<PAGE>
PHILADELPHIA FUND, INC.
PRESIDENT'S LETTER - January 6, 1997
Dear shareholders,
We are at peace, the economy is growing slowly, interest rates are low but
creeping up and the Presidential election is over.
Many market pundits have been wringing their hands, worrying over inflation
which has not yet arrived. As an economic cycle matures, it is normal for
productivity growth to slow and unit labor costs to accelerate. Several forces
have delayed inflationary momentum. Economists recognize their inability to
measure productivity in the growing service sector which employs most of our
workers. Most recent investment in computers has been directed to this area
where hard to measure productivity gains have taken place. Budget cutting by
European governments has resulted in low demand for our products by Europeans.
This force in European policy should continue for the next two to three years,
as they strive to meet the mandate of the Maastricht Treaty.
The Japanese have been heavy buyers of U.S. Treasury bonds and own an
estimated one quarter of those outstanding. Japan's appetite for U.S.
Treasury securities has remained high because their own interest rates are so
low. We do not doubt they will continue to help finance our federal
government's budget deficit, since they have little choice while they run a
trade surplus with the United States.
Partly due to the market's outlook for interest rates, financial stocks
performed well over the last year. This contributed to much of the Fund's
positive performance during fiscal 1996. Our 30,000 share position in Wells
Fargo(1) advanced in value from $6,307,500 to $8,538,750. American Express(1)
and Federal National Mortgage(1) shares held appreciated 22.9% and 50.7%,
respectively. A star growth performer during the year deserving mention was
Coca Cola(1), increasing in value by 35%. These gains were partially offset
by lower prices for Taubman Centers, Readers Digest Association, Dun and
Bradstreet, Jostens, and Comcast.
As always our economy faces problems as well as opportunities. We remain
vigilant in searching out opportunities for our investors.
Very truly yours,
/s/ Donald H. Baxter
Donald H. Baxter
President
Comparison of the change in value of $10,000 investment in the Philadelphia
Fund and the Standard and Poor's 500 Index*
<TABLE>
<CAPTION>
The printed report shows a line graph with the following points.
PHILADELPHIA S&P
FUND INDEX
<S> <C> <C>
5/01/87** $10,000 $10,000
11/30/87 $ 8,423 $ 8,137
11/30/88 $10,006 $10,032
11/30/89 $13,726 $13,124
11/30/90 $11,921 $12,664
11/30/91 $12,361 $15,238
11/30/92 $15,074 $18,049
11/30/93 $17,849 $19,868
11/30/94 $16,569 $20,079
11/30/95 $20,972 $27,495
11/30/96 $24,337 $35,164
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns as of 11/30/96
1 YEAR 5 YEARS Since 5/1/87**
--------------------------------
<S> <C> <C> <C>
N.A.V. Only 16.04% 14.51% 9.73%
S.E.C. Standardized 16.04% 14.51% 8.71%
</TABLE>
Past performance is not predictive of future performance.
(1) Wells Fargo, American Express, Federal National Mortgage, and Coca Cola
represented 8.8%, 5.4%, 6.8% and 10.0% of the Fund's total net asset value
on 11/30/96, respectively.
* The Standard & Poor's 500 Composite Stock Index is a widely recognized
unmanaged index of common stock prices. Performance figures include the
change in value of the stocks in the index and reinvestment of dividends.
** Mr. Donald H. Baxter became the Fund's portfolio manager on May 1, 1987.
Previous periods during which the Fund was advised by another investment
advisor are not shown.
<PAGE>
PHILADELPHIA FUND, INC.
