<PAGE>
PHILADELPHIA FUND, INC.
PRESIDENT'S LETTER - July 7 ,1997
Dear shareholders:
Strong forces are working to propel the market to lofty levels, bedazzling
both participants and onlookers. Fortunately, as shareholders of the
Philadelphia Fund, Inc., you may have been participants in the great bull
market of the 1990s. Congratulations!
It is difficult to imagine that low interest rates and low inflation can
continue forever, but these powerful economic trends appear sustainable for
the foreseeable future. If one had to outline the ideal environment for
stocks, this would be it. If inflation allows interest rates to continue
their decline, long term bond rates could be at 5% on New Years day in the year
2000. This could elevate the Dow over 9,000.
What could thwart this scenario? Action by the Federal Reserve or some
unexpected upheaval in the international arena could be factors. By bumping
interest rates 1/4 point last March, the Fed served notice to the markets that
it will not be taken for granted. Any action by the Fed appears very unlikely
because the producer price index (PPI) has actually declined for the last five
months. The Fed could be the Grinch who stole Christmas if the stock markets
rise to a level of "irrational exuberance" in the words of Chairman Greenspan.
Corporate profits continue their upward march. One of the benefits of the
information age to business and the economy is tighter inventory control and
less chance of recession induced by inventory reduction.
We constantly search for new opportunities and have initiated positions in
Occidental Petroleum and Texaco. We doubled our position in Browning Ferris,
the waste disposal company, while Conseco, Liberty Media & Nationsbank split
their stocks.
Our successful location of value opportunities suggests that the markets may
have room to increase in price further.
Very truly yours,
/s/ Donald H. Baxter
Donald H. Baxter
President
<PAGE>
PHILADELPHIA FUND, INC.
PORTFOLIO OF INVESTMENTS - MAY 31, 1997
<TABLE>
<CAPTION>
Shares Value
- ------- -----------
COMMON STOCKS - 91.0 %
<C> <S> <C>
BANKS - 20.2 %
80,000 National City Corp. .................................. $ 4,120,000
36,612 NationsBank Corp. .................................... 2,155,532
155,000 PNC Bank Corp. ....................................... 6,490,625
30,000 Wells Fargo & Co. ................................... 7,905,000
-----------
20,671,157
-----------
BEVERAGES - 12.0 %
180,000 Coca Cola Co. ........................................ 12,285,000
-----------
COMMUNICATIONS - 9.2 %
8,216 Bell Atlantic Corp. ................................... 575,120
140,000 Comcast Corp. Class "A"................................ 2,441,250
140,000 Comcast Corp. Special Class "A"........................ 2,432,500
68,000 SBC Communications Inc. ............................... 3,978,000
-----------
9,426,870
-----------
DEFENSE - 6.2 %
85,000 General Dynamics Corp. ................................ 6,364,375
-----------
ENTERTAINMENT - .5 %
22,500 *Tele-Communications Liberty Media Group Ser A ......... 490,781
-----------
ENVIRONMENTAL - 2.6 %
80,000 Browning Ferris ....................................... 2,620,000
-----------
FINANCIAL SERVICES - 13.6 %
100,000 American Express Co. .................................. 6,950,000
160,000 Federal National Mortgage Association.................. 6,980,000
-----------
13,930,000
-----------
INSURANCE - 11.2 %
52,500 American International Group Inc. ..................... 7,107,187
15,000 Commerce Group, Inc. .................................. 337,500
100,000 Conseco, Inc. ......................................... 4,000,000
-----------
11,444,687
-----------
Shares Value
- ------- -----------
OIL - 8.2 %
170,000 Occidental Petroleum Corp. ............................ $ 3,952,500
40,000 Texaco, Inc. .......................................... 4,365,000
-----------
8,317,500
-----------
PUBLISHING - 2.4 %
20,000 Time Warner Inc. ...................................... 930,000
4,000 Washington Post Co. Cl B .............................. 1,542,500
-----------
2,472,500
-----------
SPECIALIZED CONSUMER GOODS - 2.0 %
83,500 Jostens Inc. .......................................... 2,056,188
-----------
TOBACCO - 2.9 %
105,000 UST Inc. .............................................. 2,992,500
-----------
Total Value of Common Stocks (cost $51,858,471)........ 93,071,558
-----------
Principal
Amount
- ---------
U.S. GOVERNMENT OBLIGATIONS - 6.9 %
$5,000M U.S. Treasury Bond, 13 3/4% due 08/15/04
(cost $6,581,976)...................................... 7,009,375
