<PAGE>
PHILADELPHIA FUND, INC.
PRESIDENT'S LETTER - January 6, 1998
Dear shareholders,
During the 1990s investment dollars have been flowing into U.S. equities, and
we see no reason for this to change in the near future. Historically, during
international upheavals, nervous money bought gold. Today, those with nervous
minds buy Treasury bonds while central bankers sell their gold hoards.
With upheavals in Asia causing capital flight into U.S. Treasury bonds, we
look for interest rates to stay low. The weakened Asian currencies will hold
our costs for imported goods down, slowing our exports and lessening
inflationary pressures in our economy. These factors combine to convince us
that there is little likelihood of an increase in interest rates, and low
interest rates have been a major positive for our fund's success this year.
We have substantial investments in banking, insurance, and financial services;
these areas tend to do well in a dropping interest rate environment. Our
investment in Comcast Communications benefited from news that Microsoft will
invest a billion dollars in the company.
The outlook for 1998 appears to be more of the same, though the world now
worries about the economies of the Asian Tigers and Japan. The International
Monetary Fund needs vision and a deft hand to prevent the problems of these
countries from spreading to the global economy. If Asian governments reform
their banking regulation, open their markets, grow their money supplies
suitably, and let weak companies merge with the strong, the problem should be
manageable.
Since our last report we have purchased shares in Occidental Petroleum, Ingles
Markets, Kerr-McGee, and Western Resources; an oil and chemical company, a
grocer, an oil exploration company, and a public utility.
Your fund paid a dividend of 2.3 cents per share for the fourth quarter and a
capital gain of 81.7 cents per share for the year.
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>
11/30/87 $10,000 $10,000
11/30/88 $11,879 $12,328
11/30/89 $16,294 $16,128
11/30/90 $14,152 $15,563
11/30/91 $14,675 $18,725
11/30/92 $17,895 $22,180
11/30/93 $21,190 $24,416
11/30/94 $19,669 $24,675
11/30/95 $24,897 $33,789
11/30/96 $28,892 $43,209
11/30/97 $36,873 $55,524
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns as of 11/30/97
1 YEAR 5 YEARS 10 YEARS
--------------------------------
<S> <C> <C> <C>
N.A.V. Only 27.62% 15.56% 13.94%
S.E.C. Standardized 27.62% 15.56% 13.01%
</TABLE>
Past performance is not predictive of future performance.
* 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.
<PAGE>
PHILADELPHIA FUND, INC.
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Shares Value
- ------- -------------
COMMON STOCKS - 87.4%
<C> <S> <C>
BANKS - 20.2%
70,000 National City Corp.................................... $ 4,672,500
36,612 NationsBank Corp...................................... 2,199,008
155,000 PNC Bank Corp......................................... 8,340,938
25,000 Wells Fargo & Co. .................................... 7,681,250
-------------
22,893,686
-------------
BEVERAGES - 7.2%
130,000 Coca Cola Co. ....................................... 8,125,000
-------------
COMMUNICATIONS - 11.3%
140,000 Comcast Corp. Class "A".............................. 3,902,500
140,000 Comcast Corp. Special Class "A"...................... 3,920,000
68,000 SBC Communications Inc. ............................. 4,951,250
-------------
12,773,750
-------------
DEFENSE - 6.5%
85,000 General Dynamics Corp................................ 7,363,125
-------------
FINANCIAL SERVICES - 11.6%
60,000 American Express Co.................................. 4,732,500
160,000 Federal National Mortgage Association ............... 8,450,000
-------------
13,182,500
-------------
FOOD-RETAIL 1.3%
110,000 Ingles Markets, Inc. Class "A" ...................... 1,485,000
-------------
INSURANCE - 9.4%
60,000 American International Group Inc..................... 6,048,750
15,000 Commerce Group, Inc.................................. 470,000
90,000 Conseco, Inc......................................... 4,190,625
-------------
10,710,000
-------------
OIL - 10.6%
20,000 Kerr McGee Corp ..................................... 1,326,250
210,000 Occidental Petroleum Corp. .......................... 6,234,375
80,000 Texaco, Inc. ........................................ 4,520,000
-------------
12,080,625
-------------
Shares Value
- ------- -------------
PUBLISHING - 2.6%
20,000 Time Warner Inc. .................................... $ 1,165,000
4,000 Washington Post Co. Cl. B............................ 1,821,000
-------------
2,986,000
-------------
SPECIALIZED CONSUMER GOODS - 1.3%
60,000 Jostens Inc.......................................... 1,440,000
-------------
TOBACCO - 2.0%
75,000 UST Inc. ............................................ 2,315,625
-------------
UTILITIES - 3.4%