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 1996
<TABLE>
<CAPTION>
Shares Value
- ------- -----------
COMMON STOCKS - 84.8%
<C> <S> <C>
BANKS - 20.8%
18,306 NationsBank Corp...................................... $ 1,896,959
80,000 National City Corp.................................... 3,710,000
155,000 PNC Bank Corp......................................... 6,122,500
30,000 Wells Fargo & Co. .................................... 8,538,750
----------
20,268,209
----------
BEVERAGES - 10.0%
190,000 Coca Cola Co......................................... 9,713,750
----------
COMMUNICATIONS - 9.0%
8,216 Bell Atlantic Corp. ................................. 516,581
140,000 Comcast Corp. Class "A".............................. 2,327,500
140,000 Comcast Corp. Special Class "A"...................... 2,345,000
68,000 SBC Communications Inc. ............................. 3,578,500
----------
8,767,581
----------
DEFENSE - 6.4%
85,000 General Dynamics Corp................................ 6,268,750
----------
ENTERTAINMENT - .4%
15,000 *Tele-Communications Liberty Media Group Ser. A....... 375,000
----------
ENVIRONMENTAL 1.1%
40,000 Browning Ferris...................................... 1,075,000
----------
FINANCIAL SERVICES - 12.2%
100,000 American Express Co.................................. 5,225,000
160,000 Federal National Mortgage Association ............... 6,600,000
----------
11,825,000
----------
INSURANCE - 9.4%
52,500 American International Group Inc..................... 6,037,500
15,000 Commerce Group, Inc.................................. 360,000
50,000 Conseco, Inc......................................... 2,793,750
----------
9,191,250
----------
METALS - .5%
54,216 *Tung Ho Steel Enterprises Corp....................... 515,049
----------
Shares Value
- ------- ----------
PHARMACEUTICALS - 4.0%
60,000 American Home Products Corp.......................... $ 3,855,000
----------
PUBLISHING - 2.3%
20,000 Time Warner Inc...................................... 815,000
4,000 Washington Post Co. Cl B............................. 1,392,000
----------
2,207,000
----------
REAL ESTATE INVESTMENT TRUSTS 1.6%
60,000 Franchise Financial Corp. of Amer. .................. 1,522,500
----------
SPECIALIZED CONSUMER GOODS - 2.4%
110,500 Jostens Inc.......................................... 2,348,125
----------
TOBACCO - 4.7%
140,000 UST Inc. ............................................ 4,567,500
----------
Total Value of Common Stocks (cost $49,910,615)...... 82,499,714
----------
Principal
Amount
- ---------
U.S. GOVERNMENT OBLIGATIONS - 7.6%
$5,000M U.S. Treasury Bond, 13 3/4% due 08/15/04
(cost $6,662,265).................................... 7,354,685
----------
SHORT-TERM CORPORATE NOTES - 7.0%
3,000M Chevron Oil 5.27% due 12/12/96....................... 3,000,000
3,900M GE Capital Corp 5.26% due 12/05/96 ................. 3,900,000
----------
Total Value of Short-Term Corporate Notes
(cost $6,900,000) ................................... 6,900,000
----------
Total Value of Investments (cost $63,472,880)... 99.4% 96,754,399
Other Assets, Less Liabilities.................. .6 545,916
------ ----------
Net Assets......................................100.0% $97,300,315
====== ==========
</TABLE>
* Non-income producing security
See notes to financial statements
2
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - NOVEMBER 30, 1996
<TABLE>
<S> <C> <C>
ASSETS
Investments in securities, at value
(identified cost $63,472,880) (Note 1A)..... $96,754,399
Cash.......................................... 362,116
Dividends and interest receivables............ 283,683
Other assets.................................. 11,905
------------
TOTAL ASSETS............................... 97,412,103
LIABILITIES
Accrued advisory and administrative fees......$ 81,076
Other accrued expenses........................ 30,712
----------
TOTAL LIABILITIES.......................... 111,788
------------
NET ASSETS.......................................... $97,300,315
============
NET ASSETS CONSIST OF:
Capital paid in............................... $63,249,209
Undistributed net investment income .......... 415,693
Accumulated net realized gain on investments.. 353,894
Net unrealized appreciation in value of
investments................................. 33,281,519
------------
TOTAL...................................... $97,300,315
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
($97,300,315 / 12,161,782 shares outstanding)
30,000,000 shares authorized, $1.00 par value
(Note 2)..................................... $8.00
=====
</TABLE>
See notes to financial statements
3
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF OPERATIONS - YEAR ENDED NOVEMBER 30, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends............................. $1,565,004
Interest.............................. $1,399,527
----------
TOTAL INCOME.................... $ 2,964,531
Expenses: (Notes 4 and 5)
Investment advisory fee .............. 685,222
Distribution plan expenses ........... 238,663
Administrative fee ................... 228,408
Director fees and expenses............ 55,712
Professional fees..................... 55,268
Fund accounting expense............... 43,952
Transfer agent and dividend disbursing
agent's fees and expenses........... 36,899
Custodian fees........................ 24,871
Insurance............................. 18,858
Registration fees..................... 9,962
Reports and notices to shareholder.... 7,958
Other expenses........................ 19,493
----------
TOTAL EXPENSES...................... 1,425,266
Less: Custodian fees paid indirectly 3,103
----------
NET EXPENSES ................ 1,422,163
----------
INVESTMENT INCOME-NET............... 1,542,368
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Notes 3):
Net realized gain on investments...... 357,495
Net unrealized appreciation of
investments......................... 11,824,732
----------
Net gain on investments............. 12,182,227
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $13,724,595
===========
</TABLE>
See notes to financial statements
4
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS - YEARS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income............................. $ 1,542,368 $ 1,597,026
Net realized gain on investments.................. 357,495 9,292,398
Net unrealized appreciation of investments........ 11,824,732 9,387,056
----------- -----------
Net increase in net assets resulting from
operations................................. 13,724,595 20,276,480
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. (1,732,280) (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)............. 2,498,689 (6,786,135)
----------- -----------
Net increase in net assets................... 5,195,957 11,879,034
NET ASSETS
Beginning of year................................. 92,104,358 80,225,324
----------- -----------
End of year (including undistributed net
investment income of $415,693 and $605,605,
respectively.................................... $97,300,315 $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
November 29, 1996. Securities traded over-the-counter and securities not
traded that day are valued at the prevailing quoted bid price. Quotations of
foreign securities in foreign currency are translated to U.S. dollar
equivalents using the foreign exchange quotation in effect. 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.
