<PAGE>
PHILADELPHIA FUND, INC.
PRESIDENT'S LETTER - January 6, 1999
Dear shareholders,
Realized profits in the Philadelphia Fund allow us the pleasure of making the
second highest capital gain distribution in your fund's long history. Your
capital gain distribution of $1.981 per share results from our sales of some
holdings in the belief that the market was temporarily vulnerable. At midyear
we reported that your fund had netted $18.5 million in capital gains. As the
year progressed we netted an additional $4.2 million in capital gains.
Shareholders buying additional shares with their capital gains distribution
will observe that the number of shares in their accounts increased
substantially in number while the net asset value per share declined. This
reflects the reinvestment of your large capital gain.
In the second half of our fiscal year we eliminated all shares of
BankAmerica, Borg Warner Auto, Coca-Cola, Commerce Group, Kerr-McGee, Nike,
and Occidental Petroleum. We trimmed our holdings in American Express,
American International Group, Comcast, General Dynamics, Ingles Markets, Time
Warner, and Western Resources. The market performed very weakly during July,
August, and September giving us the opportunity to begin reinvesting some of
these proceeds.
The Dow has more than tripled since 1991. Given the market's exuberance,
eleven thousand on the Dow may be within reach, but we admit to an attitude of
cautious optimism. More than ever, at these levels, prudence demands balancing
safety and opportunity in stock selection. We believe good values exist in
some medium sized stocks and continue searching for fresh opportunities. We
have invested in shares of Armstrong World, Ball Corporation, Beckman
Coulter, Crown Cork & Seal, Dole Foods, Pennzoil, Scotts, Sealed Air, Timken,
and United Healthcare. The theme which runs through this list of recently
acquired stocks is resiliency. These companies have financial strength and
some resistance to the economic shocks which may be ahead.
As we approach the new century, we reflect on the enormous changes of the
twentieth century, and look towards the twenty-first century, expecting the
greatest leap forward in the history of the human race. We gladly share this
thrilling adventure with you.
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>
11/30/88 $10,000 $10,000
11/30/89 $13,717 $13,083
11/30/90 $11,914 $12,625
11/30/91 $12,354 $15,190
11/30/92 $15,065 $17,992
11/30/93 $17,839 $19,806
11/30/94 $16,559 $20,016
11/30/95 $20,960 $27,409
11/30/96 $24,323 $35,050
11/30/97 $31,042 $45,037
11/30/98 $34,863 $55,694
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns as of 11/30/98
1 YEAR 5 YEARS 10 YEARS
--------------------------------
<S> <C> <C> <C>
N.A.V. Only 12.31% 14.34% 13.30%
S.E.C. Standardized 12.31% 14.34% 12.30%
</TABLE>
The return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be more of less than their original cost.
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, 1998
<TABLE>
<CAPTION>
Shares Value
- ------- -------------
COMMON STOCKS - 72.8%
<C> <S> <C>
BANKS - 9.0%
70,000 National City Corp.................................... $ 4,707,500
115,000 PNC Bank Corp......................................... 5,929,687
-------------
10,637,187
-------------
BUILDING MATERIALS - 1.7%
30,000 Armstrong World Industries........................... 1,998,750
-------------
COMMUNICATIONS - 15.7%
125,000 Comcast Corp. Class "A".............................. 5,945,313
125,000 Comcast Corp. Special Class "A"...................... 6,078,125
136,000 SBC Communications Inc. ............................. 6,519,500
-------------
18,542,938
-------------
CONTAINERS - 3.8%
50,000 Ball Corp. .......................................... 2,137,500
70,000 Crown, Cork & Seal Co. .............................. 2,362,500
-------------
4,500,000
-------------
DEFENSE - 4.9%
100,000 General Dynamics Corp................................ 5,806,250
-------------
FINANCIAL SERVICES - 8.5%
20,000 American Express Co.................................. 2,001,250
110,000 Federal National Mortgage Association ............... 8,002,500
-------------
10,003,750
-------------
FOOD-RETAIL - 4.1%
125,000 Ingles Markets, Inc. Class "A" ...................... 1,500,000
105,000 Dole Foods Co. Inc. ................................. 3,320,625
-------------
4,820,625
-------------
Shares Value
- ------- -------------
HEALTHCARE - 4.4%
50,000 Beckman Coulter, Inc. ............................... $ 2,412,500
60,000 United Healthcare Corp. ............................. 2,707,500
-------------
5,120,000
-------------
HORTICULTURE PRODUCTS - 1.2%
40,000 *Scott Company ...................................... 1,447,500
-------------
INSURANCE - 6.0%
75,000 American International Group Inc..................... 7,050,000
-------------
MACHINERY - 1.8%
110,000 Timken Company ...................................... 2,117,500
-------------
OILS - 2.6%
45,000 Pennzoil Company .................................... 1,670,625
25,000 Texaco, Inc. ........................................ 1,439,063
-------------
3,109,688
-------------
PACKAGING - 3.0%
80,000 *Sealed Air Corp. .................................... 3,530,000
-------------
PUBLISHING - 2.7%
10,000 Time Warner Inc. .................................... 1,057,500
4,000 Washington Post Co. Class "B" ....................... 2,128,750
-------------
3,186,250
-------------
UTILITIES - 3.4%
115,000 Western Resources, Inc............................... 4,017,812
-------------
Total Value of Common Stocks (cost $48,918,807)...... 85,888,250
-------------
Principal
Amount
- ---------
U.S. GOVERNMENT OBLIGATIONS - 6.1%
$5,000M U.S. Treasury Bond, 13 3/4% due 08/15/04
(cost $6,321,102).................................... 7,210,940
-------------
</TABLE>
2
<PAGE>
PHILADELPHIA FUND, INC.
