Baxter Financial Corporation
(561) 395-2155 1200 North Federal Highway, Suite 424
(800) 749-9933 Boca Raton, Florida 33432
(561) 338-7590 - Fax
April 4, 2005
Via EDGAR Correspondence
U.S. Securities and Exchange Commission
Division of Investment Management
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549-0505
Attention: Mr. Vincent J. DiStefano
Re: Philadelphia Fund, Inc.
File Nos. 2-10698 and 811-505
Dear Sir or Madam:
On behalf of the Philadelphia Fund, Inc. (the "Fund"), following are the Fund's
responses to the Staff's comments conveyed with regard to Post-Effective
Amendment Nos. 82/30 (the "Amendment") to the Fund's Registration Statement on
Form N-1A, filed with the U.S. Securities and Exchange Commission (the "SEC") on
January 28, 2005, pursuant to Rule 485(a)(1) under the Securities Act of 1933,
as amended, in order to comply with new disclosure obligations required by the
SEC. Each comment conveyed by the Fund's SEC examiner is summarized below,
followed by the Fund's response to the comment. Capitalized terms not otherwise
defined in this letter have the meanings assigned to them in the Amendment.
Comments on Disclosure Contained in the Prospectus
1. Comment. Under the Principal Strategies section on page 4 of the
Amendment, list the types of fixed income securities, if any, which
comprise part of the Fund's principal investment strategies.
Response. The first paragraph under the Principal Strategies section
on page 4 has been updated to read as follows:
"The Fund will invest primarily in common stocks traded on the
major U.S. security exchanges and U.S. Treasury notes and bonds
and U.S. Government agency notes and bonds. Securities are bought
and held with long-term goals in view."
2. Comment. Under the Principal Strategies section on page 4 of the
Amendment, describe the Fund's fixed income security selection
process.
U.S. Securities and Exchange Commission
April 4, 2005
Page 2
Response. The following paragraph will be added as the third paragraph
under the Principal Strategies section:
"The Advisor selects U.S. Treasury and U.S. Government agency
notes and bonds based upon the Advisor's analysis of the
following factors: the state of the economy, Federal Reserve
Board policies, the historical shape of the yield curve and the
current shape of the yield curve. Based on its analysis, the
Advisor identifies a specific range of maturities of fixed income
securities that the Advisor believes present an enhanced
potential for capital gains. In some cases, the Advisor will
acquire U.S. Treasury and U.S. Government agency notes and bonds
for the Fund that possess greater opportunity for yield."
3. Comment. Under the Principal Strategies and Principal Risk sections on
page 4 of the Amendment, separate the concepts of diversification and
holding a small number of stocks in the portfolio. In addition,
redesignate the term "Diversification Risk."
Response. The sentence on page 4 that presently states, "The Fund's
portfolio is diversified and usually consists of 20-30 different
stocks," will be divided into two separate sentences, set apart as
separate paragraphs as shown below. In addition, all current
references to "Diversification Risk" will be replaced with "Risk of
Limited Holdings."
"The Fund's portfolio is diversified."
"The Fund's portfolio usually consists of 20-30 different
stocks."
4. Comment. Expand the Principal Risk section to include disclosure about
credit risk, manager risk, mid and/or small cap stock risk, foreign
investment risk, and value style risk.
Response. The Fund will add the disclosure set out below related to
investment advisor risk and value style risk. In addition, the Fund
also will include a section on common stock risk, also set forth
below.
After careful consideration and review, the Fund has determined that
it is not appropriate for the Fund to include disclosure about credit
risk, mid and/or small cap stock risk, and foreign investment risk,
for the following reasons. The Fund's principal strategy for fixed
income securities is to invest in U.S. Treasury notes and bonds and
U.S. Government agency notes and bonds; therefore, credit risk is not
a principal risk factor. The Fund does not currently, and has no
current
U.S. Securities and Exchange Commission
April 4, 2005
Page 3
intention to, invest in foreign stocks;/1/ therefore, foreign
investment risk is not a principal risk factor. The Fund is currently
invested in, and typically invests in large cap stocks; therefore, mid
and/or small cap stock risk is not a principal risk factor.