-----------
SHORT-TERM CORPORATE NOTES - 1.6 %
1,600M GE Capital Corp. 5.536% due 6/05/97 (cost $1,600,000).. 1,600,000
-----------
Total Value of Investments (cost $60,040,447)........... 99.5% 101,680,993
Other Assets, less Liabilities ......................... .5 506,147
------ -----------
Net Assets............................................. 100.0% $102,187,080
====== ===========
</TABLE>
* Non-income producing security
See notes to financial statements
2
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - MAY 31, 1997
<TABLE>
<S> <C> <C>
ASSETS
Investments in securities, at value
(identified cost $60,040,447) (Note 1A)..... $101,680,933
Cash.......................................... 348,014
Dividends and interest receivable............. 258,423
Other assets.................................. 13,688
------------
TOTAL ASSETS............................... 102,301,058
LIABILITIES
Accrued advisory and administrative fees......$ 85,152
Other accrued expenses........................ 28,826
----------
TOTAL LIABILITIES.......................... 113,978
------------
NET ASSETS.......................................... $102,187,080
============
NET ASSETS CONSIST OF:
Capital paid in............................... $ 59,573,632
Undistributed net investment income .......... 218,652
Accumulated net realized gain on investments.. 754,310
Net unrealized appreciation in value of
investments................................ 41,640,486
------------
TOTAL...................................... $102,187,080
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
($102,187,080 / 11,715,677 shares outstanding)
30,000,000 shares authorized, $1.00 par value
(Note 2)..................................... $8.72
=====
</TABLE>
See notes to financial statements
3
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF OPERATIONS - SIX MONTHS ENDED MAY 31, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends............................. $ 848,407
Interest.............................. 383,544
----------
TOTAL INCOME.................... $ 1,231,951
Expenses: (Notes 4 and 5)
Investment advisory fee .............. 369,858
Distribution plan expenses ........... 127,801
Administrative fee ................... 123,286
Director fees and expenses............ 36,667
Professional fees..................... 24,754
Fund accounting expense............... 22,331
Transfer agent and dividend disbursing
agent's fees and expenses........... 18,957
Custodian fees........................ 13,774
Other expenses........................ 32,863
----------
TOTAL EXPENSES...................... 771,291
Less: Custodian fees paid indirectly 1,745
----------
NET EXPENSES ................ 769,546
----------
INVESTMENT INCOME-NET............... 462,405
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 3):
Net realized gain on investments...... 762,779
Net unrealized appreciation of
investments......................... 8,358,967
----------
Net gain on investments............. 9,121,746
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $ 9,584,151
===========
</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,
1997 1996
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income............................ $ 462,405 $ 1,542,368
Net realized gain on investments................. 762,779 357,495
Net unrealized appreciation of investments....... 8,358,967 11,824,732
----------- -----------
Net increase in net assets resulting from
operations.............................. 9,584,151 13,724,595
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................ ( 659,446) (1,732,280)
Net realized gain on investments................. ( 362,363) (9,295,047)
CAPITAL SHARE TRANSACTIONS
Increase (decrease) in net assets resulting from
capital share transactions (Note 2)............ (3,675,577) 2,498,689
----------- -----------
Net increase in net assets.................. 4,886,765 5,195,957
NET ASSETS
Beginning of period.............................. 97,300,315 92,104,358
----------- -----------
End of period (including undistributed net
investment income of $218,652 and $415,693,
respectively................................... $102,187,080 $97,300,315
=========== ===========
</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 30,
1997. 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. Use of Estimates - the preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Actual results
could differ from those estimates.
D. 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. Premiums on bonds purchased are
amortized over the life of the bond.
