UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549 

DIVISION OF 


INVESTMENT MANAGEMENT 


April 5, 2013 

Mr. Philippe M. Salomon 

Blank Rome LLP 

405 Lexington A venue 

New York, NY 10174-0208 

Dear Mr. Salomon: 

In your letter, dated March 28, 2012, you request assurance that we would not recommend 

enforcement action to the Securities and Exchange Commission ("Commission") under Rule 

22c-1 under the Investment Company Act of 1940 ("Act") or Regulation S-X against Copley 

Fund, Inc. ("Copley"), a Nevada corporation registered under the Act as an open-end 

management investment company, which has elected to operate as a C Corporation under the 

Internal Revenue Code ("Code"), if Copley calculates its deferred Federal tax liability for 

unrealized gains based on a management-developed estimate that is a pre-set fonnula. For the 

reasons explained below, we are unable to provide such assurance. 

Background 

Rule 22c-1 under the Act states, in relevant part, that no registered investment company issuing 

any redeemable security shall sell, redeem, or repurchase any such security except at a price 

based on the current net asset value ("NA V") of such security which is next computed after 

receipt of a tender of such security for redemption. Rule 2a-4(a)(4) under the Act provides, in 

relevant part, that in computing the NAV of any redeemable security, "[a]ppropriate provision 

shall be made for Federal income taxes ifrequired" by the registered investment company.' 

Copley is offering for sale and has outstanding redeemable securities that are subject to Rules 2a4 and 22c-1. 

1 From 1970 until1982, Rule 2a-4(a)(4) specifically required provision for Federal income taxes in 

accordance with Regulation S-X. In 1982, the Commission removed the specific reference, a change 

made to confonn with amendments to Article 6 of Regulation S-X that were adopted at the same time, 

and not as a substantive change to Rule 2a-4(a)( 4). Financial Statement Requirements for Registered 

Investment Companies, Investment Company Act Release No. 12871 (Dec. 6, 1982). 
As an investment company registered under the Act, Copley is subject to Regulation S-X, 

including Rule 4-0l(a)(l) of Regulation S-X, which states, in relevant part, that "[f]inancial 

statements filed with the Commission which are not prepared in accordance with generally 

accepted accounting principles [("GAAP")] will be presumed to be misleading or inaccurate, 

despite footnote or other disclosures, unless the Commission has otherwise provided." As a C 

Corporation under the Code, Copley must account for income taxes in accordance with the 

Financial Accounting Standards Board's ("FASB's") Accounting Standards Codification Topic 

740, Income Taxes ("ASC 740"). ASC 740 indicates that financial statements should reflect the 

amount of deferred tax liabilities and assets for the future tax consequences of events that have 

been recognized in an entity's financial statements or tax returns? There is also an assumption 

that all assets and liabilities of an entity will be recovered and settled, which may result in 

temporary differences. 3 

ASC 740 also provides several examples of items that result in differences between the 

recognition oftransactions or events for financial reporting purposes and tax purposes. 

Revenues or gains that are taxable after they are recognized in financial income are included as 

an example of a temporary difference. 4 

Unrealized gains on investments, which are taxable after they are recognized in the financial 

statements, represent a temporary difference on which a deferred tax liability must be 

recognized. The recognized deferred tax liability is calculated by multiplying the temporary 

difference (i .e. , the unrealized gains) by the expected tax rate at the expected time ofreversal. 5 

Copley' s proposal to calculate the deferred tax liability based on a management-developed 

estimate that is a pre-set formula would not comply with GAAP as it would result in Copley 

recognizing only a portion of the deferred tax liability required by ASC 740 . 

Conclusion 

We do not believe that Copley can comply with GAAP or with Rule 4-0l(a)(l) of RegulationSX without complying with ASC 740 . We also do not believe that Copley has demonstrated that, 

for purposes of Rule 2a-4(a)(4) under the Act, an appropriate provision for Federal income taxes 

should be made in any manner other than one that is consistent with GAAP . Therefore,, we are 

unable to assure you that we would not recommend enforcement action to the Commission 

against Copley under Rule 22c-1 or Regulation S-X if Copley does not comply with ASC 740. 

2 FASB ASC 740-10 -10-1(b) . 

3 See FASB ASC 740-10-25-20. 

4 FASB ASC 740-10-25 -20(a). 

5 Se e generally FASB ASC 740-10-10-3 (indicating that the objective is to measure a deferred tax 

liability using the enacted tax rate expected to apply to taxable income in the periods in which the 

deferred tax liability is expected to be settled). 
If you have any further questions related to this matter, please contact Megan Monroe in the 

Division ofInvestment Management at 202-551-6950. 

Sincerely, 

Douglas Scheidt 

Associate Director and Chief Counsel 

Division of Investment Management 

fJ~{;v~ 

Jaime Eichen 

Chief Accountant 

Division of Investment Management 
BLANK ROME LLP

COUNSELORS AT LAW 

Phone: (212) 885-5455 

Fax: (212) 885-5002 

Email: psalomon@blankrome. com 

March 28, 2012 

Office of Chief Accountant 

Division of Investment Management 

U.S. Securities and Exchange Commission 

100 F. Street, N .E., Mail Stop 4 720 

Washington, D.C. 20549-4720 

Attn: Jaime Eichen 

Re: Copley Fund, Inc.: Request for Interpretive Opinion and No Action 

Assurance; Rule 22c-1 promulgated under the Investment Company 

Act of 1940 and Rule 4-0l(a)(l) of Regulation S-X 

Dear Ms. Eichen: 

This Firm represents Copley Fund, Inc. ("Copley" or the "Fund") and on its behalf, 

submits this letter as a continuation of Copley's prior communication, through counsel, to the 

Division oflnvestment Management (the "Division") on September 28, 2011 (the "September 28 

Letter," annexed hereto as Exhibit A). Copley is hereby requesting a written opinion from the 

Division permitting the Fund to alter the manner in which it has accounted for deferred tax 

liability for unrealized gains since 2007. More specifically, Copley proposes to account for its 

deferred tax liability for unrealized gains by establishing a tax reserve based on a pre-set formula 

more fully set forth below at pages 11 through 14. Further, it seeks assurances that the Division 

will not recommend that the Commission commence an enforcement action against Copley 

should it follow this proposed approach. While Copley has submitted various proposals to the 

Division regarding how the Fund could more fairly, reasonably and accurately account for its 

deferred tax liability for unrealized gains, including the September 28 Letter, to date, the 

Commission has failed to provide a final determination. 

In the September 28 Letter, Copley sought no-action assurances from the Division if the 

Fund were to (i) prepare and issue financial statements using a reserve for taxes on unrealized 

gains based on management's estimates, rather than on the assumption that all assets with 

unrealized appreciation would be sold at current prices and/or (ii) issue and redeem shares based 

on current net asset value as so determined, with an explanation of the calculation and a 

comparison ofthe difference between such calculation of net asset value with a reserve for taxes 

on all unrealized appreciation. After the submission of that letter, Copley had detailed 

The Chrysler Building 405 Lexington Avenue New York, NY 10174-0208 

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Delaware • Florida • New Jersey • New York • Ohio • Pennsylvania • Washington, DC • Hong Kong 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28, 2012 

Page2 

discussions of the issues with numerous representatives from the Staff on a conference call in the 

Fall of2011. Thereafter, Copley had expected to receive a written response from the Staff, but 

has not received any to date. 

Requiring Copley to set a tax reserve for unrealized gains on the assumption of full 

liquidation is inconsistent with Copley's investment philosophy of reinvesting dividends and 

accumulating capital gains and misleading because it substantially understates the Fund's 

invested assets and net asset value ("NA V"), while overstating its operating expenses. See infra, 

at 7. To address these circumstances, Copley does not now simply seek approval for the 

discretion by its management to establish an appropriate reserve. Rather, as discussed more fully 

below at pages 11 through 12, Copley presents two alternatively defined formulas for calculating 

the reserve and allowing pre-set means to sell securities in its portfolio to satisfy extraordinary 

redemptions if necessary. Finally, Copley is prepared to convert to a Regulated Investment 

Company ("RIC") by a pre-arranged commitment, essentially triggered by the unforeseen event 

of unusually high redemptions. 

Accordingly, Copley respectfully requests that a final written opinion or order be issued 

granting the relief requested. In support, Copley offers this summary of the prior dialogue the 

Fund has had with the SEC on this issue, incorporates by reference the arguments made in its 

prior submissions annexed hereto, and submits a new proposal for the Division's consideration, 

which the Fund believes would result in a fairer and more accurate disclosure of its current and 

ongoing financial operations. 

A. Procedural History of this Matter 

Since 1992, Copley has maintained that the accrual for unrealized capital gains taxes is 

best represented by a "reserve" established by its Board, rather than the use of a full liquidation 

value accrual to calculate the Fund's NAV. Until2007, the SEC had never required that Copley 

change this methodology. It is this structure for which the Fund now seeks no-action relief. 

In August of2007, the Stafftook issue with Copley's accounting for, and disclosure of, 

tax reserves for unrealized appreciation in its financial statements filed for the year ended 

February 28, 2007. In a comment letter dated September 26, 2007 (the "Comment Letter"), the 

Staff asserted that Copley had failed to account properly for deferred tax liabilities and assets for 

the future tax consequences of events recognized in its financial statements, as required by F AS 

109 and in violation ofRule 4-01(a)(l) of Regulation S-X, which provides that "financial 

statements filed with the Commission which are not prepared in accordance with generally 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28, 2012 

Page 3 

accepted accounting principles will be presumed to be misleading or inaccurate, despite footnote 

of other disclosures, unless the Commission has otherwise provided." (A copy ofthe Comment 

Letter is annexed hereto as Exhibit B.) It is not clear from the Staffs correspondence what 

caused it to change its view in 2007 and suddenly to require Copley to change its methodology. 

In the Comment Letter, the Staff noted that Copley has elected to operate as a subchapter 

C Corporation, and not a RIC, and that it was unaware of any other investment company that 

chose not to qualify as a RIC that did not accrue a deferred tax liability associated with its 

unrealized appreciation. (Ex. Bat 3-4.) The Staff explicitly acknowledged Copley's willingness 

to convert to RIC status in the event unforeseen circumstances caused gains to be realized that 

consumed the entire amount of accumulated deferred income taxes that Copley had recognized. 

(ld. at 5-6.) It did not, however, address- and, to date, still has not addressed -whether 

conversion would satisfy the SEC's concerns regarding the Fund's tax accounting. 

By letter dated November 30, 2007, the Division ofEnforcement's Boston Regional 

Office expressed to Copley its intent to seek immediate injunctive relief against the Fund if it did 

not adjust its per share NAV to account for the full liquidation liability for tax on unrealized 

capital gains. (A copy of the November 30, 2007 Letter is annexed hereto as Exhibit C.) To 

avoid such injunctive litigation with the Commission, Copley's Board approved shortly 

thereafter an adjustment of the Fund's NAV using the SEC's preferred full liquidation value 

methodology. 

On March 21, 2008; the Division of Enforcement informed Copley that it was conducting 

an informal investigation ofthe Fund into possible violations ofthe securities laws, and 

requested that the Fund provide certain information on a voluntary basis. The Commission 

apparently later converted the proceeding into a formal investigation against Copley a11d its CEO 

Irving Levine for potential violations of certain antifraud provisions, namely, Section 34(b) of 

the Investment Company Act of 1940 (the "ICA"), Rule 22c-1(a), promulgated under Section 

22( c) thereunder, Section 17( a) ofthe Securities Act, and Section 1 O(b) ofthe Exchange Act and 

Rule 1 Ob-5 promulgated thereunder; as well as a books and records violation under Section 204 

ofthe Investment Advisors Act of 1940 and Rule 204-2 promulgated thereunder. 1 Copley fully 

cooperated with the investigation. 

1 The SEC's request for information and its Formal Order of investigation are not being annexed hereto because they 

are non-public documents. Copley presumes that the Division has access to those records. 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28, 2012 · 

Page4 

On July 18, 2008, Copley was required to restate its historical financial statements to 

account for the full liquidation value methodology required by the SEC and filed an amended 

Form N-CSR/A containing a Restated Annual Report to its shareholders. (A copy ofthat filing 

is annexed hereto as Exhibit D.) 

On or about November 19, 2008, in an effort to resolve the investigation, Thomas Henry, 

Esq., Copley's counsel, sent a letter to James S. Goldman, Esq., of the SEC's Boston Regional 

Office, enclosing a memorandum that described in detail the negative impact of the change 'in 

methodology and the reasons Copley's original reserve methodology was in the best interests of 

the shareholders (the "November 2008 Memo"). (A copy ofthe November 19, 2008 letter, with 

its enclosures, is annexed hereto as Exhibit E.) Among other things, the letter explained that 

Copley's change in methodology to a full liquidation value accrual'in calculating the Fund's per 

share NAV had resulted in misleading and inconsistent financial statements that did not reflect 

the fair or accurate value ofthe Fund's shares. The letter also enclosed a proposed Prospectus 

Supplement that would provide disclosures to the shareholders necessary for their consideration 

of the risks associated with this methodology. We understand that correspondence was shared 

with the Division. 

Copley has not received a substantive response to the November 19, 2008 letter to Mr. 

Goldman. In February of2009, Copley was informed by Mr. Goldman that the investigation of 

the Fund had been reassigned to Lawrence Pisto, Esq., also of the Boston Regional Office. 

Thereafter, the Staff took testimony of, among others, Irving Levine and Copley's outside 

accountant, Roy Hale. 

On October 5, 2009, Mr. Henry sent a letter to Mr. Pisto to follow up on a prior telephone 

conversation to inquire about the status of the investigation. With that letter, Mr. Henry resubmitted the November 2008 Memo and proposed Prospectus Supplement. (A copy of Mr. 

Henry's October 5, 2009 letter, with its enclosures, is annexed hereto as Exhibit F.) As detailed 

therein, Mr. Henry argued that a certain degree of flexibility is appropriate under GAAP and 

F AS accounting standards and under the SEC rules, and that such flexibility was warranted here. 

Further, Mr. Henry reiterated Copley's willingness to provide transparent disclosures to its 

investors and requested a meeting with the Staff. 

Our understanding is that the requested meeting did not take place. Instead, in a 

December 2, 2009 letter, the Division responded to Mr. Henry's October 5 letter and asserted 

that Copley had provided neither any new arguments not previously considered by the Staff, nor 

any "changes in the Company's circumstances that might cause reconsideration of [the Staffs] 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28, 2012 

Page 5 

original position." (A copy ofthe December 2, 2009 letter is annexed hereto as Exhibit G.) In 

that letter, the Division informed Copley that it would again recommend immediate enforcement 

action if Copley were to submit financial statements that did not comply with ASC 740 (which 

codified F AS 1 09) by using the methodology required by the Staff. 

On March 5, 2010, Kevin Kelcourse, Esq., Assistant Regional Director from the Boston 

Regional Office, informed Mr. Henry by letter that the investigation of Copley and Mr. Levine 

was officially completed and that the Staff would not recommend enforcement action. Thus, the 

investigation closed without any penalties. Nonetheless, Mr. Kelcourse's letter reiterated that if 

Copley did not comply with the requirements ofFAS 109 and/or re-codified ASC 740, the 

Division of Enforcement would recommend enforcement action by the Commission. (See 

Exhibit H.) 

Following the closing of the investigation, Copley and its counsel engaged in further 

communications with the Staff in an effort to reach a mutually acceptable resolution ofthis issue. 

For example, on July 15,2010, Mr. Henry exchanged e-mails with Kevin Rupert ofthe 

Division's Staff concerning proposed modifications to Copley's financial statements. In that 

exchange, Mr. Rupert acknowledged the unique structure ofthe Fund, stating that, "While we 

have been firm on not permitting footnotes, this fund has really unusual tax issues, and for this 

reason an explanatory footnote might be permitted- but I make no promises." (Exhibit I 

(emphasis added).)2 

Finally, on September 28, 2011, Copley, through its counsel, David Faust, Esq., sent the 

Division the request for no-action assurance referenced earlier. The September 28 Letter 

explained in detail why the use of the Staffs full liquidation value methodology is inappropriate 

given the unique nature ofthe Fund, is inconsistent with its investment philosophy, policy and 

practice, has led to misleading financial statements and reporting that understates the amount of 

assets under management and does not represent the true value ofthe Fund's shares. (See Ex. 

A.) Moreover, Mr. Faust explained that the Commission's refusal since 2007 to permit Copley's 

management to exercise any discretion with respect to deferred tax accounting differed from its 

treatment of Weyerhaeuser Corporation, which apparently had been permitted to depart from a 

literal reading of a required tax accounting provision. Indeed, as more fully explained below, the 

Commission's position with respect to Weyerhaeuser and other similarly situated companies 

contradicts its position with respect to Copley. 

2 The Staff apparently did deviate from its normal practice of not permitting footnotes, as Copley's semi-annual 

shareholder report for the period ended August 31, 2010, includes footnotes to its financial statements clarifying the 

nature of the deferred tax liability. (See Ex. J.) 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28,2012 

Page 6 

B. Summary of Copley's Arguments 

Copley believes it would be useful to summarize briefly the arguments the Fund has 

previously presented to the Staff and which it believes continue to support its position. 

1. The Fund is unique. 

Copley is a C Corporation, and not a RIC. Although the Fund has some of the 

characteristics of a RIC, unlike one, up to 70% of the dividend income received, or 70% of the 

taxable income of the Fund, whichever is less, is exempt from federal taxation under the Internal 

Revenue Code. The remaining 30% of the Fund's income is taxable. Unlike most funds, the 

taxable income generated by the Fund is not passed on to the shareholders. Furthermore, 

contrary to most other funds, Copley has maintained a strategy of not distributing dividends and 

capital gains to shareholders, but rather, accumulating them within the Fund and then adding 

them to the value of each share on a daily basis. Shareholders, therefore, are able to defer 

dividend and capital gains taxes until redemption. 

To the knowledge of Copley's management, it is the only U.S. open-end mutual fund that 

operates in this manner. The Division has, in fact, acknowledged the unique tax structure of the 

Fund. (See supra at 5 and Ex. Il As a result of this method of operation, the risk of Copley 

incurring a tax liability in excess of the reserve established by the Board is exceedingly remote. 

Concomitantly, a strict application ofFAS 109 to require a full liquidation value deferred tax 

liability affects the Fund disproportionately because, unlike a typical C Corporation whose 

shares are valued by the market, Copley is required to calculate its price daily with respect to its 

redeemable shares. 

Thus, the Division's methodology puts Copley at a decisive disadvantage relative to its 

peer funds because it artificially deflates the Fund's NAV and thereby unfairly makes it appear 

to the investing public to be a less attractive investment opportunity compared to its competitor 

funds. 

3 Although in its 2007 Comment Letter (see Ex. B), the Staff referred to two other investment companies that have 

not elected RIC status but record a deferred tax liability, Tortoise Energy Capital Corp. and Kayne Anderson MLP 

Investment Company, as Copley explained in the November 2008 Memo, both are easily distinguishable from 

Copley because, among other things, they are closed-end funds. (See November 2008 Memo at Ex. E, p. 11, n. 4.) 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28, 2012 

Page 7 

2. The Staffs mandated methodology leads to misleading financial accounting. 

Beginning in 1992, Copley implemented a policy of regularly monitoring the Fund's 

potential income tax liability on unrealized gains and accruing a reserve that corresponded with 

the anticipated actual liability. The estimate ofthe Fund's future liability was based on factors 

that included anticipated redemptions beyond the ability of the Fund to cover, the Fund's 

investment strategy and track record of holding dividend paying stocks for the long term, and the 

fact that the entire deferred liability would be due only in the unlikely event the entire portfolio 

were liquidated. (See November 2008 Memo, at Ex. E, for a more detailed explanation of the 

reserve methodology.) During the entire period in which the Board employed this methodology, 

the reserve was never used. (See November 2008 Memo at 5.) 

The Fund's use ofthe Staffs mandated methodology, under which it records the entire 

deferred tax liability, has led to a materially misleading reported NAV since 2007. This result 

derives from the facts that it (i) does not accurately reflect Copley's investment policy and 

practice of long-term holdings of its positions; (ii) understates the amount of invested assets 

actually under management on which gains or losses are actually realized; and (iii) overstates the 

Fund's operating expense ratio (by including as expenses deferred taxes, which are not actual or 

realized operating expenses). (See Ex. A at 2-4.) 

Copley submits that it is in the best interests of the Fund's shareholders to reserve for 

deferred tax liability in a manner that allows the per share NAV to reflect better the true value of 

the Fund's shares. As Copley has always assured the Staff, if permitted to do so, it will provide 

full transparency to investors by, for example, including in its prospectus a clear explanation of 

the differing effects in pricing, as calculated using the reserve method and the full liquidation 

value methods. (See, e.g., Ex. E; Ex. F.) 

Copley recognizes that the SEC may be reluctant to permit its management unfettered 

discretion to calculate the appropriate reserve and that it may have concerns that Copley, through 

its prior methodology, may have overstated the value of its shares. Without conceding the 

validity of those concerns, the Fund is prepared to address this issue and to propose an 

acceptable resolution. Accordingly, in Section C, below, Copley sets forth a new methodology, 

whereby the Fund will calculate the reserve using a pre-set formula that it believes will be 

acceptable to the Commission and should allay any of its concerns. 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28, 2012 

Page 8 

3. Copley is willing to convert to a RIC. 

As explained in more detail in the memorandum initially provided to the Staff in 

November of2008, Copley has advised the Staff of its willingness to convert to RIC status in the 

event unforeseen circumstances caused gains to be realized that consumed the entire amount of 

accumulated deferred income taxes it has recognized. (See Ex. B at 5-6; November 2008 Memo 

at Ex. E, pp. 6-8.) As discussed more fully, infra, at 14, conversion to a RIC would be analogous 

to the restructure and tax treatment sanctioned by the SEC with respect to other entities. 

4. Copley's "reserve" methodology is consistent with the ICA Rules. 

Rule 22c-1 promulgated under the ICA requires open-end funds to issue and redeem 

shares "at a price based on the current net asset value of such security ...." In turn, the rules 

define "current net asset value" as the "amount which reflects calculations, whether or not 

recorded in the books of account, made substantially in accordance with the following, with 

estimates used where necessary or appropriate." ICA Rule 2a-4 (emphasis added). As set forth 

in more detail in the September 28 Letter, these rules, when read together, do not require the 

price of the Fund's shares to be exactly the same as its NAV. (Ex. A at 2.) Copley's issuance 

and redemption of shares based on aNAV that reflects a management determined tax reserve, 

therefore, does not violate the ICA Rules. 

5. Copley's "reserve" methodology is permissible under GAAP. 

The Staff has argued that a management established reserve, rather than a deferred tax 

liability reflecting the full liquidation, would violate GAAP, and specifically F AS 1 09 and recodified ASC 740. The reserve methodology, however, is actually more consistent with the 

assumptions, constraints and conventions underlying GAAP than the full liquidation value 

methodology. For example, under GAAP, there is an assumption that a business will continue to 

operate as a going concern. (See, e.g., Accounting Research Bulletin 43, Chapter 3: Working 

Capital, Section A, stating "It should be emphasized that financial statements of a going concern 

are prepared on the assumption that the company will continue in business."). The Staffs 

liquidation value method, by contrast, assumes the Fund will close, be sold or entirely liquidated 

en masse. The use ofthe liquidation value method also contradicts the principles of 

realization/revenue recognition and matching by effectively transforming a contingent liability 

into a full, current, realized liability and failing to match current revenue and assets with correct, 

actual liabilities. Lastly, the use of the liquidation value method is contrary to the principle of 

adequate disclosure underlying GAAP, in that it presents financial statements that are effectively 
Jaime Eichen 

Chief Accountant, Division ofInvestment Management 

March 28, 2012 

Page 9 

misleading because they do not accurately convey the true value ofCopley's shares. (See 

November 2008 Memo, at Ex. E,_p. 10.) 

Even assuming, arguendo, that the Fund's proposed reserve methodology would depart 

from ASC 740, GAAP does allow for certain flexibility where, for instance, the strict adherence 

to GAAP appears unreasonable under the circumstances and/or would produce unreasonable 

results. The Commission has appropriately recognized this concept. (See November 2008 

Memo at Ex. E, p. 11, n.5, citing the Commission's issuance of rules even for the use ofnonGAAP financials, Release No. 33-8176, 34-17226 (January 22, 2003).) Further, as discussed in 

Copley's October 5, 2009 letter to Mr. Pisto (Ex. F), the Commission submitted to Congress in 

2008 a report on mark to market accounting in which it presented recommendations that 

suggested the appropriateness of discretion and flexibility, including the application of 

"judgment" in making market price decisions. Here, the use of the full liquidation value method 

has produced a skewed and unreasonable result- Copley's per share NAV does not reflect the 

realistic value of the Fund - and, therefore, such flexibility is warranted. 

6. 	 The Commission has permitted management discretion with respect to GAAP and tax 

accounting provisions. 

We understand from prior correspondence that the Staff apparently has adopted the 

position that ASC 740 does not allow for any discretion or flexibility with respect to accounting 

for deferred tax liability. There is, however, evidence to the contrary, as the SEC has permitted 

certain flexibility to depart from a strict interpretation of GAAP or other tax accounting 

provisions where doing so would lead to more accurate reporting. 

First, we are aware of at least two entities- Weyerhaeuser and American Tower Corp.­

that recently converted from C Corporations into real estate investment trusts ("REITs") and, in 

doing so, have exercised discretion with respect to accounting for deferred tax liabilities. Upon 

conversion to REIT status, those entities would be subject to a tax on any "built-in gains" that 

had accrued as of the conversion date if they recognized gains on the disposition of any assets 

owned at the time of the conversion during the 1 0-year period following the conversion. 

Nonetheless, both Weyerhaeuser and American Tower have not accounted for deferred tax 

liabilities associated with such "built-in gains"- presumably concluding that their likelihood of 

disposing of such assets within the 1 0-year recognition period is exceedingly remote. (See also 

discussion of Weyerhaeuser in the September 28 Letter at Ex. A, pp. 7-8.) 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28, 2012 

Page 10 

To our knowledge, the SEC has not challenged the approaches of either Weyerhaeuser or 

American Tower. Notably, the conversions to REITs by Weyerhaeuser and American Tower 

took place in 2010 and 2012, respectively- years after the Commission mandated that Copley 

not exercise any management discretion with respect to its deferred tax liability accounting. 

Although the Fund's situation is not entirely equivalent to that of Weyerhaeuser and American 

Tower, it is sufficiently analogous because like those entities, Copley is seeking to exercise 

discretion not to account for the full amount of liabilities that are contingent and exceedingly 

remote. Copley does not understand the SEC's justification for prohibiting it from exercising 

similar management discretion, but later permitting· Weyerhaeuser and American Tower to do so. 

Put differently, Copley submits that the SEC's interpretation of ASC 740 as applied to the Fund 

is fundamentally inconsistent with the deferred tax liability accounting of these two REITs. 

Second, in at least one instance, the SEC has granted no-action relief permitting an 

investment company to present its financial statements in a manner that would have been 

prohibited under a strict interpretation of GAAP. In April of 2008, the Division assured Fidelity 

Investments that it would not recommend enforcement action against a Fidelity registered 

investment company called the Gold Portfolio if it consolidated its financial statements with 

those of its subsidiary, Fidelity Select Gold Cayman Ltd. See Response ofthe Office of Chief 

Accountant ofthe Division oflnvestment Management to Fidelity Investments, 2008 SEC NoAct. LEXIS 459 (Apr. 29, 2008). 

Under a technical reading ofthe ICA, the subsidiary might not have been considered an 

investment company because it was only invested in commodities, which are not considered 

"securities." !d. at * 10. Therefore, the Gold Portfolio technically was not permitted to 

consolidate its financial statements with the subsidiary, pursuant to GAAP and Rule 6-03(c)(l) 

ofRegulation S-X, which preclude consolidation by a registered investment company with an 

entity that is not an investment company. !d. at *4-*5. The Division, however, accepted 

Fidelity's argument that notwithstanding those regulations, it would be appropriate to consolidate 

the financial statements ofthe subsidiary into the Gold Portfolio because it would give 

shareholders a "more accurate picture" ofthe portfolio and its structure. Specifically, the 

subsidiary was authorized to invest in securities, would operate as an investment company for all 

relevant purposes, and was established to act as an investment vehicle for the Gold Portfolio. !d. 

at * 5, * 15. Copley, likewise, should be permitted flexibility to depart from a strict interpretation 

of GAAP by formulating a reserve for deferred tax liability that leads to a per share NA V that 

better, and more accurately, reflects the true value ofthe Fund's shares to the investing public. 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28, 2012 

Page 11 

For all ofthe reasons summarized here (and others more fully articulated in the attached 

Exhibits) Copley requests that the Division accept the Fund's proposal regarding its accounting 

for its deferred tax liability for unrealized gains and issue a final order granting such relief. 

C. 	Copley's New Proposal 

In addition to the arguments which Copley has previously advocated, Copley now 

submits the following two new proposals that, given Copley's circumstances, would result in a 

fairer and more accurate disclosure to the investing public, together with a more equitable 

outcome. 

1. 	 Reserve Formula 

The Fund proposes to accrue a deferred tax liability that fairly and accurately reflects a 

realistic tax liability, and which addresses the issues regarding the ability to meet redemptions at 

aNAV that does not include a tax reserve that assunies full liquidation. Accordingly, the Fund 

proposes to accrue a defined tax liability using one of the following two formulas, each of which 

is fully transparent. 

(a) Alternative 1 

• 	 At the end of each calendar quarter, the Fund will calculate its average historical 

turnover rate over the previous five, or even ten, years. In calculating its NA V on 

a daily basis, Copley will use a tax reserve calculated at a tax rate equal to a 

percentage of the statutory corporate tax rate determined at four times the average 

historical turnover rate. The historic, average five-year turnover rate of the Fund 

for the period from February 29, 2008 through February 29, 2012 was 2.31 %; the 

average ten-year turnover rate is 2.28%. (See Portfolio Turnover Rate chart 

annexed hereto as Exhibit K.) Thus, for example, if the unrealized gain at the 

close of business is $50,000,000, the deferred tax liability under the full 

liquidation value approach would be $17,500,000. Under either the historical, 

five-year rate of 2.31% or the historical ten-year rate of 2.28% (both rounded to 

2.5%), Copley would set a reserve at four times that 2.5%, or 10%, of the 

$17,500,000, i.e., $1,750,000. Based on these actual average historical rates, 

Copley respectfully submits that any multiple of four times allows for a 

reasonable and adequate tax reserve. 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28,2012 

Page 12 

• 	 This formula obviously would be independent of any unfettered discretion of the 

Fund's management. Rather, it would reflect, in a most conservative manner, the 

average historical turnover rate of the Fund and, therefore, the lack of need foror propriety of- a "full" or "liquidation based" tax reserve. 

• 	 Under this scenario, the Fund would ensure that even if it receives requests on any 

given day which would require sales of investment assets at a rate four times in 

excess of its historical rates - a high number based on a 20-year historical track 

record - it will be able to accommodate such requests. 

(b) Alternative 2 

• 	 At the end of each trading day, the Fund will determine the highest daily 

redemption of its shares (as a percentage of shares outstanding) during the 

previous five years. In calculating its NAV on a daily basis, Copley will use a tax 

reserve calculated at a tax rate equal to a percentage of the statutory corporate tax 

rate determined at four times the highest daily redemptive rate. For example, if 

the unrealized gain at the close of business is $50,000,000, the deferred tax 

liability under the full liquidation value approach would be $17,500,000. Ifthe 

historically highest daily redemptive rate of the Fund were 2%, Copley would set 

a reserve at four times that 2%, or 8%, of the $17,500,000, i.e., $1,400,000. This 

formula, likewise, would be totally independent of the unfettered discretion of the 

Fund's management. It would reflect, in a most conservative manner, the 

historically low redemptive rate ofthe Fund and, therefore, the lack of need foror propriety of- a "full" or "liquidation based" tax reserve. 

• 	 To put this alternative into perspective, the highest daily redemption in the history 

of the Fund since inception was $1,000,000, which represented approximately 

23,260 shares or approximately 1.6% of the total outstanding shares on the date of 

redemption. The redemptions were effected with no problem. 

• 	 Under this scenario as well, the Fund would insure that even if it receives 

redemption requests on any given day that are four times greater than its 

historically highest redemption- an inconceivably high number based on a 20­

year historical track record- it will be able to accommodate such redemptions. 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28, 2012 

Page 13 

Either alternative will assure investors in the Fund the ability to redeem their shares at the 

stated, accurate NAV, thus addressing any concerns that the SEC may have previously harbored. 

(c) Further Safety Valve 

In any event, under Section 22(e) ofthe ICA, the Fund need not redeem all such shares 

on the day such requests are received, but instead has seven days to redeem them. The Fund has 

never failed to redeem on the day requests are made. Although the Fund expects to continue to 

honor all redemption requests on the day requested, it notes that Section 22(e) provides an 

additional safety valve. 

Copley does not believe it is a cogent objection to its proposal to say that if more than 8% 

ofthe shares are redeemed on one day, then the NAV will somehow be overstated due to an 

insufficient deferred tax liability. In such case, the Fund would seek relief from the Staff and/or 

could postpone some redemptions to the next day, or for several more days, or for an 

appropriately longer period, in which case the NAVon those later days would be adjusted to 

reflect any updated deferred tax liability. Again, the Fund would be following traditional and 

accepted industry practice, since hundreds or thousands of funds would in fact defer some 

redemptions if these requests reached 8%. If they did not, they would have to dispose of assets 

at a material discount, resulting in an apparently overstated NA V. As discussed above, a fund is 

presumed under GAAP to be a going concern that will continue in business. (See ARB 43.) In 

other words, the regulatory framework ofthe fund industry, which promises investors liquidity at 

a stated NA V, is founded on the premise that there will be an orderly process for large 

redemptions all at once. 

For example, if all the investors in Vanguard's S&P 500 Index requested redemptions at 

the same time, they would, even with a wait of seven days, receive a fraction oftheir expected 

NA V, if a distressed liquidation were mandated. Of course, either Van guard W<?uld implement 

gating procedures or the SEC would be expected to provide relief by allowing for a more orderly 

liquidation in such instance; the core point regarding the assumptions of the regulatory scheme 

still holds. 

Copley believes that such a sophisticated approach is appropriate given the unique status 

and history of the Fund and, in particular, given the treatment apparently afforded to 

Weyerhaeuser and American Tower, both of which have excluded deferred tax liabilities relating 

to assets whose sale is considered remote. Copley's alternative rational formulas similarly take 

into account the fact that the accrual of the full deferred tax liability under the liquidation value 
Jaime Eichen 

Chief Accountant, Division of Investment Management 

March 28, 2012 

Page 14 

methodology would be exceedingly remote. The Fund believes that the Commission has a 

regulatory obligation to provide Copley with equal treatment. 

The Division simply has not addressed the issue ofthis disparate treatment. If the 

Division's response to the Fund in its September 26, 2007 letter were applied to Weyerhaeuser 

and American Tower, those companies would have to accrue a deferred tax liability calculated 

by assuming a liquidation of all their assets. These companies are not special purpose vehicles 

restricted by covenants designed to limit borrowings ("bankruptcy remote vehicles"). Thus, for 

example, they may borrow, become overleveraged and have to sell assets. Additionally, they 

may encounter environmental or other operating liabilities, be subject to large legal claims and 

be forced to sell assets. Nonetheless, the Commission apparently has taken the position that the 

prospect of such a disposition of assets is sufficiently remote to warrant a deferred tax liability 

that assumes there will be no such sale. The Fund respectfully submits that it is likewise entitled 

to such treatment. 

2. Board Resolution to Convert to RIC Status 

As discussed above, the Fund has long contemplated conversion to a RIC in the event 

unforeseen circumstances caused gains to be realized that consumed the entire amount of 

accumulated deferred incomes taxes it has recognized. To ensure that this occurs as first 

contemplated by the Board years ago, the Fund has recently enacted new Board resolutions 

confirming its intent and detailing how and when this RIC conversion shall occur. A redacted 

copy ofthe Board minutes adopting the Resolutions, on March 23, 2012, is annexed hereto as 

Exhibit L. 

The resolutions (Ex. L) provide that if the deferred tax liability, as computed under the 

proposal described above, reaches an amount equal to 10% of Pre-Tax NA V, defined as the 

NAV of the Fund plus an amount equal to Copley's deferred tax liability as of the end of such 

trading day, the Fund will convert to a RIC for tax purposes. Upon such conversion, there would 

be a further parallel with Weyerhaeuser and American Tower, since those companies have 

converted from C Corporation to REIT status and have assumed they will not sell assets so as to 

recognize built-in gain for 10 years, and the Fund will be making the same (or a parallel) 

conversion and assumption. The Fund, however, will continue to accrue a deferred tax liability 

in excess of the assumptions employed by Weyerhaeuser and American Tower, as certain asset 

sales sufficient to support redemptions of the Fund's shares will be assumed. The Fund, unlike 

Weyerhaeuser and American Tower, does have explicit restrictions on its permitted leverage 

under the ICA, and is, for all practical purposes, a bankruptcy remote vehicle. Thus, if anything, 
Jaime Eichen 

Chief Accountant, Division ofInvestment Management 

March 28, 2012 

Page 15 

the Fund's tax accrual proposal is far more conservative than the practices of Weyerhaeuser and 

American Tower that are currently sanctioned by the Commission. 

* * * * * 

Based on the foregoing law, facts and arguments, and those set forth in the Exhibits 

annexed hereto, CopleY submits that its use of a formulaic reserve in accounting for deferred tax 

liability, and the Fund's new proposals, will satisfy any concerns the Division and/or the 

Commission may have. Additionally, the alternative formulas presented herein would 

substantially mitigate the misleading effects ofthe full liquidation tax reserve calculations 

currently being employed, as more fully set forth at pages 6 to 9, supra. As the Staff previously 

has recognized, the Fund, like Weyerhaeuser and American Tower, has a unique investment 

philosophy and operation and, therefore, requires novel, but equal, treatment. 

Literally for years, Copley has presented multiple legitimate arguments in support of its 

position that the Fund and its investors have been treated unfairly given the acknowledged, 

unique circumstances. And while the Staff has been receptive to a courteous dialogue on these 

points- including a lengthy conference call with numerous Division·personnellast Fall- it has 

yet to provide any written explanation regarding the Fund's multiple proposals and the 

conclusion that they would not result in a more reasonable, accurate and equitable result for both 

Copley and the investing public. Nor has the SEC explained its apparently disparate treatment of 

Weyerhaeuser and American Tower, and Copley, with respect to permitting certain management 

discretion under ASC 740. As a result, Copley respectfully requests that the Division address its 

prior arguments, as well as the new proposals set forth in this letter, in a final order. 

We look forward to your favorable response. If you have any questions, or if we can be 

of further assistance, we would welcome the opportunity to discuss these issues further with you 

and/or your Staff. 

Enclosures 

cc: David I. Faust, Esquire (w/attachments) 

FAUST OPPENHEIM LLP 

ATTORNEYS AT LAW 

488 MADISON AVENUE 

NEW YORK, NEW YORK 10022 

WRITER'S DIRECT E-MAIL TELEPHONE (212) 751-7700 

davidfaust@frolaw.com FACSIMILE (212) 371-8410 

September 28, 2011 

VIA CERTIFIED MAIL 

Division ofInvestment Management 

Securities and Exchange Commission 

100 F Street, N.E. 

Washington, D.C. 20549-0504 

Re: 	 The Copley Fund, Inc. 

Request for No-Action Assurance 

Ladies and Gentlemen: 

We write on behalf ofthe Copley Fund, Inc., a corporation organized under the laws ofthe State of 

Nevada and a registered investment company under the Investment Company Act of 1940, as amended (the 

"ICA") ("Copley Fund"). Copley Fund seeks assurance from the staff of the Division of Investment 

Management that it will not recommend enforcement action to the U.S. Securities and Exchange 

Commission (the "Commission") if Copley Fund (1) prepares and issues financial statements using a 

reserve for taxes on unrealized gains based on management's estimates, rather than on the assumption that 

all assets with unrealized appreciation would be sold at current prices and/or (2) issues and redeems shares 

based on current net asset value as so determined with an explanation ofthe calculation and a comparison 

ofthe differences between such calculation and the calculation ofnet asset value with a reserve for taxes on 

all unrealized appreciation. 