100,000 Western Resources, Inc .............................. 3,906,250
-------------
Total Value of Common Stocks (cost $51,448,974)...... 99,261,571
-------------
Principal
Amount
- ---------
U.S. GOVERNMENT OBLIGATIONS - 6.3%
$5,000M U.S. Treasury Bond, 13 3/4% due 08/15/04
(cost $6,498,293).................................... 7,140,630
-------------
SHORT-TERM CORPORATE NOTES - 5.9%
1,850M Chevron Oil Corp., 5.56% due 12/04/97................ 1,850,000
2,300M GE Capital Corp., 5.54% due 12/11/97................. 2,300,000
2,500M Chevron USA Corp., 5.57% due 12/18/97................ 2,500,000
-------------
Total Value of Short-Term Corporate Notes
(cost $6,650,000) ................................... 6,650,000
-------------
Total Value of Investments (cost $64,597,267)... 99.6% 113,052,201
Other Assets, Less Liabilities.................. .4 441,951
------ -------------
Net Assets......................................100.0% $ 113,494,152
====== =============
</TABLE>
See notes to financial statements
2
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
ASSETS
Investments in securities, at value
(identified cost $64,597,267) (Note 1A)..... $113,052,201
Cash.......................................... 283,821
Dividends and interest receivable............. 281,941
Other assets.................................. 7,106
------------
TOTAL ASSETS............................... 113,625,069
LIABILITIES
Accrued advisory and administrative fees......$ 94,578
Other accrued expenses........................ 36,339
----------
TOTAL LIABILITIES.......................... 130,917
------------
NET ASSETS.......................................... $113,494,152
============
NET ASSETS CONSIST OF:
Capital paid in............................... $ 55,609,713
Undistributed net investment income .......... 240,444
Accumulated net realized gain on investments.. 9,189,061
Net unrealized appreciation in value of
investments................................. 48,454,934
------------
TOTAL...................................... $113,494,152
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
($113,494,152 / 11,292,031 shares outstanding)
30,000,000 shares authorized, $1.00 par value
(Note 2)..................................... $10.05
======
</TABLE>
See notes to financial statements
3
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF OPERATIONS - YEAR ENDED NOVEMBER 30, 1997
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends............................. $1,779,429
Interest.............................. 856,723
----------
TOTAL INCOME.................... $ 2,636,152
Expenses: (Notes 4 and 5)
Investment advisory fee .............. 776,208
Distribution plan expenses ........... 268,479
Administrative fee ................... 258,736
Director fees and expenses............ 58,156
Professional fees..................... 49,238
Fund accounting expense............... 47,363
Transfer agent and dividend disbursing
agent's fees and expenses........... 36,438
Custodian fees........................ 28,557
Other expenses........................ 57,967
----------
TOTAL EXPENSES...................... 1,581,142
Less: Custodian fees paid indirectly 4,010
----------
NET EXPENSES ................ 1,577,132
----------
INVESTMENT INCOME-NET............... 1,059,020
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 3):
Net realized gain on investments...... 9,197,530
Net unrealized appreciation of
investments......................... 15,173,415
----------
Net gain on investments............. 24,370,945
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $25,429,965
===========
</TABLE>
See notes to financial statements
4
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS - YEARS ENDED NOVEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income............................. $ 1,059,020 $ 1,542,368
Net realized gain on investments.................. 9,197,530 357,495
Net unrealized appreciation of investments........ 15,173,415 11,824,732
------------- -----------
Net increase in net assets resulting from
operations................................. 25,429,965 13,724,595
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. (1,234,269) (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)............. (7,639,496) 2,498,689
------------- -----------
Net increase in net assets................... 16,193,837 5,195,957
NET ASSETS
Beginning of year................................. 97,300,315 92,104,358
------------- -----------
End of year (including undistributed net
investment income of $240,444 and $415,693,
respectively.................................... $ 113,494,152 $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
November 28, 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. Premiums on bonds purchased
are amortized over the life of the bonds. Interest income and estimated
expenses are accrued daily.
