<PAGE>
PHILADELPHIA FUND, INC.
PRESIDENT'S LETTER - June 26, 1998
In our last report to shareholders, we discussed the economic problems in
Asia and our view that this might cause U.S. interest rates to go lower.
Interest rates have dipped and stocks responded by rising to impressive
heights. Low interest rates and record mergers pushed financial stocks
skyward. Stock market profits have followed an almost perfect economy.
However, increasing interest rates cannot be ruled out with consumer spending
strong and 4.3% unemployment, a 30 year low. Optimists on interest rates
point to the strong U.S. dollar, low commodity prices, and interest rates
which have room to drop if inflation stays low.
High equity prices and uncertainty over the Japanese economic quagmire
prompt our taking a watchful course. The U.S. Treasury has intervened in the
currency markets to support the yen and Japan responded with pledges to fix
its wobbly banking system. Now, the world awaits Japanese action; political
will is needed to attack the problem. All U.S. exports to Asia amount to just
2.4% of U.S. gross domestic product and exports to Japan account for 1% of
U.S. gross domestic product. The United States is not directly exposed, but
many fear a continuing downward economic spiral in Asia and damage to the
entire world economy. These cautionary factors and merger fever in the
markets have encouraged us to take capital gains by reducing our positions in
American Express, American International Group, Conseco, Fannie Mae,
Nationsbank, and PNC Bancorp. Wells Fargo was sold for a profit of $7,619,003
when we reached a 426% profit.
Besides pruning our holdings in the financial sector, we trimmed Coca-
Cola, Comcast, General Dynamics, and Time-Warner. Jostens Inc. and UST Inc.
were sold. In the first half of the fiscal year, we have netted $18.5 million
in capital gains.
We added to our position in Commerce Group, a property casualty insurance
company, and invested in Borg Warner Automotive, a provider of powertrain
components to the automobile industry.
At May's end, 20.7% of our assets were invested in short-term financial
instruments. This gives us the capability to seize new opportunities as they
occur. We look forward to fresh opportunity.
Very truly yours,
/s/ Donald H. Baxter
Donald H. Baxter
President
<PAGE>
PHILADELPHIA FUND, INC.
PORTFOLIO OF INVESTMENTS - MAY 31, 1998
<TABLE>
<CAPTION>
Shares Value
- ------- -----------
COMMON STOCKS - 72.9%
<C> <S> <C>
AUTOMOTIVE - 1.2%
25,000 Borg-Warner Automotive Inc. .......................... $ 1,425,000
-----------
BANKS - 11.7%
70,000 National City Corp. .................................. 4,742,500
35,000 NationsBank Corp. .................................... 2,651,250
115,000 PNC Bank Corp. ....................................... 6,641,250
-----------
14,035,000
-----------
BEVERAGES - 6.5%
100,000 Coca Cola Co. ........................................ 7,837,500
-----------
COMMUNICATIONS - 11.8%
130,000 Comcast Corp. Class "A"................................ 4,387,500
130,000 Comcast Corp. Special Class "A"........................ 4,456,563
136,000 SBC Communications Inc. ............................... 5,287,000
-----------
14,131,063
-----------
DEFENSE - 5.9%
160,000 General Dynamics Corp. ................................ 7,110,000
-----------
FINANCIAL SERVICES - 8.5%
35,000 American Express Co. .................................. 3,591,875
110,000 Federal National Mortgage Association.................. 6,586,250
-----------
10,178,125
-----------
FOOD-RETAIL - 1.4%
130,000 Ingles Markets, Inc. Class "A" ........................ 1,625,000
-----------
INSURANCE - 7.6%
55,000 American International Group Inc. ..................... 6,809,687
30,000 Commerce Group, Inc. .................................. 1,070,625
25,000 Conseco, Inc. ......................................... 1,165,625
-----------
9,045,937
-----------
OIL - 9.0%
55,000 Kerr-McGee Corp. ...................................... 3,478,750
210,000 Occidental Petroleum Corp. ............................ 5,801,250
25,000 Texaco, Inc. .......................................... 1,443,750
-----------
10,723,750
-----------
PUBLISHING - 2.8%
15,000 Time Warner Inc. ...................................... 1,167,188
4,000 Washington Post Co. Cl B .............................. 2,161,000
-----------
3,328,188
-----------
Shares Value
- ------- -----------
SPECIALIZED CONSUMER GOODS - 2.7%
70,000 Nike. Inc. Cl B ....................................... 3,220,000
-----------
UTILITIES - 3.8%
120,000 Western Resources, Inc. ............................... 4,605,000
-----------
Total Value of Common Stocks (cost $46,144,668)........ 87,264,563
-----------
Principal
Amount
- ---------
U.S. GOVERNMENT OBLIGATIONS - 6.0%
$5,000M U.S. Treasury Bond, 13 3/4% due 08/15/04
(cost $6,411,531) 7,101,565
-----------