We make this request based on (i) Copley Fund's clear investment policies which have been consistently 

applied since inception, (ii) explicit language in the applicable regulations which provide for exceptions to 

fixed rules and permit estimates where necessary or appropriate and (iii) the overriding policy ofthe federal 

securities laws to promote, ifnot require, full and accurate disclosure of all material information. 

Factual Background 

Copley Fund is a regular corporation (C corporation). Like a Regulated Investment Company 

("RIC"), Copley Fund seeks to earn dividend and interest income as well as capital gains. Unlike a RJC, 

Copley is entitled to use the dividends received deduction whereby up to 70% of the dividend income 

received, or 70% ofthe taxable income ofCopley Fund, whichever is less, is exempt from federal taxation. 

The remaining taxable income (whether derived from dividends, interest or capital gains) is taxed to the 

Fund at a current federal tax rate of35%. Dividends, interest income and capital gains are not distributed, 

but rather are accumulated within Copley Fund and are added to the value of each share on a daily basis. 

Copley Fund's portfolio securities are all highly liquid and are marked to the market daily. Any increase or 

decrease in value is reflected in the per share price, which is publically available after the close ofbusiness 

every day on which The New York Stock Exchange is open. 

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Securities and Exchange Commission 

September 28, 2011 

Page2 

Share Price "Based" on NAV 

Pursuant to Rule 22c-1 ofthe ICA open end funds, like Copley Fund, are required to issue and 

redeem shares "***at a price based onthe current net asset value ofsuch security ..." (emphasis added). 

Current net asset value is defined as "***amount which reflects calculations, whether or not recorded in the 

books of account, made substantially in accordance with the following, with estimates used where 

necessary or appropriate" (emphasis added). ICA Rule 2a-4. Rule 2a-4(a)4 provides that in calculating 

"current net asset value" for use in computing the current price ofredeeq1able securities: "Appropriate 

provision shall be made for federal income taxes ifrequired" (emphasis added). Rule 2a-4(a)(4) does not 

define "ifrequired." 

The above two Rules, read together, do not explicitly require sales or redemptions at "net asset 

value." Rule 22c-l(a) requires sales or redemptions to be at a price based on current net asset value. Rule 

2a-4(a)4 provides for how to calculate net asset value for use ''in computing periodically the price the 

current price for the purpose of' sales and redemptions. Using "net asset value" to compute a price is not 

the same as requiring net asset value to be the price. One obvious accepted variation is that commissions 

and other charges may be added to sale prices and deducted from redemption prices, iffully and accurately 

disclosed. 

There is no explicit requirement in the above two Rules to use GAAP, but the Commission has 

required GAAP in financial statement reporting by registered investment companies. We suggest that, in 

the case ofCopley Fund, for the reasons set forth below, the Commission should permit Copley Fund to (1) 

prepare its financial reports and/or (2) issue and redeem shares based on a net asset value calculation which 

reflects, a management determined tax reserve, so long as there is transparency in explanation as to how the 

tax reserve and the share price is determined. 

Copley Fund seeks to price its shares based on a net asset value calculated with a management 

estimate ofits liability for federal income tax on unrealized appreciation, not on the assumption that the tax 

reserve should be calculated at a 35% tax rate on all unrealized appreciation. Based on Copley Fund's 

investment strategy and decades long history oflong-term holding ofits underlying securities, a tax reserve 

calculated at a 15% tax rate is more descriptive ofCopley Fund's actual need for such a reserve (see below 

for a further description ofthe tax reserve issue). We suggest, ifyou so permit, that the prospectus contain 

an explanation of the difference in pricing calculated at each tax rate to maximize transparency to 

imrestors. See below for an example of the illustration and explanation: 

Tax Reserve 

Requiring Copley Fund to reports its net asset value with a 35% reserve for federal income tax on 

unrealized gains, and then requiring Copley Fund to issue and redeem shares based on that calculation is 

materially misleading for three reasons. 

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September 28, 2011 

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First: It does not accurately reflect Copley Fund's decades long investment policy and practice. 

Copley Fund's investment policy and p·ractice includes long-term holding ofits investment positions. Its 

federal income tax liability from inception, expressed as a percentage of earnings are as follows: 

Year Ended Tax reserve as% oftotal assets using SEC mandated 

tax reserve 

Tax reserve as % of total assets 

using management determined 

tax reserve 

2/28/2011 20.25% 1.26% (Assuming a 

management determined tax 

reserve of$1M) 

2/28/2010 18.11% 1.45% (Assuming a management 

determined tax reserve of $1M) 

2/28/2009 15.67% 1.56% (Assuming a management 

determined tax reserve of$1M) 

2/29/2008 20.13% 1.15% (Assuming a management 

determined tax reserve of $1M) 

2/28/2007 20.75% 0.92%

2/28/2006 19.31% 1.00% 

2/28/2005 18.48% 1.04% 

The effect on the price at which Copley Fund may issue and redeem shares is as follows: 

Year Ended Share Price 

NAV- Tax reserve @35% 

Share Price 

NAV- Management 

Determined tax reserve 

2/28/2011 $46.27 $57.31 

2/28/2010 $40.21 $48.39 

2/28/2009 $35.80 $41.81 

2/29/2008 $44.07 $54.56 

2/28/2007 $43.71 $54.67 

2/28/2006 $38.17 $46.86 

2/28/2005 $36.12 $43.88 

Second: Calculating net asset value after deduction of an unrealistic "reserve" materially 

understates the amount ofassets actually under management, and thereby overstates investment results as a 

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Securities and Exchange Commission 

September 28, 2011 

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percentage ofassets. The following chart indicates the misleading results. 

Year 

Ended 

Gain/Loss Investment 

reserve 

results using SEC tax Investment results with 

management detennined 

tax reserve 

2/28/2011 $8,364,758 13.26% 10.71% 

2/28/2010 $6,583,992 11.71% 9.73% 

2/28/2009' ($12,450,117) -22.14% -19.83% 

2/29/2008 .· $2,418,380 3.48% 2.81% 

2/28/2007 $12,198,111 17.57% 14.04% 

2/28/2006 $4,815,279 7.92% 6.45% 

2/28/2005 $7,715,251 13.00% 10.70% 

Third: Calculating net asset value after deduction ofan unrealistic "reserve" materially overstates 

Copley Fund's operating expense ratio. 

· .. - For the fiscal year ended February 28,2011, the Fund's ratio oftotal annual operating expenses to 

average net assets, using the Commission staff mandated reserve, was 7 .96%. This ratio includes deferred 

income taxes and does not include an investment advisory fee waiver (also per the Commission Staffs 

requirement). Without including these deferred taxes, which are not an actual operating expense of the 

Fund, and including the investment advisory fee waiver, the ratio would be 1.95%. Management believes 

this ratio is more appropriate for comparison to other funds. 

Year Ended Expense 

reserve 

ratio using SEC tax Expense ratio using mgnt 

determined tax reserve 

2/28/2011 7.96% 1.95% 

2/28/2010 5.54% 1.70% 

2/28/2009 1.58% 1.35% 

2/29/2008 1.56% 1.25% 

2/28/2007 5.90% 1.13% 

2/28/2006 3.01% 1.21% 

2/28/2005 3.82% 1.15% 

Discussion 

GAAP is intended to provide a principled framework by which financial transactions are 

recorded in an accurate, consistent, manner pennitting comparability with prior years information and 

with statements prepared by other comparable entities. Those objectives are best served by permitting 

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Division ofInvestment Management 


Securities and Exchange Commission 


September 28, 2011 


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fully and fairly disclosed management judgments to be used when particular facts and circumstances 

warrant a departure from a literal application of a guideline or principle, e.g., where a literal application 

would be misleading. 

Financial reporting should not be a simple "check the box" exercise; it should provide useful 

information for making informed business and economic decisions. To be useful, fmancial statements 

must be reliable. To be reliable they should be verifiable, neutral, unbiased and represent what really 

happened or existed during the period or on the date as of which they speak. They also should be 

comparable i.e. prepared in a similar manner to comparable businesses, tailored to individual 

cirGUmstances which are fully and fairly disclosed. To the best of our knowledge, there are no other 

registered investment compames structured or operating like Copley Fund, so the most relevant 

comparisons are to Copley Fund's own prior reports. This makes it all the more important that 

deviations in mea5irred outcomes from period to period for Copley Fund should be the result of 

deviations in performance, not changes in methods. 

Pursuant to staffcom.ments received in connection with Copley Fund's updating amendment to 

its registration statement filed on June 6, 2008, Copley Fund was required to file an amended N-CSR/A 

which contained a "Restated Annual Report to Shareholders." This restatement covered much of 

Copley Fund's historical financial information including average annual returns, the per share value 

table and the financial highlights table. 

Prior to this required restatement, Copley Fund's financial statements were completely within 

the basic framework and objectives ofGAAP. The PCAOB examined the Fund's financials and report 

thereon for the period ended February 28, 2006 and issued an affirming clean report thereon. The 

fmancials had been prepared in a consistent manner for 30 years. They were useful because they 

· enabled informed decision making by an investor or prospective investor since they clearly and 

correctly set forth results for the periods covered by the reports. They were reliable because they were 

verifiable and the information accurately represented results from a historical perspective, consistently 

reported. This changed dramatically in 2008. Copley Fund's actual NAV per share at February 28, 

2007 was $54.67 and it was reported as such in the Fund's Annual Report of even date. Yet, the 

Restated Annual Report for the period ended February 29, 2008 reflects a per share value for that same 

date (February 28, 2007) of $42.54. This simply did not reflect actual results, was not consistent with 

prior years' reporting and thwarted comparability with prior years. 

The foundation ofG AAP consists of basic assumptions, basic principles, basic constraints and 

modifying conventions. Some of these are particularly relevant herein. 

Assumptions: Going Concern Assumption: This assumption assumes that a business will 


continue operating and will not close or be sold. 


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September 28, 2011 

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Principles: Adequate Disclosure: This principle states that all pertinent information should be 

fully disclosed and in understandable form. 

Constraints and Modifying Conventions. The modifying conventions include Application of 

Judgment- an accountant may, indeed should, tailor GAAP to fit specific varied circumstances if the 

result is reasonable under the circumstances, especially when the strict adherence to GAAP will 

produce unreasonable results. Assuming- arguendo that the use of the reserve method to determine an 

appropriate reserve for taxes is a "departure" from GAAP, it certainly appears reasonable under the 

circumstances relevant to Copley Fund, where the use of the theoretical "full liability" accrual method 

produces a misleading result, i.e., aper share net asset value which does not reflect the realistic net 

assets of the Fund, distorts performance and expense ratios, and disables redeeming shareholders from 

receiving their fair proportionat~ share of Copley Fund assets. 

Copley Fund is unique. To its knowledge, it is the only registered investment company which 

is a C corporation for federal tax purposes. As an open-end registered investment company, Copley 

Fund's share price is based upon a mark to market NAV as opposed to a value based on supply and 

demand for its shares. If Copley Fund were permitted to revert to its pre-2008 method of determining 

its tax reserve with full disclosure, as now requested, prospective investors would know what it costs 

to buy a share and investors would know what they would get by redeeming a share, with the 

assurance that they were getting a fair and fully transparent price on purchase or redemption. 

IfCopley Fund's methodology is applied consistently, as it was in the past (pre 2008), and is 

fully disclosed all shareholders and prospective shareholders through ample disclosure, comparisons 

with other mutual funds will be facilitated and will not result in overstated performance, by 

understating the amount of investable assets which are "at work" to produce income or loss or by 

grossly misleading reported expense ratios. For this reason alone the use of a reserve method falls 

well within the judgment parameters ofGAAP. 

While Copley Fund believes that its pre 2008 financials historically were compiled and 

presented in accordance with GAAP, the modifying conventions make clear that GAAP is not "carved 

in stone" and that variations are made and considered acceptable. If nothing else, GAAP and FAS 

109 are not clear on the appropriate calculation of a tax accrual particularly in view of the fact that the 

"inherent assumption" underlying F AS 109 is not present given the particular circumstances of the 

Fund. 

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Division ofInvestment Management 

Securities and Exchange Commission 

September 28, 2011 

Page7 

CONCEPTS OF FAIR VALUE < 

Copley Fund is currently valued at its liquidation value. Simply put, this does not represent the 

fair value of the Fund's shares. It ignores reality and misstates the assets of the Fund. 

Utilization of a full liquidating value accrual method is contrary to the basic "going concern" 

assumption of GAAP that Copley Fund will continue operating and will not precipitously liquidate all 

ofits security positions. The use ofthe full liquidating value method in Copley Fund's circumstances 

makes the exact opposite assumption, that all portfolio securities will be liquidated as at the end of 

each reporting period. This simply is not the case and is therefore unrealistic and misleading. 

On September 30, 2008, the SEC's Office of the ChiefAccountant issued a press release (2008­

234) which addressed fair value accounting stating that "(t)he current environment has made questions 

surrounding the termination offair value particularly challenging for preparers, auditors, and users of 

financial information". While not precisely on point, the concepts addressed in the release are 

applicable to this request. The release makes clear that Management's internal assumptions can be 

used to measure fair value. It acknowledges that the determination offair value often requires 

significant judgment; particularly in unusual or atypical circumstances. The release also concludes 

that clear and transparent disclosures are critical to providing investors with an understanding ofthe 

judgments made by management. 

An example ofwhere the Commission accepted a management determined departure from a 

strict, literal reading of a "required" tax accounting may be found with Weyerhauser Corporation, 

("WY"). In 2010, WY converted from a "C" corporation to a real estate investmenttrust ("REIT"). 

Paragraph 28 ofSFAS No. 109, Accounting/or Income Taxes, (ASC 740), provides, in part, 

that, " ... an enterprise's tax status may change from ... taxable to non-taxable .... A deferred tax liability or 

asset shall be eliminated at the date an enterprise ceases to be a taxable enterprise .... The effect of an 

election for a voluntary change in tax status is recognized on the approval date or on the filing date if 

approval is not necessary .... The effect of recognizing or eliminating the deferred tax liability or asset 

shall be included in income trom continuing operations ... " 

Treasury Reg. Sec. 1.337(d)-7(a) provides that ifproperty owned by a "C" corporation becomes 

the property of a REIT in a conversion transaction, then "Sec. 1374 treatment" will apply unless the 

"C" corporation elects "deemed sale" treatment with respect to the conversion transaction. Apparently, 

WY did make a Section 1374 election. Therefore, ifWY, during the 1 0-year recognition period 

commencing on the conversion date, recognizes gain on the disposition of assets owned at the time of 

its conversion, it will be taxed on such gain (to the extent the gain had "economically accrued" as of the 

conversion date) at the highest marginal corporate tax rate. 

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Nevertheless, WY eliminated its deferred~ liabilities accumulated as a result of certain 

"taxable temporary differences", primarily resulting~ from djffer€mces between the carrying amount and 

tax basis ofits depreciable property, as ofthe first gay ofthe first taxable year for which its REIT 

election became effective. Therefore, WY must have concluded that the likelihood of its disposing of 

its built-in gain assets prior to the expiration ofthe recognition period was exceedingly remote and, 

accordingly, chose to eliminate its deferred tax liabilities based on this judgment. Apparently, the 

Commission has not challenged WY's position. We requesj tha~ Copley Fund be afforded similar 

flexibility to exercise judgment in determining its tax reserve,. In light ofCopley Fund's record and 

longstanding policies, its management should be permitted to ~ccrue and report an estimated deferred 

tax liability rather than a "mechanical" one. This would morefairly present Copley Fund's financial 

position and its results of operations and avoid the misleading re.porting described above. 

Copley Fund believes that it has demonstrated-~ clear and compelling rationale as to why the 

use ofthe Board's reserve accrual methodology best represents a fair value for its shares. It also 

believes that the disclosures made in the attached proposed Supplement to the Fund's Prospectus 

provides clear and transparent disclosures with respect to }?otlj the methodology and rationale used by 

the Board as we11 as the risks inherent therein. 

The static application of an accounting cohc~pt (F AS 1 0_9 treatment of a deferred tax liability) 

that is equivalent to liquidation accounting serves to u.ndef\'alue the true fmancial position ofthe 

Fund. It operates to overstate dividend yield and expense ratios and understate performance for 

comparison purposes. Redeeming shareholders do not receive their proportionate share of Fund 

assets. 

Management ofthe Fund has, since 1992, attempted to reflect in the financial statements a 

deferred tax liability to the extent that management anticipates, in an exercise oftheir best, good faith 

business judgment that such a liability exists. Deferred income tax liabilities are at best an estimate 

due to the nature of changing income tax rates, tax law and regulations. As demonstrated elsewhere 

herein, when management was permitted to exercise its judgment in determining a tax reserve for 

Copley Fund it never underestimated the Copley Fund's actual liability for taxes. 

Expense Ratio 

Copley Fund's actual expense ratio, after a consistent and voluntary $60,000 per year advisory 

fee waiver Copley Fund's advisor have been maintained below 1.25%. These ratios, on average, are 

well below the average ratios of all equity funds, which ranged from 1.44% to 1.07% over the same 

period. Investment Company Institute, Fees and Expenses ofMutual Funds, 2007. Ratios for 

equivalent small funds are much higher. Under the SWf-mandated ''full tax liability" reserves, 

Copley Fund ratio was increased to 5.54% (!)for the year ended February 28, 2010- with no increase 

in actual fees!- which is grossly misleading. 

F:\2400-1 0 I \Copley'NoAction'005.doc 
FAUST OPPENHEIM LLP 

Division of Investment Management 

Securities and Exchange Commission 

September 28, 2011 

Page9 

SUMMARY 

The Fund's overall structure, investment strategies and operating philosophy have not 

materially changed since its inception in 1978. Its underlying principles and strategies have been 

consistent, year to year, and the overriding concern of Management and the Board ofDirectors always 

has been the welfare ofthe individual shareholders. 

Every effort has been made to operate Copley· Fund in the best in~~re:Sts ofthe shareholders and 

to reflect the true value ofthe Fund's assets in its net asset value. This effort has been thwarted by 

compelling the Fund to use a full liquidating value accrual with respect to the Fund's unrealized 

appreciation. 

Copley Fund is required by Rule 22c-1a to issue and redeem, its shares at a price based on

1 

current net asset value. Rule 2a-4a defines current net asset value and specifically states that with 

respect to NAV calculations "estimates (maybe) used where necessary or appropriate". That Rule also 

provides that "(a)ppropriate provision shall be made for Federal Income Taxes ifrequired" (emphasis 

added). 

There is no explicit requirement however that the full liquidating liability tax accrual be used in 

calculating net asset value on which the daily issue and redemption price ofits shares must be based. 

For the reasons set forth above the Board of Directors believe that neither GAAP nor FAS 109 

mandate a liquidating liability accrual. On the other hand, the Board does believe it clear that the use 

of a full liquidating liability accrual does not represent a fair value with respect to the price ofCopley 

Fund's shares. In fact, the application of such a methodology is unrealistic, misleading and operates 

to the detriment of Copley Fund and its shareholders. 

As demonstrated above, the risk ofthe Fund incurring a tax liability in excess ofthe Board 

established reserve is practically nil. Copley Fund believes that this risk should be assessed and 

either accepted or rejected by the shareholders with the staffproviding guidance related to the risk 

disclosure. Of course, Copley Fund would be receptive to any disclosure comments made by the staff 

and would make every effort to include them in all disclosure documents. 

The Sarbanes-Oxley Act of2002 was a legislative directive to make financial disclosure more 


meaningful and less boiler-plate and required management to sign offpersonally on the material 


accuracy offinancial statements. Copley Fund's management, since 2008, has faced the Hobson's 


Choice of either signing off on financial disclosures which, in its honest, reasoned and good faith 


view, are materially misleading OR violate the SEC staffs directive on the calculation of Copley 


'It should be noted that "based on" is not synonymous with "at." 

F:\2400-10 l \Copley'NoAction'005.doc 
FAUST OPPENHEIM LLP 

Division ofInvestment Management 

Securities and Exchange Commission 

September 28, 2011 

Page 10 

Fund's tax reserve. Neither choice is consistent with GAAP's objectives or with the purposes ofthe 

Securities laws, rules and regulations. 

Conclusion 

The basic objective ofaccounting policies, and ofthe statutes, rules and regulationswhich govern 

the United States securities markets, is to provide investors and prospective investors with materially 

accurate information. . 

We believe that, if allowed to proceed as requested, the investors in the Copley Fund will be 

provided with sufficient, accurate information as to the method of calculating the price at issuance and 

redemption ofshares based on current NAV including a tax reserve at the management determined rate. 

Further, we believe that even ifthis calculation of the tax reserve would be a technical deviation from 

GAAP, it would not violate the fundamental principles of GAAP and would avoid the misleading 

calculations which Copley Fund is now required to take and which results in misleading information to 

investors and prospective investors. 

We believe that full, transparent, non-misleading disclosures to investors and prospective investors 

should be the paramount consideration, and not an unnecessarily restrictive interpretation ofGAAP which 

is not applicable in the particular circumstance of the Copley Fund and which results in misleading 

information to investors and prospective investors. 

On behalf of the Copley Fund, we hereby request that the Staff give its assurance that it will not 

recommend that the Commission take enforcement action ifthe Copley Fund proceeds in the manner set 

forth in this letter by specifically, (a) reverting tousing a management determined tax reserve in all ofits 

financial reporting and/or (b) continuing to use the Commission's mandated tax reserve in its financial 

reporting but being permitted to offer and redeem shares at a net asset value calculated with a management 

determined reserve for federal income tax, with full disclosure as to methodology and effect. 

I would be pleased to provide any additional information you request, to answer any questions you 

may have and to meet with you at your convenience to discuss any or all aspects of this request. 

Ver)Z1ml~ yours, 

FAU~··. -= -~, .. \ . ·- -..._·-.. , -. {

By: . : ~ 

David I. Faust 

F:\2400·1 0 I \Copley'NoAction'005.doc 

•• 

•• 

., 

UNITED STATES 


SECURITIES AND EXCHANGE COMMISSION 


WASHINGTON, D.C.20549
 .<i> OIYIIIONO,. 

September 26, 2007 

Irving Levine 


President 


Copley Fund, Inc. 


245 Sunrise Avenue 


Palm Beach, Florida 33480 


Re: 	 Copley Fund, Inc. (the "Company") 


Rle Numbers: 2-60951 and 811-2815 


Dear Mr. levine: 

We are sending this letter to you as a follow-up to our teleconference 

with Thomas Henry and Roy Hale held on August 16, 2007. We have 

comments and questions with respect to the Company's financial statements 

for the year ended February 28, 2007 ("2007 FS") filed In a Form N-CSR on 

May·9, 2007. Mr. Hale, the Company's independent accountant audited the 

2007 FS and Mr. Henry serves as the Company's counsel. The Company has 

not elected to operate as a regulated Investment company ("RIC") under 

subchapter M of the Internal Revenue Code. Thus, the Company Is taxed as 

a subchapter c Corporation. 

Our concerns primarily relate to the Company's accounting and 

reporting of the effects of Income taxes. While It appears that the Company 

has recorded Its portfolio securities at market prices In accordance with 

Section 2(a)(41} of the Investment Company Act of 1940 ("1940 Act'1, 

resulting In $53,994,093 of unrealized appreciation, we believe it has failed 

to measure and disclose the future tax consequences related to this 

appreciation, In accordance with accounting principles generally accepted in 

the United States of America ("GAAP"}. 

;t, Accounting and RePorting for Income Taxes in Accordance with 

GMP 

The Financial Accounting Standards Board's {"FASB'f) sta~ement of 

Financial Accounting Standards No. 109, Accounting For Income t7xes ("FAS 

109'') establishes the financial accounting and reporting standards for the 

effects of income taxes that result from an enterprise's activities during the 

current and preceding years. Paragraph 6 of FAS 109 states that t.~e 
objectives of accounting for Income taxes are to recognize (a) the amount of 

taxes payable or refundable for the current year and (b) deferred tax 

llabllltles and assets for the future tax consequences of events that have 

been recognized In an enterprise's financial statements or tax returns. 

Paragraph 11 of FAS 109 sets forth a key concept underlying the 


recognition of deferred tax assets and liabilities. Paragraph 11 provides 


that: 


An assumption Inherent In an enterprise's statement of financial position prepared in 

accordance with generally accepted accounting principles js that the reported amounts 

of assets and liabilities will be recovered and settled. respectively. Based on that 

assumption, a difference between the tax basis of an asset or a liability and Its 

reported amount In the statement of financial position will result In taxable or 

deductible amounts In some future year(s) when the reported amounts of assets are 

recovered and the reported amounts of liabilities are settled. (Emphasis added.) · 

Paragraph 11 also provides several examples of Items that result In 

differences between the recognition of transactions or events for financial 

reporting purposes and for tax purposes. Revenues or gains that are taxable 

after they are recognized In financial Income are Included as an example of 

this difference. In Paragraph 11(a). 

The FASB considered whether the deferred tax consequences of 

taxable temporary differences truly represent a liability for fl'nanclal 

reporting purposes. The FASB concluded that the deferred tax 

consequences do represent liabilities. Paragraph 78 of FAS 109 states: 

An enterprise might be able to delay the future reversal of taxable temporary 

differences by delaying the events that give rise to those reversals, for example, by 

delaying the recovery of related assets or the settlement of related liabilities. A 

contention that those temporary differences will never result In taxable amounts, 

however, would contradict the accounting assumption inherent In the statement of 

financial position that the reported amounts of assets and liabilities will be recovered 

and settled, respectively; thereby making that statement Internally lnconslste[lt. For 

that reason, the Board concluded that the only question is when, not 

whether, temporary differences will result In taxable amounts In future years. 

(Emphasis added.). 

Paragraph 16 of FAS 109 provides that, with respect to recognition and 

measurement, "[a]n enterprise shall recognize a deferred tax liability or 

asset for .9JJ. temporary differences and operating loss and tax credit. 

carryforwards In accordance with the provisions of paragraph 17". (Emphasis 

added.)' Paragraph 17 states: 

Deferred taxes shall be determined separately for each tax-paying component (an 

Individual entity or group of entitles that Is consolidated for tax purposes) In each tax 

jurisdiction. That determination Includes the following procedures: 

• 


• 


•


2 

a. Identify (1). the types and amounts of existing temporary differences and (2} the • nature and. amo1int of each type of operating loss and tax credit carryforward and 

the remaining length of the carryforward period 

b. Measure the total deferred tax liability for taxable temporary differences using the 

applicable tax rate (paragraph 18) 

c. 	 Measure the total deferred tax asset for deductible temporary differences and 

operating loss carryforwards using the applicable tax rate 

d. 	 Measure deferred tax assets for each type of tax credit carryforward 

e. 	 Reduce deferred tax assets by a valuation allowance if, based on the weight of 

available evidence, it Is more likely than not (a likelihood of more than SO percent) 

that some portion or all of the deferred tax assets will not be realized. The 

valuation allowance should be sufficient to reduce the deferred tax asset to the 

amount that is more llkelx than not to be realized. 

• 

Paragraphs 41 to 49 of FAS 109 provide the disclosure requirements 

for financial statement presentation. Paragraph 41 generally requires the 

separation of deferred tax liabilities Into current and non-current amounts 

based on the classification of the related asset or liability for financial 

reporting. Paragraph 43 provides that financial statements must disclose (a) 

the total of all deferred tax liabilities, (b) the total of all deferred tax assets, 

and (c) the total valuation allowance recognized for deferred tax assets. 

Paragraph 47 requires a reconciliation of the reported amount of income tax 

expense attributable to continuing operations for the year to the amount of 

Income tax expense that would result from applying domestic federal 

statutory tax rates):o pretax income from continuing operations . 

Investment companies are also subject to the accounting and 

reporting standards established by AICPA Audit and Accounting Guide for 

Investment Companies (May 1, 2006) ("Audit Guide"). Most Investment 

companies subject to the Audit Guide elect and qualify as RICs and, 

therefore, do not provide for federal Income tax. However, Investment 

companies that do not elect nor qualify as RICs (such as the Company) or 

Investment companies subject to other levels of taxation (e.g., foreign 

taxes) should account and report Income taxes In accordance with FAS 109. 

Paragraph 6.05 of the Audit Guide states: 

Some investment companies may be subject to state, local, or foreign taxes on net 

Investment income and realized gains on a recurring basis. State, local, and foreign 

taxes, if payable, are reported on the accrual basis, including deferred taxes on the 

unrealized appreciation or depreciation of investments. 

The staffis aware of other Investment companies that chose not to 

qualify _a~ ~UCc;; and these companies. genP,raU.y follow FAS 109 by recording a 

oefer+ed tax liability associated with the unrealized appreciation of portfolio 

securlties1• The staff Is unaware of any Investment company (other than the 

• 1 See Tortoise Energy Capital Corp., ft.l,e.no. 811-21725, Form N-CSRS (Aug~ 1, 2007) and 

Kayne Anderson MLP Investment Company, file no. 811-21593, Form N-CS;RS (Aug. 3, 

2007). 

3 

Company) that chooses not to qualify as a RIC and does not accrue a 

deferred tax liability associated with Its unrealized appreciation. 

2. Summarv of the Company's Tax Presentation 

The statement of operations-In the 2007 FS shows a provision for 

income taxes of $283,481 and the statement of assets and liabilities shows 

deferred Incomes taxes of $807,345 (referencing notes 1 and 2), accrued 

income taxes-current of $137,125, and net unrealized appreciation of 

Investments of $53,994,093. Notes 1 and 2, In pertinent part, state: 

Note 1 Significant Accounting Policies 

Income Taxes 

The Fund flies tax returns as a regular corporation and accordingly the financial 

statements include provisions for current and deferred Income taxes. 

New Accounting Pronouncements. 

On July 13, 2006, The Flnandal Accounting Standards Board ("FASB") released FASB 

Interpretation No. 48 "Accounting for Un~erti;!lnty In Income Taxes" ("FIN 48"). FIN 48 

provides guidance for how uncertain tax positions should be recognized, measured, 

presented and disclosed In the financial statements. FIN 48 requires the evaluation of 

tax positions taken or expected to l:>e taken In the course o.f pr~p.arlng, the IW'lP's t~x 

returns to determine whether-the lax positions are "more-likely-than-not" of being 

sustained by the applicable tax authority. T<.~x positions not deemed to meet the morelikely-than-not threshold would be recorded as a tax benefit or expense in the current 

year.-Adoption of FIN 48 Is requtrea for flseal years beginning after December 15, 

2006 and Is to be applied to all open tax years as of the effective date. At this time 

management believes that the adoption of FIN 48 will have no Impact on the financial 

statements of the Fund. 

Note 2 Federal and State Income Taxes 

· The Income tax provision Included In the financial statements is as follows: 

Regular tax liability ............................. .......... $283,481 


The Fund provides deferred taxes for unrealized appreciation on Its Investment 

portfolio to the extent that management anticipates that a liability may exlsi: 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 futur~. 

The amount of deferred taxes currently available to the Fund Is $807,345. 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. 

• 


• 


• 


4 

The Fund has $1,908,9371n accumulated capital loss carry forwards which. expire as • follows: $1,600,732 on February 26, 2008; ari~ $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. 

It Is our understanding that you assert that the Company does not 

need to record the entire deferred tax liability associated with the unrealized 

appreciation on the Company's books and records because: 

a. 	 The Company maintains a cash position to assist It In meeting 

redemptions; 

b. 	 The capital loss carryforwards will shelter some amount of 

c;:apltal gains; 

c. 	 The Company could first sell securities without unrealized 

appreciation to meet redemptions; 

d. 	 The Company has recorded a deferred tax liability of $807,345 

which would shelter some capital gains; 

• 

e. The Company's Board of Directors monitors the above factors in 

light of historical trends, the Company's Investment objective, its 

low level of redemptions, andlts histOrically low portfolio 

turnover, ensuring an appropriate reserve Is available In the 

Company's deferred tax liabiflty account; and 

f. 	 The·entlre deferred tax liability would be due only if the whole 

portfolio were sold (a circumstance you describe· as "liquidation") 

and that the Board believes It would be Inappropriate to record 

the full deferred tax liability. 

The Company asserts that as long as It accrues sufficient deferred 

Income taxes to compensate for the antldpated sale of appreciated 

securities, there Is no harm to shareholders. Moreover, It contends that to 

record the entire qeferred tax liability would not be In the best Interests of 

Its shareholders, and that such action might be prohibited by Rule 22c-1 

under the 1940 Act. Further, It states that a deferred tax liability should 

only be recorded if it is "more likely than not" that the amount recorded 

would ·ultimately be paid. Accordingly, It states that recording the full 

deferred tax liability would understate Its net asset v~lue per share ("NAV"). 

The Company further asserts that it has provided adequate disclosure 

regarding this Issue. . 

The Company also claims that its Board of Directors passed a 

resolution that would require the Company to convert to RIC status in the 

event unfore?een circumstances caused· gains to be realized that consumed 

• the entire amount of accumulated deferred Income taxes the Company has 

5 
recognized. You acknowledge that If the Company elects a conversion to • 

RIC status, It might be required to have a deemed sale of all appreciated 

securities and thus be required to recognize the tax associated with such 

deemed sale. You believe this Is similar to a C corporation converting to a 

subchapter s corporation and you assert that the'.IRS has issued regulations 

that permit a C corporation to defer the tax on any appreciated property 

held for 10 years or more following the conversion to S corporation· status. 

You believe the Company's conversion would be similar and that the 

Company should be able to argue to the IRS that, provided. the Company 

held the appreciated securities for over ten years following conversion to RIC 

status, the deemed sale provisions should not apply. 

3. Staff Questions Regarding Accounting and Reporting for 

Income Taxes · 

A. Appreciation of portfolio securities represents revenue to the Company 

that Is taxable after It Is recognized In financial Income. Accordingly, 

portfolio appreciation Is a temporary difference thattrlggers the recognition 

of a deferred tax liability under FAS 109 and the Audit Guide. As discussed 

in paragraph 78 of FAS 109, the issue Is not whether Jnc·ome taxes wlll 

ultimately be due on the appreciation of portfolio secyrities, but when such 

taxes will be due. The FASB directly refuted the notion that a delay In 

recognition does not mean that a temporary difference, (such as the 

future 

Company's 

years. 

unrealized 

Accordingly, 

appreciation), 

delaying a 

will 

sale 

not 

or 

resultJn 

rationalizing 

taxable 

the 

amounts 

delay of a 

In 

sale 

•

has no bearing on the recognition of a deferred tax liability associated with 

the unrealized appreciation of that position. 

The Company appears to have estimated some amount of deferred tax 

liability using the factors previously discussed in Section 2 of this letter, 

recording $807,345 as of the last financial statements. However, we believe 

this amount is materially understated based on the temporary differences 

resulting from the appreciation of portfolio securities as of the date of the 

last financial statements. Further, the mechanics and specific assumptions 

underlying this estimate are undisclosed. · • 

Paragraphs 16 and 17 of FAS 109 require that a company recognize a 

deferred tax liability for all temporary differences existing as of the date of 

the financial statements. Paragraph 17(b) specifically requires measurement 

of the total deferred tax liability for taxable temporai-y differences using the 

applicable tax rate. 

• 

6 

• Please explain why the total deferred tax liability for temporary 

differences arfsfng from appreciation of portfolio securities WiJS ·not recorded 

and reported In accordance with FAS 109. · 

B. The Company has disclosed the existence of capitaJioss carryforwards 

which it intends to use to offset future taxable Income. The Company has 

asserted that the existence of these capital loss carryforwards, In part, 

obviates the need for It to recognize deferred tax liabilities related to the 

appreciation of portfolio securities. Paragraph 17 of FAS 109, however, 

provides specific instructions for the measurement and recognition of 

deferred tax assets associated with the future tax benefits attributable to 

capital loss carryforwards. Such future tax benefits should be measured and 

recognized separate from the measurement and recognition of deferred tax 

liabilities. ·· 

Please explain why the Company has not separately measured and 

recognized deferred tax assets for the capital loss carryfo~.9rd:S and other 

applicable future tax benefits in accordance with FAS 109.... 

• 

C. It appears that the Company has not provided all of the dtsclosures 

required under FAS 109, as described In Paragraphs 41 through 47 of the 

standard. Please explain why the Company did not provld~..all of the 

disclosures required under FAS 109 within the notes to tne financial 

statements. · 

D. We believe the Company has a clear obligation to account for Income 

taxes In. accordance with GAAP, which Includes the requirements established 

by FAS 109. Rule 4-01(a)(1) of Regulation S-X provides that "[f]lnanclai 

statements flied with the Commission which are not prepared In accordance 

with generally accepted accounting principles will be presumed to be 

misleading or inaccurate, despite footnote of other disclosures, unless the 

Commission has otherwise provided." 

Pfease explain why the Company's apparent failure, as outlined In this. 

letter, to comply with FAS 109, a generally accepted accounting priflCiple, 

does not make the Company's 2007 FS misleading. 

4. Estimated Deferred Tax Liability 

• 

We believe that the requirements of FAS 109 apply to the Company in 

order for its financial statements to be presented fairly and In accordance 

with GAAP. Accordingly, we believe that significant adjustments are 

required to the financial statements. We are pt:"ovidlng the following 

·estimate, based upon Information contained in the Company's latest financial 

1 

statements, to demonstrate the significance of this Issue to the Company,Ats 

shareholders, and its prospective shareholders. 

Unrealized Appreciation $ 53,994,093 

•

Currently Enacted Tax Rate 35°/o ,­

Entire Deferred Tax $ 18,8971932 

Less: Existing Deferred Tax 807.345 

Unrecorded Deferred Tax $ 18,090,587 

Outstanding shares 1,588,813 

NAV/ Share Difference ($ 11.38) 

The Company might avail itself of capital loss carryforwards, the use ofwhich could mitigate the NAV/share Impact described above. The _... ' 

measurement and recognition of deferred tax assets, If any, however, are 

subject to the requirements established under FAS 109, Including the 

determination of whether It Is more likely than not the future tax benefits 

will be realized. We are unable to estimate the Impact of deferred tax 

assets, If any, on this analysis because we are uncertain If a valuation_>_.- • 

allowance exists. 

Notwithstanding potential deferred tax assets described above, we 

bel-ieve the necessary adjustments to the Company's flnanclal·statements 

are material to shareholders. As of February 28, 2007, the Company's 

NAV/Share was $54.67. When ,our estimate of the Impact of adjustments Is 

compared to the Company's share price as of that date, it appears that the 

share price was overstated by approximately 26%. 

s. General Comments 

A. Page 1 of the 2007 FS states "[t]hus, if a Copley shareholder does not 

redeem, the shareholder pays no taxes." Regardless of the FAS 109 analysis 

that will be provided by the Company, the Company has paid taxes and 

thus, the. shareholder has paid a proportionate amount ofthose taxes. We 

believe the statement should be revised to state that, while the shareholder 

does not pay a tax directly, they do pay taxes Indirectly througn the 

company, and at a rate that may be higher than If the shareholder pald such 

taxes directly. The consequences- of two Tevefs of taxation should also be 

explained. 

• 

8 

• 


• 


• 


B. The 485BPOS filed by the Company on July 2, 2007 improperly 

presents the fee waiver regarding the management fee. The Company 

shows the net manaqement fee of .63% in the body of the fee table, even 

though a footnote states that "[w]lfhout such waiver the fee would have 

been 0.71%" and that "[t]he Advisor voluntarily waived a portion of the 

advisory fees but It Is under no contractual obligation to do so." See 

Instructions 3(d)(l) and 3{e) of Form N-1A. The disclosure must be revised 

accordingly. Only contractual wafvers ca·n be presentea ·rn tne boay of ttie 

fee i:abrfi and both gross and net expenses must be shown In the fee table • 

.C. Rule 38a-1 under the 1940 Act mandates that the Company have a 

functioning Chief Compliance Officer {''CCO") and a compliance program. 

We note that there Is no disclosure regarding the Identity of the Company's 

ceo. Please provide a copy of this letter to the ceo, and assure his/her 

Input In the Company's response letter. Has the Company finalized a 

compliance program pursuant to the requirements of the 1940 Act? Please 

advise us who the ceo Is and make appropriate disclosure revisions, as 

needed. 