The following risk disclosure will be added to the prospectus:
"INVESTMENT ADVISOR RISK. The Fund is actively managed, and the
success of the Fund's investment strategy depends significantly
on the Advisor's skill in assessing the potential of the
securities in which the Fund invests. The Advisor will apply
investment techniques and risk analysis in making investment
decisions for the Fund, but there can be no guarantee that these
will produce the intended results. The Advisor may be incorrect
in its assessment of the value of securities or the assessment of
market trends, which can result in losses to the Fund. In some
cases, investments may be unavailable, or the Advisor may choose
not to purchase them under market conditions when the acquisition
of such investments, in hindsight, may be determined to be
beneficial to the Fund."
"VALUE STYLE RISK. Value investing involves buying stocks that
are out of favor and/or undervalued in comparison to their peers
or their prospects for growth. Typically, the valuation levels of
these stocks are lower than those of growth stocks. A company may
be undervalued due to market or economic conditions, temporary
earnings declines, unfavorable developments affecting the company
and other factors, or because the company is associated with a
market sector that is not favorably regarded by investors.
Because different types of stocks attract varying levels of
interest by investors, depending on market and economic
conditions, the Fund's returns may be adversely affected during
market downturns and when value stocks are not in demand. Value
stocks also may remain undervalued. The market may not recognize
a company's true intrinsic value for a long time, or a company
judged to be undervalued may be appropriately priced. Value
stocks, as a group, may underperform the overall equity market
for a long period of time, and may not realize their full
economic value, while the market concentrates on growth stocks."
"COMMON STOCK RISK. The Fund will invest in common stocks.
Although common stocks have historically generated higher average
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/1/ See the Fund's Statement of Additional Information (the "SAI"), at page 18
of the Amendment, which presently states: "The Fund has authority to invest
up to 20% of its assets in the securities of foreign companies. However,
historically the Fund ahs not invested more than 5% of its assets in
foreign securities, and has no current intention to do so." Please note
that the SAI then goes on to present the risks of investments in foreign
securities.
U.S. Securities and Exchange Commission
April 4, 2005
Page 4
returns than fixed income securities over the long term, common
stocks also have experienced significantly more volatility in
those returns. An adverse event, such as an unfavorable earnings
report, may depress the value of a particular common stock held
by the Fund. Also, the price of common stocks are sensitive to
general movements in the stock market, and a drop in the stock
market may depress the prices of common stocks to which the Fund
has exposure. Common stock prices fluctuate for several reasons,
including: changes in investors' perceptions of the financial
condition of an issuer; the general condition of the relevant
stock market; or when political or economic events affecting
issuers of common stock occur. Common stock prices may be
particularly sensitive to rising interest rates, as the cost of
capital rises and borrowing costs increase."
5. Comment. Regarding the Fund's recently discontinued Free Flyer Program
(the "Program"), referenced on page 5 of the Amendment, supplementally
disclose whether an exemptive order or a no action letter had been
received by the Fund from the SEC for the Program.
Response. The Fund did not receive an exemptive order or a no action
letter from the SEC relating to the Program. However, a private letter
ruling (PLR 119850-98) was obtained by the Fund from the Internal
Revenue Service. The Program was designed in accordance with
applicable federal securities laws.
6. Comment. Confirm that the name of the Fund complies with relevant
legal requirements.
Response. The Fund has a long history, as described in the Amendment,
dating back to 1923 (the Securities Fund was the Fund's predecessor).