2. CAPITAL STOCK
At May 31, 1997 there were 11,715,677 shares outstanding. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
May 31, 1997 November 30, 1996
----------------------- ----------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Capital stock sold......... 21,075 $ 168,429 62,070 $ 449,151
Capital stock issued in
reinvestment of
distributions .......... 102,365 825,955 1,322,459 9,413,721
Capital stock redeemed..... (569,545) (4,669,961) (1,009,161) (7,364,183)
-------- ----------- ---------- -----------
Net increase (decrease).. (446,105) $(3,675,577) 375,368 $ 2,498,689
======== =========== ========== ===========
6
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PURCHASES AND SALES OF SECURITIES
For the six months ended May 31, 1997, purchases and sales of securities,
other than United States Government obligations and short-term notes,
aggregated $9,350,887 and $8,246,009 respectively. There were no purchases or
sales of long-term United States Government obligations during the period.
At May 31, 1997, the cost of investments for Federal income tax purposes
was $60,040,447. Accumulated net unrealized appreciation on investments was
$41,640,486 consisting of $42,137,586 gross unrealized appreciation and
$497,100 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 month-end net asset values of the Fund.
During the six months ended May 31, 1997, 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 the above six month period.
The Fund's Custodian has provided credits in the amount of $1,745 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>
<TABLE>
<CAPTION>
Six Months Year Ended November 30,
Ended ------------------------------------------
PER SHARE DATA May 31, 1997 1996 1995 1994 1993 1992
- -------------- ------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year... $8.00 $7.81 $6.29 $7.52 $6.52 $5.41
------------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................ 0.04 0.13 0.14 0.13 0.13 0.09
Net Realized & Unrealized Gain
(Loss) on Investments............ 0.77 0.99 1.51 (0.61) 1.05 1.09
------------ ------ ------ ------ ------ ------
Total From Investment Operations..... 0.81 1.12 1.65 (0.48) 1.18 1.18
------------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net Investment Income................ 0.06 0.14 0.10 0.13 0.10 0.07
Net Realized Gains................... 0.03 0.79 0.03 0.62 0.08 --
------------ ------ ------ ------ ------ ------
Total Distributions.................. 0.09 0.93 0.13 0.75 0.18 0.07
------------ ------ ------ ------ ------ ------
Net Asset Value, End of Period....... $8.72 $8.00 $7.81 $6.29 $7.52 $6.52
============ ====== ====== ====== ====== ======
TOTAL RETURN (%)..................... 10.15 16.04 26.58 (7.17) 18.41 21.94
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period
(in thousands)..................... $102,187 $97,300 $92,104 $80,225 $94,282 $85,782
Ratio to Average Net Assets:
Expenses (%)....................... 1.56 (a) 1.56 1.62 1.67 1.60 1.79
Net Investment Income (%).......... 0.94 (a) 1.68 1.86 1.89 1.81 1.37
Portfolio Turnover Rate (%).......... 9 14 59 28 24 39
Average commission rate * ........... $.1180 $.1366
</TABLE>
* Average commission rate (per share of security) as required by amended
disclosure requirements effective September 1, 1995.
(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,
1997, and the related statements of operations, changes in net assets and
financial highlights for the six months then ended. 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 audit. The statement of
changes in net assets for the year ended November 30, 1996 and the financial
highlights for each of the five years in the period ended November 30, 1996,
were audited by other auditors, whose report, dated December 16, 1996,
expressed an unqualified opinion on that statement and the financial
highlights.
We conducted our audit 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, 1997 by correspondence with 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. We believe that our audit provided 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, 1997, and the results of its operations,
changes in its net assets and financial highlights for the six months ended
May 31, 1997, in conformity with generally accepted accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
June 30, 1997
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.
P.O. Box 5536, Hauppauge, NY 11788-0132
LEGAL COUNSEL
STRADLEY, RONON, STEVENS & YOUNG, Malvern, PA
AUDITORS
BRIGGS, BUNTING & DOUGHERTY, LLP Philadelphia, PA
11
<PAGE>
Philadelphia Fund, Inc. PHILADELPHIA
1200 North Federal Highway FUND, INC.
Suite 424
Boca Raton, FL 33432 SEMI-ANNUAL
(561) 395-2155 REPORT
MAY 31, 1997
[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. It is not
authorized for distribution to
prospective investors unless preceded or
accompanied by an effective prospectus.