SHORT-TERM CORPORATE NOTES - 20.7%
Chevron USA Corp.,
4,180M 5.51%, due 6/11/98 4,180,000
CIT Group Holdings Corp.,
3,800M 5.541%, due 7/9/98 3,800,000
GE Capital Corp.,
1,600M 5.546%, due 6/04/98 1,600,000
870M 5.535%, due 6/04/98 870,000
3,100M 5.562%, due 7/16/98 3,100,000
General Motors Acceptance Corp.,
6,000M 5.521%, due 7/2/98 6,000,000
Prudential Funding Corp.,
2,490M 5.525%, due 6/18/98 2,490,000
2,750M 5.536%, due 6/25/98 2,750,000
-----------
Total Value of Short-Term Corporate Notes
(cost $24,790,000) 24,790,000
-----------
Total Value of Investments (cost $77,346,199)........... 99.6% 119,156,128
Other Assets, less Liabilities ......................... .4 488,680
------ -----------
Net Assets............................................. 100.0% $119,644,808
====== ===========
</TABLE>
See notes to financial statements
2
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - MAY 31, 1998
<TABLE>
<S> <C> <C>
ASSETS
Investments in securities, at value
(identified cost $77,346,199) (Note 1A)..... $119,156,128
Cash.......................................... 335,605
Dividends and interest receivable............. 283,180
Other assets.................................. 12,657
------------
TOTAL ASSETS............................... 119,787,570
LIABILITIES
Accrued advisory and administrative fees......$ 99,784
Other accrued expenses........................ 42,978
----------
TOTAL LIABILITIES.......................... 142,762
------------
NET ASSETS.......................................... $119,644,808
============
NET ASSETS CONSIST OF:
Capital paid in............................... $ 59,215,820
Undistributed net investment income .......... 113,881
Accumulated net realized gain on investments.. 18,505,178
Net unrealized appreciation in value of
investments................................ 41,809,929
------------
TOTAL...................................... $119,644,808
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
($119,644,808 / 11,706,710 shares outstanding)
30,000,000 shares authorized, $1.00 par value
(Note 2)..................................... $10.22
======
</TABLE>
See notes to financial statements
3
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF OPERATIONS - SIX MONTHS ENDED MAY 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends............................. $ 972,968
Interest.............................. 445,168
----------
TOTAL INCOME.................... $ 1,418,136
Expenses: (Notes 4 and 5)
Investment advisory fee .............. 446,473
Distribution plan expenses ........... 154,926
Administrative fee ................... 148,824
Professional fees..................... 50,888
Director fees and expenses............ 34,128
Fund accounting expense............... 25,072
Transfer agent and dividend disbursing
agent's fees and expenses........... 19,916
Custodian fees........................ 15,781
Other expenses........................ 34,441
----------
TOTAL EXPENSES...................... 930,449
Less: Custodian fees paid indirectly 1,954
----------
NET EXPENSES ................ 928,495
----------
INVESTMENT INCOME-NET............... 489,641
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 3):
Net realized gain on investments...... 18,505,178
Net unrealized depreciation of
investments......................... (6,645,005)
----------
Net gain on investments............. 11,860,173
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $12,349,814
===========
</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,
1998 1997
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income......................... $ 489,641 $ 1,059,020
Net realized gain on investments.............. 18,505,178 9,197,530
Net unrealized appreciation (depreciation) of
investments............................... (6,645,005) 15,173,415
----------- -----------
Net increase in net assets resulting from
operations........................... 12,349,814 25,429,965
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income......................... ( 616,204) (1,234,269)
Net realized gain on investments.............. (9,189,061) ( 362,363)
CAPITAL SHARE TRANSACTIONS
Increase (decrease) in net assets resulting
from capital share transactions (Note 2).... 3,606,107 (7,639,496)
----------- -----------
Net increase in net assets............... 6,150,656 16,193,837
NET ASSETS
Beginning of year............................. 113,494,152 97,300,315
----------- -----------
End of period (including undistributed net
investment income of $113,881 and $240,444,
respectively)............................... $119,644,808 $113,494,152
=========== ===========
</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 29,
1998. 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. Premiums on bonds
purchased are amortized over the life of the bond. Interest income and
estimated expenses are accrued daily.