The Fund has operated under its present name since the effectiveness
of the Fund's initial registration with the SEC in June of 1945. The
Fund's management operations were originally located in the
Philadelphia, Pennsylvania area. The Fund believes that it complies
with Rule 35d-1 under the 1940 Act, and the SEC's interpretations of
the rule's application./2/
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/2/ See Investment Company Act Release No. IC-24828 (Jan. 17, 2001):
"One commenter expressed concern that the rule [i.e., rule 35d-1], by its
terms, would apply to an investment company with a long-standing trade name
that includes a geographic location, such as the city where the company is
headquartered, but which is not intended to refer to the geographic region
in which the company invests. WE [I.E., THE SEC] DO NOT INTEND THAT RULE
35D-1 WOULD REQUIRE AN INVESTMENT COMPANY TO CHANGE ITS NAME IN THESE
CIRCUMSTANCES, WHERE THE CONNOTATION OF THE NAME IS CLEAR THROUGH
LONG-STANDING USAGE AND THERE IS NO RISK OF INVESTOR CONFUSION." (Emphasis
added.)
U.S. Securities and Exchange Commission
April 4, 2005
Page 5
7. Comment. On pages 11 and 12 of the Amendment, revise the disclosure to
make consistent the references to the entity that receives purchase
orders. In addition, clarify what happens if payment is not received
along with a purchase request.
Response. The Fund has revised the Purchase of Shares section, and the
last paragraph under the Calculation of Net Asset Value section, as
follows (new language is underlined):
"PURCHASE OF SHARES
The shares of the Fund are available through the distributor of
the Fund's shares.
WHEN MAKING AN INITIAL INVESTMENT, SHARES MAY BE PURCHASED BY
COMPLETING AND SIGNING THE ^General Account Application, which
should be remitted, together with payment for the shares, to the
FUND'S TRANSFER AGENT, AT THE FOLLOWING ADDRESS: Unified Fund
Services, Inc., P.O. Box 6110, Indianapolis, IN 46206-6110. ONCE
AN ACCOUNT IS ESTABLISHED, SUBSEQUENT INVESTMENTS SHOULD BE SENT
TO UNIFIED FUND SERVICES, INC., P.O. BOX 6110, INDIANAPOLIS, IN
46206-6110. SUBSEQUENT PURCHASE ORDERS MUST CONTAIN YOUR NAME,
YOUR ACCOUNT NUMBER(S), THE NAME(S) ON YOUR ACCOUNT(S) AND
PAYMENT FOR THE SHARES. A CONFIRMATION WILL BE MAILED TO THE
INVESTOR SHOWING THE SHARES PURCHASED, THE EXACT PRICE PAID FOR
THE SHARES, AND THE TOTAL NUMBER OF SHARES THAT ARE OWNED. IF
PAYMENT IS NOT RECEIVED WITH THE PURCHASE REQUEST, THE
TRANSACTION WILL NOT BE PROCESSED (UNLESS MADE BY A FINANCIAL
INTERMEDIARY WITH A CURRENT DEALER AGREEMENT WITH THE FUND) AND
THE SHAREHOLDER WILL BE CONTACTED FOR FURTHER INSTRUCTIONS.
Investors who are interested in INFORMATION ABOUT purchasing
shares may also contact the Fund at 1-800-749-9933. The minimum
initial investment in the Fund is $1,000, and there is no minimum
amount for subsequent investments in the Fund. The Fund retains
the right to waive the minimum initial investment at its
discretion. Purchases of shares will be made in full and
fractional shares calculated to three decimal places.
Certificates for shares of stock will not be issued. Shares may
also be purchased and sold through securities firms which may
charge a service fee or commission for such transactions. No fee
or commission is charged on shares which are purchased from or
redeemed by the Fund directly.
ORDERS RECEIVED BY UNIFIED FUND SERVICES, INC., THE FUND'S
TRANSFER AGENT, PRIOR TO THE CLOSE OF THE NEW YORK STOCK
EXCHANGE, GENERALLY 4:00 P.M. EASTERN TIME, WILL BE CONFIRMED AT
THE OFFERING PRICE NEXT CALCULATED, PROVIDED THE ORDER IS
RECEIVED BY THE TRANSFER AGENT PRIOR TO THAT TIME. ORDERS
RECEIVED SUBSEQUENT TO THAT TIME WILL BE CONFIRMED AT THE
OFFERING PRICE EFFECTIVE AT THE CLOSE OF THE NEW YORK STOCK
EXCHANGE ON THE NEXT BUSINESS DAY.
U.S. Securities and Exchange Commission
April 4, 2005
Page 6
^Automatic Investment Plan investors and Check Withdrawal Plan
investors will receive confirmations of purchases and redemptions
of Fund shares on a quarterly basis, not later than five business
days after the end of each calendar quarter in which a
transaction takes place. The confirmation will show the date of
each transaction during the period, number and price paid or
received for shares purchased or redeemed, including dividends
and distributions, and total number of shares owned by the
investor as of the end of the period."
"CALCULATION OF NET ASSET VALUE (LAST PARAGRAPH)
Orders for Fund shares received by the FUND'S TRANSFER AGENT,
UNIFIED FUND SERVICES, INC., ^prior to that time are priced at
the net asset value next calculated, provided the order is
received together with payment for the shares ^prior to such
close of the New York Stock Exchange. In addition, new accounts
must include a completed account application. Orders received
subsequent to the close of the New York Stock Exchange will be
priced at the net asset value calculated at the close of the New
York Stock Exchange on the next business day.^"
8. Comment. The term "significant event" should be modified to refer to
"an event" in the last sentence of the first paragraph under the
Calculation of Net Asset Value section.
Response. The disclosure will be revised as requested.
9. Comment. With reference to the last sentence of the following
paragraph, located under the Redemption of Shares section, why is
"may" used instead of "will" in the following:
"Proceeds for the redemption of Fund shares purchased by check, ACH,
or through the Automatic Investment Program will be delayed until the
Fund verifies that it has received good payment, which may take up to
15 business days. If you purchase shares by Federal funds, you MAY
avoid this delay." (Emphasis added.)
Response. After discussing this issue with the Fund's transfer agent,
the Fund has determined that a shareholder "will" avoid the delay if
the shareholder purchases shares by Federal funds, and the Fund will
modify the disclosure accordingly.
10. Comment. Modify the following paragraph, located under the Redemption
of Shares section on page 13, to clarify whether securities redeemed
"in-kind" would be liquid securities, as well as the risks associated
with receiving an in-kind redemption:
U.S. Securities and Exchange Commission
April 4, 2005
Page 7
The Fund has reserved the right to redeem Fund shares in kind, rather
than in cash, when in the best interest of the Fund in accordance with
the applicable rules of the Securities and Exchange Commission.
Response. The above paragraph will be replaced with the following
paragraph.
"When in the best interests of the Fund, the Fund may make a
redemption payment, in whole or in part, by a distribution of
liquid portfolio securities in lieu of cash (an "in-kind"
redemption). Such distributions will be made in accordance with
the federal securities laws and regulations governing mutual
funds. Investors may incur brokerage charges and other
transaction costs selling securities that were received in
payment of redemptions. The investor also would bear the risk
that the prices of the securities distributed in an "in-kind"
redemption could rise or decline before the securities can be
sold."
11. Comment. Clarify what it means to cancel a purchase order in the first
full paragraph on page 14, located under the Frequent Purchases and
Redemptions of Fund Shares section.
Response. The Fund's transfer agent assists the Fund in its efforts to
detect and prevent market timers from making short-term investments in
the Fund by providing a daily market timing report, as well as
detailed reports of the transactions that have been posted in the Fund
the morning following the transaction date. Due to the fact that each
of the transfer agent's clients has various (and often differing)
criteria to identify potential market timers, the transfer agent's
system cannot immediately identify and refuse to fill an order based
on the Fund's market timing criteria. The Fund's administrator
monitors the transactions in the Fund on a daily basis, and will
instruct the transfer agent to restrict an account from future
purchases should the Fund's market timing criteria be met by a
particular shareholder. On occasion, it may be necessary for the Fund
to cancel a trade on the following day should market timing activity
be suspected.