D. In the Company's Form N-CSR, the Company provided disclosure 

regarding its historical performance from 1984 through 2007. The 

disclosure states that there was a "reserve for taxes on unrealizecLQains" for 

1989. Please explain what this Is and why the Company appears to have 

made a change at that time. 

* * * * * * * * * * * * 

We urge all persons who are responsible for the accuracy and 

adequacy of the disclosure In the filings reviewed by the staff to be certain 

that they have provided all Jr:lformatlon Investors require. Since the 

Company and Its management are in possession of all facts relating to a 

Company's disclosure, they are responsible for the accuracy and adequacy of 

the disclosures they have made. · · 

In connection with your response to our comments, please provide, in 

writing, a statement from the Company acknowledging that: 

• 	 the Company Is responsible for the adequacy and accuracy of the 

disclosure In the filings; 

• 	 staff comments or changes to disclosure in response to staff comments. 

In the filings reviewed by the staff do not foreclose the Commission 

from taking any action with respect to the filing; and 

_, .; 

9 

•• 

• 	 the Company may not assert staff comments as a defense In any 


proceeding Initiated by the Commission or any person under the 


federal securities laws of the United States. 
 • 

In addition, please be advised that the Division of Enforcement has 

access to all Information you provide to the staff of the Division of 

Investment Management in our review of your filings or In response to our 

comments on your filings. Please note, a non-response by the Commission 

or Its staff to any Information you submit or fall to submit does not mean the 

Commission acquiesces In or agrees with any position you have taken. 

Please contact Bryan Morris at 202-551-6935 or Kevin Rupert at 202-551­

6966 if you have any questions. 

Sincerely, 

cc: 	 Thomas c. Henry, Esquire 

Roberts & Henry 

164 Honeysuckle Drive 

Jupiter, FL 33458 

Bryan J. Morris 

Assistant Chief Accountant 

Division of Investment Management 

Richard 	F. Sennett 

Chief Accountant 

Division of Investr:nent Management 

Frank Donaty 


Assistant Director, Office of Disclosure and Review 


Division of Investment Management 


• 

10 


. •~~;- .. "' -· ..

UNITED STATES 

SEC'ORJTIES AND EXCHANGE COMMJSSlON 

BOSTON RltGJONAL OFFICE INIIt'I'I.Yl)ol(II'IJ!,.SI!QUOili 

. l3RDFLOOR 

33 ARCH STRE!:T 

BOSTON, MASSACHUSETTS 02110.1424 

RY .FACSIMILE (410) 745-5802 and FIRST CLASS MAIL 

November 30, 2007 

Thoma.'i C. Hcmy, Esq. 

Roberts.& Henty · 

164 Honeysuckle Drive 

Jupiter. FL 33458 

Re: ~pley t"und. Inc. CB-02335) 

Dear Mr. liOlU)': 

This Jetter confirms today's telephone conversation in which thu .starr advised you that it 

intends to recommend that the Commission bring an emergency civil injunctive ·action against 

your client,' Copley Flmd, Inc.. alleging that it violated both Rule 22c-l promulgated under 

Section 22(c) ofthe Investment Company Act of 1940 as well as Section 34(b) of the Investment 

Company Act. In connection with the contcmplated.actionJ the staffmay seek preliminill)' and 

permanent injunctions (including a preliminary order barring the Copley fund from selling or 

redeeming shares at l:l net asset value that is not calculated in conformity with generally accepted 

accounting principles), civil monetary penalties and other relief. In accordance with Rule 5(c) of 

the Commission's Rules on lnformaJ and Other Procedures, 17 C.F.R. § 202.5(c), we aro otlering 

your client the oppOrtwlity to make a Wells Submission. 

We enclose for your infon~atiop a copy of SecurHics Act Release No. 531 0 entitled 

"Procedures Relating to the Commencement of Enforeement ~roceedings l:IIld Tennination of 

Staff Investigations." If your client wishes to make a written QI videotaped submtssion setting 

forth QflY rca.CJons of Jaw. policy or faci why it believes the civil injunctive action should not be 

brought, or bringing any tacts to the Commission's Httention in connection with its considemtion 

ofthis matter, you should forward the submission to me by no later than Decembe1· 5, 2007. Any 

written submission should be limited to 40 pages. and any video submission should not exceed 

12 minutes. Any submission should be sent to: 
-e.! ... .,...,., ..... 

Thomas C. Henry, F.sq. 

November 30, 2007 

Page2 

LeeAnn 0. Gaunt 

Assistant R~gional Director 

Securities and Exchange Commission 

33 Arch Street. 23rd Floor 

Boston. MA 02110-1424 . 

In the event the staff makes an ooforcement recommendation to the Commission on this matter, we will 

foiWatd any submission that you make Lo the Commfssion. Please be advised that the Commission may use the 

information contained in such asubmjssion as an admis.c;ion, or in iiDY other manner pcnnitted by the Federal Rule!:t 

of Evidence, in connection with Commission enforcement proceedings, or otherwise. This practice is explicitly 

provided for in the list ofRoutine Uses ofInformation (Item 4), which is contained in Fonn 1662, "Supplemental 

Infonnation for Persons Requested to Supply lnfonnation Voluntarily or Directed to Supply Information Pursuant 

to a Cornrnission Subpoena.'' For your in formation, aeopy ofFonn 1662 is enclosed. Please also be advised that 

any submission you make may be discoverable by third parties in accordance with appl£able law. 

lfyou have any questions, please contact me at 617-573·8945. 

~?JI(J!Jat,#- LeeAnn G. Gau.nt 

Assistanl Regional Director 

Enclosures: 	 Securities Act Release No. 5310 

SEC Fonn 1662 
IT I» 

Unassociated Document Page 1 of28 

N-CSR/A 1 vl20186 ncsra.htm 

SECURITIES AND EXCHANGE COMMISSION 


WASHINGTON, DC 20549 


FORM N-CSR Amended 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT 

INVESTMENT COMPANIES 

INVESTMENT COMPANY ACT FILE NUMBER 811-2815 

COPLEY FUND, INC. 

(Exact name ofregistrant as specified in charter) 

5348 Vegas Drive 


Suite 391 


Las Vegas, NV 89108 


(Address ofprincipal executive offices) (Zip code) 


Irving Levine, President 


5348 Vegas Drive 


Suite 391 


Las Vegas, NV 89108 


(Name and address ofagent for service) 


REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: 1-561-744-5932 

DATE OF FISCAL YEAR END: FEBRUARY 29, 2008 

DATE OF REPORTING PERIOD: FEBRUARY 29, 2008 

Form N-CSR is to be used by management investment companies to file reports with the commission not later than I 0 days after the 

transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-l under the Investment 

Company Act of 1940 (17 CFR 270.30e-I). 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 ("O:MB") control number. Please direct comments concery-ting the accuracy ofthe 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. 

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Item I. Annual Report 

RestatedAnnual Report 

February 29, 2008 

COPLEY FUND, INC. 

A No-Load Fund 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

FINANCIAL STATEMENTS 

FOR THE YEAR ENDING 

FEBRUARY 29, 2008 

Table of Contents 

Title 

Shareholder Letter and Management's Discussion of Fund Performance 

Per Share Value Graph 

Comparative Performance 

Page 

l- Z 

± 

!i 

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Independent Auditor's Report fi 

Portfolio of Investments 1.-.2. 

Statement of Assets and Liabilities 10 

Statement of Operations ll 

Statement of Changes in Net Assets 12 

Statement of Cash Flow 13. 

Notes to Financial Statements 

14­ -.lll 

Financial Highlights 20 

Disclosure of Fund Expenses 21 

Supplemental Data 22 

General 22 

Voting Proxies on Portfolio Securities 

Disclosure of Portfolio Holdings 

Approval of Investment Advisory Agreement 

Inside Back 

About the Fund's Directors and Officers Cover 

TABLE OF CONTENTS 

Tel: (508) 674-8459 

Fax: (508) 672-9348 

COPLEY FINANCIAL SERVICES CORP. 

Adviser and Administrator to Copley Fund, Inc. 

Post Office Box 3287 


Fall River, Massachusetts 02722 


April 2008 

Dear Fellow Shareholder: 

November 30, 2007, was an eventful day for the Copley Fund. The Securities and Exchange 

Commission (SEC) compelled us to change our method of accounting for deferred income tax on all 

unrealized gains. The unrealized gain in our approximately $90 million portfolio was about $60 million. This 

accounting change reduced our per share value by $13.89 by increasing a deferred liability to a level that 

would be realized only if the entire appreciated portfolio was liquidated. This change did not affect the 

total assets of the Fund and they remain intact. The Board immediately began to explore ways in which the 

Fund might be able to restore some or all of this reserve to the NAV. One of these avenues, a change in 

the Fund's state venue from Florida to Nevada, provided a direct benefit to the Fund by reducing our per 

share adjustment to approximately $12.00 per share. 

During our thirty years of existence we had always maintained a reserve for unrealized gains which has 

always been more than sufficient to cover any capital gains tax liability. As you consider this issue, it is 

important to note that the only way we would have to actually pay out the full reserve would be an entire 

liquidation of Copley Fund. Obviously we do not intend to liquidate and go out of business. 

Management and the Board of Directors strongly disagree with the SEC's position and are actively 

attempting to identify and pursue any alternatives which may be available to restore some or all of the 

reserve to NAV. Of course, there can be no assurance that we will be successful in these efforts. Thus, we 

are left with a price per share that reverts back to 2005 and 2006. However, we now have nearly an 

additional $17 million of tax reserves giving us income and hopefully stock increases to add to our net 

asset value. This change in treatment of deferred income tax is an accounting issue and no capital gains 

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taxes have been paid nor are any even currently payable. The Fund retains all of its current assets and 

continues to earn dividends in everincreasing amounts and gains (or losses) continue to be taken on the 

entire value of the portfolio which is approximately $90 million. 

This unexpected reserve caused Copley to have a loss of 10.8% in 2007 instead of a gain of 12.2% 

under normal circumstances. Our sector diversification insulated us from much of the havoc of the market. 

Utilities and energy stocks were some of the prime movers in our substantial market gain. The financial 

sector was particularly hard hit by the mortgage market and tightening of credit. We were fortunate in 

disposing of a fair amount of our financial stocks in September thus avoiding the huge losses which 

occurred during the balance of the year. 

The volatility of the market in 2008 causes us to cite averages in approximations as stocks and sectors 

can change as much as 2% daily. At this writing Copley is down between 4.5% and 5% year to date. The 

Dow Jones average is down between 5% and 7%. No major sector is up. However the financials have been 

the hardest hit. Our reductions of this sector in September of 2007 saved us from much larger losses. Note 

also our defensive cash position is approximately 11% of the portfolio. 

1 

TABLE OF CONTENTS 

Our retail associates in whose stores Copley Operating Division had the bag departments closed the 

majority of their stores which caused a substantial decrease in our operating volume. Thus we decided to 

expand in another direction. Over the years we have had a close association with two families, Raffa and 

Riccardi, who individually have been in the country Italian Restaurant business for over 50 years, owning 

among them nine restaurants. Patrick Riccardi, 53 years of age, has worked in one family restaurant for 35 

years. Based upon his experience and success Copley Operating has elected to open a restaurant in 

Bristol, RI called Rice's Ristorante and to employ Mr. Riccardi as it's operator and manager. We look 

forward to the same success and tradition that the Raffa and Riccardi families have achieved. 

Meanwhile we are continuing our same investment philosophy, i.e., highly visible and dividend paying 


stocks in ever increasing amounts. Note our dividend income is at an all time high and should continue to 


add substantially to our net asset value. We communicate with our Chicago consultants very often for 


exchanges of ideas. Thus the Fund is assured of long term continuance. 


We are making every effort to keep our expense ratio close to normalcy but with the challenge of the 

accounting issue and Sarbanes-Oxley it is no easy task. 

However, please remember that we have all of our assets intact, we have not been subject to credit or 

sub-prime mortgage problems; thus, we look forward to the future. 

All the above are reflected in our chart and the following numbers. 

1984 + 23.9% (Top performing Fund 1984) 

1985 + 25% 

1986 + 18% 

1987 -8% 

1988 +20% 

1989 +16% 

1990 -2% 

1991 +18% 

1992 +18% 

1993 +10% 

1994 -7% 

1995 +26% 

1996 +5% 

1997 +25% 

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1999 

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

-6.86% 

+ 22.50% 

-9.30% 

-13.9% 

+ 14.31% 

+ 12.99% 

+5.89% 

+ 19.70% 

-10.83% 

-7.48% 

Page 5 of28 

(Reflects the increased tax reserve) 

(As of March 31, 2008) 

2 

TABLE OF CONTENTS 

Note. The performance figures provided for years prior to 2007 are consistent with the information 

furnished in prior reports and do not reflect an adjustment for the change in accounting treatment of 

deferred income tax. 

The performance data quoted represents past performance and investment return. Principal value of an 

investment will fluctuate so that the 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 are to our Board, and to the many shareholders who contacted me over the past several 


months. All these shareholders expressed an appreciation for our Funds past performance and look 


forward to the future. 


Cordially yours, 

.. .·fl.. ~ ~ ·-.;.. .J:·. . ·: . . . .· . . 

·vrJ~ 

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. Go 

to Google home page search for Copley Fund then click on Mutual Funds and it will bring up Copley. 

3 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

PER SHARE VALUE 

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C/<!BIDAA. YEAR ENDED OECEI.IBER 31, 20()7 

PERIOO !Hilllm FES1'1LJARY 29, 2008 Wlr-------------------------------~--------------------, 

~s .................. " ............................................ _.. . .............. Sli 


41111r ¥:0< 

..<l 

~ 

The per share values provided for years prior to 2/28/08 are consistent with information furnished in prior 

reports and do not reflect an adjustment for the change in accounting treatment for deferred income taxes. 

4 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

COMPARATIVE PERFORMANCE 

This chart shows the value of a hypothetical $10,000 investment in the Fund and the S&P 500 which is 

a broad-based market index comprised of 500 of the largest companies traded on the U.S. Securities 

Markets as measured by market capitalization. Market Indexes do not include expenses which are 

deducted from Fund returns. There can be no assurance that the performance of the Fund will continue 

into the future with the same or similar trends depicted below. The graph does not reflect the deduction 

for taxes that a shareholder may pay on the redemption of shares or dividends and capital gains received. 

Ten Year Cumulative Return 

Copley Fund As of 2/29/08 

22,000. 

20,0\lQ 

ta.ooo 

16,000 

14,000 

12,000 

tO,Oaa 

, 

~ 

~S21,0CO S20,t13 

518,03$ 

6,000 Cl-----------------------------------------­ 2198 2199 2100 2JU1 2!"(]-2: 2103 :;!104 :ZIDS ;?iUS 2JU~' ;?iDB 

AVERAGE ANNUAL RETURNS 

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The following table depicts the periodic 1-, 5-, and 10-year annualized returns and the S&P 500 Index; 

Periods Ended 2/29/08 1 Year 5 Years 10 Years 

Copley Fund 3.60% 9.80% 4.80% 

S&P 500 (3.60)% 11.62% 7.23% 

Dow Jones Wilshire 5000 (4.07)% 12.90% .7.69% 

Current performance may be higher or lower than the quoted past performance, which cannot guarantee 

future results. Share price, principal value and return will vary, and you may have a gain or loss when you 

sell your shares. For most recent performance please call us at 877-881-2751. Returns do not reflect 

taxes that a shareholder may pay on redemption of Fund shares. When assessing performance, investors 

should consider both short and long-term returns. 

5 

TABLE OF CONTENTS 

Shareholders and Board of Directors 

Copley Fund, Inc. 

Las Vegas, Nevada 

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 29, 2008, and the related statement of operations for the 

year then ~nded, 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 29, 2008 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 29, 2008, 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 accounting principles generally accepted in the 

United States of America. 

As discussed in Note 1 to the financial statements, the Copley Fund, Inc., changed its method of accrual 

for deferred income taxes in 2007. 

Roy G. Hale 

Certified Public Accountant 

April 28, 2008 

La Plata, Maryland 

6 

TABLE OF CONTENTS 

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COPLEY FUND, INC. 

PORTFOLIO OF INVESTMENTS 

February 29, 2008 

Common Stocks -113.10% 


Banking - 7.41% 


Bank of America Corp. 


J.P. Morgan Chase & Co. 

KeyCorp. 


PNC Financial Services Group 


Diversified Utility Companies- 13.91% 


Alliant Energy Corp. 


Dominion Resources, Inc. 


FPL Group 


· Drug Companies- 3.24% 

Bristol Myers Squibb Co. 

Electric and Gas- 19.20% 

American Electric Power 

First Energy Corp. 

Great Plains Energy, Inc. 

Integrys Energy Group, Inc. 

Progress Energy, Inc. 

Public Service Enterprise Group 


Scana, Corp. 


Sempra Energy, Inc. 


Electric Power Companies- 19.25% 


Ameren Corp. 


DTE Energy Co. 


Duke Energy Co. 


Exelon Corp. 


Nstar Corp. 


PP&L Corp. 


Southern Co. 


Gas Utilities & Supplies - 8.83% 


Delta Natural Gas Co. 


Energy East Corp 


Shares 

25,000 

42,000 

15,000 

35,000 

20,000 

60,000 

110,000 

100,000 

35,000 

40,000 

40,000 

33,000 

40,000 

30,000 

50,000 

35,000 

30,000 

55,000 

54,600 

23,200 

50,000 

100,000 

35,000 

20,000 

40,000 

Value 

$ 993,500 

1,707,300 

330,750 

2,150,050 

5,181,600 

694,800 

2,396,400 

6,631,900 

9,723,100 

2,261,000 

1,432,200 

2,703,600 

1,017,200 

1,515,690 

1,676,400 

1,323,000 

1,893,500 

1,859,550 

13,421,140 

1,281,000 

2,189,550 

957,684 

1,736,520 

1,545,000 

4,538,000 

1,208,550 

13,456,304 

510,400 

1,066,000 

The accompanying notes are an integral part of the financial statements. 

7 

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TABLE OF CONTENTS 

COPLEY FUND, INC. 

PORTFOLIO OF INVESTMENTS 

February 29, 2008 

New Jersey Resources Corp. 

Northwest Natural Gas Co. 

WGL Holdings, Inc. 

Health Care Products - 0.44% 

*Zimmer Holdings, Inc. 

Insurance- 2.70% 

Arthur J. Gallagher & Co. 

Oil Companies - 21.30% 

BP Amoco PLC. 

Chevron Texaco Corp. 

Exxon-Mobil Corp. 

Oil Refineries - 4.37% 

Sunoco, Inc. 

Pipelines - 0.90% 

Spectra Energy Corp. 

Publishing - 0.03% 

*Idearc, Inc. 

Retail- 1.42% 

Wal-Mart Stores, Inc. 

Telephone- 10.10% 

AT&T, Inc. 


Citizens Communications Co. 


Verizon Communications, Inc. 


Total value of investments (Cost $28,630,559) 

Excess of liabilities over cash and other assets 

Net Assets 

* Non-income producing securities. 

Shares 

37,500 

40,000 

38,000 

4,100 

80,000 

25,500 

46,200 

106,086 

50,000 

27,300 

4,711 

20,000 

93,555 

35,000 

94,232 

Value 

$ 1,725,375 

1,681,600 

1,185,220 

6,168,595 

308,689 

1,888,000 

1,654,185 

4,003,692 

9,230,543 

14,888,420 

3,054,000 

630,903 

22,707 

991,800 

3,258,521 

375,900 

3,422,506 

7,056,927 

79,053,185 

(9,658,656) 

$69,394,529 

Page 9 of28 

The accompanying notes are an integral part of the financial statements. 

8 

TABLE OF CONTENTS 

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COPLEY FUND, INC. 

PORTFOLIO OF INVESTMENTS 


February 29, 2008 


Federal Tax Information: At February 29, 2008, the net unrealized appreciation based on cost for Federal 

income tax purposes of $50,422,626 was as follows: 

Aggregate gross unrealized appreciation for all investments 

for which there was an _el$cess of value over cost $50,658,953 

Aggregate gross unrealized depreciation for all investments 

for which there was an excess of cost over value (236,327) 

Net $50,422,626 unrealized appreciation 

The accompanying notes are an integral part of the financial statements, 

9 

TABLE OF CONTENTS 

COPLEY FUND, INC. 


STATEMENT OF ASSETS AND LIABILITIES 


February 29, 2008 

ASSETS 

Investments in securities, at value (identified cost 

$28,630,559) (Note 1) 

Cash 

Receivables: 

Securities Sold $ 108,501 

Trade (Notes 5 & 6) 3,958 

Dividends and interest 330,162 

Inventory (Notes 1 & 6) 

Machinery & Equipment (Note 1) 

Leasehold Improvements (Note 1) 

Prepaid Expenses and other assets 

Total Assets 

LIABILITIES 

Payables: 

Redemptions 4,939 

Trade 11,356 

Accrued income taxes 146,016 

Accrued expenses 51,311 

Deferred income taxes (Note 1) 17,516,875 

Total Liabilities 

Commitments and Contingencies (Note 7) 

Net Assets 

Net assets consist of: 

$79,053,185 

7,126,759 

442,621 

113,259 

264,755 

96,838 

27,609 

87,125,026 

17,730,497 

$69,394,529 

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Undistributed net investment and operating income 12,053,268 

Accumulated net realized gain on investment 

transactions 3,279,447 

Net unrealized appreciation in value of investments 

(Note 2) · 50,422,626 

Total $69,394,529

Net Asset Value, Offering and Redemption Price Per Share 

(5,000,000 shares authorized, 1,574,658 shares of $1.00 

par value capital stock outstanding) $ 44.07 

The accompanying notes are an integral part of the financial statements. 

10 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

STATEMENT OF OPERATIONS 

For the year ending February 29, 2008 

Investment Income (Note 1) 

Income 

Dividend $ 2,885,330 

Interest 259,302 

Investment income $3,144,632 

Expenses: 

Investment advisory fee (Note 5) 603,710 

Professional fees 175,768 

Custodian fees 26,149 

Accounting and Shareholder Services 

Printing 

68,551 

13,893 

Postage and shipping 4,478 

Directors fees 14,148 

Blue Sky fees 6,580 

Insurance 45,293 

Office expense and miscellaneous 3,788 

962,358 

Less: Investment advisory fee waived (60,000) 902,358 

Net investment income before income taxes 2,242,274 

Operating Loss (Notes 2, 5 and 7) 

Gross profit 34,826 

Less: Operating expenses 129,652 

Net operating loss before income taxes (94,826) 

Net Investment and Operating Income before Income 

Taxes 2,147,448 

Less provision for income taxes (Notes 2 and 7) 275,016 

Net investment and operating income 1,872,432 

Realized and Unrealized Gain (Loss) on Investments 

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Realized gain from investment transactions during 

the period 1,557,833 

Decrease in unrealized appreciation of investments 

during current period, net of income tax affect (1,011,885) 

Net realized and unrealized loss 545,948 

Net Increase in Net Assets Resulting from Operations $2,418,380 

The accompanying notes are an integral part of the financial statements. 

11 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

STATEMENT OF CHANGES IN NET ASSETS 

Increase (Decrease) in Net Assets from Operations 

Net investment and operating income 

Net realized gain on investment transactions 

Net change in unrealized appreciation on investments 

Increase in net assets resulting from operations 

Capital Share Transactions (Note 3) 

Increase (decrease) in net assets resulting from capital 

share transactions 

Total increase (decrease) in net assets 

Net Assets 

Beginning of Year 

End of Year (including undistributed net investment and 

operating income of $12,553,750 and $11,480,653 

respectively) 

Year Ended 

2/29/08 

$ 1,872,432 

1,557,833 

(1,011,885) 

2,418,380 

(604,547) 

1,813,833 

67,580,696 

$ , , 69 394 529 

Restated 

Year Ended 

2/28/07 

$ 1,861,031 

353,076 

6,044,537 

8,258,644 

23,780 

8,282,424 

59,298,272 

$67,580,696 

The accompanying notes are an integral part of the financial statements. 

12 

TABLE OF CONT[mTS 

COPLEY FUND, INC. 

STATEMENT OF CASH FLOWS 

For the year ending February 29, 2008 

Increase (Decrease) in Cash 

Cash flows from operating activities 

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Proceeds from disposition of long-term portfolio investments 

Receipts from customers 

Payments of taxes, net 

Expenses paid 

Purchase of long-term portfolio investments 

Payments to suppliers 

Net cash provided by operating activities 

Cash flows from investing activities 

Purchase of Machinery, Equipment & Leasehold Imp 

Net cash provided by investing activities 

Cash flows provided by financing activities 

Fund shares sold 

Fund shares repurchased 

Net cash used by financing activities 


Net increase in cash 


Cash at beginning of the year 


Cash as of February 29, 2008 

Reconciliation of Net Decrease in Net Assets Resulting from 

Operations to Net Cash Provided By Operating Activities 

Net Increase in net assets resulting from operations 

Decrease in investments 


Increase in receivable for securities sold 


Increase in dividends and interest receivable 


Decrease in receivables from customers 


Increase in inventory 


Increase in income taxes payable 


Increase in trade payables 


Increase in accrued expenses 


Decrease in deferred taxes 


Total adjustments 

Net cash provided by operating activities 

6,524,557 

125,418 

(264,004) 

(1,052,291) 

(3,571,737) 

(103,137) 

4,799,430 

(361,593) 

(361,593) 

4,196,963 

(4,733,552) 

(536,589) 

3,901,248 

3,225,510 

$ 7,126,758 

$ 1,073,097 

5,075,438 

(108,501) 

(23,053) 

13,950 

(3,4 78) 

8,891 

2,747 

16,981 

(1,256,642) 

3,726,333 

$ 4,799,430 

The accompanying notes are an integral part of the financial statements. 

13 

TABLE OF CONTENTS 

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, openend 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 

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accounting principles generally accepted in the United States of America. 

Secun"ty 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 ofSecurities 

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. 

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. 

Machinery, Equipment & Leasehold Improvement. 

Property and equipment are recorded at cost. Expenditures for major additions and improvements are 

capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When 

property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are 

removed from the accounts and any resulting gain or loss is included in the results of operations for the 

respective period. Depreciation is provided over the estimated useful lives of the related assets using the 

straight-line method for financial statement purposes. The Fund uses other depreciation methods 

(generally accelerated) for tax purposes where appropriate. The estimated useful lives for the machinery 

and equipment held by the Fund is 3 to 20 years. · 

Amortization of leasehold improvements is computed using the straight-line method over the shorter of 

the remaining lease term or the estimated useful lives of the improvements. 

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. 

14 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

NOTES TO FINANCIAL STATEMENTS 

1. Significant Accounting Policies - (continued) 

New Accounting Pronouncements 

Effective August 31, 2007, the Fund adopted Financial Accounting Standards Board ("FASB") 

Interpretation No. 48 ("FIN 48") "Accounting for Uncertainty in Income Taxes", a clarification of FASB 

Statement No. 109, "Accounting for Income Taxes". FIN 48 provides guidance for how uncertain tax 

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positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 

requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Fund's 

tax returns to determine whether the tax positions are "more-likely-than-not" of being sustained by the 

applicable tax authority. 

In September 2006, FASB issued Statement on Financial Accounting Standards (SFAS) No. 157 "Fair 

Value Measurements." This standard establishes a single authoritative definition of fair value, sets out a 

framework for measuring fair value and requires additional disclosure about fair value measurements. 

SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. 

SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 

2007 and interim periods within those fiscal years. The changes to current generally accepted accounting 

principles from the application of this Statement relate to the definition of fair value, the methods used to 

measure fair value, and the expanded disclosures about fair value measurements. At this time, management 

does not believe the adoption of SFAS No. 157 will impact the amounts reported in the financial 

statements, however, additional disclosures may be required about the inputs used to develop the 

measurements and the effect of certain of the measurements reported on the statement of changes in net 

assets for a fiscal period. 

Restated Financial Statements 

Recent Developments 

On November 30, 2007, an adjustment was made to the long-term liabilities section of the Fund's 

balance sheet to recognize the total potential federal and state income taxes associated with the 

accumulated unrealized appreciation generated by the Fund's stock portfolio. For financial reporting 

purposes, this change should be regarded as a correction of an error on prior-period financial reports. The 

affect of the adjustment will be to increase the liabilities of the Fund for all prior year information 

contained in this annual report and thereby reduce the overall net assets of the Fund. The total assets of 

the Fund, contained on page 10 of this annual report, are not affected. Under the current application of 

generally accepted accounting principles, the Fund is required to recognize a full accrual of the Federal 

income tax associated with the unrealized appreciation in the Fund's security portfolio. Accordingly, the 

Fund will recognize an accrual of deferred income at the Federal statutory rate of 35% on a daily basis on 

the taxable amount of accumulated unrealized appreciation. 

It should be understood that the foregoing application of generally accepted accounting principles is 

based upon the assumption that at some point the appreciated securities of the Fund will be sold and the 

applicable income tax will be paid. With the Fund's history of holding securities for long periods of time, 

the actual payment of the deferred income tax may not be paid for many years and it is conceivable that 

with fluctuating market conditions, the total liability at any given point in time will never be paid. 

15 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

NOTES TO FINANCIAL STATEMENTS 

1. Significant Accounting Policies - (continued) 

Past Policy 

For over 15 years, the Fund has recognized a liability for deferred income tax to the extent that the 

management of the Fund felt a real liability may exist. This policy, applied consistently over the entire 

period, demonstrated that the Fund was able to reasonably estimate the extent of the deferred tax 

obligation in that at no point in time during the fifteen year period, did the actual liability associated with 

the liquidation of appreciated securities exceed the accumulated deferred taxes recognized in the Fund's 

semi-annual or annual financial statements. 

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Notwithstanding the management of the Fund's reasonable ability to estimate the carrying value of the 

deferred income tax liability, FASB Statement of Financial Accounting Standard 109 (FAS 109) requires all 

entities to recognize a full accrual on the deferred income tax that may be payable at the end of each fiscal 

year. Based upon a decision by the Board of Directors that the Fund would change its taxable status from a 

regular corporation to a regulated investment company (RIC) if the Fund found itself in a position where it 

had reserved insufficient deferred income taxes to meet actual income tax obligations associated with its 

appreciated security portfolio, an action available to the Fund as a registered investment company, this 

decision was felt to be a reasonable response to the application of FASB 109. Albeit conversion to RIC 

status is not a tax free event, the transactions required could be managed by the Fund in s'uch a manner; 

that the Fund would not be required to recognize the full deferred income tax accrual required under F AS 

109. 

Correction of an error in comparative financial statements 

In accordance with generally accepted accounting principles, the cumulative effect of the change for the 

periods prior to March 1, 2007, totaling $16,727,527, has been recognized in the February 29, 2008 

Statement of Assets and Liabilities as a restatement of the beginning balance of undistributed net 

investment and operating income. 

2/29/08 2/28/07 

Undistributed net investment and operating income at beginning of year, as previously reported $10,180,836 $ 25,04 7,332 

Cumulative effect on prior years of retroactive 

restatement 0 (16,727,527) 

Net investment and operating income 1,872,432 1,861,031 

Undistributed net investment and operating income $12,053,268 $ 10,180,836 

16 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

NOTES TO FlNANCIAL STATEMENTS 

2. Disclosure of the provisions for income taxes, reconciliation of statutory rate to effective rate, and 

significant components of deferred tax assets and liabilities. 

The Federal and state income tax provision (benefit) is summarized as follows: 

Fiscal Year 

2008 2007 

Current: 

Federal $ 248,162 $ 215,023 

State 26,854 38,170 

275,016 253,193 

Deferred: 

Federal 500,482 3,370,927 

State (2,270,716) 568,540 

0,770,234) 3,939,467 

Net provision (benefit) for income taxes $0,495,218) $4,192,660 

Effective income tax rate 35.00% 38.58% 

Differences between the effective tax rate and the federal statutory rates as of the last day of the fiscal 

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year are as follows: 

Fiscal Year 

2008 2007 

Federal statutory rate 35.00% 35.00% 

State income tax benefit 0.00 (1.92) 

State income tax rate 0.00 5.50 

Effective tax rate 35.00% 38.58% 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying 

amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax 

purposes. The deferred tax liabilities relate to the Fund's unrealized gains on marketable securities. 

The reduction in deferred tax liabilities for the fiscal year ending February 29, 2008 is due to a change 

in tax venue for the Fund from Florida to Nevada. The state of Nevada does not access a corporate level 

income tax. 

The Fund has $308,205 in accumulated capital loss carryforwards which expire as follows: $308,205 on 

February 28, 2009. 

17 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

NOTES TO FINANCIAL STATEMENTS 

3. Capital Stock 

At February 29, 2008, there were 5,000,000 shares of $1.00 par value capital stock authorized. 

Transactions in capital shares were as follows: 

Year Ended 

2/29/08 

Shares Amount 

Year Ended 

2/28/07 

Shares Amount 

Shares sold 

Shares repurchase

Net change 

d 

73,475 

(87,630) 

(14, 155) 

$ 4,126,682 

(4,731,229) 

$ (604,54 7) 

103,791 

(107,802) 

(4,011) 

$ 5,369,011 

(5,345,231) 

$ 23,780 

4. Purchase and Sale of Securities 

For the year ended February 29, 2008, purchases and sales of securities, other than United States 

government obligations and short-term notes, aggregated $3,571,737 and $6,610,433 respectively. 

5. 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. 

For the year ended February 29, 2008, the fee for investment advisory service totaled $603,710 less 

fees of $60,000 voluntarily waived. Also during the period unaffiliated directors received $14,148 in 

directors' fees. 

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Operating Divisions 

The Fund has an operating division, Copley Fund, Inc.- Operating Division ("COD"), which imports 

merchandise for resale. A portion of its merchandise is placed on consignment with a company controlled 

by Irving Levine. The Fund invoices the consignee when the merchandise is ultimately sold. 

The Fund also recently formed a new wholly owned subsidiary, Copley Operating Group LLC ("COG"), 

which owns equipment and operates a restaurant, Rice's Ristorante. The real property used by the 

restaurant is leased. 

During the period covered in this report, the Fund made a $100,000 equity investment in COD. COD also 

made an equity investment of $5,000 in COG. In addition, COD provided a loan to COG in the amount of 

$483,978. 

18 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

NOTES TO FINANCIAL STATEMENTS 

5. Investment Advisory Fee and Other Transactions with Related Parties - (continued) 

The combined results of these subsidiary companies during the year ended February 29, 2008, are as 

follows: 

Sales $ 111,469 

Cost of goods sold (95,687) 

Gross profit 15,782 

General & administrative expenses (129,652) 

Net loss from operations (113,870) 

Other income (dividends and interest) 19,044 

Net Loss $ (94,826) 

6. Notes Payable 

A $3,000,000 line of credit has been secured for the operating division from Fleet National Bank. The 

assets of the Fund are pledged as security for this line of credit. The amount currently outstanding on this 

line is zero. · 

7. 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, upheld 

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 

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the Internal Revenue Service. 

19 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

Financial Highlights 

The financial highlights table is intended to help you understand the Fund's financial performance for 

the fiscal years 2/29/04 through 2/29/08. Certain information reflects financial results for a single Fund 

share. The total returns in the table represent the rate that an investor would have earned or lost on an 

investment in the Fund. The information for fiscal years prior to February 29, 2008 have been restated to 

incorporate the correction of an error as it relates to accumulated deferred income taxes on unrealized 

appreciation associated with the securities portfolio. The information set forth herein will be consistent 

with the financial information contained in the restated financial statements for the period ending February 

29, 2008. Shareholders should be certain that they have the most recent annual report which should be 

read in connection with the prospectus. 

The financial information was audited by Roy G. Hale, CPA, whose report, along with the Fund's 

financial statements, is included the Fund's annual report to Shareholders, a copy of which is available at 

no charge on request by calling 877-881-2751. 

Year Ended 

February February 28, February February 28, February 29, 

29,2008 2007 28,2006 2005 2004 

Net asset value, beginning of year $ 42.54 $ 37.23 $ 35.28 $ 32.63 $ 27.62 

Income (loss) for investment operations: 

Net investment income (loss) 1.18 (1.31) 0.27 (0.44) (1.86) 

Net gains (losses) on securities (both 

realized and unrealized) 0.35 6.62 1.68 3.09 6.87 

Total investment operations 1.53 5.31 1.95 2.65 5.01 

Net asset value, end of year $ 44.07 $ 42.54 $ 37.23 $ 35.28 $ 32.63 

Total return 3.60% 14.26% 5.53% 8.12% 18.14% 

Net assets, last day of February Gn 

thousands) 69,395 67,581 59,298 57,948 57,747 

Ratio of net expenses, including regular 

& deferred taxes, to average net 

assets 1.72% 7.88% 3.80% 5.65% 10.60% 

Ratio of net expenses, excluding 

deferred taxes, to average net assets 1.72% 1.67% 1.72% 1.49% 1.59% 

Ratio of net investment and operating 

income (loss) to average net assets 2.73% (3.28)% 0.76% (1.30)% (6.18)% 

Ratio of net investment and operating 

income (loss), excluding deferred 

taxes, to average net assets 2.73% 2.93% 2.83% 2.86% 2.84% 

Portfolio turn over rate 4.11% 0.50% 0.73% 0.44% 0.92% 

Number of shares outstanding at end of 

period (in thousands) 1,575 1,589 1,593 1,643 1,770 

The financial highlights shown above included the waiver of $60,000 of the investment advisory 

fee (as noted in the Statement of Operations). If the waiver of $60,000 of investment advisory fees 

had not been included, the following. ratios would apply: 

Ratio of net expenses, including regular 

& deferred taxes, to average net 

assets 1.81% 7.97% 3.90% 5.76% 10.71% 

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aererrea taxes, to average net assets 1.1H '1o 1./ 0'1o l.l:l-5'10 l.OU'1o 1./ U'1o 

Ratio of net investment and operating 

income (loss) to average net assets 2.65% (3.37)% 0.66% (1.41)% (6.29)% 

Ratio of net investment and operating 

income (loss), excluding deferred 

taxes, to average net assets 2.65% 2.84% 2.73% 2.75% 2.72% 

The accompanying notes are an integral part of the financial statements. 

20 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

DISCLOSURE OF FUND EXPENSES 

All mutual funds have operating expenses. As a shareholder of a mutual fund, your investment is 

affected by these ongoing costs, which include investment advisory fees. It is important for you to 

understand the impact of these costs on your investment return. 

Operating expenses such as these are deducted from the mutual fund's gross income and directly 

reduce its final investment return. These expenses are expressed as a percentage of the mutual fund's 

average net assets; this percentage is known as the mutual fund's expense ratio. 

The following examples use the expense ratio and are intended to help you understand the ongoing 

·costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. 

The examples are based on an investment of $1,000 made at the beginning of the period shown and held 

for the entire period. 

The table below illustrates your Fund's costs in two ways: 

Actual Fund Return. This section helps you to estimate the actual expenses after fee waivers that your 

Fund incurred over the period. The "Expenses Paid During Period" column shows the actual dollar 

expense cost incurred by a $1,000 investment in the Fund, and the "Ending Account Value" number is 

derived from deducting that expense cost from the Fund's gross investment return. 

You can use this information, together with the actual amount you invested in the Fund, to estimate the 

expenses you paid over that period. Simply divide your actual account value by $1,000 to arrive at a ratio 

(for example, an $8,600 account value divided by $1,000 = 8.6), then multiply that ratio by the number 

shown for your Fund under "Expenses Paid During Period." . 

Hypothetical 5% Return. This section helps you compare your Fund's costs with those of other mutual 

funds. It assumes that the Fund had an annual 5% return before expenses during the year, but that the 

expense ratio (Column 3) for the period is unchanged. This example is useful in making comparisons 

because the Securities and Exchange Commission requires all mutual funds to make this 5% calculation. 

You can assess your Fund's comparative cost by comparing the hypothetical result for your Fund in the 

"Expenses Paid During Period" column with those that appear in the same charts in the shareholder 

reports for other mutual funds. 

Note: Because the return is set at 5% for comparison purposes- NOT your Fund's actual return- the 

account values shown may not apply to your specific investment. 

