit (a)(1) to Registrant's Form N-CSRS filed on
October 9, 2004 (Accession No. 0000721291-04-000017.
(2) Separate certifications for the principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a)
under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a))
are filed herewith. Officer certifications as required by Rule 30a-2(b)
under the Investment Company Act of 1940, as amended also accompany this
filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Copley Fund, Inc.
By: /s/ Irving Levine
___________________________
Name: Irving Levine
Title: President (Principal
Executive Officer)
Date: May 6, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following person on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Irving Levine
___________________________
Name: Irving Levine
Title: President (Principal
Executive Officer &
Principal Financial
and Accounting Officer)
Date: May 6, 2005
1498: