<PAGE>
PHILADELPHIA FUND, INC.
PRESIDENT'S LETTER - July 8, 1996
Dear shareholders,
The first half of our fiscal year saw an apparent bottoming of
interest rates and the beginning of the Presidential campaign.
History demonstrates that our stock market often rises in the
face of modestly increasing interest rates and frequently rises
in Presidential election years.
One year ago I wrote you that "the Federal Reserve is trying to
do the nearly impossible". It appears the Federal Reserve has
piloted our economy to a soft landing for the first time since
its foundation in 1913. Stimulating economic growth and
increasing employment, while subduing inflationary pressures, is
a great achievement. The Fed may give interest rates a nudge
up, possibly disturbing the markets; however, when viewed from
a longer term perspective, a small increase would be seen as
further evidence that the Fed is continuing its mastery of
monetary policy. We believe our portfolio is well positioned,
rooted in value and reaching for growth. We stand able to move
quickly in pursuit of opportunities.
We recently bought shares in both Pfizer and American Home
Products. Pfizer's 15 new drugs in late stages of development
should propel steady earnings growth over the next decade. We
like American Home Products for its new anti-obesity drug coming
out later this year.
Our holding in Nationsbank results from their acquisition of
Intercontinental Bank. Holdings in Readers Digest, Taubman
Centers, and Bankers Trust were eliminated.
Our shares in Coca-Cola split 2 for 1 and Federal National
Mortgage Association split 4 for 1.
We look forward to exciting developments in our portfolio
companies and continue to thank you, our shareholders, for your
continuing support.
Very truly yours,
/s/ Donald H. Baxter
Donald H. Baxter
President
<PAGE>
PHILADELPHIA FUND, INC.
PORTFOLIO OF INVESTMENTS - MAY 31, 1996
<TABLE>
<CAPTION>
Shares Value
- ------- -----------
COMMON STOCKS - 71.7 %
<C> <S> <C>
BANKS - 13.9 %
8,306 NationsBank Corp. .................................... $ 673,824
155,000 PNC Bank Corp. ....................................... 4,708,125
30,000 Wells Fargo & Co. ................................... 7,230,000
-----------
12,611,949
-----------
BEVERAGES - 9.7 %
190,000 Coca Cola Co. ........................................ 8,740,000
-----------
CABLE TELEVISION - 1.2 %
60,000 *Tele-Communications Inc. ............................. 1,132,500
-----------
COMMUNICATIONS - 9.6 %
8,216 Bell Atlantic Corp. ................................... 512,473
140,000 Comcast Corp. Class"A"................................. 2,432,500
140,000 Comcast Corp. Special Class "A"........................ 2,432,500
68,000 SBC Communications Inc. ............................... 3,357,500
-----------
8,734,973
-----------
DEFENSE - 5.8 %
85,000 General Dynamics Corp. ................................ 5,238,125
-----------
ENTERTAINMENT - .5 %
15,000 *Tele-Communications Liberty Media Group Ser A ......... 450,000
-----------
FINANCIAL SERVICES - 10.5 %
100,000 American Express Co. .................................. 4,575,000
160,000 Federal National Mortgage Association.................. 4,940,000
-----------
9,515,000
-----------
INSURANCE - 5.5 %
52,500 American International Group Inc. ..................... 4,948,125
-----------
METALS - .6 %
49,286 *Tung Ho Steel Enterprise Corp. ........................ 529,825
-----------
PHARMACEUTICALS - 1.4 %
10,000 American Home Products Corp. .......................... 535,000
10,000 Pfizer ................................................ 707,500
-----------
1,242,500
-----------
Shares Value
- ------- -----------
PUBLISHING - 5.1 %
40,000 Dun & Bradstreet Corp. ................................ $ 2,555,000
20,000 Time Warner Inc. ...................................... 807,500
4,000 Washington Post Co. Cl B .............................. 1,251,000
-----------
4,613,500
-----------
SPECIALIZED CONSUMER GOODS - 2.8 %
110,500 Jostens Inc............................................ 2,500,062
-----------
TOBACCO - 5.1 %
140,000 UST Inc................................................ 4,620,000
-----------
Total Value of Common Stocks (cost $41,583,815)........ 64,876,559
-----------
Principal
Amount
- ---------
U.S. GOVERNMENT OBLIGATIONS - 7.9 %
$5,000M U.S. Treasury Bond, 13 3/4% due 08/15/04
(cost $6,739,532)...................................... 7,110,930
-----------
SHORT-TERM CORPORATE NOTES - 21.2 %
3,900M Associates Investment Corp. 5.28% due 6/27/96 ......... 3,900,000
2,650M Chevron Oil 5.23% due 6/06/96 ........................ 2,650,000
3,500M Ford Motor Credit 5.29% due 7/11/96 ................... 3,500,000
3,800M GE Capital Corp. 5.27% due 7/05/96 .................... 3,800,000
2,800M Household Finance 5.29% due 6/20/96 ................. 2,800,000
2,550M Prudential Funding 5.28% due 6/13/96 ................. 2,550,000
-----------
Total Value of Short-Term Corporate Notes
(cost $19,200,000) .................................... 19,200,000
-----------
Total Value of Investments (cost $67,523,347)........... 100.8% 91,187,489
Excess of Liabilities Over Other Assets................. (0.8) (684,467)
------ -----------
Net Assets............................................. 100.0% $90,503,022
====== ===========
</TABLE>
* Non-income producing security
See notes to financial statements
2
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - MAY 31, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments in securities, at value
(identified cost $67,523,347) (Note 1A)..... $91,187,489
Cash.......................................... 297,808
Dividends and interest receivable............. 356,831
Other assets.................................. 15,224
------------
TOTAL ASSETS............................... 91,857,352
LIABILITIES
Payables:
Investments purchased ..................$1,226,600
Capital stock redeemed ................. 4,696
Accrued advisory and administrative fees...... 75,415
Other accrued expenses........................ 47,619
----------
TOTAL LIABILITIES.......................... 1,354,330
------------
NET ASSETS.......................................... $90,503,022
============
NET ASSETS CONSIST OF:
Capital paid in............................... $65,996,347
Undistributed net investment income .......... 497,386
Accumulated net realized gain on investments.. 345,147
Net unrealized appreciation in value of
investments................................ 23,664,142
------------
TOTAL...................................... $90,503,022
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
($90,503,022 / 12,535,624 shares outstanding)
30,000,000 shares authorized, $1.00 par value
(Note 2)..................................... $7.22
=====
</TABLE>
See notes to financial statements
3
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF OPERATIONS - SIX MONTHS ENDED MAY 31, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends............................. $ 812,877
Interest.............................. 797,249
----------
TOTAL INCOME.................... $ 1,610,126
Expenses: (Notes 4 and 5)
Investment advisory fee .............. 342,715
Distribution plan expenses ........... 121,210
Administrative fee ................... 114,238
Director fees and expenses............ 34,678
Professional fees..................... 30,750
Fund accounting expense............... 21,749
Transfer agent and dividend disbursing
agent's fees and expenses........... 20,692
Custodian fees........................ 13,158
Insurance............................. 9,364
Reports and notices to shareholder.... 5,447
Registration fees..................... 5,090
Other expenses........................ 12,384
----------
TOTAL EXPENSES...................... 731,475
Less: Custodian fees paid indirectly 1,993
----------
NET EXPENSES ................ 729,482
----------
INVESTMENT INCOME-NET............... 880,644
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 3):
Net realized gain on investments...... 348,748
Net unrealized appreciation of
investments......................... 2,207,354
----------
Net gain on investments............. 2,556,102
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $ 3,436,746
===========
</TABLE>
See notes to financial statements
4
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
May 31, November 30,
1996 1995
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income............................. $ 880,644 $ 1,597,026
Net realized gain on investments.................. 348,748 9,292,398
Net unrealized appreciation of investments........ 2,207,354 9,387,056
----------- -----------
Net increase in net assets resulting from
operations............................... 3,436,746 20,276,480
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. ( 988,863) (1,280,825)
Net realized gain on investments.................. (9,295,047) ( 330,486)
CAPITAL SHARE TRANSACTIONS
Increase (decrease) in net assets resulting from
capital share transactions (Note 2)............. 5,245,828 (6,786,135)
----------- -----------
Net increase (decrease) in net assets........ (1,601,336) 11,879,034
NET ASSETS
Beginning of period............................... 92,104,358 80,225,324
----------- -----------
End of period (including undistributed net
investment income of $497,386 and $605,605,
respectively.................................... $90,503,022 $92,104,358
=========== ===========
</TABLE>
See notes to financial statements
5
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Philadelphia Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as a diversified open-end management investment company.
The Fund's investment objective is to achieve long term growth of capital and
income. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
A. Security Valuation - securities listed on national exchanges or
the NASDAQ National Market System are valued at the closing sales price on
May 31, 1996. Securities traded over-the-counter and securities not traded
that day are valued at the prevailing quoted bid price. Short-term
obligations are stated at cost which when combined with interest receivable
approximates fair value.
B. Federal Income Taxes - no provision has been made for Federal income
taxes on net income or capital gains, since it is the policy of the Fund to
continue to comply with the special provisions of the Internal Revenue Code
applicable to investment companies and to make sufficient distributions of
income and capital gains to relieve it from all, or substantially all, such
taxes.
C. Other - the Fund distributes its net investment income quarterly and
net realized gains annually. Security transactions are accounted for on the
date the securities are purchased or sold. Cost is determined, and gains and
losses are based, on the identified cost basis for both financial statement
and Federal income tax purposes. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income and
estimated expenses are accrued daily.
2. CAPITAL STOCK
At May 31, 1996 there were 12,535,624 shares outstanding. Transactions
in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
May 31, 1996 November 30, 1995
----------------------- ----------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Capital stock sold... 52,364 $ 376,506 54,667 $ 373,567
Capital stock issued
in reinvestment of
distributions ....... 1,238,060 8,796,793 219,149 1,467,768
Capital stock
redeemed............. (514,214) (3,927,471) (1,244,257) (8,627,470)
----------- ---------- ---------- -----------
Net increase
(decrease)........... 749,210 $ 5,245,828 (970,441) $(6,786,135)
=========== ============ ========== ===========
</TABLE>
3. PURCHASES AND SALES OF SECURITIES
For the six months ended May 31, 1996, purchases and sales of securities,
other than United States Government obligations and short-term notes,
aggregated $1,226,600 and $5,097,299 respectively.
6
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At May 31, 1996, the cost of investments for Federal income tax
purposes was $67,523,347. Accumulated net unrealized appreciation on
investments was $23,664,142 consisting of $23,908,317 gross unrealized
appreciation and $244,175 gross unrealized depreciation.
4. INVESTMENT ADVISORY AND OTHER TRANSACTIONS WITH AFFILIATES
Baxter Financial Corporation (BFC), is the Investment Advisor and the
Administrator of the Fund.
As investment advisor, BFC supervises the Fund's investments on a
continuous basis and provides the Fund with investment advice and
recommendations for an annual fee equal to .75% of the first $200 million of
net assets, .625% of net assets between $200 million and $400 million, and
.50% of net assets in excess of $400 million.
As the Fund's administrator, BFC is responsible for providing overall
supervision of the Fund's administrative operations and receives an annual fee
of .25% of the average net assets of the Fund.
Both the investment advisory fee and the administrative fee are payable
monthly, based on the month-end net asset values of the Fund.
Pursuant to California regulations, BFC has agreed to reimburse the Fund
if and to the extent that the Fund's aggregate operating expenses (exclusive
of interest, taxes, brokerage commissions, distribution plan expenses and
extraordinary expenses) exceed any limitation on expenses applicable to the
Fund in California. The reimbursement is limited to the yearly total of the
advisory and administrative fees. For the six months ended May 31, 1996, no
reimbursement was required.
During the six months ended May 31, 1996, directors of the Fund who are not
affiliated with BFC received directors fees aggregating $25,800. Thomas J.
Flaherty a director and former officer of the Fund receives a monthly pension
from the Fund which amounted to $6,250 for six months ended May 31, 1996.
The Fund's Custodian has provided credits in the amount of $1,993 against
custodian charges based on the uninvested cash balances of the Fund.
5. DISTRIBUTION PLAN
Pursuant to an amended Distribution Plan adopted under rule 12b-1 of the
1940 Act, the Fund may pay a fee in an amount up to .5% of the Fund's average
net assets calculated monthly.
A component of the 12b-1 fee (.25% of the Fund's average net assets) is
paid to BFC for providing shareholder services, which includes advice and
information regarding: share accounts; applications; use of the prototype
retirement plans of the Fund; assistance with questions or problems regarding
the Fund's transfer agent, as well as other information and
7
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
services. In its discretion, BFC may make payments to registered
broker-dealers and members of the National Association of Securities Dealers,
Inc. for providing Fund Shareholders with similar services.
The remainder of the fee may be used to pay brokers and dealers which
enter into agreements with BFC or which provide sales, promotional, or
advertising services to the Fund, and to pay for other distribution,
advertising, registration and promotional expenses associated with the sale of
Fund shares.