Expenses Paid 

Beginning During Period* 

Account Value Ending Account Annualized (9/1/07­

9/1/07 Value 2/29/08 Expense Ratios 2/29/08) 

Actual Fund Return $ 1,000 $ 1,018.28 1.72% $ 8.86 

Hypothetical 5% Return $ 1,000 $ 1,031.40 1.72% $ 8.98 

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* 	 Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over 

the period, multiplied by 182/366 (to reflect the one-half period). 

21 

TABLE OF CONTENTS 

COPLEY FUND, INC. 

SUPPLEMENTAL DATA 

General 

Investment Products Offered 

Are not FDIC Insured 

May Lose Value 

Are Not Bank Guaranteed 

The investment return and principal value of an investment in the Copley Fund (the "Fund") will 

fluctuate as the prices of the individual securities in which it invests fluctuate, so that your shares, when 

redeemed, may be worth more or less than their original cost. You should consider the investment 

objectives, risks, charges and expenses of the Fund carefully before investing. For a free copy of the 

Fund's prospectus, which contains this and other information, call the Fund toll free at (877) 881-2751 or 

write to Gemini Fund Services at 4020 South 147th Street, Omaha, NE 68137. 

This shareholder report must be preceded or accompanied by the Fund's prospectus for individuals who 

are not current shareholders of the Fund. 

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 

12 month period ended June 30, 2007, (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 14, 2008, 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 

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22 

TABLE OF CONTENTS 

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. The Directors considered that the Fund's performance had been impacted negatively primarily 

because of the November 30, 2007 NAV adjustment related to the Fund's accounting for income tax 

liability. Even with this change the Directors noted that the Fund's performance compared favorably to the. 

S&P 500 Index. 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 and particularly the performance of the portfolio securities themselves 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. The Board also considered that the Fund's expense ratio, 

while still equalto or even lower than the average mutual fund expense ratio, had increased. In particular, 

the Board concluded that the Fund's expense ratio had increased, primarily due to increased expenses 

related to challenging the accounting issue and the expansion of the operating division. They noted that the 

advisory fee also is adjusted downward if economies of scale are realized during the current contract 

period as the Fund grows, 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 has entered into a written agreement to continue this practice on a yearly basis. 

23 

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TABLE OF CONTENTS 

COPLEY FUND, INC. 

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 5348 Vegas Drive, Suite 

391, Las Vegas, NV 89108. 

Independent Directors 

Name 

(Date of Birth) Principal Occupations(s) During Past 5 Years 

Year Elected and Other Directorships of Public Companies 

Albert Resnick, M.D. Physician Since 1948 

(March 23, 1922) 

1978 

[1] 

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ll:'eoruary Ztl, 

1996 !~'±OJ J'lew Jjearora, JVlli 

[ 1] 

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 

(September 25, 1921) 

1978 

[1] 

Officers 

Name 

(Date of Birth) 

Title 

President, Treasurer and a Director of Copley Financial 

Services Corp. since 1978; a Director of Franklin 

Capital Corp. (an operating investment company) since 

Marcil, 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. 

Principal Occupations(s) During Past 5 Years 

and Other Directorships of Public Companies 

Irvine Levine See Above 


(September 25, 1921) 


Chairman of the Board of 


Directors and President 


Patricia Taylor Chief Compliance Officer of the Fund since 2004; 

(May 27, 1950) Owner, Patricia Taylor Administrative Services, since 

Chief Compliance Officer 1994. 

24 

RestatedAnnual Report 

February 29, 2008 

COPLEY FUND, INC. 

A No-Load Fund 

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Investment Adviser 

Copley Financial Services Corp. 

P.O. Box 3287 

Fall River, Massachusetts 02722 

E-mail: copleyfunds@verizon.net 

Custodian 

Bank of America 

111 vVestminster Street 

Providence, Rhode Island 02903 

Transfer Agent 

Gemini Fund Services 

4020 South 14 7th Street 

Suite 2 

Omaha, Nebraska 68137 

Tel. 002)493-4603 

(877)881-2751 

Fax: (402)963-9094 

General Counsel 

Roberts & Henry 

164 Honeysuckle Drive 

Jupiter. Florida 33458 

Auditors 

Roy G. Hale, C.P.A. 

624 Clarks Hun l~oad 

La Plata, MD 20646 

COPLEYFUNDJ INC. 


A No-Load Fund 

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Item 2. CODE OF ETHICS 

(a) 	 The registrant has adopted a code of ethics that applies to the registrant's principal executive officer and principal financial 

officer. The registrant undertakes to provide to any person without charge, upon request, a copy ofits code of ethics by mail 

when they call the registrant at (508)674-8459. 

(b) 	 During the period covered by this report, no amendments were made to the provisions ofthe Code ofEthics adapted in 2(a) 

above. 

(c) 	 During the period covered by this report, no implicit or explicit waivers to the provisions ofthe Code of Ethics adapted in 2(a) 

above were granted. 

Item 3. AUDIT COMMITTEE FINANCIAL EXPERT 

The registrant's Board ofDirectors 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 ofthe registrant's 

annual financial statement and services in connection therewith for the last two calendar years: 

2007 2008 

(a) Audit Fees 	 $19,200 $18,600 

(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 ofthe 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. 

Ifsuch 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 were not required to approve any of the fees described in paragraphs (b) through (d) ofthis 

item. 

(f) Not applicable. 

(g) See above table. 

(h) Not applicable. 


ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. 


Not applicable. 


ITEM 6. Schedule oflnvestments 


The registrant's schedule of investments is included in its annual report to the shareholders filed under Item 1 of this form. 


ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT 


INVESTMENT COMPANIES. 


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Not applicable. 

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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 ofDirectors 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 ofthe 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 ofthe candidate's qualifications. 

ITEM I I. CONTROLS AND PROCEDURES. 

(a) Except as may be deemed related to the Funds' recognition of deferred income tax during the period, 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 I 940 (the "Act") are effective as of a date within 90 days ofthe filing date of the report that 

includes the disclosure required by this paragraph, based on the evaluation ofthese controls and procedures required by Rule 30a-3(b) 

under the Act. 

Except as may be deemed related to the Funds' recognition of deferred income tax during the period, 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) Except as may be related to the Funds' recognition of deferred income tax during the period, 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 I2. EXHIBITS. 

The Exhibits listed below are attached to this Form N-CSR: 

Exhibit No. 	 Description 

I2(a)(I) 	 Not applicable. See Item 2 hereof. 

I2(a)(2) 	 Certification ofprincipal executive officer and principal financial officer pursuant to Rule 30a-2(a) under 

the Investment Company Act of I940, as amended (I 7 CFR 270.30a-2(a)), is filed and attached hereto. 

(see attached) 

I2(a)(3) 	 Not applicable. 

I2(a)(4) 	 Certification ofprincipal executive officer and principal financial officer pursuant to Rule 30a-2(b) under 

the Investment Company Act of I 940, as amended (I 7 CFR 270.30a-2(b )), is furnished and attached 

hereto. 

http://www.sec.gov/Archives/edgar/data/7212911000114420408040755/v120186_ncsra.htm 311/2012 
Unassociated Document Page 28 of28 

SIGNATURES 

Pursuant to the requirements ofthe 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: Is! Irving Levine 

Name: Irving Levine 


Title: President (Principal Executive Officer) 


Date: July 18, 2008 

Pursuant to the requirements ofthe Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been 

signed below by the following person on behalf ofthe registrant and in the capacities and on the dates indicated. 

By: Is/ Irving Levine 

Name: Irving Levine 

Title: President (Principal Executive Officer & Principal 

Financial and Accounting Officer) 

Date: July 18, 2008 

http://www.sec.gov/Archives/edgar/data/721291/000114420408040755/v120186_ncsra.htm 3/1/2012 
ITE 

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I• • 

ROBERTS & HENRY 

MTORNEYS .A!r LAW 


164 HONEYSUCKLE DRIVE 


JUPITER, FLoRIDA. 33468 


(56l.l744-5982 


FAX 156l.l207-6857 


E-MAIL• RobertsHenryLaw@aolcom 

101 BUJDN.A. V'Is!I!A. AVENUE 


FEDEJULSBtT.R~, MD 21.632 


14l.Ol 764-9876 


Fri !4l.Ol 754-9376 


November 19,2008 

James S. Goldman, Esquire 

U.S. Securities and Exchange Commission 


Boston Regional Office 


33 Arch Stree~ 23rd Floor 


Boston, MA 02110 


RE: In the Matter ofCopley Fund. Inc., B-2335 

Dear Jim! 

504 TALBOT STREET 

P.O. Box uss 


l3T. MICHAELS, MD 21663 


(410) 822-4456 


F~<410l754-9376 

. After much thought and consideration, we have formalized a proposal. which we 

are hopeful might work toward resolving the Copley Fund matter. 

As you know, the Board has consistently maintained that the accrual for 

unrealize~ capital gains taxes. is best represented by a "reserve" established by the Board 

as opposed to a full liquidating value accrual that currently is being employed in 

calculating the Fund's Net Asset Value. Our experience since November 30,2007 when 

the NA V was adjusted, has revealed that the use ofthe latter methodology has resulted in 

what we ~lieve are misleading and inconsistent financial statements and a per share 

value that does not represent the fair value for the Fund's shares. 

The attached Memorandum details the Fund's rationale in support of the use of 

the Board established reserve. We believe, for the reasons set forth therein, that use of 

the Board established methodology is the only way in which the Fund's shares may be 

fairly priced. We also believe that the use ofthis methodology is consistent with 

generally accepted account principles and is required to fairly present Fund financials in a 

consistent manner, fairly price Fund shares and render the financials not misleading. 

The Fund believes that the issue really is more a disclosure and risk assessment 

issue than an accounting issue. We have attached a proposed Prospectus Supplement 

which contains disclosures that we believe will enable both present and future Copley 

Fund shareholders to fully assess the risks of investing in the Fund insofar as 
James S. Goldman, Esquire 

November 19, 2008 · 

Page two 

such risks relate to taxes on unrealized appreciation. This disclosure is accomplished 

through both text and comparison tables and every effort has been made to keep it easily 

understandable and in "plain language". Of course, .we would be receptive to any staff 

· comments with respect to the proposed disclosures. 

The clear mandate ofthe Commission is to protect investors. In this case, an 

interpretation ofFAS 1 09 which uses liquidating value accounting achieves the exact 

opposite result: one that should be avoided-investors are harmed. They cannot access 

assets to which they are entitled. As demonstrated by the Commission's current study on 

mark-to-market accounting and FAS 157 sometimes alternative, or at least flexible, 

standards are required to fairly present financials and to serve the best interests of 

investors. For the reasons set forth in the Memorandum, we believe a perfectly 

ailalogous situation is presented here. 

Simply put, a full liquidating value accounting view under F AS 109 operates to 

the detriment ofFund shareholders and results in inconsistent and misleading financial 

statements. On the other hand, a reserve accounting view under F AS 1 09 operates to the 

benefit ofshareholders and results in consistent, easily understandable and clear 

financials which produce a Net Asset Value which represents fair value for the Fund's 

shares. We believe that there is nothing in GAAP or applicable law or regulation which 

precludes the use ofthe Board's methodology in pricing Fund shares. 

We, of course, are available to discuss this with the staff either in person or via 


conference at your convenience. ' 


The Fund has continued to offer its shares for sale using current financials only 

because they were compiled based upon comments made by the staffofthe Division of 

Investment Management and agreed to by us at the time under the circumstances at the 

time. Accordingly, nothing in the proposal should be construed as an explicit admission 

that the current financials are false or misleading in fact or as a matter oflaw. We also 

requeSt confidential treatment under the FOIA with respect to this correspondence and 

associated memoranda. 

·Very truly yours, 

ROBERTS & HENRY 

Thomas C. Henry -~1 

·-~,;~· 
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MEMORANDUM 

PRELThflNARYSTATEMrnNT 

This is about the best interests ofthe Copley Fund shareholders-past, present and future. 

It is about the fair value of a Copley Fund share. It is about the Board ofDirectors' fiduciary 

obligation to ensure that the Fund's ~es are fairly priced, that the best interests ofthe Fund's 

shareholders are fully protected and served and that the FlJl1d's financial information is not 

misleading. And, most importantly, it is about the flexibility ofGAAP and the Commission's 

rules. This point is particularly relevant now given the current financial crisis facing the nation 

and the Commission's acknowledgement that otherwise rigid rules must bend to reasonable, 

reassured, common sense evaluation. 

November 30,2007 was a very difficult day for the Fund, its Board ofDirectors and its 

shareholders. It was on that day that the Board was compelled, upon threat ofinjunctive action, 

to direct the Fund's accounting services agent to reduce the Fund's per share value by $13.89 as 

the result of an accounting interpretation expressed by the staff that generally accepted 

accounting principles (GAAP) required the Fund to include in its current liabilities the entire 

amoun.t ofcapital gains taxes that would be payable ifthe Fund liquidated its entire portfolio of 

securities on that day; as opposed to the inclusion of a reserve for taxes that had been established 

by the Board ofDirectors in an exercise oftheir good faith business judgment and based upon 

fifteen (15) years of' experience operating successfully with such reserve. 

For the reasons set forth below, the Fund believes that the NAV adjustment is contrary to 

the best interests ofthe Fund's shareholders. The Fund believes that it has in the past complied 

with GAAP, that both GAAP and applicable SEC rules are flexible enough to permit the · 

"reserve" accounting method established and approved by the Board and that the "full 

liquidating value accrual method" has produced inconsistent and misleading financial statements 

that have resulted in Management having to qualify its c~rtifications made pursuant to Section 

302 ofthe Sarbanes-Oxley Act of20021 

• . . 

THE FUND AND ITS INVESTMENT OBJECTIVE 

The Copley Fund, Inc. (the "Fund'') is registered with the Commission as an open-end, 

management investment company pursuant to the provisions ofthe Investment Company Act of 

1940. Unlike most funds, it has not elected regulated investment company ("RIC") status under 

the Internal Revenue Code, 1986, as amended. It is organized as a regular "C" Corporation for 

federal income tax purposes. Accordingly, any taxable income generated by the Fund is subject 

to taxation at the corporate level and is not passed on to individual shareholders as would be the 

case ifthe Fund had elected RIC status. 

The Fund was organized iii 1978 and has operated continuously since that time. Its stated 

investment objective is ''the generation and accumulation ofdividend income". Its secondary 

objective is "long-term capital appreciation". Key to the Fund's investment objective is its ­

strategy, contrary to most other funds, of not distributing dividends and capital gains to 

1

The Fund's N-CSR Certification provides that the Fund's financial statements "fairly represent in all material respects (except to 

the extent that management's position on the accounting for deferred income taxes is correct) the financial condition... ofthe 

registrant." 
Memorandum ( cont) 

Page 2 ofl4 

shareholders bUt rather accumulating them within the Fund and then adding them to the value of 

each share on a daily basis. Hence, an increase in per share value directly raises the value of a 

shareholder's account Thus, shareholders are able to defer,.divl.dend and capital gains taxes until 

redemption at which time shareholders will incur a loss or realize a gain depending upon the 

Fund's per share value at the time ofredemptiozi. fn additiori., and central to the Fund's 

investment policy, is that the retention of dividends leaves inore money "at work" in the Fund. 

Thus, the true measure ofthe Fund's performance is to measure income and gain as a function of 

the total deployed capital. Artificially discounting the reported amount ofdeployed capital by an 

inappropriate "reserve" distorts the Fund's performance. · 

Insofar as the Fund itself is concerned, as a C Corporation, it uses its corporate structure 

to create dividend income to the Fund, 70% ofwhich is offset by the deduction allowed by the 

Internal Revenue Code for dividends received by a C Corporation. 

TAX MANAGEMENT POLICY AND RATIONALE 

Beginning in 1993, the Board ofDirectors ofthe Fund implemented a tax ma.nagement 

policy whereby the accrual for deferred income tax on unrealized gains on the Fund's portfolio 

securities was reduced to a stated reserve of$422;000. This amount was determined by the 

Board in an exercise oftheir good faith business judgment and based upon the seven factors 

which are set forth below. Prior to the adoption ofthat policy the Fund had a stated deferred 

income tax liability accrual of$3,541,000. The implementation ofthis policy had the effect of 

increasing the Fund's NAV with a corresponding increase in stated per share value. This policy 

more accurately reflected the deployed capital which was invested by the Fund. 

1bis tax management strategy was implemented based upon a strategy adopted and 

implemented by the Rochester Tax Managed Fund, an informal opinion expressed by Price 

Waterhouse at the time and a position paper prepared by Roy G. Hale, CPA, dated November 27, 

1992 (See Attachment "A"); The decision was memorialized in the Minutes ofa Meeting ofthe 

Board ofDirectors held on December 7, 1992 to implement the strategy wherein the Directors 

instructed "that Fund Management shall monitor on a regular basis the Fund's potential income 

tax liability on unrealized gains to ensure that the present reserve is, in its best business 

judgment, appropriate given the particUlar circumstances ofthe Fund's portfolio and policies." 

The basis for the adjustment to the Fund's previously accrued tax liability was set forth in 

Note 1 to the Fund's financial statements for the year ended February 28, 1994 as follows: "in 

this accounting period the Fund elected to change the estimate ofdeferred income tax liability on 

unrealized appreciation ofinvestments...the Fund will provide deferred taxes for unrealized 

appreciation on its investment portfolio to the extent that management anticipates a liability may 

exist. .. this change is consistent with the Board ofDirectors intent to qualify the Fund as a 

Regulated Investment Company in the event the Fund's future income tax liability should exceed 

current (reserved) deferred income tax levels." ·-Qj:-/} 
Memorandum ( cont) 

Page3 of14 

The Fund has, for more than 15 years, consistently maintained that the amount ofthe 

deferred income tax liability for the Fund is an accounting estimate that is properly based upon a 

reasonable estimate ofthe future obligations ofthe Fund as it_;relates to the difference between 

the tax basis ofthe Fund's assets and their reported mark to market current value. The Fund 

recognizes all current income tax obligations in the current accounting period. It has been the 

Fund's.longstanding position, since 1993, that the deferred tax liability for unrealiZed capital 

gains should be based ·on a good faith business judgment estimate offuture tax obligations. 

associated with any required liquidation ofportfolio securities necessary to raise cash to meet 

foreseeable Fund requirements. 

The key concept here is that the deferred tax liability earned by the Fund on any given 

date is an accounting estimate offuture obligations ofthe Fund. This estimate is based upon 

various factors including (1) capital loss carry forwards (2) anticipated redemptions beyond the 

· ability ofthe Fund to cover with its current cash position or through the sale ofnon-appreciated 

securities (3) the amount ofthe recorded reserve for the estimated maximum tax liability ( 4) 

fifteen (15) years ofoperating history without ever exceeding or even approaching the reserve 

established by the Board (5) the Fund's stated investment strategy and track record ofholding 

high quality, dividend paying stocks for the long term (6) the fact that the entire deferred tax 

liability would be due only in the unlikely event the entire portfolio were liquidated and (7) the 

best good faith business judgment ofthe Board ofDirectors.. These factors are, and historically 

have been, used to establish a reasonable and realistic basis for the estimated tax liability. And, 

as discussed below, the option to convert the Fund to RIC status establishes a floor upon which 

the estimated taxes would not be exceeded. 

ACCOUNTING AND REPORTING FOR INCO:ME TAXES 

The essence ofthe issue is Copley Fund's accounting and reporting ofthe effects of 

potential income taxes. The sta:ff' s initial theory is understood to be that the Fund had not 

measured and disclosed the future tax consequences ofthe unrealized appreciation ofsecurities 

in the Fund's portfolio in accordance with generally accepted accounting principles ("GAAP"). 

In support ofthis position they have referenced the Financial Accounting Standards Board's 

("FASB") Statement ofFinancial Accounting Standards No. 109, Accounting for Income Taxes 

(''FAS 1 09''). F AS 109 "establishes financial accounting and reporting standards for the effects 

ofincome taxes that result from an entetprises activities during the current and preceding years." 

Paragraph 6 ofFAS 109 states that ''the objectives of accounting for income taX:es are to 

recognize (a) the amount oftaxes payable or refundable for-the current year and (b) deferred tax 

liabilities and assets for the future tax consequences of events that have been recognized in an 

enterprises' financial statements or tax returns." 
Memorandum ( cont) 

Page 4 of14 

Paragraph 11 ofFAS 109 provides "An assumption inherent in an enterprise's statement 

offinancial position in accordance with generally accepted accounting principles is that the 

reported amounts ofassets and liabilities will be recovered and settled, respectively. Based on 

that assumption, a difference between the tax basis of an asset or liability and its reported amount 

in the statement offinancial position will result in taxable or deducti~le amounts in some future 

year( s) when the reported amounts of assets are recover~d and the reported amounts ofliabilities 

are settled''. (Emphasis added.) 

Paragraph 78 ofFAS 109 makes the observation that an "enterprise might be able to 

delay the future reversal oftaxable temporary differences by delaying the events that give rise to 

those reversals, for example, by delaying the recovery ofrelated assets or the settlement of 

related liabilities. A contention that those temporary differences will never result in taxable 

amounts, however, would contradict the accorinting assumption inherent in the statement of 

financial position that the reported amounts of ~sets and liabilities will be recovered and settled, 

respectively; thereby making that statement internally inconsistent. For that reason. the 

(Accounting) Board concluded that the only question is when. not whether. temporary 

differences will result in taxable amounts in future years." (Emphasis added). 

The staff's initial theory then seems to be based upon a static and infleXible interpretation 

ofFAS 109 to the effect that the statement requires a full accrual ofthe maximum potential 

deferred income tax liability-period ("full liquidating value accrual method''). As more fully 

developed below, the Fund believes that F AS 109 and GAAP are flexible enough to permit 

variations or exceptions that are nonetheless in compliance with GAAP and are, in fact, required 

to fairly present the financial condition ofthe· Fund and the accurate pricing ofits shares. This, 

the Fund has always maintained, is bestaccomplished through the use of a "reserve" for deferred 

income taxes which is established by the Fund's Board ofDirectors in an exercise oftheir good 

faith business judgment. 

The fi.mdamental justification for recognizing an exception to or a variation from F AS 

1 09 is that the full tax liability will not be recognized by the Fund. 

FAS 109, as set forth above, plainly states that the requirement for full accrual is based 

upon "an assumption" that the underlying appreciated assets would eventually be sold and the 

associated income tax would eventually be paid. This simply is not the case and is, under the 

circumstances, an invalid and misleading assumption. The effect of applying this invalid 

assumption is that a full liquidating value accrual overstates Fund liabilities and understates the 

Fund's equity as reflected in the Fund's Net Asset Value. 

In support ofthis proposition the Fund advances the following points: 

1. The use ofhistorically proven good faith estimates represents the best method of 

fairly presenting the Fund's financial condition. The amount of a reserve for income tax, ~?J 
; 

·:!'·

... ·..: \·.. ·.-.-:·:­ ~,;-"-· 

--.~::_.· 

;.,.:w;, 

Memorandum ( cont) 

Page5of14 

reported as a liability, is in fact an estimate ofa future potential liability and not a real liability on 

the date ofthe financial statements. These estimates, based upon the factors as discussed above, 

are flexible and subject to change as circumstances dictate. As long a8 the Fund provides _ -, 

reasonable estimates that meet current and future obligations, as has been the ca.Se for the last 

fifteen (15) years, the Fund meets its inherent obligation to accurately accrue far this potential 

liability. The following chart demonstrates the viability ofthe established reserve. 

COMPARISON OF RESERVE ESTABLISHED BY BOARD AND 

ACTUAL CAPITAL GAINS TAXES PAID 

BOARD ESTABLISHED ACTUALCAPITAL FULLLIOUIDATING 

CAPITAL GAINS TAX RESERVE GAINS TAXES PAID RESERVE FOR CAPITAL 

GAll'IS LIABILITY ACCRUAL 

2007 $807,345.00 $0 $17,537,872.00 

2006 $758,766.00 $0 $16,104,320.00 

2005 $758,766.00 $0 $14,887,774.00 

2004 $824,472.00 $0 $12,548,834.00 

2003 $770,554.00 $0 $7,602.562.00 

2002 $664,576.00 $0" $13,166j55.oo 

2001 $443,285.00 $0 $15,646,991.00 

2000 $464,563.00 $0 $10,961,527.00 

1999 $373,709.00 $0 $13,684,586.00 

1998 $278,488.00 $0 $13,224,672.00 

1997 $189,891.00 $0 $8,193,495.00 

1996 $378,955.00 $0 $7,160,983.00 

1995 $422,000.00 $0 $2,756,751.00 

1994 $422,000.00 $0 $3,843-,489.00 

1993 $422,000.00 $0 $5,430,633.00 

No taxes have ever been paid because the Fund's taX liability for capital gains has always 

been covered by either capital losses or capital loss carry forwards. Hence, the reserve has never 

been used. 

One ofthe concerns expressed by the staffhas been that circumstances beyond the 

control ofmanagement might cause the Fund to liquidate portfolio securities due to market · 

conditions or to meet redemptions. It is important to note that even in this time ofunprecedented 

financial crisis and market upheaval Copley Fund has not even come close to invading the tax 

reserve established by the Board. And, we note that this is at a time when money market funds 

have had to tum to the Federal government to preserve their $1.00 NAV and mutual fund 

redemptions are at an all time high-once again sustaining the Board's judgment. 

2. The only shareholder risk associated with using the reserve method, which is 

based upon good faith historically proven estimates, would arise in the event that the Fund 
Memorandum ( cont) 

Page 6 of14 

l \ 

··~::.} 

l.mderstated the reserve and a real liability greater than the reserve would become due and 

payable. As shown by the above.chart, this has never happened over the past fifteen years~ 

More noteworthy perhaps is the fact that it has not happened over the past two months~ 

Moreov~r, this would never occur .because ofthe Fl.md's intent and expressed ability to convert .. 

to RIC status ifit ever is placed in a position where the reserve was in an insufficient amount to 

cover the capital gains tax on appreciated securities. This begs the question of why the Fund has 

not elected RIC status subsequent to the compelled inclusion ofthe full accrual in its NAV. The 

short answer is that the reserve established by the Board never was exceeded because ofmarket 

or other operating conditions. No tax ever became payable. The accrual only became an issue 

when the Fund was compelle~ Un.der threat ofinjunction,· to include the full amount ofthe 

accrual in its NAV. Election ofRIC status has consequences, as discussed below, and the Board · · 

believes that it should not be "compelled' to accept these consequences when the conditions 

precedent established by theni before electing RIC status have not been met. 

In light ofthe Fund's ability to convert to a RIC, as more fully explained below, and 

ultimately avail itself ofthe elimination ofthe tax otherwise payable at the corporate level on 

appreciated securities the Fund believes that the inherent assumption made in Paragraph 11 of 

F AS 109, i.e., that liabilities will be recovered and settled, does not properly apply to the instant 

situation. Moreover, the statement in Patagraph 78 ofFAS 109 that "the (accounting) Board 

concluded that the only question is when, not whether (tax liabilities will be realized)" supports · 

the Fund's belief that GAAP does not require the_ Fund to accrue the full potential deferred tax 

liability because the ability to convert to a RIC on its own terms answers the ''when" question- · 

never. 

CONVERSION TO RIC 

Regulated Investment Companies (''RIC's") may escape full corporate taxation because, 

lmlike ordinary corporations, they are entitled to claim a deduction for dividend payments 

against ordinary income and net capital gains. A corporation qualifies as a RIC ifit makes an 

irrevocable election to be a RIC by filing a tax return. on Form 1120-RIC and it meets certain 

requirements specified in JRC Sections 851 and 852. In order to qualify for this election, the 

Fund would be required, among other things, to distribute to shareholders its undistributed 

earnings and profits ("E&P"). 

The Fund could elect RIC status simply by filing a RIC tax return for the year in which 

the status is deemed to be effective. Any capital gains taxes due and payable at the end ofthe tax 

year, which in theory would be greater than the reserve, would then be shifted to the individual 

shareholderl. The result is that the Fund would pay the tax on capital gains equal to the reserve 

2

Under current law, the capital gains taxes due on net realized gain only would be due at individual rates which are now much 

lower than corporate rates. This is another example of why the "full liquidating value reserve" method is not only inappropriate 

but also seriously misleading. )\ 

"':sii:J 
Memorandum ( cont) 

Page 7 of 14 

and shift the remainder ofcapital gains to shareholders. Given this methodology, the Fund 

would never exceed the reserve. 

As noted above, the Fund would have to distribute its accumulated E&P up to the date 

RIC status was elected. The Fund would have until the end ofthe ~urrent tax year to make this 

distribution. The accumulated E&P could be relatively large ($11,844,182 at February 29, 

2008). This begs the question ofwhere the money would come from to make the required 

distribution without selling portfolio securities and generating additional capital gains tax for the 

Fund. The answer is that the Fund could distribute additional shares in the Fund rather than cash 

and, while the distribution ofstock would decrease the value ofthe Fund, the shareholders would 

receive something in value to compensate for the devaluation. The shareholders would be 

subject to income tax on the received distributions, generally taxable at rates lower than the 

corporate tax rate which does not distinguish between ordinary income and capital gains; but the 

key point is that the distribution would not generate capital gains taxes for the Fund. 

The last tax issue to be considered in a RIC conversion is the built in gains (''BIG") tax 

on appreciated assets. Current IRS regulations require a new RIC, which was previously a C 

Corporation, to pay a built in gains tax on appreciated assets ifthe assets are sold within ten (1 0) 

years ofthe RIC conversion date. Ifall or any portion ofthe appreciated assets are not sold 

(~~.--..l within this 10 year period, the built in gains tax goes away. It simply ceases to exist. ~:,.z~ 

This begs another question which is at the heart ofthe matter. Does the potential liability 

for BIG tax require a full accrual under F AS 1 09? The answer is no because ofthe basic 

assumption under F AS 109 that the full accrual is based upon the premise that the appreciated 

assets will be sold and the associated income tax paid at some point in time. This simply is not 

the case when there is, or could be, a date certain when the liability would cease to exist. 

Because ofthis "date ce~ test" the potential BIG tax represents at most a contingent liability 

rather than a real, current liability. This contingent liability has been fully disclosed in the 

Fund's Prospectus and SAl for many years.3 

Since inception, management ofthe Fund has not elected RIC status and met the required 

distribution requirements but rather has opted to be treated as a regular C Corporation. 

Underlying this decision is the fact that the dividends received deduction is available to a C 

Corporation but not available to a RIC. This concept is critical to the Fund's basic investment 

strategy to create dividend income· to the Fund using the 70% deduction from federal income 

taxes for dividends received. Thus, the Fund's regular income tax liability is kept to a minimum 

and shareholders are allowed to defer taxes until redemption. 

3

The staff of the Division ofInvestment Management has reviewed the capital gains tax accrual issue in connection with. 

registration statements and financial reports filed by the Fund smce 1993, In each instance, until September of2007, the staff 

accepted, or at least took no action with respect to, the Fund's rationale for using a reserve method of accounting for such 

accruals. Tandy statements notwithstanding this lack of action provided the Board with an understanding that the reserve 

methodology was not contrary to GAAP or applicable SEC rules with respect thereto. 
Memorandum ( cont) 

. Page 8 of14 

Hence, conversion to a RIC is a viable alternative to the Fund but is contrary to the 


Fund's stated investment objective and strategy. Therefore, it is not something that should be 


undertaken unless the conditions precedent to making the election, exceeding the reserve, have 


been met. These conditions precedent have not been met. The established reserve has never 


been exceeded or even invaded. The important concept for purposes of a deferred tax liability 


standpoint how~ver is that the potential liability can be eliminated. The ultimate liability 


therefore is not a certainty. In fact, it is a contingent liability which at the end of a ten year 


period simply ceases to exist 


GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 

Generally Accepted Accounting Principles ("GAAP'') consist ofthe basic principles, 

assumptions and guidelines, the detailed rules and standards issued by the Financial Accounting 


Standards Board ("F ASB") and the generally accepted industry practices. GAAP are neither law 


nor regulation. The Securities and Exchange Commission ("SEC'') however, has promulgated a 


. regulation which provides, in pertinent part, that "financial statements filed with the Commission 


which are not prepared in accordance with generally accepted accounting principles will be 

presumed to be misleading or inaccUr-ate, despite footnote or other disclosures, unless the 

Commission has otherwise provided." Rule 4-01. Regulation S-X (emphasis added). For all of 

the reasons set forth herein the Fund believes that this presumption has been rebutted. 

GAAP was developed to ensure that financial transactions are recorded in a consistent 

manner, to require standardized reporting formats, and to permit comparability with prior year(s) 

information and statements prepared by other business entities. 

GAAP has evolved over the years from a basic ~ework and from basic objectives of 

financial reporting. Financial reporting should provide_ useful information for making informed 

business and economic decisions. Usefulness for decision makin:g is the most important 

characteristic ofthe reported information. To be useful, financial statements must be relevant, 

i.e., they must make a difference in the decision maker's (investor's) ability to predict the future 

or to correct prior expectations. Hence, useful financial statements provide information about 

what has happened in the past as well as information that will help in predicting what will 

happen in the future. 

Financial Statements must also be reliable. To be reliable they must be verifiable, neutral 

and unbiased and the information presented must represent what really happened or existed. In 

addition, the statements must be comparable (measmed and reported in a similar manner by all 

types ofbusin~sses) and consistent (the same accounting methods should be applied from period 

to period). In pther words, deviations in measured outcomes from period to period should be the 

result of deviations_ in performance not changes in methods. Because ofthe change in the capital 

gains tax acco~ting treatment and related financial restatements, the Fund's financial statements 

are not now either "useful" or "reliable" within the framework of GAAP. 

~· 

~~i' 

. } ·..___­
Memorandum ( cont) 