Comments on Disclosure Contained in the SAI
12. Comment. Under the Investment Limitations section on page 27 of the
Amendment, the words "gross assets" should be replaced with "total
assets."
Response. The Fund is unable to make the recommended change, as the
investment limitation is a fundamental investment limitation that
cannot be modified without a shareholder vote.
13. Comment. Indicate whether the Fund currently discloses that it has an
investment limitation that confines the Fund's investments in illiquid
securities to 15% of the Fund's net assets.
U.S. Securities and Exchange Commission
April 4, 2005
Page 8
Response. The following disclosure currently appears on page 19 of the
Amendment, in the last paragraph of the Investment Goals, Policies and
Risks section:
"The Fund will not purchase such securities if immediately after
such purchase, more than 15% of the Fund's net assets will be
invested in restricted or other illiquid securities."
14. Comment. Disclose where the Fund's top ten portfolio holdings will be
publicly disclosed, on page 28, under the Disclosure of Portfolio
Holdings section.
Response. The Fund will add the words "on the Fund's Internet website
at http://www.philadelphiafund.com" to the end of the first paragraph
under the Disclosure of Portfolio Holdings section.
15. Comment. Expand the disclosure about firms that receive the Fund's
portfolio holdings information, under the Disclosure of Portfolio
Holdings section.
Response. The following paragraph will replace the second paragraph
under the Disclosure of Portfolio Holdings section:
"The Fund also may disclose its complete portfolio holdings, on a
daily basis and without a time lag (i.e., on a real time basis),
to Unified Fund Services Inc. and U.S. Bank, in their capacities
as the Fund's service providers (the "service providers"), who
require such information to perform their contractual duties and
responsibilities to the Fund. In addition, complete portfolio
holdings information may be provided to Briggs, Bunting &
Dougherty, LLP, the Fund's independent registered public
accounting firm (the "Auditor"), for purposes of preparing the
semi-annual and annual audits of the Fund and related shareholder
reports. The service providers and the Auditor are subject to
duties of confidentiality, including a duty not to trade on
non-public information, whether by contract, applicable law, or
relevant accounting standards. The Fund's chief compliance
officer periodically requests that the service providers confirm
their compliance with these restrictions. Neither the Fund nor
the Advisor receives any compensation or other consideration for
the disclosure of the Fund's portfolio holdings to the service
providers and the Auditor. Only executive officers of the Fund,
subject to the Board's oversight, may authorize disclosure of the
Fund's portfolio securities. The Fund has adopted policies and
procedures that are designed to ensure that disclosure of the
information regarding portfolio holdings is in the best interests
of the Fund's shareholders, including addressing any conflicts of
interest between the interests of the Fund's shareholders and the
interests of the Advisor, the principal underwriter and any
affiliated persons thereof. The Fund's chief compliance officer,
at
U.S. Securities and Exchange Commission
April 4, 2005
Page 9
least annually, reports to the Board regarding these policies and
procedures and their application."
16. Comment. Add the title "Chairman of the Board" to Donald Baxter's
biographical information located on page 35, under the Interested
Persons section.
Response. The disclosure will be revised as requested.
In connection with the Fund's response to the SEC Staff's comments on the
Amendment, as requested by the Staff, the Fund acknowledges that: (i) the Fund
is responsible for the adequacy of the disclosure in the Fund's filings; (ii)
Staff comments or changes to disclosure in response to Staff comments in the
filings reviewed by the Staff do not foreclose the SEC from taking any action
with respect to the filings; and (iii) the Fund may not assert Staff comments as
a defense in any proceeding initiated by the SEC or any person under the federal
securities laws of the United States.
The Fund would be happy to answer any additional questions or address any
concerns that the SEC Staff may have on the Amendment. If there are any further
comments regarding any of the above changes, I can be contacted at (561)
395-2155.
Sincerely,
/s/Keith A. Edelman
Keith A. Edelman
Philadelphia Fund, Inc.
Vice President