2. CAPITAL STOCK
At November 30, 1997 there were 11,292,031 shares outstanding.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- ----------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Capital stock sold.... 32,832 $ 281,352 62,070 $ 449,151
Capital stock issued
in reinvestment of
distributions ........ 152,288 1,296,925 1,322,459 9,413,721
Capital stock
redeemed..............(1,054,871) (9,217,773) (1,009,161) (7,364,183)
----------- ------------ ----------- ------------
Net increase
(decrease).. (869,751) $(7,639,496) 375,368 $ 2,498,689
=========== ============ =========== ============
</TABLE>
6
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PURCHASES AND SALES OF SECURITIES
For the year ended November 30, 1997, purchases and sales of securities,
other than United States Government obligations and short-term notes,
aggregated $16,887,150 and $24,546,321 respectively. There were no purchases
or sales of long-term United States Government obligations during the year.
At November 30, 1997, the cost of investments for Federal income tax
purposes was $64,597,267. Accumulated net unrealized appreciation on
investments was $48,454,934 consisting of $48,534,370 gross unrealized
appreciation and $79,436 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 year ended November 30, 1997, 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, 1997.
The Fund's Custodian has provided credits in the amount of $4,010 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 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.
7
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $.84 a
share, consisting of $.817 from realized gains and $.023 from ordinary income
was declared on December 8, 1997. The distribution is payable on December 31,
1997 to the shareholders of record on December 24, 1997.
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,
- -------------- ---------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year... $ 8.00 $7.81 $6.29 $7.52 $6.52 $5.41 $5.34 $7.23 $5.51 $6.38
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................ 0.09 0.13 0.14 0.13 0.13 0.09 0.10 0.17 0.15 0.08
Net Realized & Unrealized
Gains (Loss) on Investments........ 2.10 0.99 1.51 (0.61) 1.05 1.09 0.10 (0.99) 1.84 0.92
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total From Investment Operations..... 2.19 1.12 1.65 (0.48) 1.18 1.18 0.20 (0.82) 1.99 1.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net Investment Income................ 0.11 0.14 0.10 0.13 0.10 0.07 0.13 0.18 0.11 0.10
Net Realized Gains................... 0.03 0.79 0.03 0.62 0.08 --- --- 0.89 0.16 1.77
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Distributions.................. 0.14 0.93 0.13 0.75 0.18 0.07 0.13 1.07 0.27 1.87
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Year......... $10.05 $8.00 $7.81 $6.29 $7.52 $6.52 $5.41 $5.34 $7.23 $5.51
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%)..................... 27.62 16.04 26.58 (7.17) 18.41 21.94 3.69 (13.14) 37.17 18.79
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year
(in thousands)..................... $113,494 $97,300 $92,104 $80,225 $94,282 $85,782 $81,758 $87,410 $110,182 $91,333
Ratio to Average Net Assets:
Expenses (%)....................... 1.53 1.56 1.62 1.67 1.60 1.79 1.61 1.19 0.95 0.90
Net Investment Income (%).......... 1.02 1.69 1.86 1.89 1.81 1.37 1.73 2.95 2.02 1.50
Portfolio Turnover Rate (%).......... 17 14 59 28 24 39 49 43 9 16
Average commission rate*............. $.1216 $.1366
</TABLE>
*Average commission rate (per share of security) as required by amended
discloser requirements effective September 1995.
See notes to financial statements
9
<PAGE>
INDEPENDENT AUDITORS 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, 1997, and the related statements of operations, changes in net assets and
financial highlights for the year 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 nine 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 November 30, 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 November 30, 1997, and the results of its
operations, changes in its net assets and financial highlights for the year
then ended, in conformity with generally accepted accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
December 19, 1997 (Except for Note 6 as to which the date is December 26,
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.
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 ANNUAL
(561) 395-2155 REPORT
November 30, 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.