Page 9 of14 


~­

~~~~~i:..~ 

FUND FINANCIAL STATEMENTS SUBSEQUENT TO THE ISSUANCE OF TIIE 

RESTATED ANNUAL REPORT FOR TilE PERIOD ENDED FEBRUARY 29, 2008 ARE 

CONTRARY TO THE BASIC OBJECTIVES OF GAPP AND UNDER THE SPECIFIC 

CIRCUMSTANCES OF THE FUND,S BUSINESS ARE MISLEADING 

Pursuant to staffcomments received in connection with the Fund's annual485APOS 

updating amendment to its registration statement filed on June 6, 2008 the Fund was required to 

file an amended N-CSR/A which contained a "Restated Annual Report to Shareholders". This 

restatement caused the Fund to ''restate" much ofits historical financial information including 

average annual returns, the per share value table and the financial highlights table. This 

restatement ofhistorical information was required because the Investment Management staff 

required the Fund to treat the inclusion ofthe full liquidating -liability accrual in the Fund's NAV 

as a "correction of an error'' as opposed to a "change in accounting est.:irilate" which would not 

have required a restat~ment ofhistorical information. The consequence ofthis is that the Foods' 

financial reports have not now been compiled in a consistent manner. This is clearly illustrated 

by comparing the Financial Highlights Tables for the period ended February 28, 2007 and 

February; 2008 (restated) (See Attachment "B"). 

Prior to this required restatement the Fund's financial statements were completely within 

( -~ the basic framework and objectives ofGAAP reporting as discussed above. In fact, the PCAOB 

~~ examined the Fund's auditor's financials and report thereon for the period ended February 28, 

2006 and issued an affirming clean report thereon. The financials had been recorded in a 

consistent manner for 30 years. They permitted comparability With both prior year(s) 

·information and the financial statements prepared by other Funds. They were useful because 

they enabled informed decision making by an investor because they correctly set forth what 

happened in the past and provided information about what will likely happen in the future. They 

were reliable because they were verifiable and the information represented what really happened 

from a historical perspective. For example, the Fund's actual _NAV per share at February 28, 

2007 was $54.67 and it was reported as such in the Fund's Annual Report of even date. Yet, the 

Restated Annual Report for the period ended February 29, 2008 reflects a per share value for that 

same date (February 28, 2007) of $42.54. This simply does not reflect what really happened, is 

not consistent and thwarts comparability with prior years. Contrary to one ofthe basic objectives 

ofGAAP there are now deviations in measured outcomes from period to period which are the 

result ofchanges in methods rather than deviations in performance. 

THE INCLUSION OF TilE FULL LIQUIDATING LIABILITY ACCRUAL IN THE FUND'S 

NA V IGNORES BASIC GAAP ASSUMPTIONS, CONSTRAINTS AND MODIFYING 

CONVENTIONS 

The foundation ofGAAP consists of basic assumptions, basic principles, basic 

constraints and modifying conventions. Some ofthese are particularly relevant herein. 
Memorandum ( cont) 

Page 10 of14 

Assumptions: (1) Going Concern Assumption: This assumption assumes that a business 

will continue operating and will not close or be sold. Based on this assumption, actual costs 

instead ofliquidation values are used for presenting financial information. 

Principles: (1) Historical Cost: (1) Realization/Revenue Recognition: This principal 

requires companies to record revenue when it is realized or realizable, i.e., at the time ofactual 

sale. (2) Matching Principle: This means recording the revenues earned during a period using 

the revenue realization principal and matching the revenues with the expenses incurred in 

generating this revenue. (3) Adequate Disclosure: This principle states that all pertinent 

information should be fully disclosed and in understandable form. 

Constraints and Modifying Conventions. The modifying conventions include (1) 

Application ofJudgment- an accountant may depart from GAAP ifthe result or departure 

appears reasonable under the circumstances, especially when the strict adherence to GAAP will 

produce unreasonable results, (2) Substance over Form-the economic substance ofatransaction 

determines the accounting treatment, even when the legal aspects ofthe transaction indicate 

otherwise and (3) Industry practices and Peculiarities -the peculiarities and practices of an 

industry may warrant selective exceptions to accounting principles. 

Utilization of a full liquidating value accrual method is contrary to the basic "going 

concern'' assumption ofGAAP that a business will continue operating and will not close or be 

sold. Based upon that assumption actual costs and liabilities instead ofliquidation values are to 

be used for presenting financial information. The use ofthe full liquidating value method in the 

present circumstances makes the exact opposite assumption that all portfolio securities will have 

to be completely liquidated today. This simply is not the case and is unrealistic and misleading. 

The full liquidating value accrual method also is contrary to the principles of 

realization/revenue recognition and matching. Full accrual transforms a potential contingent 

liability into a full current liability and fails to match current revenues and assets with correct 

liabilities. This, in turn, makes another principle, adequate disclosure ofall pertinent information 

in understandable form, difficult at best. Prior to being compelled to restate the Fund's 

financials, they were presented in an easily understandable form. The Fund does not now 

believe that this is the case. While those restated financials contain all ofthe staff's comments 

made thereon, the Fund nonetheless believes that they are far from easily understandable and are 

in fact misleading. 

Insofar as the modifying conventions are concerned it is stated at the outset that the Fund 

believes that its historical financial statements have always been compiled in accordance with 

GAAP. However, it is important. to note that GAAP recognizes certain constraints and 

modifying conventions that allow an accountant to depart from GAAP ifthe result or departure 

appears reasonable under the circumstances especially when the strict adherence to GAAP will 

produce unreasonable results. Assuming arguendo that the use ofthe reserve method is a 
(..,_ .J 


"~~

_.;. 

Memorandum ( cont) 

Page 11 of14 

"departure" from GAAP it certainly appears reasonable under the circumstances especially here, 

where the use ofthe full liability accrual method produces an unreasonable result, i.e., a per 

share net asset value which does not reflect the realistic net assets ofthe Fund, distorts 

performance and expense ratios, and disables redeeming shareholders from receiving their fair 

proportionate share ofFund assets. 

· Copley Fund is unique among all other Funds4

• To the Fund's knowledge it is the only C 

Corporation the share price ofwhich is based upon a mark to market NAVas opposed to a value 

based on supply and demand for its shares. This does not make it "bad" or "wrong"-just 

different The Fund also notes that because of this uniqueness the Fund's use ofthe reserve 

method will not impact other mutual funds. On the other hand, ifthe Fund's methodology is 

applied consistently, as it has been in the past, and is fully understood by all shareholders 

through am.ple·disclosure, it will facilitate comparisons with other mutual funds arid will not 

resuit in overstated performance. This makes a substance over form approach compelling under 

the circumstances ofthe Fund.· For this reason alone the use ofa reserve method falls well 

within the judgment parameters of GAAP. 

All ofthis demonstrates that sometimes variations from strict interpretations ofGAAP 

are required5

• While the Fund believes that its financials historically have been compiled and 

presented in accordance with GAAP the modifying conventions make clear that GAAP is not 

"carved in stone" and that variations are made and considered acceptable. Ifnothing else, GAAP 

and F AS 109 are not clear on the appropriate calculation of a tax accrual particularly in view of 

the fact that the "inherent assumption" underlying FAS 109 is not present given the particular 

circumstances ofthe Fund. 

CONCEPTS OFFAIR VALUE 

The Copley Fund is currently valued at its liquidation value. Simply put, this does not 

represent the fair value ofthe Fund's shares. It ignores reality and misstates the assets ofthe 

FUiid. 

4

There are at least two other investment companies that have not elected RIC status and record a deferred tax liability associated 

with the unrealized appreciation of portfolio securities. See Tortoise Energy Capital Corp., rue number 811-2175, Form N-CSRS 

(August 1, 2007) and Kayne Anderson MLP Invesb:nent Company, file number 811-21593, Form N-CSRS (August 3, 2007). 

However, both are closed-end funds and as such do not issue redeemable securities. Their shares are bought and sold in the open 

market A closed-end fund with a large amount of unrealized capital gains in its portfolio may trade at a discount for example 

because buyers would be assuming a potential tax liability and uncertainty as to the amount and timing ofthe gains to be realized. 

Closed-end funds are not required to calculate their NAV daily. Tortoise is a nearly $1 billion Fund that invests in securities of 

energy related to MLP's operation infrastructure assets. Kayne is a $2 billion Fund that also invests in energy. Their portfolio 

turnover rates exceed 30o/o. As such, they are easily distinguishable from Copley .. Unlike Copley they are required to apply the 

deferrals that are accrued on a regular basis. 

5

The Commission has recognized this concept and issued rules for the use ofeven Non-GAAP financials. Release No. 33-8176, 

34-17226 (January 22, 2003). 
~ 

~# 

Memorandum ( cont) 

·Page 12 of 14 

On September 30, 2008, the SEC's Office ofthe Chief Accountant issued a press release 

(2008-234}which addressed fair value accounting stating that "(t)he current environment has 

made questions surrounding the determination offair value particularly challenging for 

prepare~, auditors, .and users offinancial information". While not precisely on point the 

concepts addressed in the release are equally applicable. The release makes clear that 

Management's intemal assumptions can be used to measure fair value. It acknowledges that the 

determination offair value often requires significant judgment. The release also concludes that 

clear and transparent disclosures are critical to providing investors with an understanding ofthe 

judgments made by management. 

. The Fund believes that it has demonstrated a clear and compelling rationale as to why the 

use ofthe Board's reserve accrual methodology best represents a fair value for the Fund's shares. 

It also believes that the disclosures made in the attached proposed Supplement to the Fund's 

Prospectus provides clear and transparent disclosures with respect to both the methodology and 

rationale used by the Board as well as the risks inherent therein .. 

The static application of an accounting concept (FAS 109 treatment of a deferred tax 

liability) that is equivalent to liquidation accounting serves to undervalue the true financial 

position ofthe Fund. It operates to overstate dividend yield and expense ratios and understate 

performance for comparison purposes. Redeeming shareholders do not receive their 

proportionate share ofFund assets. Purchasing shareholders receive a windfall in the event that 

the deferred tax liability is eliminated or reduced due to conversion to a RIC or a change in tax 

law or regulation. 

Management ofthe Fund has, since 1992, attempted to reflect in the financial statements 

a deferred tax liability to the extent that management anticipates, in an exercise oftheir best, 

good faith business judgment that such a liability exists. Deferred income tax liabilities are at 

best an estimate due to the nature of changing income tax rates and federal and state income tax 

law and regulations. The Fund has consistently, from year to year, applied this concept in order 

that the value ofthe Fund is never arbitrarily increased or decreased at any given point in time. 

The performance ofthe Fund was based upon the true increases or decrease in the assets held for 

the specified reporting period. Now the dai!Y NAV fluctuates, sometimes substantially, due only 

to "hypothetical" changes in the tax accrual . . 

SUMMARY 

Copley Fund, Inc. was founded by Irving Levine in 197K ·Over the course of those years 

the Fund's NAV consistently has grown from just over $3 per share to more than $54 per share 

For example, assuming a 10% market decline, and that the Fund's shares react similarly, the Fund's per share NAV would 

decrease by approximately $1.15 due solely to the maintenance ofthe full liquidating value accrual (example based upon 

$50,000,000 in unrealized appreciation, a 35% tax rate and 1,500,000 shares outstanding). Utilizing the Fund'-s historical reserve 

method there would have been no change in NAV due to anything other than the market 

6
Memorandum ( cont) 

Page 13 ofl4 

at year end 2007. This has been accomplished not through 12b-1 plans or sales loads or even 

any sales efforts. Rather, the NAV growth is the result of a solid and consistently applied 

investment philosophy ofRurchasing an4 holding highly viable, dividend paying stocks which 

yield dividends in ever increasinKfUD.Ounts, all in accordance with the Fund's stated investment 

objective of''the generatiop and accumulation ofdividend income" .. 

Because ofthis structure the Copley Fund is unique among all other Funds. The Fund's 

overall structure, investment strategies and operating philosophy have not materially changed 

since its inception in 1978. Its underlying principles and strategies have been consistent, year to 

year, and the overriding concern ofManagement and the Board ofDirectors always has been the 

welfare ofthe individual shareholders. 

The Fund's expense ratio, after a consistent and voluntary $60,000 per year advisory fee 

waiver by the Fund's advisor has been maintained below 1.25%. These ratios, ori average, are 

well below the average ratio~ ofall equity funds, which ranged from 1.44% to 1.07% over the 

same period. Investment Company Institute, Fees and Expenses ofMutual Funds, 2007. Ratios 

for equivalent small funds are much higher. 

Every effort has been ID,ade to operate the Fund in the best interests ofthe shareholders 

{ .$, and to reflect the true value ofthe Fund's assets in its net asset value. This effort has been 

~;; f} thwarted by compelling the Fund to use a full liquidating value accrual with respect to the Fund's 

unrealized appreciation. 

The Fund is required by Rule 22c-1 a to issue and redeem its shares at a price based on 

7 

current net asset value. Rule 2a-4a defines current net asset value and specifically states that 

with respect to NAV calculations "estimates (may be) used where necessary or appropriate". 

That Rule also provides that "(a)ppropriate provision shall be made for Federal Income Taxes if 

required" (emphasis added). 

There is no explicit requirement however that the full liquidating liability tax accrual be 

used in calculating the Fund's net asset value on which the daily issue and redemption price of 

its shares must be based. For the reasons set forth above the Board ofDirectors believe that 

neither GAAP nor F AS 109 mandate a liquidating liability accrual. On the other hand, the Board 

does believe it clear that the use of a full liquidating liability accrual does not represent a fair 

value with respect to the price ofthe Fund's shares. In fact, the application ofsuch a 

methodology is unrealistic, misleading and operates to the detriment ofthe Fund and its 

shareholders. 

As demonstrated above, the risk ofthe Fund incurring a tax liability in excess ofthe 

Board established reserve is practically nil. Nonetheless, the Fund believes that this risk should 

7 It should be noted that "based on" is not synonymous with "at". 
Memorandum ( cont) 

Page 14 of14 

be assessed.and either accepted or rejected by the shareholders with the staffproviding guidance 

related to the risk disclosure. 

Accordingly, the Board proposes 'to adjust its N~t Asset V alue8 based on the reserve 

.method delineated above and to disclose, this adjUstment pursuant to the Prospectus Supplement 

which is attached hereto. Ofcourse, the Fund would be receptive to any disclosure comments 

made by the staff and would make every effort to include them in the Supplement and all future 

disclosure documents .. 

As of0ctober31, 2008. This will have the effect ofincreasing the Fund's per share value from $39.94 to $48.14. In order to 

compensate shareholders who redeemed between November 30, 2007and the date ofthe adjustment they will be reimbursed in an 

amount equal to their proportionate share ofthe difference between the established Board reserve and the full liquidating liability 

reserve which was in effect at the time. 

8 
ROY G ....H~L..E:, CP~ F>.04 

.. . 


'· 

.-·~ 

Copley Fund, Inc. 

Altarnative Tax M~naqament St~ategy 

Prepare.d by: Roy G. Hale, CPA 

Date: Novamh~r 27, 1992 
ROY ,P..

-· 

P.as 

·-· ·' 

.· 

Copley Fund, Inc. Alternativ~ Tax Management s~ategy

Page l 

Scopa. 

'I'he purpose of this paper is to :review the tax status of 

Copley Fun~, Inc., and the ralated requiremen~ to accrue deferred 

income taxes. 

Bxeoutive Summa~y. 

The Internal Revenue. Code, 1986, as amended, provid~s two 

types of income tax treat-ent for investment companies: taxing net 

investment income at the corporate level or at the individual 

shareholder level. In order to transfer the taxation of net 

invaat:ment income to the shareholder level, at least go% ot net invest~ent incQme must be distributad annually to shareholders and 

other qual:.rf1cations must be met. since the Fund. has not made 

annual dividend distributions t:.o shal:'ehold~rs 1 all federal and 

-stata inoo~e taxes are applied directly to the Fund. 

By virtue of retaining tho income ta~ liability associated 

with investment income, the Fund .must aocrue current and future \ 

income tax liabilities on realized and. unrealized gai.ns frolU \,~.:E:!J investments made by the Fund. For the period ending August 31 1 

l992J the Fund had a current in~ome tax liability of $151,515 and 

a d•f•rr•d income tax liability of $3 1 .541 1 000. Both Of those 

amount$ serva to ~educa the nat a~~~t value dQtermin~d daily by the 

Fund. 

The deferred income tax liability will be realized and 

racoqnized when the applicable aeoul:'ities . are sold; the full 

deferred income tax liability will be recognized when the entire 

portfolio ia liquidated. since it is not the intention of the 

Boa:r:d of Directors to liquidate the Fund or pay more corporate 

inoomQ taxAs tha.n ne.eAs£ary, .it i• appropriate for the Board to 

look at alternate tax ~anagement techniques. Electing re9ulated 

investment company tr~atmQnt when it is deemed to be in the best 

interast of thA Fund is. an appropriate a_lte:rnativa tax management 

technique. 

If the aoa~d of Diraetor~ were to eleeted to be taxed as a 

regulated investment com.pany, the liability for the tax on 

unre~lizad qains would ahift from the Fund to individual 

shareholders. AccorQinqlyf the Fund would not have a req~iremQn~ 

to accrued dGf&rrad inoa.ma tax on unrealizad gains as a part of the 

overall liabilities of the Fund.. The liability should. not be 

dropped to z&ro, however, since it would be a reasonable 

expectation that th• Puna would realize some qe.ins prior to ~J 

o.lect.ing regulated inveetmQnt company treatment. y 
\ -~ 

~~ 

lgJ VUJ . 

. ·p. 06 ·~ ..... . . 

... 

Copley Fun~, Inc. 


Alternative Tax Management Strategy 


.l?age ~ 

The Fund ia registered with the SecUr-ities _and Exchange 
 Co~ia~ion ~$ a diversified, open-end manaqement company under the 


provis~ons of the Investment Company Act ot ~940, as a~ahded. The 


Fund has elected to hold rather than distribute to shareholders net 


investment inoome, therefore, the· Fund is taxed as an ordinary
 corporation rath&r th~n as a requlate.d investment company. 


Since distributions are not mada to shareholders, the Fund is 


liable for federal ~nd stat• income taxes on amounts rsceived from 


interest1 dividen~s, capital qains, ancl operating division net 


income. An ordinary corporation is currently taxed for.federal 


income tax purposes at rates ot 15% to 34%, depending upon the 


amount of its taxable. inoome. Further, the alternative minimum tax 


may be applicable at a rate ot 20,. ~he Fund's overall tax liable 


is substantially reduced. eaeh year by the applioation of a 70% 


div iaends received deduction on qualified dividends. This tax 


advantage ie partially offset by the requirement to add back the 


aiviclends received d.eauotiQn for the calculation of.· alternat.ive 


minimum tax. In the yeara that c:lividend income is a substantial 


portion of investment income, the Fund will nave an alternative 
 mi~imu~ tax liability. 


Capital gains are currently taxed ~t a corporation's marginal 


tax rate, i.e., 1St to 34%. The current ~aximum eapital gains tax 


-rate for individuals is 2St. With a spread .of six pe:rcentaqe 


points be.tween the corporate and individual capital qains rates, it 


would be prudent for the Fund to consider transferring the income 


tax liability to individual shareholders when a principal portion 


of the security portfolio was subject to liquidation. A method 


readily available to the Fund is to qualify as a regulated 
 inveatm~nt oompan¥• 


RegUlated Inveatmant Coap~y. 

The special tax tr~atment accorded requlated irtvestment 


companies (~ICs) under Subchapter M of the Internal Revenue Code, 


··1986 1 as amendAd, retlActs leqislative reoo;nition of tbe fact hat 

such oompanies ax-e, in fact, primarily conduits. The rund is 

raliaved of corporate. ineome taxes to whieh it would otharwi.se be 

subject e.s a separate taxable entity except for income retained at 

ths oorporate level. 

In order to be taxed as a requlated investment company, a 


+>"'"''• e~3vtdaads~~aid d•d.uetion--that is, the amount distrib\J.tect to 
 .. -··-· · · ·1 .... •.....____..:.--.......,.~..\. rl..,...ih.tetionr 


•.. 0 y G • f.l A L E - t F' A 31;11 9 3 4 a 98.4 P.e7 
copley Funa~ Inc. 


AltQrnativ• Tax M~nagement St~atagy 1· 
 Fi!tqe 3 · 1 

I 

I 

lQast the su~ ot: {1) $0 percent of ~he company's investment 

company taxa~le income, computed wijthout dea'Qcting a dividends ~ee~ived deQuction, plus (2) 90 percept of its net exampt inter~st J.ncome, 

. ~apital gains ar• treated sepat-ately.. A R.IC may holcL,or 

dlstrl.bUte any pot't~on of the capital!9ain realized during ;the tax 

yaar. If the ~IC dJ.stribut&s 100% of;the capital qain realized it 

receives a 100% dividends paid deauction; if it distributes SO% it 

receives an sot dividands paid aed~ct~on. 

i 

An investment com};)any desirin9 !to qualify as a regulated inv~stment company will proceed .qener~lly as follows; ~· ! 

(1) adopt a q~alityinq form of organization (Copley ~lready 

.meets this r~qu.irem~nt); . ; · . · . ! . 

(2) ioentify the first taxable y~ar in whieh it seeks to so 

qualify; . . · ! . ; 

(3) arranqo. and maintain a portlt:olio mix that meets gross inoome and diverai£ioation requiremen~s; · . 

(4) declare and pay dividends to lits shareholders before th$ 

end of the year o:r shQrtly thereafter 1

, · . 

{5) file~ tax.return electing to be a regulated investment 

company and refleeting that it has met the distribution anq ~elated 

rules fo~ being taxed und•r Subchapter M of the Internal Revenue 

Code, 1986, as amended. 

cunqi.nq trom. a .t•c;ulaX' oo~p<tration t.o • r&qUlate4 investmat'&t 

cOJQpany.. 

In addition to meetin9 th• £iva requirements listed above, 

Copley Fundf Inc., must ~eet two aaditional requirements. 

{1) 'l'he runa must distribute all earnings and profits accumulated prior to the year in which RIC status is elected; and 

· (2) it must pa.y a feae.ral ineoltl.e tax on all accumulated 

unrealised gains at the point in time RIC statu.s is elected. . 

TJnder an existinq I~S Requla~icn, the Fund may elect to 

postponed this tax. Th• tax would be impO$ed on the built in gains, 

at the til!ie RIC status was elected, when the securities are sold. 

If the SQeuritiea are he.ld tor a minimum of ten years following th11 

date RIC etatus i1 elected, the tax would no~ be acces~ed aqainst 

~ 

~ 

·'"~
~004 

!:019::;48984 P.ae .. 

(

/ 3 ·-.~~;·· Copley Fund, Inc. 
 ·Alter1'1atdva. Tax Management strate<JY 
 P~9e 4 


the· Fund. 

Accumulated earninqa and profits at August 31, 1992 -were 

$13,618,161. Aa an axample, if the Board of Directors was t.o elect 

RIC status commencinq i.fi calendar year 1993, the Fund would have 90 

days starting on January 1, 1993, to CO!IIll\ence distributing the aoe~ulated earnings and protits. All accumulated earnings and 

profits would have to be distributed by the end of the year. 

The distribution of earninqs and prof1ts· could be made in 

eithar cash or additional atock. A stock distribution woulcl 

elitninate the need to. liquidate a portion of the stock portfolio 

and pay the associated taxes. In either case, cash or stoek, the 

shareholders would recognize taxable income in the amount of the · distribution received. 

!f the Board of Direet:..ors were to e.leot to convert to RIC 

status when t~a potential income tax liability on realized qains 

reaohed a eert.ain ·plateau, say $500, ooo, then the na·ed to show defer~ed inao~$ tax liabilities qreat~r than thie amount would not 

be neoa~sary. Tha tax liability would shift to sharAholders above 

the $5oo,coo ranqe and would not be a potential liability for the 

Fund. 

SinoA deterred ineome taxes serve to reduc~ net assats 1 any 

change in the amount ot deferred ineoDe taxes will have a direct 

impaot on net asset value. Tha strategy discusse~ in this pap~r 

will ultimately serve to increase the Fund" s net aeset value. 

substantially. Tho not asset value must be a trua reflection of 

the value Cf each share Of stock and not ~e incumbered by value judgemen~a (increases or deereases) that do not have some basis for 

reooqnition, It eleotinq RIC status will reduce the tax 

eoneaque.nces to tha Fund, t.he. FUnd finaneial statements should 

refl$ot·this occurrence. 

It is imperative that the Soard o! Directors comply with the 

fUll disclo•ure conoe.pt of generally accept~d. accountinq principles and SEC rules and requlations on any major change to accounting 

:me:thoris or procedures. The willinqness to recognize RIC status and 

the eorrespondinq impact on individual shareholders ~ust be fully 

disclosed in the prospectus and in the financial statements issued 

to shareholders. 

-.;::6·~

~.~) 

Some propo5ad lanquaqe tor the prospectus and the individual _____r_l-_n_a-m::.i~U statements ios set £'01~.'"eh in the follOWinq pa9'eS .in tl'la -~o R••~A o£ 01rpctore accepted ~na ;~lte~native ta~ 

~019:S:4$$S;l ,.. . 
...,. ·. 

Copl$y Funa, Inc. 

Alternative Ta~ Manaqe~ent Str~tegy 

PiJge 5 

rmpl@m4Hl~.ation La.nqy.~e .. · 

Proposad lanquage for the Fund's prospectus is submitted below. . 

Federal 7axea••GODe~ally 

ThQ Fund is taxed a.a a regular corpo:ration under the Int~:rnal 

Revenue Code of 1986, as altlended (the ••COde") • Except to the 


extent hereinafte:r discussed, consistent with its investment 


polioies and objectives, the Fund. :retains all net investment income 


and realized capital gains, if any, to increase the Fund's assets. 


Consequently, sha~eholders are not individ~ally liable for income 


taxes asaooiated with the operations of the Fund except upon sale 


of sha:res or the rac•ipt of distributions. . · 
 . . 

~he Fund is taxGd, for Federal inoomQ tax purposes, on a sch~dule of r~tes ranging from 15% to 34% depending upon· its 

taxable income. However, a 5\ additional tax rate applies. ·to phase 

out the benefits of the qraduated rates if tha Fund's taxable 

income ia between $100,000 and. $335,000. Subject to specific limitations, the FUnd is entitled to a deduction in computin9 its 

Federal taxable income aqual to 70% of the amount of divid.ands 

reeeived .by the Fund trom ~omestie corporations. '!'his O.iviaends \,. } 

received deduction may not e)(ceed 70~ ot the Fund's taxable ineotn$ ----<:0.-v 

unless the Fund has a nGt operating loss for a tAXable yea~, as 

comput•d aft•r deduetin9 the dividend receive4 deduction. rt is 

anticipated, although there can be no assurance, that tha Fund's 

management faes and other expanaQ~ will offset a substantial 

portion of the remaining 30% of tha dividend income and investment 

income from other sources durinq e4ch taxable year. 

. The Fund pays income taxes on any nAt.realized capital 9ain 

a:t t.ha rata.tutory rate. noted above~ ··In addition1 tha Fund will, for 

financial statement purposes, accrue deferred income taxas on net 

unrGalized capital gains that. a.ra expected to be realized at the 

Fund level. The. Fund may carry net capital losses forward for five 

years as an offset against any net capital qains realized by the 

Fund during the current year. 

If th~ Fund im unable to avoid the tax on net income throuqh t.h~ use of tax management techniques, the. Fund's :management; 

toqether with counsel, will oonsider limiting the liability for 

payment of income taxos. A method available to the Fund is the 

election to be ta~ed aa a re9ulatQd inv~stment company. Should th$ 

liability for tax. with regard to net ineo.l\\9 axceed any set 

limitation, and provided the Fund meets . a_ll applicable Internal 

Revenue Code conditions, it is the intent cf the ~nd to make this 

election. 
~ ... -. lgf UUZIUUJ ·. ~OY G. HAL~, CPA 301'$1:;48$194 p. 1 ... . . 

( Copley Fund, Inc. ~~;d Alternative Tax Manaqen1ent Strat.egy Page 6 

. . 

Albeit tQe election to ba treated as a requlated investment 

company will shift the income tax liability for net inveetment 

ineome and oapital gains trom tha Fund to the individual 

shareholder, the ~anaqemant of the Fund believes that it i~ in the 

sharei;oldar's beat interest to avoid double taxation by :making this elac-t:-~on. Double taxation r•sults wb.en the.. Fund pays a tax on the 

net 1ncome, which reduces the net _asset value per &hare, and the 

shareholder also pays a tax on that e~me qain ~pon ~edeeminq Fund share$. · 

corresponding with an election to be treated a• a regulated inv~stmant company, the Fund must make a distribution to 

shareholders of all earninqa acou•ulated as a regular corporation, 

This distribution would reault in ta~able income to the 

shareholders, wheth~r or not the distribution is received in cash 

or additional ahare~ of Fund s~ook6 

Unrealized appreciation (built-in gains) at the point in time 

the Fund elaots regulated investment oompany treatment is taxable 

income to the Fund. tlnder current Internal Revenue code 

provisions, the Pund ~ay sleet to postpone thie built-in qains tax 

until such time a$ the security is sold. If th• seourity is held 

for at least 10 ysars after electing regulated investment company 

status, the tax will not be accessed against the Fund. 

Legislative or ragulatory changes in, or interpretations of, 

applie,!!.ble federal te.K laws, regulations or rulings may make it 

impossible for the Fund to 'Utilize certain of the tax mana.qement 

techniques an4 atratoqias described in the Pro$pectus. The Fund 

intends to avaluate continuously tha operations of the Fund under 

the current fedGral tax la'\ls as 1Nell· as various alternatives 

available. 

Proposed languaqe for thA s~mi-annual and annual financial 

stateme.pts. 

federal inecme tax•a. In accordance with the Fund's 

objectives and policies, it does not eurrantly intend to distributs 

net investment income or realized capital qains to shareholders. 

Accorc:iinqly 1 the Fund will be taxed as a regUlar corporation. The 

Fund has accrued a liability !or realized and unrealized capital gains to the extend th.• Fund anticipates such a liability will 

occur. Through February 28, 1993, the Fund has accrued a tax 

liability ot 

During this aeeounting period, the Fund's Board of Directors 

has provided mani!lgQm.en.t:. wj_th the authority to elect regulated investment company treatment when the over~ll income tax liability 
.. • • I 

-,:.. 1 1 

Copley Fund, Inc. 

Alternative Tax Mangement Strategy 

Page 7 

li!itXQeada a de5ignatl!d level. This a\lthority has substantially 

~•duced the Fund's potential liability for income tax on unr~alized 

gains. Without this authority the Fund.'e net asset value would 

have been ; with this authority the Fund's net asset 

value is 
. •.: . ~- .... ::: -:-: ·..:- . -: .. 

COPLEY FUND, INC. 

FINANCIAL IDGHLIGHTS 

The following table presents inform~tion 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). 

·l 

.. Year Ended ... ':-f -." -;: 

. ! February February February February February February 

28,2007 29,2006 28, 2005 28, 2004 28,2003 28,2002 

: I 

. -·:'! Net asset value, • I 

beginning of year ........ $ 46.86 $ 43.88 $ 39.26 $ 31.33 $ 37.66 $ 39.94 
 ' .. . j 

Income (loss) for investment 

Operations: 

Net investment income (loss) 1.18 1.02 0.99 0.85 0.95 0.67 

Net gains (losses) on 

securities (both realized 

and unrealized) ........ 6.63 1.96 3.63 7.08 (7.28) ·(2.95) 

Total investment operations 7.81 2.98 4.62 7.93 (6.33) (2.28) 

Net asset value, end of year $ 54.67 $ 46.86 $ 43.88 $ 39.26 $ 31.33 $ 37.66 

Total return<•> ............ 16.67% 6.79% 11.77% 25.31% (16.81)% (5.72)% 

Net assets, last day of -:. : ·.­ ' . February (in thousands) 86,868 74,646 72,079 69,473 57,644 76,607

:::;;:.:.·\:~·>!, Ratio of expenses to average :-.: .. -·- . :::-·:_ :-._.. net assets<b)(c) ........... 1.03% 1.09% 1.01% 1.01% 1.07% 0.98% 

CJ.::;_·_. Ratio of net income (loss)

to average net assets<c> ..... 2.37% 2.26% 2.33% 2.42% 2.47% 1.70% 

: . :·:- :~ _-: -: .. 

..- ... Portfolio turnover rate ....... 0.50% 0.73% 0.44% 0.92% 8.65% 3.33% 


Number of shares outstanding at 

end of period (in thousands) .. 1,589 1,593 1,643 1,770 1,840 2,034 

(a) Total return for periods less than one year are not annualized. 

(b) Rutio 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 

.. . ... -··.-:··. .. 

__ , .. _. 
·:·~~::::.:::==:::.'±:::'·.=·=:i·~·,."5·~~~~~~~~~~ 

COPLEY FUND, INC. 

Financial Highlights . 

The financial highlights table is intended to help you understand the Fund's financial performance 

for the fiscal years 2129/04 through 2129/08. Certain information reflects financial results for a single 

Fund share. The total returns in the table represent the rate that an investor would have earned or lost 

on an investment in the Fund. The information for fiscal years prior to February 29, 2008 have been 

restated to incorporate the correction of an error as it relates to accumulated deferred income· taxes on 

unrealized appreciation• associated with the securities portfolio. The information set forth herein will be 

consistent with the financial information contained in the restated financial statements for the period 

ending February 29, 2008. Shareholders should be certain that they have the most recent annual report 

which should be read in connection with the prospectus. 

The financial information was audited by Roy G. Hale, CPA, whose report, along with the Fund's 

financial statements, is included the Fund's annual report to Shareholders, a copy of whic.h is available 

. . . . . . . . . 

......... . 

................. . 

............ . 

. . . . . . . . . . . . . . . . . . ..... 

. 

..... . 

......... . 

........... . 

..................... . 

. . ............. . 

February 

29, 2008 

$ 42.54 

1.18 

Year Ended 

February February February 

28, 2007 28, 2006 28, 2005 

$ 37.23 $ 35.28 $ 32.63 

·(1.31) 0.27 (0.44) 

February 

29, 2004 

. $ 27.62 

(1.86) 

___Q,§_f ~ 3.09 _Q,ll 

1.53 5.31 1.95 --w 5.01 

$ 44.07 $ 42.54 $ 37.23 $ 35.28 $ 32.63 

~% 14.26% 5.53% ----s.i2% 18:14% 

69,395 67,581 59,298 57,948 57,747 

1.72% 7.88% 3.80% 5.65% 10.60% 

1.72% 1.67% 1.72% 1.49% 1.59% 

2.73% (3.28)% 0.76% (1.30)% (6.18)% 

2.73% 

4.11% 

2.93% 

0.50% 

2.83% 

0.73% 

2.86% 

0.44% 

2.84% 

0.92% 

. . . . . . . . . . . . . . . . . . . 1,575 1,589 1,593 1,643 1,770 

The financial highlights shown above included the waiver of $60,000 of the investment advisory fee 

(as noted in the Statement of Operations). If the waiver of $60,000 of investment advisory fees had not 

••• 0 •• 1.81% 7.97% 3.90% 5.76% 10.71% 

1.81% 1.76% 1.83% 1.60% 1.70% 

............ 2.65% (3.37)% 0.66% (1.41)%: (6.29)% 

• • • • • 2.65% 2.84% 2.73% 2.75% 2.72% 

The accompanying notes are an integral part of the financial statements. 

20 

... 

-·-: -:!". _:;·-~~:_=_·:~-~~ (_··=: -.;:. --:-­ .... 

'".: .p;.···=··.::::::::··:.:::::.·:::::::·~-··:==· ·_:·=<:-:·:::::::::

at no charge on request by calling 877-881-2751. .l 

Net asset value, beginning of year 

Income (loss) for investment operations: 

Net investment income (loss) 

Net gains (losses) on securities (both realized 

and unrealized) 

Total investment operations 

Net asset value, end of year . . . . . . . . . . . . . 

Total retum 


Net assets, last day of February (in thousands) 


Ratio of net expenses, including regular & 


deferred taxes, to average net assets 

Ratio of net expenses, excluding deferred taxes, 

to average net assets . . . . . . 

Ratio of net investment and operating income 

(loss) to average net assets 

Ratio of net investment and operating income 

(loss), excluding deferred taxes, to average 

net assets 

Portfolio tum over rate 

Number of shares outstanding at end of period 

(in thousands). 

been included, the following ratios would apply: 

Ratio of net expenses, including regular & 

deferred taxes, to average net assets 

Ratio of net expenses, excluding deferred taxes, 

to average net assets ................ 

Ratio of net investment and operating income 

(loss) to average net assets 

Ratio of net investment and operating income 

(loss), excluding deferred taxes, to average 

net assets • • • • • • • • • • • • • ~ 0 • • 

.. ·.:· 

·· .... ·. :· ··-:. 

.. ;.•.

:.:·. 
COPLEY FUND, INC. 

SUPPLE:MENT DATED NOVEMBER , 2008 TO 

PROSPECTUS DATED JULY 24, 2008 

This Supplement (the "Supplement") to the Prospectus dated July 24,2008 provides 

information relating to the Fund and d~velopments since issuance ofthe Prospectus. 

. . 

This Supplement mustbe read in conjunction with the Prospectus in order to obtain 

complete information about the Fund as the Supplement only addresses certain issues. In the 

case of any inconsistencies between the Supplement and the Prospectus this Supplement shall 

prevail. 

This Supplement amends the "Tax on Unrealized Appreciation" (page 5), t~?-e 

"Performance" (pages 5, 6 and 7), the "Distribution and Taxes" (pages 8, 9 and 10) and the 

"When and How Net Asset Value is Calculated (page 13) sections ofthe Prospectus. 

TAX ON UNREALIZED APPRECIATION 

This Section is replaced in its entirety by the following: 

This section addresses two principal risks ofinvesting in the Fund: 

( TAx LIABILITY RISK. Federal Income Taxes are payable when the Fund sells '\s:J portfolio securities that have appreciated (gone up) in value. The Fund maintains a reserve for 

this tax, the amount ofwhich has been established by the Board ofDirectors. IN THE EVENT 

THAT THE TAXES PAY ABLE ON THE SALE OF PORTFOLIO SECURITIES SHOULD 

EXCEED THE AMOUNT OF THE RESERVE THE NET ASSET VALUE OF THE FUND'S 

SHARES WOULD DECREASE AND SHAREHOLDERS WOULD INCUR A DECREASE IN 

THE VALUE OF THEIR INVESTMENT. TillS DECREASE COULD BE SUBSTANTIAL. 

For the life ofthe Fund, the tax reserve established by the Board always has exceeded the 

capital gains taxes actually due and payable by the Fund. While the Board believes that it has a 

clear and consistent record of establishing an adequate tax reserve and that the sale ofsufficient 

portfolio securities to generate a tax greater than the reserve is remote, THE POTENTIAL FOR· 

A LOSS EXISTS. 

ACCOUNTING INTERPRETATION RISK. The Fund is required to follow generally 

accepted accounting principles (GAAP) in the preparation offinancial statements and associated 

supplemental information. GAAP however is not clear in respect ofone accounting issue which 

impacts on the Fund's fmancial statements-the methodology for the treatment ofdeferred 

income tax as it relates to the accumulation of unrealized appreciation on the Fund's stock 

portfolio. 

Under one interpretation, the liquidating value accrual method, the Fund would be 

required to report the full income tax liability, based upon prevailing income tax rates, that 
Copley Fund, Inc. 


Supplement dated November , 


2008 to Prospectus dated July 24, 2008 (_ J 

would be due and payable ·if the Ftind liquidated its entire portfolio on the date the financial 

statements are presented .. Under the other interpretation, currently utilized by the Fund, the 

income tax liabilityis reported based upon a reserve for such tax which is established by the 

Board ofDirectors. 

IN THE EVENT TIIAT THE FUND'S TAX ACCOUNTING :METHODOLOGY IS 

DETERMINED TO BE NOT IN ACCORDANCE Willi GAAP OR NOT SUBJECT TO AN 

EXCEPTION THERETO, THE FUND'S NAV WOULD HAVE TO BE ADWSTED TO 

REFLECT 1HEFULL TAX LIABILITY, THE NET ASSET VALUE OF THE FUND'S 

SHARES WOULD DECREASE AND SHAREHOLDERS WOULD INCUR A DECREASE IN 

TilE VALUE OF 1HEIR INVESTMENT. THIS DECREASE COULD BE SUBSTANTIAL. 

To illustrate the full potential impact ofthe realization of either ofthe identified risks, the 

following table compares the Fund's historical Per Share Net Asset Value ("NA V") calculated . 

based upon the reserve established by the Board with the NAV that would result had the Fund's 

entire portfolio been liquidated at the end ofthe period indicated. 

YEAR ENDED C)

""""'"~· 

FEB29 'FEB28 FEB28 FEB28 FEB28 

2008 2007 2006 2005 2004 

Net Asset Value 

Including Tax Reserve 

Established by Board $54.68 $54.67 $46.86 $43.88 $39.26 

Net Asset Value 

Including Potential Tax 

Liability Assuming Liquidat

OfEntire Portfolio 

ion 

$44.39 $44.46 $38.79 $36.44 $33.07 

Per Share hnpact $10.29 $10.01 $8.07 $7.44 $6.19 

This risk and the accounting principles related thereto are discussed in more detail in this 

Prospectus under the "Distribution and Taxes" Section. 

DISTRIBUTION AND TAXES 

This Section is amended by substituting the following for paragraphs 2 through 6 thereof: 

-2­
( \ 

··~...~.;/ 

Copley Fund, Inc. 


Supplement dated November , 


2008 to Prospectus dated July 24,2008 


The Fund pays income taxes on any net realized capital gains at the statutory rate, 

currently 35%. In addition, the Fund will, for purposes-of calculating the Fund's Per Share Net 

Asset Value (''NAV") accrue deferred taxes on:net capital gains to the extent management and 

the Board ofDirectors anticipate that a liability may exist. The Fund also may carry any net 

capital losses forward for five years as an offset against any net capital gains realized by the 

Fund during the current year. 

The reserve for taxes established by the Board ofDirectors is a critical component in the 

pricing ofthe Fund's Shares. There are two methods by which the liability for deferred income 

taxes for purposes ofpricing the Fund's Shares may be calculated. The first method 

("liquidating value accrual method") establishes a liability which includes the entire amount of 

capital gains taxes that would be payable ifthe Fund liquidated its entire portfolio ofsecurities 

that day. The second method ("reserve value accrual method"), currently used by the Fund, 

establishes a current liability which includes only such amount as Management and the Board of 

Directors believes adequately meets the current anticipated tax liability. 

There are provisions under generally accepted accounting principles ("GAAP") which 

may be interpreted to require the Fund to record the full potential income tax liability assoCiated , 

with the reported unrealized appreciation to ensure that shareholders are not required to 

recognize a decrease in the value oftheir shares due strictly to the income tax obligation 

associated with the sale ofportfolio securities. This concept is understood by the Board of 

Directors and the management ofthe Fun~ and it has been followed diligently albeit with a 

reserve methodology rather than a full accrual. Even though th~ full accrual ofdeferred income 

taxes associated with the unrealized appreciation would remove any risk associated with the · 

devaluation ofshares due to the payment offederal income taxes,· the Board believes that the 

resultant net asset value incorporating a ~1 accrual ofdeferred income taxes does not report the 

shares at fair value. The basis for the Board's decision is summarized below: 

(1) 	 The use of a full liquidating accrual methodology is unrealistic. It assumes.the 

liquidation ofthe entire portfolio ofthe Fund's securities. Neither the Board nor 

management has any intention to liquidate. Nor do they believe, or anticipate, that there 

exists any circumstances which would compel a liquidation of the Fund's entire portfolio 