2. CAPITAL STOCK
At November 30, 1996 there were 12,161,782 shares outstanding.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------- ----------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Capital stock sold.... 62,070 $ 449,151 54,667 $ 373,567
Capital stock issued
in reinvestment of
distributions ........ 1,322,459 9,413,721 219,149 1,467,768
Capital stock
redeemed..............(1,009,161) (7,364,183) (1,244,257) (8,627,470)
----------- ------------ ----------- ------------
Net increase
(decrease).. 375,368 $ 2,498,689 (970,441) $(6,786,135)
=========== ============ =========== ============
</TABLE>
6
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PURCHASES AND SALES OF SECURITIES
For the year ended November 30, 1996, purchases and sales of securities,
other than United States Government obligations and short-term notes,
aggregated $14,776,155 and $10,328,801 respectively. There were no purchases
or sales of long-term United States Government obligations during 1996.
At November 30, 1996, the cost of investments for Federal income tax
purposes was $63,472,880. Accumulated net unrealized appreciation on
investments was $33,281,519 consisting of $33,540,470 gross unrealized
appreciation and $258,951 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.
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 year ended November 30, 1996, no
reimbursement was required.
During the year ended November 30, 1996, directors of the Fund who are not
affiliated with BFC received directors fees aggregating $39,600. Thomas J.
Flaherty a director and former officer of the Fund receives a monthly pension
from the Fund which amounted to $12,500 for the year ended November 30, 1996.
The Fund's Custodian has provided credits in the amount of $3,103 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 .50% of the Fund's average
net assets calculated monthly.
7
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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.
6. YEAR-END DISTRIBUTION
Realized gains from security transactions are distributed to shareholders
in December following the end of the fiscal year. A distribution of $.065 a
share, consisting of $.03 from realized gains and $.035 from ordinary income
was declared on December 9, 1996. The distribution is payable on December 27,
1996 to the shareholders of record on December 23, 1996.
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 year indicated.
<TABLE>
<CAPTION>
PER SHARE DATA Year Ended November 30,
- -------------- ---------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year... $7.81 $6.29 $7.52 $6.52 $5.41 $5.34 $7.23 $5.51 $6.38 $9.23
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................ 0.13 0.14 0.13 0.13 0.09 0.10 0.17 0.15 0.08 0.14
Net Realized & Unrealized
Gains (Loss) on Investments........ 0.99 1.51 (0.61) 1.05 1.09 0.10 (0.99) 1.84 0.92 (0.48)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment Operations..... 1.12 1.65 (0.48) 1.18 1.18 0.20 (0.82) 1.99 1.00 (0.34)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net Investment Income................ 0.14 0.10 0.13 0.10 0.07 0.13 0.18 0.11 0.10 0.16
Net Realized Gains................... 0.79 0.03 0.62 0.08 --- --- 0.89 0.16 1.77 2.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.................. 0.93 0.13 0.75 0.18 0.07 0.13 1.07 0.27 1.87 2.51
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Year......... $8.00 $7.81 $6.29 $7.52 $6.52 $5.41 $5.34 $7.23 $5.51 $6.38
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)..................... 16.04 26.58 (7.17) 18.41 21.94 3.69 (13.14) 37.17 18.79 (5.65)
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year
(in thousands)..................... $97,300 $92,104 $80,225 $94,282 $85,782 $81,758 $87,410 $110,182 $91,333 $89,009
Ratio to Average Net Assets:
Expenses (%)....................... 1.56 1.62 1.67 1.60 1.79 1.61 1.19 0.95 0.90 0.87
Net Investment Income (%).......... 1.69 1.86 1.89 1.81 1.37 1.73 2.95 2.02 1.50 1.83
Portfolio Turnover Rate (%).......... 14 59 28 24 39 49 43 9 16 152
Average commission rate*............. $.1366 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
*Average commission rate (per share of security) as required by amended
discloser requirements effective September 1, 1995.
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 November
30, 1996, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended, and financial highlights for each of the years 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 November 30, 1996 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 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 November 30, 1996, and the results of its
operations, changes in its net assets and financial highlights for the years
presented, in conformity with generally accepted accounting principles.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
December 16, 1996 (Except for Note 6 as
to which the date is December 24, 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 ANNUAL
(561) 395-2155 REPORT
November 30, 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.