8
<PAGE>
PHILADELPHIA FUND, INC.
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data for
a share of capital stock outstanding, total return, ratios to average net
assets and other supplemental data for each period indicated.
<TABLE>
<CAPTION>
Six Months Year Ended November 30,
Ended ------------------------------------------
PER SHARE DATA May 31, 1996 1995 1994 1993 1992 1991
- -------------- ------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period. $7.81 $6.29 $7.52 $6.52 $5.41 $5.34
------------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................ 0.07 0.14 0.13 0.13 0.09 0.10
Net Realized & Unrealized Gain
(Loss) on Investments............ 0.21 1.51 (0.61) 1.05 1.09 0.10
------------ ------ ------ ------ ------ ------
Total From Investment Operations..... 0.28 1.65 (0.48) 1.18 1.18 0.20
------------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net Investment Income................ 0.08 0.10 0.13 0.10 0.07 0.13
Net Realized Gains................... 0.79 0.03 0.62 0.08 --- ---
------------ ------ ------ ------ ------ ------
Total Distributions.................. 0.87 0.13 0.75 0.18 0.07 0.13
------------ ------ ------ ------ ------ ------
Net Asset Value, End of Period....... $7.22 $7.81 $6.29 $7.52 $6.52 $5.41
============ ====== ====== ====== ====== ======
TOTAL RETURN (%)..................... 3.88 26.58 (7.17) 18.41 21.94 3.69
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period
(in thousands)..................... $90,503 $92,104 $80,225 $94,282 $85,782 $81,758
Ratio to Average Net Assets:
Expenses (%)....................... 1.60 (a) 1.62 1.67 1.60 1.79 1.61
Net Investment Income (%).......... 1.93 (a) 1.86 1.89 1.81 1.37 1.73
Portfolio Turnover Rate (%).......... 2 59 28 24 39 49
</TABLE>
(a) Annualized
See notes to financial statements
9
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of
Directors of Philadelphia Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Philadelphia Fund, Inc., including the portfolio of investments as of May 31,
1996, and the related statement of operations for the six months then ended,
the statement of changes in net assets for the six months ended May 31, 1996
and the year ended November 30, 1995, and financial highlights for each of the
periods presented. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we 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. Our procedures included confirmation of securities
owned as of May 31, 1996 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Philadelphia Fund, Inc. at May 31, 1996, and the results of its operations,
changes in its net assets and financial highlights for the periods presented,
in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
June 17, 1996
10
<PAGE>
PHILADELPHIA FUND, INC.
OFFICERS
DONALD H. BAXTER, Chairman and President
RONALD F. ROHE, Vice President/Secretary/Treasurer
ADMINISTRATIVE STAFF
KEITH A. EDELMAN, Director of Operations
DIANE M. SARRO, Director of Shareholder Services
DIRECTORS
DONALD H. BAXTER
THOMAS J. FLAHERTY
JAMES KEOGH
KENNETH W. McARTHUR
ROBERT L. MEYER
DONALD P. PARSON
ROBERT A. UTTING
PHILADELPHIA FUND, INC.
1200 North Federal Highway, Suite 424, Boca Raton, FL 33432 (561) 395-2155
INVESTMENT ADVISOR, ADMINISTRATOR AND DISTRIBUTOR
BAXTER FINANCIAL CORP.,
1200 North Federal Highway, Suite 424, Boca Raton, FL 33432
CUSTODIAN
STAR BANK, N.A. P.O. Box 640110 Cincinnati, OH 45264-0110
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
AMERICAN DATA SERVICES, INC.
24 West Carver Street Location #00150 Huntington, NY 11743
LEGAL COUNSEL
STRADLEY, RONON, STEVENS & YOUNG, Malvern, PA
AUDITORS
TAIT, WELLER & BAKER, Philadelphia, PA
11
<PAGE>
Philadelphia Fund, Inc. PHILADELPHIA
1200 North Federal Highway FUND, INC.
Suite 424
Boca Raton, FL 33432 SEMI-ANNUAL
REPORT
May 31, 1996
[LOGO]
Established 1923
You will find important information
about PHILADELPHIA FUND - its
investment policy and management, past
record and the method of calculating
the per-share net asset value in the
current prospectus. This report is
submitted for the general information
of the Fund's shareholders. Its is not
authorized for distribution to
prospective investors unless preceded or
accompanied by an effective prospectus.