ofsecurities. As illustrated by the following table, the history ofthe Fund for the past 15 

years supports this position: ­

-3­
, Copley Fund, Inc. 

Supplement dated November , 

2008 to Prospectus dated July 24,2008 

COMPARISON OF RESERVE ESTABLISHED BY BO.A.im AND . 

ACTUAL CAPITAL GAINS TAXES PAID 

BOARD ESTABLISHED ACTUAL CAPITAL FULL LIQUIDATING 

CAPITAL GAINS TAX RESERVE GAINS TAXES PAID RESERVE FOR CAPITAL 

GAINS LIABILITY ACCRUAL 

2007 $807,345.00 $0 $17,537,872.00 

2006 $758,766.00 $0 $16,104,320.00 

2005 $758,766.00 $0 $14,887,774.00 ' 

2004 $824,472.00 $0 $12,548,834.00 

2003 $770,554.00 $0 $7,602.562.00 

2002 $664,576.00 $0 $13,166,255.00 

2001 $443,285.00 $0 $15,646,991.00 

2000 $464,563.00 $0 $10,961,527.00 

1999 $373,709.00 $0 $13,684,586.00 

1998 $278,488.00 $0 $13,224,672.00 

1997 $189,891.00 $0 $8,193,495.00 

1996 $378,955.00 $0 $7,160,983.00 

1995 $422,000.00 $0 $2,756,751.00 

1994 $422,000.00 $0 $3,843,489.00 

1993 $422,000.00 $0 $3,430,633.00 

(2) 	 The use of a full liquidating accrual methodology results in a daily NAV that is 

misleading. Lowering the NAY to a level that is inconsistent with the working assets of 

the Fund by booking a long-term liability that is contingent upon some future event that 

in all likelihood will not occur understates the real fair value ofFund shares. All 

obligations ofthe Fund that must be met are recognized and impact the NAV on a daily 

basis. Reducing the NAV to incorporate a liability that by its very nature is contingent 

upon future events, when in fact the liability can be addressed through a sound reserve 

policy, leads the Board to a finding that the resultant NAV would be mislead:irig. An 

essential aspect ofthe Fund's strategy is the accumulation and retention of dividends 

generated by its portfolio ofsecurities. The full accrual method has the potential of 

misleading investors by implying that dividends received are being earned at a rate which 

is greater than the actual return, i.e., inflated yields because a significant portion ofthe 

principal on which the return was earned is not included in the Fund's NAV. In addition, 

the application ofthe full accrual method overstates expense ratios and may understate · performance levels. 

(3) 	 Lastly, the use ofthe full liquidating accrual methodology does not represent a "fair 

value" for the Fund's shares. ( ~ \dJ 

-4­
( \ · ...~) 

-'~ '"&_j/ 

Copley Fund, Inc. 

Supplement dated November ---7 

2008 to Prospectus dated July 24, 2008 

The Board has directed the utilization ofthe reserve value accrual method because it 

results in a fair value for the Fund's shares and fairly presents in all material respects the 

financial condition ofthe Fund. It also stabilizes the Fund's daily NAV because it eliminates 

exaggerated "swings" in NAV caused by the necessity ofincluding a different, and often 

substantial, amount for liquidating tax liability on a daily basis. Details ofthe Board's 

methodology are set forth below. r· 

When stocks appreciate in value in excess oftheir cost. an asset called unrealized 

appreciation is generated. The appreciation will only be realized when these securities are. 

actually sold. However, on a daily basis, the Fund is required to mark its securities to market 

and thereby recogllize the unrealized appreciation in the net asset value ofthe Fund. By using 

current values rather than cost values, the value ofthe portfolio, which makes up almost all of 

the total assets ofthe Fund, is reported at its actual market worth. This is an important concept 

in pricing the Fund at a value that truly reflects the assets held. When appreciated securities are 

sold, the unrecognized gain becomes recognizable and, ifnot offset by accumulated capital 

losses, will be subject to taxation. Since the unrealized appreciation and the associated taxation 

thereof attaches to all appreciated securities, many ofwhich will not be sold for long periods of 

time, the management ofthe Fund has takenthe position that it will accrue a deferred income tax 

liability on net unrealized capital gains to the extent that management anticipates a liability may 

exist. This liability is based upon current market trends, accumulated capital losses, the amount 

of cash and cash equivalents held, and anticipated redemptions as well as the Fund's long 

operating history. 

Ifthe Fund actually realized capital gains and paid capital gains taxes that exceeded the 

amount ofthe res·erve for deferred income taxes, the net asset value ofthe Fund would be 

lowered by the amount ofthe taxes that exceed the reserve and shareholders would experience a 

real loss in value oftheir respective shares. In order to avoid this potential scenario the Fund 

may elect to be taxed as a regulated investment company ("RIC"), as opposed to a "C" 

Corporation, in the event that the actual capital gains tax liability exceeds the reserve and 

available tax loss carryforwards for a given period. This option would eliminate the income tax 

at the Fund level (35% rate) and shift it to the individual shareholder at a current 15% rate. 

Corresponding with an election to be treated as a regulated investment company, the 

Fund must make a distribution to its shareholders, of all earning accumulated as a regular 

corporation. This distribution would result in taxable income to the shareholders, whether or not 

the distribution is received in cash or additional shares ofFund stock. 

Unrealized appreciation (built-in-gains) at the point in time the Fund elects regulated 

investment company treatment is taxable income to the Fund. However, under current Revenue 

-5­
Copley Fund, Inc. 


Supplement dated November--~ 

2008 to Prospectus dated July 24, 2008 


Code provisions, the Fund may elect to postpone this built-in-gains tax until such time as the 


security is sold. Ifthe security is held for at least 10 years after electing. regulated investm.eilt 


company status, the tax will not be assessed against the Fund. 


Legislative or regulatory changes in, or interpretations of, applicable federal tax laws, 


regulations or nilings may make it impossible for the Fund to utilize certain ofthe tax 


management techniques and strategies describ~d in the Prospectus. The Fund intends to evaluate 


continuously the operations ofthe Fund under current federal tax laws as well as various 


alternatives available . 


. PERFORMANCE 

This Section is amended by replacing the first paragraph thereof with the following and 


by adding the Charts. and Tables set forth below: · 


The bar charts and tables below can help in evaluating the potential risks ofinvesting in 

the Fund. The bar charts show changes in the yearly performance ofthe Fund over the last ten 

years. The tables compare the average annual returns for the past one-year, five-year and ten-: ( 

~ 

.. ~.~' 

year periods ofthe Fund, before and after taxes, with the average annual returns for the S&P 500 


for the same periods. Please keep in mind that the Fund's past performance (before and after 


taxes) is not necessarily an indication ofthe Fund's future performance~ 

In order to demonstrate the effects of a full accrual ofdeferred income taxes as compared 


to the reserve method, the following charts BI!d tables are provided. The information presented 


in the first set of charts and graphs is based upon the inclusion in the Fund's NAV of a full 


accrual ofdeferred income taxes that would be payable in its entirety only upon liquidation of 


the Fund's entire stock portfolio. 


1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 

Fund 5.83% (6.69)% 19.75% (2.76)%(11.93)% 18.14% 8.12% 5.53% 14.26% 3.60% 

S&P 500 26.~9% 11.55% (10.10)% (10.60)% (22.10)% 26.20% 21.26% 4.90% 15.79% 5.49% 

Best Quarter 

13.6% 

3rd-2000 

Worst Quarter 

(14.95)% 

3rd-2002 

The performance infonnation shown above is based on full calendar years. 

-6­
Copley Fund, Inc. 


Supplement dated November , 


2008 to Prospectus dated July 24, 2008 


~e investment return and principal value ofan investment will fluctuate, so an investor's 

shares, when redeemed, will be worth more or less than their origin8.I cost ~.

Average Annual Total Returns as of2/29/08 

1 Year 5 Years 10 Years 

Total Return Before Taxes 3.60% 6.20% 4.20% 


Total Return After Taxes on Distributions* N/A** N/A** N/A** 


Fund Return After Taxes on Distributions 


and Sale ofFund Shares* 3.06% 5.27% 3.57% 


S&P 500 Index (3.60)% 11.62% 7.23% 


The information presented in the charts and tables set forth below are based upon the 

reserve for deferred income taxes established by the Board ofDirectors. · 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 

\J 
 Fund 5.36% (6.86)% 26.075% (5.72)% (16.81)% 25.31% 11.77% 6.79% 16.67% 0.00% 


":~:!t......: . 

S&P 500 26.69% 11.55% (I 0.1 0)% (1 0.60)% (22.1 0)% 26.20% 21.26% 4.90% 15.79% 5.49% 

Best Quarter Worst Quarter 

13.6% (14.95)% 

3rd-2000 3rd-2002 

The performance information shown above is based on full calendar years. 

The investment return and principal value of an investment will fluctuate, so an investor's 

shares, when redeemed, will be worth more or less than their original cost. 

Average Annual Total Returns as of2/29/08 

1 Year 5 Years 10 Years 

Total Return Before Taxes 0.00% 6.90% 5.50% 


Total Return After Taxes on Distributions* N/A** N/A** N/A*"' 


Fund Return After Taxes on Distributions 


and Sale ofFund Shares* 0.00% 5.87% 4.68% 


S&P 500 Index (3.60)% 11.62% 7.23% 


~ '-0;..-i/ 

-7­
Copley Fund, Inc. 


Supplement dated November , 


2008 to Prospectus dated July 24,2008 


WHEN AND HOW NET ASSET VALUE IS CALCULATED . 

This Section is amended by substituting the following for the second paragraph thereof: 

I 

The Fund's NAVis determined by dividing the yalue ofthe Fund's securities, cash and 

other assets, minus all liabilities, by the number ofshares outstanding. For purposes of 

calculating the Fund's per share price, the liability for deferred income taxes on unrealized 

appreciation is based upon a "reserve" for such taxes established in good faith by the Fund's 

Board ofDirectors. 

The Board ofDirectors believe that a "fair value" accounting ofthe Fund is best served 

by reportiri.g a reserve for deferred taxes that takes into account the investment policy ofthe 

Fund, the Fund's long history ofholding securities for many years, market conditions, 

anticipated redemptions and other real-time factors deemed relevant by the Board ofDirectors. 

The Fund's securities are valued each day at their market value, which usually means the 

last quoted sales price on a security's principal exchange. Securities not traded on the valuation 

date and securities not listed are valued at the last quoted bid price. All other securities, ~.) including securities in which the quotations are considered to be unreliable due to significant 

market or other events are priced at their fair value as determined in good faith pursuant to . 

procedures adopted by the Fund's Board ofDirectors. Part ofthe assets ofthe operating division 

consist ofinventory and is valued at its fair value as determined by the Board ofDirectors. 

\,,") .., 

-8­

I 

,I 

,..: 

ROBERTS & HENRY 

• 


• 


• 


ATToRNEYS .A!r LAw 

164. HoNEYSUCKLE DRIVE 

JUPITER, FLORD>.A. 3341>8. 

166ll 744·598S 

FAX C56ll 207·6857 

E-MAIL: RobertsHemyLaw@aolcom 

101Bl:JEN.AVlS'llA .A.VXNOEI 504~STREET 

Jlm)llllU.LSBURG, MD !Wisa I. IUOI ~:9376 

P.O. Box 1138 

ST. MicHAELS, MD 21663 

FAX IillO) '754-9876 C41018i!ll·44156 

:B'.A%14101754·9376 

October 5, 2009 

Lawrence Pisto, Esquire ·'"·· 

U.S. Securities and Exchange Commission 

Boston Regional Office 

33 Arch Street, 23rd Floor 

Boston, MA 02110 

RE: In the Matter ofCopley Fund, Inc.<B-2335) 

Dear Lawrence: 

I wanted to follow up on our telephone conversation wherein I inquired about the 

status ofthe Copley proceeding.~ I indicated, Mr. Levine and the Bo.ard are anxious to 

come ro a resolution ofthe issues therein so that the Fund can move on with its business 

and wor~ toward a solution of the NAV differential which will serve the best interests of 

the Fund's shareholders. 

As you know, the Board has consistently maintained that the accrual for 

unrealized. capital gains taxes is best represented by a ''reserve" established by the Board 

as opposed ro the full liquidating value accrual that currently is being employed in · 

calculating the Fund's Net ~set Value. The Fund's experience since November 30, 

2007, when the NAV was adjusted at the insistence ofthe staffand over the objection of 

the Board, has revealed that the use ofthe latter methodology has resulted in what the 

Board and management believe are misleading and inconsistent financiat statements and 

a per share value that does not represent the fair value for the Fund's shares. 

We previously provided the staff with a memorandum.( copy attached) which 

details the Fund's rationale in support ofthe use ofthe Board established reserve. This 

rationale was further delineated by Messrs. Levine and Hale in the testimony given 

during the COW'Se ofthe proceeding. The Board and management continue to believe· 

that use of the Board established methodology is the only way in which the Fund's shares 

may be fairly priced. They also believe that the use ofthis methodology is consistent 

with generally accepted accounting principles and is required to fairly present Fund 
. 


" 

financials in a consistent manner, fairly price Fund shares and render the :financials not 

misleading. 

In this regard, I have attached a compendium. ofarticles clipped from the Wall 

•

Street Journal which illustrate the principle that neither GAAP nor F ASB accounting 

standards are "cast in stone,, and that both have been accorded a great deal offlexibility 

both in interpretation and application. In most, ifnot all, ofthese situations interpretations 

have been made whiyh result in fair pricing and accounting principle application. 

We submit that the tax accrual issue really is more a disclosure and risk 

assessment issue than an accounting issue. Historically, the Fund has treated it as such 

and made complete and clear disclosures which were routinely reviewed by the I M staff. 

Copley Fund shareholders should be able to fully assess the risks ofinvesting in the Fund 

insofar as such risks relate to taxes on unrealized appreciation. As more fully set forth in 

our memo,:andum complete and adequate disclosure can be accomplished through both 

text and comparison tables that are easily understandable and in "plain language". We are 

confident that we can provide clear parallel NAV calculations and other appropriate 

disclosures which will allow Fund investors to make informed decisions. In this regard 

we note that parallel disclosure certainly is not a novel concept. Public companies 

regularly disclose both GAAP and Non-GAAP earnings and other fmancial information 

for use by analysts and investors alike. This concept ftnds additional support in the newly 

promulgated interactive (XBRL) format for risk/return information. This requirement 

evidences a recognition by the Commission that investors want , should be able and 

indeed should be encouraged, to use data as they see fit for their own analytic purposes. 

This is exactly what the Board is proposing: providing parallel NA V calculations, with a 

clear 

consistent 

indication 

and transparent 

ofthe difference 

disclosure. 

between the two. This method would facilitate clear, 

•

In December of2008, the Commission delivered to Congress a Report and 

Recommendation Pursuant to Section 133 ofthe Emergency Economic Stabilization Act 

of2008: Study on Mark-To-Market Accollliting. At page 15 ofthat Report the staff 

recognizes that ''the objective offinancial reporting is to provide information useful to 

investors and creditors in their decision making process". The purpose of financial 

reporting is repeated in recommendation ,6 at page 206 as "intended to meet the needs of 

investors". And, at page 8 and in the conclusion at page 205, the stafrs recommendation 

is to improve the application of"judgment" in making farr value measurements. While 

the Study is not exactly on point it supports the argument fully set forth in our 

memorandum, to wit: SEC rules should, and do, have enough flexibility for the 

application ofsound judgment. 

Many years ofactual experience confirm that Copley Fund's management and the 

Board's judgment in determining NAY was accurate and enabled both buyers and sellers 

to purchase and sell Fund shares at a consistently fair and correct price (see table at page 

5 ofthe memorandum). The method used by the Fund to calculate NA V gives a far more 

accurate picture to investors than the method mandated by the staff. We submit that the 

Fund should be allowed to report, and sell and redeem, at anNAV without a "full" tax 

reserve in accordance with the Board's sound and proven business judgment. • 
,I 

• 	 . The clear mandate ofthe Commission is to protect investors. In this case, an 


interpretation ofFAS 109 which uses liquidating value accounting achieves the exact 


opposite result: one that should be avoided-investors are harmed. 


Simply put, a full liquidating value accounting view under F AS 109 operates to 

the detriment ofFund shareholders and results in iJlconsistent and misleading financial 

statements. For example, the current SEC mandated NAV calculation is misleading 

because, among other things, it exaggerates the performance ofthe Fund when pre-tax 

income loss is calculated as a percentage of 1he artificially lower amount of assets verses 

the amount actually deployed for investment. On the other hand, a reserve accounting 

view wder FAS 109 operates to the benefit ofshareholders and results in consistent, 

easily understandable and clear financials which produce a Net Asset Value which 

represents fair value for the Fund's shares. For example, at September 30, the Fund 

would have to liquidate approximately $19,000,000 of its portfolio securities in order to 

incur even the first dime oftax liability. This, we submit, is such a remote possibility as 

to not even merit consideration. Even so, it should be for the shareholders to assess this 

risk, however slight, not for the staffto make the detel11lination for them. We believe 

that there is nothing in GAAP or applicable law or regulation which precludes the use of 

the Board's methodology in pricing Fund shares. 

• 

Lastly, I believe that it would be constructive for me to come to Boston and meet 

with you to discuss the issues and alternatives which may be available to facilitate 

bringing th~ proceeding to a mutually agreeable resolution. I would hope that this matter 

would fall within the parameters ofthe four "S' s" outlined in the new Director in his 

speech to the New York City Bar on August 5th. In that speech, as you know, Mr. 

Khuzami asked the staffto embrace four principles: (1) be strategic- focus on cases 

involving the greatest and most immediate harm and on cases that send an outsized 

message ofdeterrence, (2) be swift·long gaps between conduct and atonem.ent undennine 

the deterrent impact ofour cases, (3) be smart- Commission reSources are finite aild 

critically limited, we must better detennine on an informed basis whether to continue an 

investigation, and (4) be successful- this means building strong cases with compelling 

evidence. We believe that we could bring ideas to the table that the staff may find · 

compelling and which would facilitate the goals ofthe four "S's" . 

•We believe that that we have presented solid and rational reasons why the 

preseJ?.t reporting format is misleading and inappropriate and believe further that the Fund 

is entitled to an equally reasoned response and a record which we could challenge as 

appropriate. 

Tiulnk you in advance for your consideration ofthe matters rmsed herein and I 

look fozward to hearing from you as to a meeting. 

• 
', 

,. 

Very truly yours, 

ROBERTS & HENRY • 

\ u~ 

Thomas C. Henry 

*The Fund has continued to offer its shares for sale using a liquidation value tax reserve 

based upon comments made by the staffofthe Division oflnvestutent Management in 

connection with the filing of its registration statement and agreed to by us at the time 

upon insistence by the staff. Accordingly, nothing in this letter or associated 

memorandum should be construed as an explicit admission that the current financials are 

false or misleading as a matter oflaw. We also request confidential treatment under the 

FOIA with respect to this correspondence. 

• 

• 
• 


• 

• 


;MEMORAND!JM 

PRELIMINARY STATE:MENT 

This is about the best interests ofthe Copley Fund shareholders-past, present and future. 

It is about the f~ value ofa Copley Fund share. It is about the Board ofDirectors' fiduciary 

obligation to ensure that the Fund's shares are fairly priced, that the best interests ofthe Fund's 

shareholders are fully protected and served and that the Fund's financial information is not 

misleading. And, most importantly, it is about the flexibility ofGAAP and the Commission's 

rules. This po'int is particularly re1evant now given the cmrent financial crisis facing the nation 

and th~ Commission's acknowledgement that otherwise rigid rules must bend to reasonable, 

reassured, common sense evaluation. 

November 30, 2007 was a very difficult day for the Fund, its Board ofDirectors and its 

shareholders. It was on that day that the Board was compelled, upon threat ofinjunctive action, 

to direct the Fund's accounting services agent to reduce the Fund's per share value by $13.89 as 

the result of an accounting interpretation expressed by the staffthat generally accepted 

accounting principles (GAAP) required the Fund to include in its current liabilities the entire 

amount ofcapital gains taxes that would be payable ifthe Fund liquidated its entire portfolio of 

securities on that day; as opposed to the inclusion ofa reserve for taxes that had been establi.shed 

by the Board ofDirectors in an exercise oftheir good faith business judgment and based upon 

fifteen (15) years ofexperience operating sucCessfully with such reserve. 

For the reasons set forth below, the Fund believes that the NA V adjustment is contrary to 

the best interestS ofthe Fund's shareholders. The Fund believes that it has in the past complied 

with GAAP, that both GAAP and applicable SEC rules are flexible enough to permit the 

"reserve" accounting method established and approved by the Board and that the ''full 

liquidating value accrual method" has produced inconsistent and misleading financial statements 

that have resulted in Management having to qualify its certifications made purstiant to Section 

302 ofthe Sarbanes-Oxley Act of2002 1

• 

THE FUND AND ITS INVESTMENT OBJECTIVE 

The Copley Fund, Inc. (the "Fund'') is registered with the Commission as an open-end, 

management investment company pursuant to the provisions ofthe Investment Company Act of 

1940. Unlike most funds, it has not elected regulated investment company ("RIC") status under 

the Internal Revenue Code, 1986, as amended. It is organized as a regular "C" Corporation for 

federal ineome tax purposes. Accordingly, any taxable income generated by the Fund is subject 

to taxation at the corporate level and is not passed on to individual shareholders as would be the 

case ifthe Fund had elected RIC status. 

The Fund was organiud in 1978 and has operated continuously since that time. Its stated 

investment objective is "the generation and accumulation ofdividend income". Its secondary 

objective is "long-term capital appreciation". Key to the Fund's investment objective is its 

strategy, contrary to most other funds, of not distributing dividends and capital gains to 

1

The Fund's N.CSR CertifiCation provides th11t1hc Fund's financial statements "fairly represent in all material respecl3 (except to 

the extent that management's position on the actOunting for deferred income taxes is correct) the financial conditlon... ofthe 

registranl" 
Memorandum (cont) 

Page2 of14 

shareholders but rather accwnulating them within the Fund and then adding them to the value of 

each ~hare on a daily basis. Hence, an increase in per share value directly raises the value of a 

shareholder's account Thus, shareholders are able to defer dividend and capital gains taxes until 

redemption at which time shareholders will incur a loss or realize a gain depending upon the 

Fund's per share value at the time ofredemption. In addition, and central to the Fund's 

investment policy, is that the retention ofdividends leaves more money "at work" in the Fund. 

Thus, the true measure of the Fund's performance is to measure income and gain as a function of 

the total deployed capital. Artificially discounting the reported amount ofdeployed capital by an 

inappropriate "reserve" distorts the Fund's performance. 

Insofar as the Fund itself is concerned. as a C Corporation. it uses its corporate structure 

to create dividen~ income to the Fund, 70% ofwhich is offset by the deduction allowed by the 

Internal Revenue Code for dividends received by a C Corporation. 

TAX MANAGEMENT POLICY AND RATIONALE 

Beginning in 1993, the Board of Directors ofthe Fund implemented a tax management 

policy whereby the accrual for deferred income tax on unreal~ gains on the Fund's portfolio 

securities was reduced to a stated reserve of$422,000. This am01mt was determined by the 

Board in an exercise of their good faith business judgment and based upon the seven factors 

which are set forth below. Prior to the adoption of that policy the Fund had a stated deferred 

income tax liability accrual of$3,541,000. The implementation ofthis policy had the effect of 

increasing the Fund's NAY with a corresponding increase in stated per share value. This policy 

more accurately reflected the deployed capital which was invested by the Fund. 

This tax management strategy was implemented based upon a strategy adopted and 

implemented by the Rochester Tax Managed Fund, an informal opinion expressed by Price 

Waterhouse at the time and a p<>sition paper prepared by Roy G. Hale, CPA, dated November27, 

1992 (See Attachment "A"). The decision was memorialized in the Minutes ofa Meeting ofthe 

Board ofDirectors held on December 7, 1992 to implement the strategy wherein the Directors 

instructed "that Fund Management shall monitor on a regular basis the Fund's potential income 

· tax liability on unrealized gains to ensure that the present reserve is, in its best business ­

judgment, appropriate given the particular circumstances ofthe Fund's portfolio and policies." 

The basis for the adjustment-to the Fund's previously accrued tax liability was set forth in 

Note 1 to the Fund's financial statements for the year ended February 28, 1994 as follows: "in 

this accounting period the Fund elected to change the estimate ofdeferred income tax liability on 

unrealized appreciation ofinvestments...the Fund will provide deferred taxes for unrealized 

appreciation on its investment portfolio to the extent that management anticipates a liability may 

exist. .. this change is consistent with the Board ofDirectors intent to qualify the Fund as a 

Regulated Investment Company in the event the Fund's future income tax liability should exceed 

current (reserved) deferred income tax levels." 

• 


• 


• 
Memorandum (cont) 

• 


• 


• 


Page 3 of14 

The Fund has, for more than 15 years, consistently maintained that the amount ofthe 

deferred income tax liability for the Fund is an accounting estimate that is properly based upon a 

reasonable estimate ofthe future obligations ofthe Fund as it relates to the difference between 

the tax basis ofthe Fund's assets and their reported mark to market current value. The Fund 

recognizes all cWTent income tax obligations in the current accounting period. It has been the 

Fund's longstanding position, sine(: 1993, that the deferred tax liability for unrealized capital 

gains should be based on a good faith business judgment estimate offuture tax obligations 

associated with any required liquidation ofportfolio securities necessary to raise cash to meet 

foreseeable Fund requirements. 

The key concept here is that the deferred tax liability carried by the Fund on any given 

date is an accounting estimate offuture obligations of the Fund. This estimate is based upon 

various factors including (1) capital loss carry forwards (2) anticipated redemptions beyond the 

ability of the Fund to cover with its current cash position or through the sale ofnon-appreciated 

securities (3) the amount ofthe recorded reserve for the estimated maximum tax liability (4) 

fifteen (15) years ofoperating history without ever exceeding or even approaching the reserve 

established by the Board (5) the Fund's stated investment strategy and track record ofholding 

high quality, dividend paying stocks for the long term (6) the fact that the entire deferred tax 

liability would be due only in the unlikely event the entire portfolio were liquidated and (7) the 

best good faith business judgment ofthe Board of Directors. These factors are, and historically 

have been, used to establish a reasonable and realistic basis for the estimated tax liability. And, 

as discussed below, the option to convert the Fund to RIC status establishes a floor upon which 

the estimated taxes would not be exceeded. 

ACCOUNTING AND REPORTING FOR INCOME TAXES 

The essence ofthe issue is Copley Fund's accounting and reporting ofthe effects of 

potential income taxes. The staff's initial theory is understood to be that the Fund had not 

measured and disclosed the future tax consequences ofthe unrealized appreciation of securities 

in the Fund's portfolio in accordance with generally accepted accounting principles ("GAAP"). 

In support ofthis position they have referenced the Financial Accounting Standards Board's 

("FASB") Statement ofFinancial Accounting Standards No. 109, Accounting for Income Taxes 

("FAS 109"). FAS 109 "establishes financial accounting and reporting standards for the effects 

ofincome taxes that result from an enterprises activities during the current and preceding years." 

Pamgraph 6 ofFAS 109 states that "the objectives ofaccounting for income taxes are to 

recognize (a) the amount oftaxes payable or refundable for the current year and (b) deferred tax 

liabilities and assets for the future tax consequences ofevents that have been recognized in an 

enterprises' financial statements or tax returns." 
•I Memorandum ( cont) 

Page4 of14 

· Paragraph 11 ofFAS 109 provides "An asswnption inherent in an enterprise•s statement 

offinancial position in accordance with generally accepted accounting principles is that the 

reported amounts ofassets and liabilities will be recovered and settled. respectively. Based on 

that assumption, a difference between the tax basis ofan asset or liability and its reported amount 

in the statement offUl.Bilcial position will result in taxable or deductible amounts in some future 

year(s) when the reported amounts ofassets are recovered and the reported amounts ofliabilities 

ate settle4"· (Emphasis added.) · 

Paragraph 78 ofFAS 109 makes the observation that an "enterprise might be able to 

delay the future reversal oftaxable temporary differences by delay~g the events that give rise to 

those reversals, for example, by delaying the recovery ofrelated assets or the settlement of 

related liabilities. A contention that those temporary differences will never result in taxable 

am<:>unts, however, would contradict the accounting assumption inherent in the statement of 

financial position that the reported amounts ofassets and liabilities will be recovered and settled, 

respectively; thereby making that statement internally inconsistent For that reason. the 

(Accounting) Board concluded that the only question is when. not whether. temporarv 

differences will result in taxable amounts in future years." (Emphasis added). 

The staffs initial theory then seems to be based upon a static and inflexible interpretation 

ofFAS 109 to the effect that the statement requires a full accrual ofthe maximum potential 

deferred income tax liability-period ("full liquidating value accrual method''). As more fully 

developed below, the Fund believes that FAS I09 and OAAP are flexible enough to pennit 

variations or exceptions that are nonetheless in compliance with OAAP and are, in fact, required 

to fairly present the financial condition ofthe Fund and the accurate pricing ofits shares. This, 

the Fund has always maintained, is best accomplished through the use ofa ''reserve" for deferred 

income taxes which is established by the Fund's Board ofDirectors in an exercise of their good 

faith business judgment. 

:rJle fundamental justification for recognizing an exception to or a variation from FAS 

109 is that the full tax liability will not be recognized by the Fund. 

FAS 109, as set forth above, plainly states that the requirement for full accrual is based 

upon "an assumption, that the underlying appreciated assets would eventually be sold and the 

associated income tax would eventually be paid. This simply is not the case and is, under the 

circumstances, an invalid and misleading assumption. The effect ofapplying this invalid 

assumption is that a full liquidating value accrual overstates Fund liabilities and understates the 

Fund's equity as reflected in the ~d's Net Asset Value. 

In support ofthis proposition the Fund advances the following points: 

1. The use ofhistorically proven good faith estimates represents the best method of 

fairly presenting the Fund's financial condition. The amount ofa reserve for income tax, 

• 


• 


• 
•• 

Memorandum (cont) 

• 

Page 5 of14 

reported as a liability, is in fact an estimate ofa future potential liability and not a real liability on 

the date of the financial statements. These estimates, based upon the factors as discussed above; 

are flexible and subject to change as circumstances dictate. As long as the Fund provides 

reasonable estimates that meet current and future obligations, as bas been the case for the last 

fifteen (15) year8, the Fund meets its inherent obligation to accurately accrue for this potential 

liability. The following chart demonstrates the viability ofthe established reserve. 

COMPARISON OF RESERVE ESTABLISHED BY BOARD AND 


ACTUAL CAPITAL GAINS TAXES PAID 


• 


BQARD ESTABLISHE!! 

CAPITAL {IAINS TAX RESERVE 

1007 $807,345.00 

1006 $758,766.00 

1005 $758,766.00 

1004 $824,472.00 

2003 $770,554.00 

1002 $664,576.00 

2001 $443,285.00 

:zooo $464,563.00 

1999 $373;709.00 

1998 $278,488.00 

1997 $189,891.00 

1996 $378,955.00 

1995 $422,000.00 

1994 $422,000.00 

1993 $422,000.00 

A,CTUAL ~APIT~ FULL LIQUIDATIN!! 

!ZAINS IAXE~ PAID RESERVE FOR CAPITAL 

GAINS LIABILIIX ACCRUAL 

$0 $17,537,872.00 

$0 $16,104,320.00 

$0 $14,887,774.00 

$0 $12,548,834.00 

so $7,602.562.00 

$0 $13,166,255.00 

so $15,646,991.00 

so $10,961,527.00 

$0 $13,684,586.00 

so $13,224,672.00 

$0 $8,193,495.00 

so $7,160,983.00 

$0 $2,756,751.00 

$0 $3,843,489.00 

$0 $5,430,633.00 

No taxes have ever been paid because the Fund's tax liability for capital gains bas always 

been covered by either capital losses or capital loss carry forwards. Hence, the reserve has never 

been used. 

One ofthe concerns expressed by the staff has been that circumstances beyond the 

control ofmanagement might cause the Fund to liquidate portfolio securities due to market 

conditions or to meet redemptions. It is important to note that even in this time of unprecedented 

financial crisis and market upheaval Copley Fund lias not even come close to invading the tax 

reserVe established by the Board. And, we note that this is at a time when money market funds 

have had to turn to the Federal government to preserve their $1.00 NAV and mutual fund 

redemptions are at an all time high-once again sustaining the Board's judgment. 

2. The only shareholder risk associated with using the reserve method, which is 

based upon good faith historically proven estimates, would arise in the event that the Fund 
..· Memorandum (cont) 

· Page 6 of 14 · 

• 

understated the reserve and a real ~iability greater than the reseiVe would become due and 

payable. As shown by the above chart, this has never happened over the past fifteen years. 

More. noteworthy perhaps is the fact that it has not happened over the past two months. 

Moreover, this would never occur because ofthe Fund's intent and expressed ability to convert 

to RIC status ifit ever is placed in a position where the reseiVe was in an insufficient amount to 

cover the capital gains tax on appreciated securities. This begs the question ofwhy the Fund luis 

not elected RIC status subsequent to the compelled inclusion ofthe full accrual in its NAV.- The 

short answer is that the reserve established by the Board never was exceeded because ofmarket 

or other operating conditions. No tax ever became payable. The accrual only became an issue 

when the Fund was compelled, under threat ofinjunction, to include the full amount ofthe 

accrual in its NAV. Election ofRIC status has consequences, as discussed below, and the Board 

believes that it should not be "compelled' to accept these consequences when the conditions 

precedel)t establisht:d by them before electing RIC status have not been met. . 

In light ofthe Fund's ability to convert to a RIC, as more fully explained below, and 


ultimately avail itself of the elimination ofthe tax otherwise payable at the corporate level on 


appreciated securities the Fund believes that the inherent assumption made in Parilgraph 11 of 


FAS 109, i.e., that liabilities will be recovered and settled, does not properly apply to the instant 


situation. Moreover, the statement in Paragraph 78 ofFAS 109 that ''the (accounting) Board • 


concluded that the only question is when, not whether- (tax liabilities will be realized)" supports 


the Fund's belief that GAAP does not require the Fund to·accrue the full potential deferred tax 


liability because the ability to convert to a RIC on its own terms answers the ''when" question-


never. 


CONVERSION TO RIC 

Regulated Investment Companies ("RIC's") may escape full corporate taxation because, 


unlike ordinary corporations, they are entitled to claim a deduction for dividend payments 


against ordinary income and net capital gains. A corporation qualifies as a RIC ifit makes an 


irrevocable election to be a RIC by filing a tax return on Form 1120-RIC and it meets certain 


requirements specified in JRC Sections 851 and 852. In order to qualify for this election, the 


Fund would be required, among other things, to distribute to shareholders its undistributed 


earnings an~ profits ("E&P''). · 


The Fund could elect RIC status simply by filing a RIC tax return for the year in which 


the status is deemed to be effective. Any capital gains taxes due and payable at the end ofthe tax 


year, which in theory would be greater than the re~e, would then be shifted to the individual 


shareholders2

• The result is that the Fund would pay the tax on capital gains equal to the reseiVe 


2

Under current law, the capital gains taxes due on net realized gain only would be due at individual rates which are now much 


lower than corporate rates. This Is another example ofwhy tho ''full liquidating value reserve" method Is not only inappropriate • 
 but also seriously misleading. 

Memorandum (cont) 

Page 7 of14 

• 

and shift the remainder ofcapital gains to shareholders. Given this methodology, the Fund 

would never exceed the reserve. 

As noted above, the Fund would have to distribute its accumulated E&P up to the date 

RIC status was elected. The Fund would have until the end of the current tax year to make this 

distribution. The accumulated E&P could be relatively large ($11,844,182 at February 29, 

2008). This begs the question ofwhere the money would come from to make the required 

distribution without selling portfolio securities and generating additional capital gains tax for the 

Fund. The answer is that the Fund could distribute additional shares in the Fund rather than cash 

and, while the distribution ofstock would decrease the value ofthe Fund, the shareholders would 

receive something in value to compensate for the devaluation. The shareholders would be 

subject to income tax on the received distributions, generally taxable at rates lower than the 

coiporate tax .rate which does not distinguish between ordinary income and capital gains; but the 

key point is that the. distribution would not generate capital gains taxes for the Fund. 

• 

The last tax issue to be considered in a RIC conversion is ~e built in gains ("BIG") tax 

on appreciated assets. Current IRS regulations require a new RIC, which was previously a C 

Corporation, to pay a built in gains tax on appreciated assets ifthe assets are sold within ten (10) 

years ofthe RIC conversion date. Ifall or any portion ofthe appreciated assets are not sold 

within this 10 year period, the built in gains tax goes away. It simply ceases to exist 

This begs another question which is at the heart ofthe matter. Does the potential liability 

for BIG tax require a full acci'\liU under FAS 109? The answer is no because ofthe basic 

assumption under F AS 109 that the full accrual is based upon the premise that the appreciated 

assets will be sold and the associated income tax paid at some point in time. ThiS simply is not 

the case when there is, or could be, a date certain when the liability would cease to exist. 

Because ofthis "date pertain test'' the potential BIG tax represents at most a contingent liability 

rather than a real, current liability. This contingent liability has been fully disclosed in the 

Fund's Prospectus and SAl for many years.3 

Since inception, management ofthe Fund has not elected RIC status and met the required 

distribution requirements but rather has. opted to be treated as a regular C Corporation. 

Underlying this decision is the fact that the dividends received deduction is available to a C 

Corporation but not available to a RIC. This concept is critical to the Fund's basic investment 

strategy to create dividend income to the Fund using the 700/o deduction from federal income 

taxes for dividends received. Thus, the Fund's regular income tax liability is kept to a minimum 

and shareholders are allowed to defer taxes until redemption. 

3

The staffofthe Division ofInvestment Management bas reviewed the capital gains tax accrual issue In connection with 

• 

registration starement.s and. financial reports filed by the Fund since 1993. In each Instance, until September of 2007, the staff 

accepted, or at least took no action with respect to, the Fund's rationale for using a reserve method of accounting for such 

acc;ruals. Tandy statements notwithstanding thls lack ofaction provided the Board with an understanding that the rcsCIVe 

methodology was not contrary to GAAP or applicable SEC rules with respect thereto. 
Memorandum ( cont) 

Page 8 of14 

• 

Hence, conversion to a RIC is a viable alternative to the Fund but is contrary to the 

Fund's stated investment objective and strategy. Therefore, it is not somethlng that should be 

undertaken unless the conditions precedent to making the election, exceeding the reserve, have 

been met. These conditions precedent have not been met. The established reserve has never 

been exceeded or even invaded. The important concept for purposes of a deferred tax liability 

standpoint however is that the potential liability can be eliminated. The ultimate liability 

therefore is not a certainty. In fact, it is a contingent liability which at the end ofa ten year 

period simply ceases to exist. 

GENERALLY ACCEPTED_ ACCOUNTING P~CIPLES 

Generally Accepted Accounting Principles ("GAAP") consist ofthe basic principles, 

assumptions and guidelines, the detailed rules and standards issued by the Financial Accounting 

Standards Board ("FASB") and the generally accepted industry practices. GAAP are neither law 

nor regulation. The Securities and Exchange Commission ("SEC'') however, has promulgated a 

regulation which provides, in pertinent part, that "financial statements filed with the Commission 

which are not prepared in accordance with generally accepted accounting principles will be 

presumed to be misleading or inaccurate, despite footnote or other disclosures, unless the 

Commission has otherwise provided." Rule 4-01. Regulation S-X (emphasis added). For all of • 

the reasons set forth herein the Fund believes that this p~sumption has been rebutted. 

GAAP was developed to ensure that :finaD.cial transactions are recorded in a consistent 

manner, to require standardized reporting formats, and to permit comparability with prior year(s) 

information and statements prepared by other business entities. 

GAAP has evolved over the years from a basic framework and from basic objectives of 

financial reporting. Financial reporting should provide useful information for making informed 

business and economic decisions. Usefulness for decision making is the most important 

characteristic ofthe reported information. To be useful, financial statements must be relevant, 

!&, they must make a difference in the decision maker's (investor's) ability to predict the future 