2. CAPITAL STOCK
At May 31, 1998 there were 11,706,710 shares outstanding. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
May 31, 1998 November 30, 1997
----------------------- ----------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Capital stock sold......... 12,590 $ 128,861 32,832 $ 281,352
Capital stock issued in
reinvestment of
distributions .......... 868,114 8,183,957 152,288 1,296,925
Capital stock redeemed..... (466,025) (4,706,711) (1,054,871) (9,217,773)
-------- ----------- ---------- -----------
Net increase (decrease).. 414,679 $ 3,606,107 (869,751) $(7,639,496)
======== =========== ========== ===========
6
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PURCHASES AND SALES OF SECURITIES
For the six months ended May 31, 1998, purchases and sales of securities,
other than United States Government obligations and short-term notes,
aggregated $9,575,678 and $33,385,162 respectively. There were no purchases
or sales of long-term United States Government obligations during the period.
At May 31, 1998, the cost of investments for Federal income tax purposes
was $77,346,199. Accumulated net unrealized appreciation on investments was
$41,809,929 consisting of $42,131,185 gross unrealized appreciation and
$321,256 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, 1998, directors of the Fund who are
not affiliated with BFC received directors fees aggregating $23,500. 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 $1,954 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, 1998 1997 1996 1995 1994 1993
- -------------- ------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year.. $10.05 $ 8.00 $ 7.81 $ 6.29 $ 7.52 $ 6.52
------------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................ 0.04 0.09 0.13 0.14 0.13 0.13
Net Realized & Unrealized Gain
(Loss) on Investments............ 1.00 2.10 0.99 1.51 (0.61) 1.05
------------ ------ ------ ------ ------ ------
Total From Investment Operations..... 1.04 2.19 1.12 1.65 (0.48) 1.18
------------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net Investment Income................ 0.05 0.11 0.14 0.10 0.13 0.10
Net Realized Gains................... 0.82 0.03 0.79 0.03 0.62 0.08
------------ ------ ------ ------ ------ ------
Total Distributions.................. 0.87 0.14 0.93 0.13 0.75 0.18
------------ ------ ------ ------ ------ ------
Net Asset Value, End of Period....... $10.22 $10.05 $ 8.00 $ 7.81 $ 6.29 $ 7.52
============ ====== ====== ====== ====== ======
TOTAL RETURN (%)..................... 11.10 27.62 16.04 26.58 (7.17) 18.41
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period
(in thousands)..................... $119,645 $113,494 $97,300 $92,104 $80,225 $94,282
Ratio to Average Net Assets:
Expenses (%)....................... 1.57 (a) 1.53 1.56 1.62 1.67 1.60
Net Investment Income (%).......... 0.82 (a) 1.02 1.69 1.86 1.89 1.81
Portfolio Turnover Rate (%).......... 9 17 14 59 28 24
Average commission rate * ........... $.1626 $.1216 $.1366
</TABLE>
* Average commission rate (per share of security) as required by amended
disclosure requirements effective September 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,
1998, and the related statement of operations for the six months then ended,
and the statements of changes in net assets and financial highlights for the
six months ended May 31, 1998 and the year ended November 30, 1997. 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. The
financial highlights for each of the four years in the period ended November
30, 1996, were audited by other auditors, whose report, dated December 16,
1996, expressed an unqualified opinion on those financial highlights.
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, 1998 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 May 31, 1998, and the results of its operations for
the six months then ended and changes in its net assets and financial
highlights for the six months ended May 31, 1998 and the year ended November
30, 1997, in conformity with generally accepted accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
June 19, 1998
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.
Hauppauge Corporate Center, 150 Motor Parkway, Suite 109, Hauppauge, NY 11788
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, 1998
[LOGO]
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.