or to correct prior expectations. Hence, useful financial statements provide information about 

what has happened in the past as well as information that will help in predicting what will 

happen in the future. 

Financial Statements must also be reliable. To be reliable they must be veriftable, neutral 

and unbiased and the information presented must represent what really happened or existed. In 

addition, the statements must be comparable (measured and reported in a similar manner by all 

types ofbusinesses) and consistent (the same accounting methods should be applied from period 

to period). In other words, deviations in measured outcomes from period to period shoUld be the 

result of deviations in performance not changes in methods. Because of the change in the capital 

gains tax accounting treatment and related·financial restatements, the Fund's financial statements • 

are not n~w either "useful" or "reliable" within the framework ofGAAP. 
Memorandum ( cont) 

• 

Page9ofl4 

FUND FINANCIAL STATEMENTS SUBSEQUENT TO THE ISSUANCE OF THE 

RESTATED ANNUAL REPORT FOR THE PERIOD ENDED FEBRUARY 29, 2008 ARE 

· CONTRARY TO THE BASIC OBJECITVES OF GAPP AND UNDER THE SPECIFIC 

CIRCUMSTANCES OF THE FUND'S BUS1NESS ARE MISLEADING 

Pursuant to staff comments received in connection with the Fund's annual485APOS 

updating amendment to its registration statement filed on June 6, 2008 the Fund was required to 

file an amended N-CSR/A which contained a "Restated Annual Report to Shareholders", This 

restatement caused the Fund to ''restate" much of its historical financial information including 

average annual returns, the per share value table and the financial highlights table. This 

restatement of historical information was required because the Investment Management staff 

required the Fund to treat the inclusion ofthe full liquidating liability accrual in the Fund's NAV 

as a "correction of an error" as opposed to a "change in accounting estimate" which would not 

have required a restatement ofhistorical information. The consequence ofthis is that the Funds' 

financial reports have not now been compiled in a consistent manner. This is clearly illustrated 

by comparing the Financial Highlights Tables for the period ended February 28, 2007 and 

February, 2008 (restated) (See Attachment "B"). 

• Prior to this requiied restatement the Fund's financial statements were completely within 

the basic framework and objectives ofGAAP reporting as discussed above. In fact, the PCAOB 

exanrlned the Fund's auditor's financials and report thereon for the period ended February 28, 

2006 and issued an affirming clean report thereon. The financials had been recorded in a 

consistent manner for 30 years. They permitted comparability with both prior year(s) 

information and the financial statements prepared by other Funds. They were useful because 

they enabled informed decision making by an investor because they correctly set forth what 

happened in the past and provided information about what will likely happen in the future. They 

were reliable because they were verifiable and the information represented what really happened 

from a historical perspective. For example, the Fund's actual NAV per share at February 28, 

2007 was $54.67 and it was reported as such in the Fund's Annual Report of even date.· Yet, the 

Restated Annual Report for the period ended February 29, 2008 reflects a per share value for that 

same date (February 28, 2007) of$42.54. This simply does not reflect what really happened, is 

not consistent and thwarts comparability with prior years. Contrary to one ofthe basic objectives 

ofGAAP-there are now deviations in measured outcomes from period to period which are the 

result of changes in methods rather than deviations in performance. 

THE INCLUSION OF TilE FULL LIQUIDATING LIABILITY ACCRUAL IN TilE FUND'S 

NAV IGNORES BASIC GAAP ASSUMPTIONS, CONSTRAINTS AND MODIFYING 

CONVENTIONS 

• 

The foundation of GAAP consists ofbasic assumptions, basic principles, basic 

constraints and modifying conventions. Some ofthese are particularly relevant herein. 
Memorandum ( cont) 

Page 10of14 

• 

Assumptions: (1) Going Concern Assumption: This assumption assumes that a business 

will continue operating and will not close or be sold. Based on this assumption, actual costs 

instead ofliqui~tion values are used for presenting financial information. 

Principles: (1) Historical Cost: (1) Realization/Revenue Recognition: This principal 

requires companies to record revenue when it is realized or realizable, i&., at the time ofactual 

sale. (2) Matching Principle: This. means recording the revenues ·~ed during a period using 

the revenue realization principal and matching the revenues with the expenses incurred in 

generating this revenue. (3) Adequate Disclosure: This. principle states that all pertinent 

information should be fully disclosed and in understandable form. 

Constraints and Modifying Conventions. The modifYing conventions include (1) 

Application ofJudgment- an accountant may depart from GAAP ifthe result or departure 

appears reasonable under the circumstances, especially when the $ict adherence to GAAP will 

produce unreasonable results, (2) Substance over Form- the economic substance of a transaction 

determines the accounting treatment, even when the legal aspects of the transaction indicate 

othenvise and (3) Industry practices and Peculiarities-the peculiarities and practices· ofan 

ind1lStry may warrant selective exceptions to accounting principles. 

Utilization ofa full liquidating value accrual method is contrary to the basic "going • 

concern" assumption ofGAAP that a business will continue operating and will not close or be 

sold. Based upon that assumption actual costs and liabilities instead ofliquidation values are to 

be used for presenting financial information. The use ofthe full liquidating value method in the 

present circumstances makes the exact opposite assumption that all portfolio securities will have 

to be completely liquidated today. This simply is not the case and is unrealistic·and misleading. 

The full liquidating value accrual method also is contrary to the principles of 

realization/reven~e recognition and matching. Full accrual transforms a potential contingent 

liability into a full current liability and fails to match current revenues and assets with correct 

liabilities. This, in tum, makes another principle, adequate disclosure ofall pertinent information 

in understandable form, difficult at best. Prior to being compelled to restate the Fund's · 

financials, they were presented in an easily understandable form. The Fund does not now 

believe that this is the case. While those restated financials ~ntain all ofthe staff's comments 

made thereon, the Fund nonetheless believes that they are far from easily understandable and are 

in fact misleading. · 

Insofar as the modifying conventions are concerned it is stated at the. outset that the Fund 

believes that its historical financial ..statements have always been compiled in accordance with 

GAAP. However, it is important to note that GAAP recognizes certain constraints and 

modifying CO:J?.Ventions that allow an accountant to dep~ from GAAP ifthe result or departure 

appears reasonable under the circumstances especially when the strict adherence to GAAP will • 

produce unreasonable results. Assuming arguendo that the use ofthe reserve method is a 
Memorandum (coot) 

• 


• 


• 


Page 11 of14 

"departure" from OAAP it certainly appears reasonable under the circumstances especially here, 

where the use of the full liability accrual method produces an unreasonable result, i.e., a per 

share net asset value which does not reflect the realistic net assets ofthe Fund, distorts 

performance and expense ratios, and disables redeeming shareholders from receiving their fair 

proportionate share ofFund assets. 

Copley Fund is unique among all other Funds4

• To the Fund's knowledge it is the only C 

Corporation the share price of which is based upon a mark to market NAV as opposed to a value 

based on supply and demand for its shares. This does not make it "bad" or "wrong"-just 

different. The Fund also notes that because of this uniqueness the Fund's use ofthe reserve 

method will not impact other mutual funds. On the other hand, ifthe Fund's methodology is 

applied consistently, as it bas been in the past, and is fully understood by all shareholders 

through ample disclosure, it will facilitate comparisons with other mutual funds and will not 

result in overstated performance.- This makes a substance over fonn approach compelling under 

the circumstances of the Fund. For this reason alone the use ofa reserve method falls well 

~thin the judgment parameters of GAAP. 

All ofthis demonstrates that sometimes variations from strict interpretations ofGAAP · 

are requfred5

• Whiie the Fund believes that its financials historically have been compiled and 

presented in accordance with GAAP the modifying conventions make clear that GAAP is not 

"carved in stone" and that variations are made and considered acceptable. Ifnothing else, GAAP 

and FAS 109 are not clear on the appropriate calculation ofa tax accrual particularly in view of 

the fact that the "inherent assumption" underlying FAS 109 is not present given the particular 

circumstances ofthe Fund. 

CONCEPTS OF FAIR VALUE 

. . The Copley Fund is currently valued at its liquidation value. Simply put, this does not 

represent the fair value of the Fund's shares. It ignores reality and misstates the assets ofthe 

Fund. · 

4

Therc arc at least two other lovestmenl companies thai have not elected RIC status and record a deferred tax liability associate<! 

With the llllliallzed appreciation ofportfolio securities. See Tortoise Energy Capital Corp., file number 811-217$, Form N-CSRS 

(August I, 2007) and Knync Anderson MLP Investment Company, file number 811-21593, Form N-CSRS (August 3, 2007). 

However, both arc clotec;l-end funds and as such do not Issue redeemable securities. 'Ibcir shares are bought and sold In the open 

marlcet. A closed-end fund with a large amount of unrealized capital gains in Its portfolio may trade lit adiscount for Cl111Il1ple 

because buyClS would be assum1og a potential tax llabllity and uncertainty as to the amount and tlmiDg ofthe gains to be realized. 

Closed-end funds arc not required to calcullltc their NAV dally. Tortoise Is a nearly $1 billion Fund that Invests In securities of 

energy related to MLP1s operation inftastructure assets. Kayne Is a $2 billion Fund that also invests In energy. Their portfolio 

turnover rates exceed 30%. As such, they are easily distinguishable from Copley. Unlike Copley they are required to apply the 

defmals that are accrue<! on a rcgular basis. · 

5

The Commission has recognfz.ed concept and Issued rules for the use ofeven Non-GAAP financials. Release No. 33-8176, 

34-17226 (January 22, 2003). 
·' Memorandum (cont) 

Page 12 ofl4 

• 

On September 30, 2008, the SEC's Office ofthe Chief Accountant issued a press release 

(2008-234) _which addressed fair value accounting stating that "(t)he current envir~nment has 

made questions surrounding the determination offair value particularly challenging for 

preparers, auditors; and users offinancial infonnation". While not precisely on point the 

concepts addressed in the release are equally applicable. The release makes clear that 

Management's internal assumptions can be used to measure fair value. It acknowledges that the 

determination of fair value often requires significant judgment. The release also concludes that 

clear and transparent disclosures are critical to providing investors with an understanding ofthe 

judgments made by management. 

The Fund believes that it has demonstrated a clear and compelling rationale as to why the 

use ofthe Board's reserve accrual methodology best represents a fair va,lue for the Fund's shares. 

It also believes that the disclosures made in the attached proposed Supplement to the Fund's 

Prospectus provides clear and 1:nmsparent disclosures with respect to both the methodology and 

rationale used by the Board as well as the risks inherent therein. 

The static (1l)plication ofan accounting concept (FAS 109 treatment of a deferred tax 

liability) that is equivalent to liquidation accounting serves to undervalue the true financial 

position ofthe Fund. It operates to overstate dividend yield and expense ratios and und~state • 

perfonnan~ for comparison purposes. Redeeming shareholders do not receive their 

proportionate share ofFund assets. Purchasing shareholders receive a windfall in the event that 

the deferred tax liability is eliminated or reduced due to conversion to a RIC or a change in tax 

law or regulation. 

Management ofthe Fund bas, since 1992, attempted to reflect in the financial statements 

a deferred tax liability to the extent that management anticipates, in an exercise oftheir best, 

good faith business judgment that such a liability exists. Deferred income tax liabilities are at 

best an estimate due to the nature of changing income tax rates and federal and state income tax 

law and regulations. The Fund has consistently, from year to year, applied this concept in order 

that the value ofthe Fund is never arbitrarily increased or decreased at any given point in tinie. 

The performance ofthe Fund was based upon the true increases or decrease in the assets held for 

the specified reporting period. Now the daill NAY fluctuates, sometimes substantially, due only 

to "hypothetical" ~hanges in the tax accrual • 

Sll.1MARY 

Copley Fund, Inc. was founded by Irving Levine in 1978. Over the course ofthose years 

the Fund's NAV consistently bas grown from just over $3 per share to more than $54 per share 

For example, Bssuming a 100/o market decline, Bnd that the Fund's shares react similarly, the Fund's per share NAV would 

de<:rease by approximately $1.15 due solely to·lhe maintenance ofthe full liquidating value accrual (example based upon 

$50,000,000 In unrealized appreciation, a 35% tax rate Bnd 1,500,000 shares outstanding). Utilizing the Fund's historical reserve • 

method there would have been no change in NA V due to Bnything other than the ntarlcct 

6
Memorandum (cont) 


• 


• 


• 

Page 13 of14 

at year end 2007. This has been accomplished not through 12b-1 plans or sales loads or even 

any sales efforts. Rather, the NA V growth is the result ofa solid and consistently applied 

investment philosophy ofpurchasing and holding highly viable, dividend paying stocks which 

yield dividends in ever increasing amounts, all in acrordance with the Fund's stat~ investment 

objective of"the generation and accumulation ofdividend income". 

Because ofthis structure the Copley Fund is unique among all other Funds. The Fund's 

overall structure, investment strategies and operating philosophy have not materially changed 

since its inception in 1978. Its underlying principles and strategies have been consistent, year to 

year, and the overriding concern ofManagement and the Board ofDirectors always has been the 

welfare ofthe individual shareholders. 

The Fund's expense ratio, after a consistent and voluntary $60,000 per year advisory fee 

waiver by the Fund's advisor has been maintained below 1.25%. These ratios, on average, are 

well below the average ratios ofall equity funds, which ranged from 1.44% to 1.07% over the 

same period. Investment Company Institute, Fees and Expenses of Mutual Funds, 2007. Ratios 

. for equivalent small funds. are much higher. 

Every effort has been made to operate the Fund in the best interests ofthe shareholders 

and to reflect the true value ofthe Fund's assets in its net asset value. This effort has been 

thwarted by compelling the Fund to use a full liquidating value accrual with respect to the Fund's 

unrealized appreciation. 

The Fund is required by Rule 22c-l~ to issue and redeem its shares at a price based on

7 

current net asset value. Rule 2a-4a defines current net asset value and specifically states that 

with respect to NAV calculations "estimates (may be) used where necessary or appropriate". 

That Rule also provides that "(a)ppropriate provision shall be made for Federal Income Taxes if 

required" (emphasis added). 

There is no explicit requirement however that the full liquidating liability tax accrual be 

used in calculating the Fund's net asset value on which the daily issue and redemption price of 

its shares must be based. For the reasons set forth above the Board ofDirectors believe that 

neither GAAP nor F AS 109 mandate a liquidating liability accrual. On the other hand, the Board 

does believe it clear that the use ofa full liquidating liability accrual does not represent a fair 

value with respect to the price ofthe Fund's shares. In fact; the application of such a 

methodology is unrealistic, misleading and operates to the detriment ofthe Fund and its 

shareholders. 

As demonstrated above, the risk ofthe Fund incurring a tax liability in excess{)fthe 

Board established reserve is practically nil. Nonetheless, the Fund believes that this risk should 

7 It should be noted that "based on" is not synonymous with .. at". 
Memorandum ( cont) · 

Page 14 of 14 · 

• 

be assessed and either accepted or rejected by· the shareholders with the staffproviding guidance 

related to the risk disclosure. 

Accordingly, the Board proposes to adjust its Net Asset Value8 based on the reserve 

method delineated above and to disclose this adjustment pmsuant to the Prospectus Supplement 

which is attached hereto. Ofcourse, the FWld would be receptive to any disClosure .comments 

made by the staffand would make every effort to include the~ in the Supplement and all future 

disclosure d6cuments. 

• 


FINAL AS TRANSMITIED TO SEC 

As ofOctober 31,2008. This will have the effect ofincreasiilg the Fund's per share value from $39.94 to $48.14. In prderto 

compensate shareholders who redeemed between November 30, 2007and the date ofthe adjustment they will be reimbursed in an 

amount equal to their proportionate share ofthe difference between the established Board reserve and the full liquidating liability 

reserve which was in effect at the time. • 

8
• 


• 


• 


COPLEY FUND, INC• 

.SUPPLEMENT DATED NOVEMBER 2008 TO 

PROSPECTUS DATED JULY 24, 2008 

This Supplement (the "SupPlement") to the Prospectus. dated July 24,2008, provides 

information relating to the Fund and developments since issuance 'Of the Prospectus .. 

This Supplement must be read in conjunction with the Prospectus in order to obtain 

complete information about the Fund as the Supplement only addresses certain issues. In the 

case of any inconsistencies between the Supplement and the Prospectus this Supplement shall 

prevail. 

This Supplement amends the "Tax on Unrealized Appreciation" (page 5), the 

"Performance" (pages 5, 6 and 7), the "Distribution and Taxes" (pages 8, 9 and 10) and the 

"When an~ How Net Asset Value is Calculated (page 13) sections ofthe Prospectus. 

TAX ON UNREALIZED APPRECIATION 

This Section is replaced in its entirety by the following: 

This section addresses two priticipal risks ofinvesting in the Fund: 

TAX LIABILITY RISK. Federal Income Taxes are payable when the Fund sells 

portfolio securities that have appreciated (gone up) in value. The Fund maintains a reserve for 

this tax, the amount ofwhich has been established by the Board ofDirectors. IN THE EVENT 

THAT TilE TAXES PAYABLE ON THE SALE OF PORTFOLIO SECURITIES SHOULD 

EXCEED THE AMOUNT OF THE RESERVE THE NET ASSET VALUE OF THE FUND'S 

SHARES WOULD DECREASE AND SHAREHOLDERS WOULD lNCURA DECREASE 1N 

THE VALUE OF THEIR INVESTMENT. TinS DECREASE COULD BE SUBSTANTIAL. 

For the life ofthe Fund, the tax reserve established by the Board always has exceeded the 

capital gains taxes actually due and payable by the Fund. While the Board believes that it has a 

clear and consistent record ofestablishing an adequate tax reserve and that the sale of sufficient 

portfolio securities to generate a tax greater than the reserve is remote, THE POTENTIAL FOR 

A LOSS EXISTS. 

ACCOUNTlNG INTERPRETATION RISK. The Fund is required to follow generally 

accepted accounting principles (GAAP) in the preparation offinancial statements and associated 

supplemental information. GAAP however is not clear in respect ofone accounting issue which 

impacts on the Fund's. financial statements-the methodology for the treatment ofdeferred 

income tax as it relates to the accumulation ofunrealized appreciation on the Fund's stock 

portfolio. · 

Under one interpretation, the liquida~g value accrual method, the Fund would be 

required to report the full income tax liability, based upon prevailing income tax rates, that 
Copley Fund, Inc. 

Supplement dated November --.......:r 

2008 to Prospectus dated July 24, 2008 

• 

would be due and payable ifthe Fund liquidated its entire portfolio on the date the financial 

statements are presented. Under the other interpretation, currently utilized by the Fund, the 

income tax liability is reported based upon a reserve for such tax which is establi.shed by the 

Board ofDirectors. 

IN TIIE EVENf 1HAT TIIE FUND'S TAX ACCOUNTING METIIODOLOGY IS 

DETERMINED TO BE NOT IN ACCORDANCE WITII GAAP OR NOT SUBJECT TO AN 

EXCEPTION THERETO, THE FUND'S NAV WOULD HAVE TO BE ADJUSTED TO 

REFLECT TIIE·FULL TAX LIABILITY, TilE NET ASSET VALUE OF TilE FUND'S 

SHARES WOULD DECREASE AND SHAREHOLDERS WOULD INCUR A DECREASE IN 

THE VALUE OF THEIR INVESTMENT. THIS DECREASE COULD BE SUBSTANTIAL. 

To illustrate the full potential impact ofthe realization ofeither ofthe identifies risks, the 

following table compares the Fund's historical Per Share Net Asset Value (''NAV'~) calculated 

based upon the reserve established by the Board with the NAV that would result had ·the Fund's 

entire portfolio been liquidated at the end ofthe period indicated. 

YEAR ENDED 

FEB29 FEB28 FEB28 FEB28 FEB28 

•

2008 2007 2006 2005 2004 

Net Asset Value 

lncludingTax Reserve 

Established by Board $54.68 $54.67 $46.86 $43.88 $39.26 

Net Asset Value 

Including Potential Tax 

Liability Assuming Liquidation 

OfEntire Portfolio $44.39 $44.46 $38.79 $36.44 $33.07 

Per Share Impact $10.29 SIO.Ol $8.07 $7.44 $6.19 

This risk and the accounting principles related thereto are discussed in more detail in this 

Prospectus under the "Distribution and Taxes" Section. 

DISTRIBUTION AND TAXES 

This Section is amended by substituting the following for paragraphs 2 through 6 thereof: 

• 

-2­
Copley Fund, Inc. 

• 


• 


• 


Supplement dated November--~ 

2008 to Pros~ctus dated July 24, 2008 

The Fund pays inoome taxes on any net realized capital gains at the statutory rate, 

currently 35%. In addition, the Fund will, for purposes ofcalculating the Fund's Per Share Net 

Asset Value ("NA V'') accrue deferred taxes on net capital gains to the extent management and 

the Board ofDirectors anticipate that a liability may exist. The Fund also may carry any net 

capital losses forward for five years as an offset against any net capital gains realized by the 

Fund during the current year. 

11te reserve for taxes established by the Board ofDirectors is a critical component in the 

pricing ofthe Fund • s Shares. There are two methods by which the liability for deferred income 

taxes for purposes ofpricing the Fund's Shares may be calculated. The first method 

("liquidating value accrual method'') establishes a liability which includes the entire amount of 

capital gains taxes that would be payable ifthe Fund liquidated its entire portfolio of securities 

that day. The second method ("reserve value accrual method"), currently used by the Fund, 

establiShes a current liability which includes only such amount as Management and the Board of 

Directors believes adequately meets the current anticipated tax liability . 

There are provisions under genemlly accepted accounting principles ("gaap'') which may 

be interpreted to require the Fund to record the full potential income tax liability associated with 

the reported unrealized appreciation to ensure that shareholders are not required to recognize a 

decrease in the value oftheir shares due strictly to the income tax obligation associated with the 

sale ofportfolio securities. This concept is understood by the Board ofDirectors and the 

management ofthe Fund and it has been followed diiigentJy albeit with a reserve methodology· 

rather than a full accrual. Even thought the full accrual ofdeferred income taxes associated with 

the unrealized appreciation would remove any risk associated with the devaluation of shares due 

to the payment offederal income taxes, the Board believes that the resultant net asset value 

incorporating a full accrual ofdeferred income taxes does not report the shares at fair value. The 

basis f<>r the Board • s decision is summarized below: 

(1) 	 The use ofa full liquidating accrual methodology is unrealistic. It assumes the 

liquidation ofthe.entire portfolio ofthe Fund's securities. Neither the Board nor 

management bas any intention to liquidate. Nor do they believe, or anticipate, that there 

exists any circumstances which would compel a liquidation of the Fund's entire portfolio 

ofsecurities. As illustrated by the following table, the history ofthe Fund for the past 15 

years supports this position: 

-3­
Copley Fund, Inc. 

Supplement dated November ____ 

2008 to Prospectus dated July 24, 2008 

COMPARISON OF RESERVE ESTABLISHED BY BOARD AND 

ACTUAL CAPITAL GAINS TAXES PAID 

BOARD ESTABLISHED ACfUAL CAPITAL FULL LIQUIDATING 

CAPITAL GAINS TAX RESERVE GAINS TAXES PAID RESERVE FOR CAPITAL 

GAINS LIABILITY ACCRUAL 

2007 $807,345.00 $0 $17,537,872.00 

2006 $758,766.00 $0 $16,104,320.00 

2005 $758,766.00 $0 $14,887,774.00 

2004 $824,472.00 $0 $12,548,834.00 

2003 $770,554.00 $0 $7,602.562.00 

2002 $664,576.00 $0 $13,166,255.00 

2001 $443,285.00 $0 $15,646,991.00 

2000 $464,563.00 $0 $10,961,527.00 

1999 $373,709.00 $0 $13,684,586.00 

1998 $278,488.00 $0 $13,224,672.00 

1997 $189,891.00 $0 $8,193,495.00 

1996 $378,955.00 $0 $7,160,983.00 

1995 $422,000.00 $0 $2,756,751.00 

1994 $422,000.00 $0 $3,843,489.00 

1993 $422,000.00 $0 $5,430,633.00 

(2) 	 The use ofa full liquidating accrual methodology results in a daily NAV that is 

misleading. Lowering the NAV to a level that is inconsistent with the working assets of 

the Fund by booking a long-term liability that is contingent upon some future event that 

in all likelihood will not occur understates the real fair value ofFund shares. All 

obligations ofthe Fund that must be met are recognized and impact the NAV on a daily 

basis. Reducing the NAV to incorporate a liability that by its very nature is contingent 

upon future events, when in fact the liability can be addressed through a sound reserve 

policy, leads the Board to a finding that the resultant NAV would be misleading. An 

essential aspect ofthe Fund's strategy is the accumulation and retention ofdividends 

generated by it$ portfolio ofsecurities. The full accrual method has the potential of 

misleading investors by implying that dividends received are being earned at a rate which 

-is greater than the actual return, i.e., inflated yields because a significant portion ofthe 

principal on which the return was earned is not included in the Fund's NAV. In addition, 

the application ofthe full accrual method overstates expense ratios and may understate 

performance levels. 

(3) 	 Lastly, the use ofthe full liquidating accrual methodology does_ not represent a "fair 

value" for the Fund's shares. 

• 


• 


• 


-4­
Copley Fund, Inc. 

• 

Supplement dated November ____:, 

2008 to Prospectus dated July 24, 2008 

The Board has directed the utilization ofthe reserve value accrual method because it 

results in a fair value for the Fund's shares and fairly presents in all material respects the 

financial condition ofthe Fund. It also stabilizes the Fund's daily NAV because it eliminates 

exaggerated "swings" in NAV caused by the necessity of including a different, and often 

substantial, amount for liquidating tax liability on a daily basis. Details ofthe Board's 

methodology are set forth below. 

• 

When stocks appreciate in value in excess oftheir cost, an asset called unrealized 

appreciation is generated. The appreciation will only be realized when these securities are 

actually sold. However, on a daily basis, the Fund is required to mark its securities to market 

and thereby recognize the unrealized appreciation in the net asset value ofthe Fund. By using 

current values rather than cost values, the value ofthe portfolio, which makes up almost all of 

the total assets ofthe Fund, is reported at its actual market worth. This is an important concept 

in pricing the Fund at a value that truly reflects the assets held. When appreciated securities are 

sold, the unrecognized gain becomes recognizable and, ifnot offset by accumulated capital 

losses, will be subject to taxation. Since the unrealized appreciation and the associated taxation 

thereof attaches to all appreciated securities, many ofwhich will not be sold for long periods of 

time, the management ofthe Fund has taken the position that it will accrue a deferred income tax 

liability on net unrealized capital gains to the extent that management anticipates a liability may 

exist. This liability is based upon current market trends, accumulated capital losses, the amount 

ofcash and cash equivalents held, and anticipated redemptions as well as the Fund's long 

operating history. 

Ifthe Fund actually realized capital gains and paid capital gains taxes that exceeded the 

amount ofthe reserve for deferred income taxes, the net asset value ofthe Fund would be 

lowered by the amount ofthe taxes that exceed the reserve and shareholders would experience a 

real loss in value oftheir respective shares. In order to avoid this potential scenario the Fund 

may elect to be taxed as a regulated investment company ("RIC"), as opposed to a "C" 

Corporate, in the event that the actual capital gains tax liability exceeds the reserve and available 

tax loss carryforwards for a given period. This option would eliminate the income tax at the 

Fund level (35% rate) and shift it to the individual shareholder at a current 15% rate. 

Corresponding with an election to be treated as a regulated investment company, the 

Fund must make a distribution to its shareholders, ofall earning accumulated as a regular 

corporation. This distribution would result in taxable income to the shareholders, whether or not 

the distribution is received in cash or additional shares ofFund stock. 

• Unrealized appreciation (built-in-gains) at the point in time the Fund elects regulated 

investment company treatment is taxable income to the Fund However, under current Revenue 

-5­
Copley Fund, Inc. 

Supplement dated November ----J 


2008 to Pro$pectus dated July 24, 2008 
 • 

Code provisions, the FWld may elect to postpone this built-in:..gains tax until such time as the 

security is sold. Ifthe security is held for at least 1 0 years after electing regulated investment 

company status, the tax will not be assessed against the Fund. 

Legislative or regulatory changes in, or interpretations of, applicable federal tax laws, 


regulations or ruling may make it impossible for the Fund to utilize certain ofthe tax 


management techniques and strategies described in the Prospectus. The Fund intends to evaluate 


continuously the operations ofthe Fund Wlder current federal tax laws as well as various 


alternatives available. 


PERFORMANCE 

This Section is amended by replacing the first paragraph thereofwith the following and 


by adding the Charts and Tables set forth below: 


The bar charts and tables below can help in evaluating the potential risks ofinvesting in 

the Fund. The bar charts show changes in the yearly performance ofthe Fund over the last ten· • 

years. The tables compare the average annual returns for the past one-year, five-year and tenyear periods ofthe Fund, before and after taxes, with the average annual returns for the S&P 500 

'for the same periods. Please keep in mind that the Fund's past performance (before and after 

taxes) is not necessarily an indication ofthe Fund's future performance. 

In order to demonstrate the effects of a full accrual ofdeferred income taxes as compared 


to the reserve method, the following charts and tables are provided. The information presented 


in the first set ofcharts and graphs is based upon the inclusion in the Fund's NAV ofa full 


accrual ofdeferred income taxes that would be payable in its entirety only upon liquidation of 


the Fund's entire stock portfolio. 


1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 

Fund 5.83% (6.69)% 19.75% .(2.76)% (11.93)% 18.14% 8.12% 5.S3% 14.26% 3.60"/e 

S&P 500 26.69% 11.55%(10.10)%(10.60)0/o (22.10)"/o 26.20% .21.26% 4.9QO/o 15.79% 5.49% 

Best Ouarter Worst Ouarter 


13.6% (14.95)% 


3rd-2000 3rd-2002 


The performance information shown above is based on full calendar years. 

• 

-6­
Copley Fund, Inc. 

• 

Supplement dated November ___, 

2008 to Prospectus dated July 24, 2008 

The inyestment return and principal value ofan investment will fluctuate, so an investor's 

shares, when redeem~ will be worth more or less than their original cost. 

Average Annual Total Returns as of2.29.08 

1 Year 5 Years 10 Years 

Total Return Before Taxes 3.60% 6.200/o 4.20% 


Total Return After Taxes on Distributions• N/A** N/A** N/A.. 


Fund Return After Taxes on Distributions 


and Sale ofFund Shares* 3.06% 5.27% 3.51% 


S&P 500 Index (3.60)% 11.62% 7.23% 


The information presented in the charts and tables set forth below are based upon the 

reserve for deferred income taxes established by the Board ofDirectors. 

• 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 

Fund S.36% (6.86)0,{, 26.07S% (S.72)0A.(16.81)% ·25.31% 11.77";{. 6.79".4. 16.67% 0.00"/.. 

S&P 500 26.69",{, 11.5S% (10.10)%(10.60)% (22.10)0,1, 26.2<>-A. 21.26% 4.90-lc. 15.79"1. S.49"A. 

Best Qyarter Worst Ouarter 

13.6% (14.95)% 

3rd-2000 3rd-2002.. 

The performance information shown above is based on full calendar years. 

The investment return and principal value of an investment will fluctuate, so an investor's 

·shares, when redeemed, will be worth more or less than their original cost. 

Average Annual Total Returns as of2.29.08 

1 Year sYears 10 Years 

Totai Return Before Taxes 0.000/o 6.900/o 5.500/o 


Totai Return After Taxes on Distnbutions• N/A** N/A** NIA** 


Fund Return Aftec Taxes on Distributions 


and Sale ofFund Shares* 0.00% 5.87% 4.68% 


S&P 500 Index (3.60)% 11.62% 7.23% 


• 

-7­
Copley Fund, Inc. ' ... Supplement dated November ---J 

2008 to Prospectus dated July 24, 2008 • 

WHEN AND HOW NET ASSET VALUE IS CALCULATED 

This Section is amended by substituting the following for the second paragraph thereof: 

The Fund's NAVis determined by dividing the value ofthe Fund's securities, cash and 

other assets, minus all liabilities, by the number ofshares outstanding. For purposes of 

calculating the Fund's per share price, the liability for deferred income taxes on unrealized 

appreciation is based upon a "reserve" for such taxes established in good faith by the Fund's 

Board ofDirectors. 

The Board ofDirectors believe that a "fair value" accounting ofthe Fund is best served 

by reporting a reserve for deferred taxes that takes into account the investment policy ofthe 

Fund, the Fund's long history o:(holding securities for many years, market conditions, 

anticipated redemptions and other real-time factors deemed relevant by the Board fDirectors. 

The Fund's securities are valued each day at their market value, which usually means the 

last quoted sale~ price on a security's principal exchange. Securities not traded on the valuation • 

date and securities not listed are valued at the last quoted bid price. All other securities, 

including securities in which the quotations are considered to be unreliable due to significant 

market or other events are priced at their fair value as determined in good faith pursuant to 

procedures adopted by the Fund's Board ofDirectors. Part ofthe assets ofthe operating division 

consist ofinventory and is valued at its fair value as determined by the Board ofDirectors. 

FINAL AS TRANSMITTED TO SEC 

• 


-8­
IT~ 
UNITED STATES. 

SECURITIES AND EXCHANGE COMMISSION 

WA!?HINGTON, D.C. g0549 

DIVISION OF' 

INVESTMENT MANAGEMENT December 2, 2009 

..: 

Roberts & Henry 

164 Honeysuckle Drive 

Jupiter, Florida 33458 

Attn: Mr. Tom Henry 

Re: Copley Fund. Inc. (File Nos. 2-60951 and 811-2815) 

Dear Sir: 

In your letter, addressed to Lawrence Pisto and dated October 5, 2009, you indicate that 

your client, the Copley Fund, Inc. (the "Company''), would like to resubmit a position on 

accounting for income taxes for consideration by the staff ofthe Division of 

Enforcement. You indicate that the compliance with the requirements ofStatement of 

Financial Accounting Standards No. 109, Accountingfor Income Taxes ("SFAS 109")\ 

results in what you believe are misleading and inconsistent financial statements and a per 

share value that dos not represent the fair value for the Company's shares. Further, you 

indicate that the Fund has adopted the requirements ofASC 7 40, only in response to the 

Staffs comments. 

The staff ofthe Division ofInvestment Management (the "Staff') provided comments_ 

regarding the Company's accounting and reporting ofincome taxes in a letter dated 

September 26, 2007. Within our comment letter, the Staff detailed the basis for our 

comments, including our basis for determining the applicability ofASC 740 to the 

Company's circumstances. Your most recent letter does not provide any arguments that 

were not already considered by the Staff, nor does the letter cite any changes in the 

Company's circumstances that might cause reconsideration ofour original position. 

As we have previously stated, we would recommend immediate enforcement action if 

you were to submit financial statements that did not comply with the provisions of 

ASC740. 

1 In July 2009, the FASB released their FASB Codification, which is now the single source of authoritative 

non-governmental U.S. generally accepted accounting principles. The codification is effective for annual 

and interim periods ending after September 15,2009. SFAS 109 has been codified within Section 740 of 

F ASB Accounting Standards Codification ("ASC 740"). 
The Staff requests that y~u provide a copy ofthis letter to the Company's independent 

accountant, Amper, Politziner & Mattia, LLP (the "Accountants") upon your receipt to 

ensure the Accountants understand the Staff's concerns. Please note that the Staff 

believes that this letter should be provided to the Accountants because it constitutes a 

communication from a regulatory agency concerning noncompliance with or deficiencies 

in financial reporting practices. 2 The Staff also requests that you provide a copy ofthis 

letter to the Company's board ofdirectors. 

Ifyou have any questions, please contact Bryan J. Morris at (202) 551-6935 or Kevin 

Rupert at (202)551-6966. 

Sincerely 

Richard 

~r7~ F. Sennett 

ChiefAccountant 

Division ofInvestment Management 

cc: 	 Bryan J. Morris 

Assistant ChiefAccountant 

Division ofInvestment Management 

Kevin Rupert 

Accountant 

Division of Investment Management 

John T. Dugan· 

Associate Director 

Divfsion ofEnforcement 

2 In connection with an audit offinancial statements presented in accordance with GAAP, AU section 333 

Management Representations requires a specific representation from management to the auditor relating to 

communications from regulatory agencies concerning noncompliance with or deficiencies in financial 

reporting practices. See also paragraph 11.26 ofthe AICP A Audit and Accounting Guide: Investment 

Companies. 
IT~ 
I· 


UNITED STATES 


SECURITIES AND EXCHANGE COMMISSION 


Boston Regional Office 


33 Arch Street. 23rd Floor 


Boston. MA 02110 


Phone: (617) 573-8900 

Fax: (617) 573-5923 

VIA FEDERAL EXPRESS 

March 5, 2010 

Thomas C. Henry, Esq. 

Roberts & Henry 

164 Honeysuckle Drive 

Jupiter, Florida 33458 

. RE: In the Matter of Copley Fund, Inc .. B-233 5 

Dear Mr. Henry: 

This investigation has been completed as to your clients Irving Levine and the 

Copley Fund, Inc., against whom we do not currently intend to recommend an 

enforcement action by the Commission. We are providing this information under the 

guidelines in the final paragraph ofSecurities Act Release No. 5310 (copy attached). 

As we discussed, howev~r, ifthe Copley Fund does not comply with the 

requirements of Statement ofFinancial Accounting Standards No. 109, Accountingfor 

Income Taxes ("SFAS 109") and Section 740 ofFASB Accounting Standards 

Codification ("ASC 740"), as set forth in the December 2, 2009, letter from Richard F. 

Sennett, ChiefAccountant for the Division ofInvestment Management, to you (copy 

attached), we likely will recommend an enforcement action by the Commission. 

Sincerely, 

. --;(/, / -~· 

fo--,~ /l _2~-k~,A---:>-"'"·. 

Kevin M. Kelcourse 

Assistant Regional Director 

Enclosures 
ITI 

Page 1 ofl. 

Subj: Re: Copley 

Date: 07/15/10 2:55:07 P.M. Eastern Daylight Time 

From: robertshenrylaw@aol.com 

To: RupertK@SEC.GOV 

Tuesday good. Tom 

--Original MessageFrom: Rupert, Kevin C. <RupertK@SEC.GOV> 

To: robertshenrylaw@aol.com 

Cc: Morris, Bryan J. <MorrlsB@sec.gov> 

Sent: Thu, Jul15,20102:39 pm 

Subject: RE: Copley 

Tom, 

How about Tuesday at 11:00? 

While we have been firm on not permitting footnotes, this fund has really unusual tax issues, and for 

this reason an explanatory footnote might be permitted- but I make no promises. In sum, we believe 

the numbers and general theory we discussed earlier this week are the correct disclosure. While I 

understand what you mean in the last sentence, our position remains unchanged. 

Kevin Rupert 

202-551-6966 

From: robertshenrylaw@aol.com [mallto:robertshenrylaw@aol.coml 

sent: Thursday, July 15, 2010 1:00PM 

To: Rupert, Kevin C. 

Subject: Copley 

Dear Kevin, 

I have had something come up and cannot do the call tomorrow. How about monday at 11am? Also, 

attached Is the final expense ratio calculations. I hope we can discuss the fee table Issue Monday. It 

seems to me that the figure to use is the gross expenses ratio In calculating fee table Info, le, apples to 

apples Instead of apples to oranges. It seems unfair and misleading to use a figure which Inclusive of 

positive effects of the tax accrual but not to be able to use the negative figures when applicable. 

Best regards, 

Tom 

07/19/2010 AOL: RobertsHenrylaw 

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N-CSRS I v200283_ncsrs.htm 

SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, DC 20549 

FORMN-CSR 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT 

INVESTMENT COMPANIES 

INVESTMENT COMPANY ACT FILE NUMBER 8I 1-2815 

COPLEY FUND, INC. 

(Exact name ofregistrant as specified in charter) 

5348 Vegas Drive 


Suite 39I 


Las Vegas, NV 89108 


{Address of principal executive offices) (Zip code) 


Irving Levine, President 


5348 Vegas Drive 


Suite 391 


Las Vegas, NV 89108 


(Name and address of agent for service) 


REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 1-508-674-8459 

DATE OF FISCAL YEAR END: FEBRUARY 28, 201 I 

DATE OF REPORTING PERIOD: AUGUST 3I, 2010 

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ITEM 1. REPORT TO SHAREHOLDERS. 

Semi-Annual Report 

August 31, 2010 

COPLEY FUND, INC. 

A No-Load Fund 

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TABLE OF CONTENTS 

COPLEY FUND, INC. 

CONSOLIDATED FINANCIAL STATEMENTS 


FOR THE SIX MONTHS ENDING 


AUGUST 31, 2010 


Table of Contents 

Title Page 

Shareholder Letter and Management's Discussion of Fund Performance 

Per Share Value Graph 

Portfolio of Investments as of August 31, 2010 (unaudited) 

Consolidated Statement of Assets and·Liabilities as of August 31, 2010 

(unaudited) 

Consolidated Statement of Operations for the six months ended 

August 31, 2010 (unaudited) 

Consolidated Statements of Changes in Net Assets for the six months ended 

August 31, 2010 (unaudited) and year ended February 28, 2010 (audited) 

Consolidated Statement of Cash Flows for the six months ended 

August 31, 2010 (unaudited) 

Financial Highlights for the six months ended August 31, 2010 (unaudited) 

and years ended February 28 or 29, 2010 through 2006 (audited) 

Notes to Consolidated Financial Statements (unaudited) 

Disclosure of Fund Expenses 

Supplemental Data 

General 


Voting Proxies on Fund Portfolio Securities 


Disclosure of Portfolio Holdings 


Approval of Investment Advisory Agreement 

1-& 

.1-.6. 

z 

10 

11­

12 

1.3­

17 

113. 

19 

19 

19 

19 

19­

20 

Inside Back 

About the Fund's Directors and Officers Cover 

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TABLE OF CONTENTS 

Tel: (508) 67 4-8459 


Fax: (508) 672-9348 


COPLEY FINANCIAL SERVICES CORP. 

Adviser and Administrator to Copley Fund, Inc. 

Post Office Box 3287 

Fall River, Massachusetts 02722 

October 2010 

Dear Fellow Shareholder: 

We were shocked and saddened by the accidental death of our friend and longtime attorney Tom Henry, 

Esq. Tom, aged 61, was thrown from his boat in the Jupiter, Florida Inlet and died from the fall. He had 

served brilliantly as Counsel for the Copley Fund since 1987 and will be sorely missed. Our sympathies 

and good wishes go out to his wife Pat in this tragic moment. 

This tragedy will not impede our efforts to resolve the deferred tax issue or our ability to deal with 

other legal and regulatory matters. 

David Faust, Esq. of Faust Oppenheim, LLP, a long time investor in Copley Fund, will now serve as its 

counsel. 

Our unusually high professional fees for this period are due to our attempts to resolve our previously 

discussed and recorded deferred tax reserve issue, which we hope to achieve. 

The type of stocks we own and buy gives credence to our buy and hold strategy. Our typical stock pays 

a good dividend and has a history of increasing its dividend. This dividend increase usually results in an 

increase in the price of the stock to keep pace with its yield. An example is Delta Natural Gas, our only 

NASDAQ holding. We first bought 15,000 shares in 1991 at $13t. We next bought 5,000 shares at $19.85 

in 2002. These shares have yielded almost 5% constantly. 

Today, Delta's price is $30 per share and still yielding almost 5%. Thus, the price has doubled, but, 

even more importantly, the average dividend has paid approximately $1 per share or $20,000 per year. 

Thus, in twenty years the Fund has gained $400,000 in income and $300,000 in unrealized capital gains. 

Our total cost was $302,000. This basic investment strategy has neutralized the volatility for Copley Fund 

that regular markets undergo. As an example, in 2008, when regular mutual funds lost 40% to 50%, Copley 

lost only 15.6%. In 2009, most funds gained on average of a mere 20% against the 50% loss; Copley gained 

3%. Thus, our losses were minimized compared to most other funds. 

My last letter to shareholders disclosed a change in how the SEC ordered us to calculate our expense 

ratio. We must calculate our expenses like any other operating corporation- not as a mutual fund. Thus, 

this ratio is no longer a fair basis for comparison with other funds. 

It is important for all of us to keep in mind that Copley, unlike all other mutual funds, is a regular 

corporation (a C Corporation). It pays its own taxes and does not distribute dividends or capital gains. 

Thus, an investor only pays taxes if shares are sold for a gain. This rather unique structure creates an 

important distinction from most other funds, where the shareholder is compelled to pay taxes each year on 

any gains and dividends realized by the fund as they are required to be distributed, or deemed to be 

distributed at year end. 

1 

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TABLE OF CONTENTS 

As is our custom, we present the chart and numbers based on a calendar year, which give us a clear 

picture of our past and give credence to our basic philosophy and our structure for the future. 

1984 + 23.9% 

1985 	 +25% 

1986 	 + 18% 

1987 	 -8% 

1988 	 +20% 

1989 	 +16% 

1990 	 -2% 

1991 	 +18% 

1992 	 +18% 

1993 	 +10% 

1994 	 -7% 

1995 	 +26% 

1996 	 +5% 

1997 	 +25% 

1998 	 + 14% 

1999 -6.86% 

2000 +22.5% 

2001 -9.30% 

2002 -13.9% 

2003 +14.31% 

2004 + 12.99% 

2005 + 5.89% 

2006 + 19.70% 

2007 -10.83% * Addition of Tax Reserve 

2008 -15.6% * 

2009 + 2.36% * 


2010 +3.29% * (As of Sept. 30) 


* 	 Please note that the performance figures provided for years prior to 2008 are consistent with the 

information furnished in prior reports and do not reflect an adjustment for the change in accounting 

treatment of deferred income tax. 

The performance data quoted represents past performance and investment return. The prices of the 

shares held by Copley will fluctuate so that the 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. 

All of the above gives us optimism for the future growth of Copley Fund. 

We thank the Board and consultants for their advice and guidance and also our shareholders for their 

confidence in Copley's concept. 

Cordially yours, 

Irving Levine 

President 

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2 


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TABLE OF CONTENTS 

COPLEY FUND, INC. 

PER SHARE VALUE 

CALENDAR YEAR ENDED DECEMBER 31 


PERIOD ENDED AUGUST 31, 2010 


40 

20 

10 

0 I 

54,01 

~_35 11.00 JQjJ 

?~t' 

1Al3j4,C~ 

.. 21~\5 ii 

~ ' 

1M7 

42:}6 

;~ 

32.$3 I 213£6 

24.65 

I 

45.12 44Ji7 

.U.a1 

~64! 41.50 

$:77~ 

~ 

I 

The per share values provided for years prior to 2008 are consistent with information furnished in prior 

reports and do not reflect an adjustment for the change in accounting treatment for deferred income taxes. 

3 

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TABLE OF CONTENTS 

COPLEY FUND, INC. 

SCHEDULE OF INVESTMENTS 

August 31, 2010 (Unaudited) 

Common Stocks - 109.88% 

Banking- 4.87% 

J.P. Morgan Chase & Company 


PNC Financial Services Group, Inc. 


Consumer Products - 1.68% 

Kimberly-Clark Corp. 

Diversified Utility Companies- 11.80% 

Alliant Energy Corp. 

DTE Energy Co. 

Dominion Resources, Inc. 

Duke Energy Corp. 

Drug Companies - 4.54% 

Bristol Myers Squibb Co. 

Electric & Gas- 18.50% 

American Electric Power, Inc. 

First Energy Corp. 

Great Plains Energy, Inc. 

Integrys Energy Group, Inc. 

Progress Energy, Inc. 

Public Service Enterprise Group, Inc. 

Scana Corp. 

Sempra Energy, Inc. 

Electric Power Companies- 20.93% 

Ameren Corp. 

Exelon Corp. 

NextEra Energy, Inc. 

Nstar Corp. 

PPL Corp. 

Southern Co. 

Shares 

42,000 

25,000 

15,000 

20,000 

55,000 

60,000 

54,600 

100,000 

35,000 

40,000 

30,000 

20,000 

40,000 

30,000 

50,000 

35,000 

12,500 

23,200 

90,000 

50,000 

100,000 

35,000 

Market Value 

$ 	1,527,120 

1,274,000 

2,801,120 

966,000 

700,400 

2,576,750 

2,565,600 

938,574 

6,781,324 

2,608,000 

1,239,350 

1,461,200 

554,700 

969,000 

1,716,400 

958,800 

1,951,500 

1,782,200 

10,633,150 

350,875 

944,704 

4,835,700 

1,901,500 

2,716,000 

1,284,150 

12,032,929 

The accompanying notes are an integral part of these consolidated financial statements. 

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4 


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TABLE OF CONTENTS 

COPLEY FUND, INC. 

SCHEDULE OF INVESTMENTS 

August 31, 2010 (Unaudited) 

Shares Market Value 

Gas Utilities & Supplies- 10.14% 

Delta Natural Gas Co. 20,000 $ 580,000 

New Jersey Resources Corp. 56,250 2,093,063 

NorthwestNatural Gas Co. 40,000 1,817,600 

WGL Holdings, Inc. 38,000 1,340,260 

5,830,923 

Insurance - 3.46% 

Arthur J. Gallagher & Co. 80,000 1,988,000 

Office Equipment- 1.34% 

Pitney Bowes, Inc. 40,000 769,600 

Oils- 19.81% 

Chevron Texaco Corp. 46,200 3,426,192 

Exxon-Mobil Corp. 106,086 6,276,048 

Sunoco, Inc. 50,000 1,684,000 

11,386,240 

Pipelines - 0.96% 

Spectra Energy Corp. 27,300 555,282 

Retail - 1.66% 

Wal-Mart Stores, Inc. 19,000 952,660 

Telephone -10.19% 

AT&T, Inc. 95,000 2,567,850 

Frontier Communications Corp. 62,803 485,467 

Verizon Communications, Inc. 95,000 2,803,450 

5,856,767 

TOTAL COMMON STOCK (Cost $25,193,800) -109.88% 63,161,995 

Liabilities in excess of other assets - (9.88)% (5,678,701) 

NET ASSETS - 100.00% $57,483,294

The accompanyjng notes are an Integral part of these consojjdated fjnandal statements. 

5 

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TABLE OF CONTENTS 

COPLEY FUND, INC. 

SCHEDULE OF INVESTMENTS 


August 31, 2010 (Unaudited) 


At August 31, 2010, the net unrealized appreciation based on cost for financial reporting purposes of 

$25,193,800 was as follows: 

Aggregate gross unrealized appreciation for all investments for 

which there was an excess of value over cost, net of tax effect $25,246,987 

Aggregate gross unrealized depreciation for all investments for 

which there was an excess of cost over value (307 ,003) 

Net unrealized appreciation, net of tax effect $24,939,984 

Portfolio Analysis 

As of August 31, 2010 

%of 

Net Assets 

Common Stocks 109.88% 

Electric Power Companies 20.93% 

Oils 19.81% 

Electric & Gas 18.50% 

Diversified Utility Companies 11.80% 

Telephone 10.19% 

Gas Utilities & Supplies 10.14% 

Banking 4.87% 

Drug Companies 4.54% 

Insurance 3.46% 

Consumer Products 1.68% 

Retail 1.66% 

Office Equipment 1.34% 

Pipelines 0.96% 

Liabilities in Excess of Other Assets (9.88)% 

Total Net Assets 100.00% 

--­

The accompanying notes are an integral part of these consolidated financial statements. 

6 

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TABLE OF CONTENTS 

COPLEY FUND, INC. 

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES 

August 31, 2010 (Unaudited) 

Assets: 

Investments in Securities at Market Value (identified cost 

$25,193,800) $63,161,995 

Cash 6,580,615 

Receivables: 

Trade and Subscriptions 14,833 

Dividends & Interest 292,233 

Loan 356,500 

Taxes 100,000 

Inventory 46,035 

Prepaid Expenses and Other Assets 12,786 

Total Assets 70,564,997 

Liabilities: 

Payable: 

Redemptions 2,359 

Trade 13,436 

Accrued expenses 37,697 

Deferred income taxes, net 13,028,211 

Total Liabilities 13,081,703 

Commitments and Contingencies 

Net Assets $57,483,294 

Net Asset Value, Offering and Redemption Price Per Share 

(5,000,000 shares authorized, 1,383,212 shares outstanding 

of $1.00 par value capital stock outstanding) $ 41.56 

Net assets consist of: 

Capital paid in $ 1,383,212 

Undistributed net investment and operating income 28,625,386 

Accumulated undistributed net realized gain on investment 

transactions 2,534,712 

Net unrealized appreciation in value of investments, net of tax 

effect 24,939,984 

Net Assets $57,483,294 

The accompanying notes are an integral part of these consolidated finandal statements. 

7 

--···---·- --­

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TABLE OF CONTENTS 

COPLEY FUND, INC. 

CONSOLIDATED STATEMENT OF OPERATIONS 

For the Six Months Ended August 31, 2010 (Unaudited) 

Investment Income: 

Interest Income 

Dividend Income 

Total. Investment Income 

Expenses: 

Investment Advisory Fees 

Professional Fees 

Accounting and Shareholder Services 

Insurance Expense 

Printing Expense 

Custodian Fees 

Directors Fees 

Postage & shipping 

Blue Sky Fees 

Total Expenses 

Less: Investment advisory fee waived 

Net Expenses 

Net Investment Income Before Income Taxes 

Operating Gain 

Gross Profit 

Less: Operating Expenses 

Net Operating Income before income taxes 

Net Investment and Operating Income before Income Taxes 

Plus provision for income tax benefit 

Net Investment and Operating Income 

Realized and Unrealized Gain (Loss) on Investments 

Realized loss from investment transactions during the period 

Increase in unrealized appreciation of investments during current 

period 

Deferred income tax liability 

Net Realized and Unrealized Gain on Investments 

Net Increase in Net Assets Resulting From Operations 

Page 13 of32 

$ 2,590 

1,339,802 

1,342,392 

225,311 

246,807 

35,898 

21,988 

12,602 

9,374 

5,600 

2,029 

2,200 

561,809 

(30,000) 

531,809 

810,583 

19,453 

(18,739) 

714 

811,297 

811,297 

(31,866) 

1,689,451 

(580,155) 

1,077,430 

$1,888,727 

The accompanying notes are an integral part of these consolidated financial statements. 

8 

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TABLE OF CONTENTS 

COPLEY FUND, INC. 

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS 

Six Months 

Ended Year Ended 

August 31, February 28, ­ 2010 2010 

(Unaudited) 

Increase in Net Assets from Operations 

Net investment and operating income $ 811,297 $ 2,086,646 

Net realized loss on investment transactions (31,866) (62,350) 

Net change in unrealized appreciation on investments 1,109,296 4,559,696 

Increase in Net Assets Resulting From Operations 1,888,727 6,583,992 

Capital Share Transactions 

Decrease in net assets resulting from capital share 

transactions (633,782) (4,121,106) 

Total increase in net assets 1,254,945 2,462,886 

Net Assets: 

Beginning of Period 56,228,349 53,765,463 

End of Period 

(including undistributed net investment and 

operating income of $28,625,386 and $18,406,134 

respectively) $57,483,294 $56,228,349 

The accompanying notes are an integral part of these consolidated financial statements. 

9 

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T_lillLE OF CONTENTS 

COPLEY FUND, INC. 

CONSOLIDATED STATEMENT OF CASH FLOWS 

For the Six Months Ended August 31, 2010 

Increase (Decrease) in Cash 

Cash flows from operating activities 

Dividends and interest received 

Proceeds from disposition of long-term portfolio investments 

Receipts from customers 

Expenses paid 

Purchase of long-term portfolio investments 

Payments to suppliers 

Net cash provided by operating activities 

Cash flows used by financing activities 

Fund shares sold 

Fund shares repurchased 

Net cash used by financing activities 

Net decrease in cash 

Cash at beginning of year 

Cash as of August 31, 2010 

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 

Increase in investments 

Decrease in dividends and interest receivable 

Decrease in receivables from customers 

Increase in inventory 

Decrease in trade payables 

Decrease in other assets 

Decrease in accrued expenses 

Increase in deferred taxes 

Total adjustments 

Net cash provided by operating activities 

Page 15 of32 

$ 1,350,772 

832,914 

33,570 

(577,427) 

(1,104,018) 

(9,549) 

526,262 

189,337 

(822,010) 

(632,673) 

(106,411) 

6,687,026 

$ 6,580,615 

$ 1,888,727 

(1,928,690) 

8,376 

235 

(596) 

(1,064) 

3,210 

(24,091) 

580,155 

(1,362,465) 

$ 526,262 

The accompanying notes are an integral part of these consolidated financial statements. 

10 

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COPLEY FUND, INC. 

FINANCIAL HIGHLIGHTS 

The table below sets forth financial data for one share of capital stock outstanding throughout each 

period presented.<al 

The financial highlights table is intended to help you understand the Fund's financial performance for 

the fiscal years February 28, 2006 through February 28, 2010 and the six months ended August 31, 2010. 

Certain information reflects financial results for a single Fund share. The total returns in the table 

represent the rate that an investor would have earned or lost on an investment in the Fund. Shareholders 

should be certain that they have the most recent am:mal report which should be read in connection with the 

prospectus. 

The Fund's annual report to Shareholders, is available at no charge on request by calling 877-881­

2751. 

Six Months 

Ended Fiscal Years Ending February 28 or 29, 8/31/10

(Unaudited) 2010 2009 2008 2007 2006 

Net Asset Value, .. Beginning of Period $ 40.21 $ 35.80 $ 44.07 $ 42.54 $ 37.23 $ 35.28 

Income (loss) From 

Operations: 

Net investment gain (loss) 0.58 1.43 1.20 1.18 (1.31) 0.27 

Net gain (loss) from 

securities (both 

realized and unrealized) 0.77 2.98 (9.4 7) 0.35 6.62 1.68 

Total from operations 1.35 4.41 (8.27) 1.53 5.31 1.95 

Net Asset Value, End of Period $ 41.56 $ 40.21 $ 35.80 $ 44.07 $ 42.54 $ 37.23 

Total Return<bl 3.36% 12.32% (18.77)% 3.60% 14.26% 5.53% 

Ratios/Supplemental Data 

Net assets, end of period Cin OOO's) $57,483 $56,228 $53,765 $69,395 $67,581 $59,298 

Ratio of total expenses, including net regular and 

deferred taxes, to 

average net assets* 4.01%(c) 5.54% 2.40%** 1.56%** 7.97% 3.90% 

Ratio of total expenses, excluding net regular and 

deferred taxes, to 

average net assets* 2.01%(c) 1.70% 2.06% 1.25% 1.76% 1.83% 

Ratio of net investment and 

operating income (loss) to 

average net assets 0.80%(c) 3.65% 2.80% 2.73% (3.28)% 0.76% 

Ratio of net investment and 

operating income, 

excluding deferred taxes, 

to average net assets 2.81%(c) 3.25% 3.14% 2.73% 2.93% 2.83% 

Portfolio turnover rate 1.33% 1.76% 2.78% 4.11% 0.50% 0.73% 

Number of shares 

outstanding at end of 

period Cin thousands) 1,383 1,399 1,502 1,575 1,589 1,593 

The accompanying notes are an integral part of these consolidated financial statements. 

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COPLEY FUND, INC. 

FINANCIAL HIGHLIGHTS 

(Continued) 

The financial highlight ratios above do not reflect investment fees waivers of $30,000 for the six 

months ended August 31, 2010, $60,000 during the fiscal year ended February 28, 2010, $185,972 during 

the fiscal year ended February 28, 2009 and $60,000 per year for prior years. If the waivers had been 

included, the following ratios would apply: 

Six Months 

Ended Fiscal Years Ending February 28 or 29, 8/31/10 

(Unaudited) 2010 2009 2008 2007 2006 

Ratio of total expenses, 

including net regular and 

deferred taxes, to average 

net assets* 3.91%(c) 5.44% 2.11 %** 1.49%** 7.88% 3.80% 

Ratio of total expenses, 

excluding net regular and 

deferred taxes, to average 

net assets* 1.90%(c) 1.60% 1.77% 1.18% 1.67% 1.72% 

Ratio of net investment and 

operating income Ooss), to 

average net assets 0.70%(c) 3.55% 2.52% 2.65% (3.37)% 0.66% 

Ratio of net investment and 

operating income, excluding 

deferred taxes, to average 

net assets 2.70%(c) 3.14% 2.86% 2.65% 2.84% 2.73% 

(a) Per share amounts are calculated using the average shares method, which more appropriately presents 

the per share data for the period. 

(b) Total returns are historical in nature and assume changes in share price, reinvestment of dividends and 

capital gains distributions, if any. 

(c) Annualized for periods less than one year. 

* 	 Includes operating expenses from the Operating Divisions of $i8,739 for the six months ended August 

31, 2010 and $81,764, $353,018, $129,652, $31,676 and $30,787 for the fiscal years ending 2010 

through 2006, respectively. 

** 	 Excludes a deferred tax benefit of $7,490,467 and $1,770,234 for the fiscal years ended 2009 and 2008, 

respectively, since including these amounts would generate negative expense ratios in these respective 

years. 

The accompanying notes are an integral part of these consolidated financial statements. 

12 

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COPLEY FUND, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 

1. Significant Accounting Policies 

The Fund is registered under the Investment Company Act of 1940, as amended, as a diversified, openend management company. It's investment objective is the generation and accumulation of dividend income. 

The preparation of financial statements in accordance with accounting principles generally accepted in the 

United States of America 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 revenue and expenses during the period. Actual results 

could differ from those estimates. 

The following is a summary of significant accounting policies consistently followed by the Fund in the 

preparation of its financial statements. 

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. 

The Fund utilizes various methods to measure the fair value of most of its investments on a recurring 

basis. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of input 

are: 

Level Unadjusted quoted prices in active markets for identical assets and liabilities that the Fund has 

1- the ability to access. 

Level Observable inputs other than quoted prices included in Level 1 that are observable for the 

2- asset or liability, either directly or indirectly. These inputs may include quoted prices for the 

identical instrument on an inactive market, prices for similar instruments, interest rates, 

prepayment speeds, credit risk, yield curves, default rates and similar data. 

Level Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not 

3- available, representing the Fund's own assumptions about the assumptions a market participant 

would use in valuing the asset or liability, and would be based on the best information 

available. 

The availability of observable inputs can vary from security to security and is affected by a wide 

variety of factors, including, for example, the type of security, whether the security is new and not yet 

established in the marketplace, the liquidity of markets, and other characteristics particular to the security. 

To the extent that valuation is based on models or inputs that are less observable or unobservable in the 

market, the determination of fair value requires more judgment. Accordingly, the degree of judgment 

exercised in determining fair value is greatest for instruments categorized in Level 3. 

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. 

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COPLEY FUND, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 

1. Significant Accounting Policies - (continued) 

The inputs or methodology used for valuing securities are not necessarily an indication of the risk 

associated with investing in those securities. The following tables summarize the inputs used as of August 

31, 2010 for the Fund's assets and liabilities measured at fair value: 

Assets• Level 1 Level 2 Level 3 Total 

Common Stocks $63,161,995 $ $ $ 63,161,995 

Total $63,161,995 $ $ $ 63,161,995 

* Refer to the Schedule of Investments for industry classifications. 

In January 2010, the Financial Accounting "Standards Board ("FASB") issued Accounting Standards 

Update ("ASU") No. 2010-06 "Improving Disclosures about Fair Value Measurements". ASU 2010-06 

amends FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, to 

require additional disclosures regarding fair value measurements. Certain disclosures required by ASU No. 

2010-06 are effective for interim and annual reporting periods beginning after December 15, 2009, and 

other required disclosures are effective for fiscal years beginning after December 15, 2010, and for 

interim periods within those fiscal years. The Fund adopted ASU 2010-06 on March 1, 2010. The adoption 

of ASU 2010-06 had no material impact on the Fund's disclosures. 

Sales ofSecurities 

In determining the net realized gain or loss from sales of secuntJes, the cost of securities sold IS 

determined on the basis of identifying the specific certificates delivered. 

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 used to pay expenses, to make additional investments or held in cash 

as a reserve. 

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. 

The Fund recognizes the tax benefits of uncertain tax positions only when the position is "more likely 

than not" to be sustained assuming examination by tax authorities. Management reviewed the tax positions 

in the open tax years of 2008 through 2010 and those expected to be taken during the six months ended 

August 31, 2010 and concluded that no liability for unrecognized tax benefits should be recorded related to 

uncertain tax positions taken in the above open tax years. The Fund identifies its major tax jurisdiction as 

U.S. Federal and Nevada State. The Fund recognizes interest and penalties, if 

14 


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COPLEY FUND, INC. 


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 

1. Significant Accounting Policies - (continued) 

any, related to unrecognized tax benefits as income tax expense in the Statements of Operations. During 

the period, the Fund did not incur any interest or penalties. Generally tax authorities can examine tax 

returns filed for the last three years. 

Indemnifica lion 

The Fund indemnifies its officers and trustees for certain liabilities that may arise from the performance 

of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into contracts 

that contain a variety of representations and warranties and which provide general indemnities. The Fund's 

maximum exposure under these arrangements is unknown, as this would involve future claims that may be 

made against the Fund that has not yet occurred. However, based on experience, the Fund expects the risk 

of loss due to these warranties and indemnities to be remote. 

Other 

Security transactions are accounted for on a trade-date basis. Dividend income is recorded on the exdividend date. Interest income is recorded as earned. 

2. Disclosure of the provisions for income taxes, reconciliation of statutory rate to effective rate, and 

significant components of deferred tax assets and liabilities. 

The Federal and state income tax provision (benefit) is summarized as follows: 

Six Months Ended 

August 31, 2010 

(Unaudited) 

Current: 

Federal 	 $ 

State 

Deferred*: 

Federal 	 580,155 

State 

Net provision (benefit) for income taxes 	 $ 580,155 

* 	 Deferred income taxes are shown net within realized and unrealized gain (loss) on investments on the 

accompanying consolidated Statement of Operations. 

The difference between the effective tax rate of 23% and the statutory tax rate of 35% is primarily 

attributable to the benefits of the dividend received deduction. 

Deferred income taxes reflect the net tax effects of temporary differences between the carrying 

amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax 

purposes. The deferred tax liabilities of $13,028,211 as of August 31, 2010, relate to the Fund's unrealized 

gains on marketable securities. Deferred tax liabilities are net of $249,504 of deferred tax assets which 

relate to capital loss carryforwards. 

As of August 31, 2010, the Fund has $712,869 in accumulated capital loss carryforwards which will 

expire on February 28 of the following years: 2014- $650,519; 2015-$62,350. 

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COPLEY FUND, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 

3. Capital Stock 

At August 31, 2010, there were 5,000,000 shares of $1.00 par value capital stock authorized. 

Transactions in capital shares were as follows: 

Six Months Ended Year Ended 

August 31, 2010 (unaudited) February 28, 2010 

Shares Amount Shares Amount 

Shares sold 4,592 $ 189,387 27,630 $ 1,057,097 

Shares repurchased (19,921) (823, 169) (131,013) (5,178,203) 


Net change (15,329) $(633,782) (103,383) $(4,121,106) 


4. 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. 

For the six months ended August 31. 2010, the fee for investment advisory service totaled $225,311 

less fees of $30,000 voluntarily waived. Also during the period unaffiliated directors received $5,600 in 

directors' fees and reimbursed expenses. 

Operating Divisions 

The Fund has a wholly owned operating division, Copley Fund, Inc. - Operating Division ("COD"), 

which imports merchandise for resale. A portion of its merchandise is placed on consignment with a 

company controlled by Irving Levine. The Fund invoices the consignee when the merchandise is ultimately 

sold. 

The results of the subsidiary company during the six months ended August 31, 2010, are as follows: 

Sales $ 31,339 

Cost of goods sold (11,889) 

Gross profit 19,450 

General & administrative expenses (18, 739) 

Net income from operations 711 

Other income (dividends and interest) 3 

Net Income $ 714 

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COPLEY FUND, INC. 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 

5. 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 its most recent review of the Fund's federal income tax 

returns for the 1999 tax year, performed during 2001, upheld 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. 

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COPLEY FUND, INC. 

DISCLOSURE OF FUND EXPENSES 

All mutual funds have operating expenses. As a shareholder of a mutual fund, your investment is 

affected by these ongoing costs, which include investment advisory fees. It IS important for you to 

understand the impact of these costs on your investment return. 

Operating expenses such as these are deducted from the mutual fund's gross income and directly 

reduce its final investment return. These expenses are expressed as a percentage of the mutual fund's 

average net assets; this percentage is known as the mutual fund's expense ratio. 

The following examples use the expense ratio and are intended to help you understand the ongoing 

costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. 

Unlike virtually all other mutual funds, the Fund has an operating division. Therefore, its expenses and 

expense rations may not be strictly comparable to those of mutual funds which do not have an operating 

business. The examples are based on an investment of $1,000 made at the beginning of the period shown 

and held for the entire period. 

The table below illustrates your Fund's costs in two ways: 

Actual Fund Return. This section helps you to estimate the actual expenses after fee waivers that your 

Fund incurred over the period. The "Expenses Paid During Period" column shows the actual dollar 

expense cost incurred by a $1,000 investment in the Fund, and the "Ending Account Value" number is 

derived from deducting that expense cost from the Fund's gross investment return. 

You can use this information, together with the actual amount you invested in the Fund, to estimate the 

expenses you paid over that period. Simply divide your actual account value by $1,000 to arrive at a ratio 

(for example, an $8,600 account value divided by $1,000 = 8.6), then multiply that ratio by the number 

shown for your Fund under "Expenses Paid During Period." 

Hypothetical 5% Return. This section helps you compare your Fund's costs with those of other mutual 

funds. It assumes that the Fund had an annual 5% return before expenses during the year, but that the 

expense ratio (Column 3) for the period is unchanged. This example is useful in making comparisons 

because the Securities and Exchange Commission requires all mutual funds to make this 5% calculation. 

You can assess your Fund's comparative cost by comparing the hypothetical result for your Fund in the 

"Expenses Paid During Period" column with those that appear in the same charts in the shareholder 

reports for other mutual funds. 

Note: Because the return is set at 5% for comparison purposes - NOT your Fund's actual return- the 

account values shown may not apply to your specific investment. 

Expenses Paid 

Beginning Ending During Period• 

Account Value Account Value Annualized (3/1/10­

(3/1/10) (8/31/10) Expense Ratios 8/31/10) 

Actual Fund Return $ 1,000.00 $ 1,033.57 3.91% $ 20.04 

Hypothetical 5% Return $ 1,000.00 $ 1,005.49 3.91% $ 19.77 

* 	 Expenses are equal to the Fund's annualized expense ratio multiplied by the average account value over the period, 

multiplied by 181/365 (to reflect the one-half period). 

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COPLEY FUND, INC. 


SUPPLEMENTAL DATA 

General 

Investment Products Offered 

Are not FDIC Insured 

May Lose Value 

Are Not Bank Guaranteed 

The investment return and principal value of an investment in the Copley Fund (the "Fund") will 

fluctuate as the prices of the individual securities in which it invests fluctuate, so that your shares, when 

redeemed, may be worth more or less than their original cost. You should consider the investment 

objectives, risks, charges and expenses of the Fund carefully before investing. For a free copy of the 

Fund's prospectus, which contains this and other information, call the Fund toll free at (877) 881-2751 or 

write to Gemini Fund Services at 4020 South 147th Street, Omaha, NE 68137. 

This shareholder report must be preceded or accompanied by the Fund's prospectus for individuals who 

are not current shareholders of the Fund. 

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 

12 month period ended June 30, (i) is available, without charge and upon request, by calling 1-877-881­

2751; 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 April 21, 2010, the Board of Directors of the Fund approved the continuation of the advisory 

agreement with Copley Financial Services Corp. ("CFSC"). The Board's decision regarding the contract 

reflects the exercise of its business judgment on whether to continue the existing arrangement. Prior to 

approving the continuation of the advisory agreement, the Board considered, among other things: 

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 

performance and expenses of comparable funds 

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SUPPLEMENTAL DATA 

(Continued) 

any indirect benefits that may accrue to CFSC and its affiliates as a result of its relationship with the 

Fund. 

the extent to which the independent Board members are fully informed about all the facts the Board 

deems relevant bearing on CFSC's services and fees. 

The Board was aware of these factors and was guided by them in its review of the Fund's advisory 

contract to the extent it considered them to be relevant and appropriate, as discussed further below. The 

Board considered and weighted these circumstances in light of its substantial accumulated experience in 

governing the Fund and working with CFSC on matters related to the Fund, and was assisted by legal 

counsel. 

In considering the nature, extent and quality of the services provided by CFSC, the Board of Directors 

reviewed the portfolio management and operating division supervision 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. In its decision to continue the existing agreement the Board was mindful of the potential 

disruptions of the Fund's operations and various risks, uncertainies and other effects that could occur as a 

result of a decision to terminate or not renew the contract. In particular, the Board recognized that most 

shareholders have invested in the Fund on the strength of CFSC's industry standing and reputation and 

with the expectation that CFSC will have a continuing role in providing advisory services to the Fund. 

The Directors compared the performance of the Fund to benchmark indices over various periods of 

time. The Directors noted that the Fund's performance must be considered in light of the Fund's structure 

which is designed to avoid the trauma of extreme volatility in its investments. They concluded that the 

performance reflected this structural goal generally outperforming in volatile down markets and 

underperforming in bull type markets.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 and particularly the performance of the portfolio securities themselves 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 and Stuffco International Inc. 

(a company wholly owned by Mr. Levine) from their 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. The Board also considered that the Fund's expense ratio had decreased slightly. In 

particular, the Board concluded that the Fund's expense ratio had remained higher than historical measures 

due to increased expenses related to addressing the tax accrual accounting issue and the fact that the 

expense ratio is calculated based upon net assets including a liability for a large tax reserve which 

operates to distort the ratio as compared to most other funds. They noted that the advisory fee also is 

adjusted downward if economies of scale are realized during the current contract period as the Fund 

grows, 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 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. 

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COPLEY FUND, INC. 

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 5348 Vegas Drive, Suite 

391, Las Vegas, NV 89108. 

Independent Directors 

Name 

(Date of Birth) Principal Occupations(s) During Past 5 Years 

Year Elected and Other Directorships of Public Companies 

Albert Resnick, M.D. 

(March 23, 1922) 

1978 

Gary S. Gaines 

(July 28, 1937) 

2009 

Inside Directors 

Name 

(Date of Birth) 

Year Elected 

(Number of Copley 

Portfolios Overseen) 

Physician Since 1948 

No Directorships 

President of Gary Gaines, Inc., a bag manufacturer since 

1965 

No Directorships 

Principal Occupations(s) During Past 5 Years 

and Other Directorships of Public Companies 

Irving Levine 

(September 25, 1921) 

1978 

Officers 

Name 

(Date of Birth) 

Title 

President, Treasurer and a Director of Copley Financial 

Services Corp. since 1978; a Director of Franklin Capital 

Corp. (an operating investment company) since 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. 

Principal Occupations(s) During Past 5 Years 

and Other Directorships of Public Companies 

Irving Levine See Above 

(September 25, 1921) 

Chairman of the Board of 

Directors and President, 

Treasurer and Secretary 

David I. Faust Partner in Faust Oppenheim LLP, a law firm, since 1979. 

Counse! Counsel to Copley Fund since 2010. 

No Directorships 

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Semi-Annual Report COPLEYFUND, INC. 

August 31, 2010 

A No-Load Fund 

Investment Adviser 

Copley Financial Services Corp. 

P.O. Box 3287 

Fall River, 1Vlassachusetts 02722 

E-mail: copleyfunds@verizon.net 

Cusrodi,1n 

Bank of .1\merica 

100 Federal Street 

Boston, ?viA 02110 

Tram:fer Agent 

Gemini Fund Services 

'1020 South lt17th Street 

Suite 2 

Omaha, Nebraska 681:37 

Tel. (402)493-460~3 

(877)881-2751 

Fax: {402)963-9094 

Counsel 

Faust Oppenheim LLP 

<188 Madison Avenue, 17th Floor 

New York, New York 10022 

Auditors 

EisnerAmper LLP 

2015 Lincoln Highway 

P 0 Box 988 

Edison. N.T 08818 

COPLEY FUND, INC. 

A No-Load Fund 

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Item 2._CODE OF ETIITCS 

The registrant has adopted a Code ofEthics that applies to the registrant's principal executive officer and principal financial officer. The 

registrant has not made any amendments to its Code ofEthics during the covered period. The registrant has not granted any waivers 

from any provisions ofthe Code ofEthics during the covered period. The registrant undertakes to provide to any person without charge, 

upon request, a copy of its Code ofEthics by mail when they call the registrant toll free at (800)635-3427. 

Item 3. AUDIT COMMITTEE FINANCIAL EXPERT 

(a)( I) The registrant's Board ofDirectors function as an audit committee. They have determined that the Board does not have an "audit 

committee financial expert", as the Securities and Exchange Commission has defined that term. After carefully considering all ofthe 

factors involved in the definition of"audit committee financial expert", the Board determined that none of the members ofthe Board 

met all five qualifications in the definition, although some members of the Board met some of the qualifications. The Board also 

determined that while the members have general financial expertise, given the size and type of the Copley Fund, Inc., (the "Fund") and 

in light of the nature of the accounting and valuation issues that the Fund has presented over the past several years, it did not appear that 

the members lacked any necessary skill to serve as persons performing functions similar to those who serve on an Audit Committee. 

Item 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES 

Not applicable - only effective for annual report. 

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. 

Not applicable to open-end investment management companies. 

ITEM 6. SCHEDULE OF INVESTMENTS 

Not applicable 

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT 

INVESTMENT COMPANIES. 

Not applicable to open-end investment management companies. 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES 

Not applicable to open-end investment management companies. 

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND 

AFFILIATED PURCHASERS. 

Not applicable to open-end investment management companies. 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 

Not applicable. 

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ITEM 11. CONTROLS AND PROCEDURES. 

(a) The certifying officers, whose certifications are included herewith, have evaluated the registrant's disclosure controls and procedures 

within 90 days of this report. In their opinion, based on their evaluation, the registrant's disclosure controls and procedures are 

adequately designed, and are operating effectively to ensure, that information required to be disclosed by the registrant in the reports it 

files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods 

specified in the Securities and Exchange Commission's rules and forms. 

(b) There were no significant changes in the registrant's internal control over fmancial reporting that occurred during the registrant's last 

fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial 

reporting. 

ITEM 12. EXHIBITS. 

(a)(2) A separate certification for the principal executive officer and principal financial officer of the registrant as required by Rule 30a2(a) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)) is filed herewith. 

(b) Officer certifications as required by Rule 30a-2(b) under the Investment Company Act of 1940, as amended (I 7 CFR 270.30a-2(b )) 

also accompany this filing. 

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SIGNATURES 

Pursuant to the requirements of the Securities Exchange Act of I 934 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: 	 Is/ Irving Levine 

Name: Irving Levine 

Title: President (Principal Executive Officer) 

Date: November 5, 2010 

Pursuant to the requirements ofthe Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been 

signed below by the following persons on behalf ofthe registrant and in the capacities and on the dates indicated. 

Copley Fund, Inc. 

By: 	 Is! Irving Levine 

Name: Irving Levine 

President (Principal Executive Officer & Principal Financial 

and Accounting Officer) 

Date: November 5, 2010 

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Copley Fund, Inc. 

Portfolio Turnover Rate 

Date Portfolio Turnover Ratel 

2/29/12 

2/28/11 

2/28/10 

2/28/09 

2/29/08 

2/28/07 

2/28/06 

2/28/05 

2/29/04 

2/28/03 

0.0% 

2.90% 

1.76% 

2.78% 

4.11% 

0.50% 

0.73% 

0.44% 

0.92% 

8.65% 

The average rate for the ten years from 2/28/03 to 2/29/12 is 2.28%. 

1 The Fund calculates turnover rate by dividing the lesser of purchases or sales of portfolio securities 

for the reporting period by the monthly average of the value of the portfolio securities owned by the 

Fund during the reporting period. 

The Copley Fund Inc. 

(The "Fund") 

Minutes of an in-person Meeting of the Board of Directors of the Fund held 

on March 2_3, 2012m accordance with its Articles of Incorporation 

pursuant to written notice sent to all members 

PRESENT: Irving Levine 

Alan Resnick, M.D. 

Roy Hale, CPA 

Gary Gaines 

David I. Faust, Esq. and Petra v.Z. Davenport, Esq. were present by invitation 

Mr. Levine acted as Chairman and Ms .. Davenport acted as Secretary 

LOCATION: Faust Oppenheim LLP, 488 Madison Avenue, 17th Floor, New York, New York 

10022 

The meeting was called to order and a quorum was announced. All present wished Dr. Resnick a 

very happy 90th Birthday. 

Approval of Minutes 

After a discussion, the motion du1y made and seconded, the Board unanimously approved the 

minutes of the meeting held on January 30,2012. 

President's Report 

Mr. Levine provided an update on the fund operations, investments and performance as well as 

an update on the operating division ofthe Fund. Mr. Levine noted that YTD the Fund was up 

and many stocks have increased payment of dividends. Mr. Levine also noted that the operating 

division opened a new store in a joint venture with a member ofthe Buxton group. 

Discussion 

The Fund's Tax Reserve Status was discussed. Currently, the Fund holds $18million in reserve. 

REDACTED 
Review and Approval 

1. 	 After a discussion, on motion duly made and seconded, the Board unanimously: 

RESOLVED, that the Board ofDirectors approves, and authorizes the Fund to submit, 

the No Action Letter substantially in the form presented to the Board; 

RESOLVED, that it is deemed to be in the best interests ofthe Fund to make an election 

to be treated as aRIC for purposes of Subchapter M ofthe Internal Revenue Code, upon 

the occurrence ofthe Triggering Event, as defined below. The "Triggering Event" shall 

be the accrual of deferred tax liabilities on any day ofthe year in an amount that exceeds 

ten percent (10%) ofPre-Tax NAV, where "Pre-Tax NAV" equals the NAV ofthe Fund 

plus an amount equal to the Fund's deferred tax liability as ofthe end ofsuch day; and be 

it further · 


RESOLVED, that the President, Vice-President, Secretary, Treasurer, or CFO ofthe 


Fund, as applicable, are hereby authorized, ·empowered, and directed on behalf, and in the . 


name, ofthe Fund, and to do any and all acts and things, and to make, execute, deliver, 


file and/or record any and all agr~ents, instruments, papers, documents, and to take all 


other actions, which are or become necessary, proper or convenient to carry out and 


effectuate the purposes ofthe resolutions adopted above. 


2. 	 After a discussion, on motion duly made and seconded, the Board unanimously approved 

and ratified the recent SEC filings." The annual report ofthe Fund will be provided in 

April f?r a filing at the end ofthe month. 

3. 	 Review ofBlue Sky Filings and Status. Ms. Davenport reported that after speaking with 

MLS Blue Sky Services, the filings are all up to date and accounted for. 

4. 	 Copley Fund Services Corp. Form ADV Other Than Annual Amendment, was filed as 

required by March 31, 2012. 

Next Meeting Date 

The Board agreed to hold quarterly meetings and tentatively set the next meeting date for 

Wednesday, June 20, 2012 at llam via telephone conference. 

Approved ·by: 

Irving Levine 

Chairman 

2