PORTFOLIO OF INVESTMENTS - NOVEMBER 30, 1998 (Continued)
<TABLE>
<CAPTION>
Principal
Amount Value
- ------- -------------
<C> <S> <C>
SHORT-TERM CORPORATE NOTES - 24.1%
Associates Corp.,
$2,000M 5.153%, due 12/17/98.......................... $ 2,000,000
3,400M 5.085%, due 1/07/99.......................... 3,400,000
Chevron USA Corp.,
3,000M 5.163%, due 12/03/98.......................... 3,000,000
2,500M 5.136%, due 12/03/98.......................... 2,500,000
CIT Group Holdings Corp.,
5,100M 5.130%, due 12/10/98.......................... 5,100,000
Ford Motor Credit Corp.,
440M 5.126%, due 12/17/98.......................... 440,000
300M 4.939%, due 12/24/98.......................... 300,000
4,450M 5.156%, due 12/24/98.......................... 4,450,000
General Motors Acceptance Corp.,
2,000M 5.204%, due 12/03/98.......................... 2,000,000
595M 5.171%, due 12/17/98.......................... 595,000
Principal
Amount Value
- ------- -------------
SHORT-TERM CORPORATE NOTES - (Continued)
Household Finance Co.,
$4,150M 4.790%, due 12/31/98.......................... $ 4,150,000
Prudential Funding Corp.,
550M 5.219%, due 12/17/98.......................... 550,000
-------------
Total Value of Short-Term Corporate Notes
(cost $28,485,000)................................. 28,485,000
-------------
Total Value of Investments (cost $83,724,909)...103.0% 121,584,190
Excess of Liabilities Over Other Assets......... (3.0) (3,509,567)
------ -------------
Net Assets......................................100.0% $ 118,074,623
====== =============
</TABLE>
*Non-income producing security
See notes to financial statements
3
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
ASSETS
Investments in securities, at value
(identified cost $83,724,909) (Note 1A)..... $121,584,190
Cash.......................................... 9,242
Dividends and interest receivable............. 443,900
Other assets.................................. 7,096
------------
TOTAL ASSETS............................... 122,044,428
LIABILITIES
Payables;
Investment securities purchased.............$3,816,632
Capital shares redeemed..................... 15,745
Accrued advisory and administrative fees...... 98,436
Other accrued expenses........................ 38,992
----------
TOTAL LIABILITIES.......................... 3,969,805
------------
NET ASSETS.......................................... $118,074,623
============
NET ASSETS CONSIST OF:
Capital paid in............................... $ 57,078,554
Undistributed net investment income .......... 486,742
Accumulated net realized gain on investments.. 22,650,046
Net unrealized appreciation in value of
investments................................. 37,859,281
------------
TOTAL...................................... $118,074,623
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
($118,074,623 / 11,498,732 shares outstanding)
30,000,000 shares authorized, $1.00 par value
(Note 2)..................................... $10.27
======
</TABLE>
See notes to financial statements
4
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF OPERATIONS - YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends............................. $1,821,359
Interest.............................. 1,543,007
----------
TOTAL INCOME.................... $ 3,364,366
Expenses: (Notes 4 and 5)
Investment advisory fee .............. 886,634
Distribution plan expenses ........... 307,059
Administrative fee ................... 295,545
Professional fees..................... 88,099
Director fees and expenses............ 59,190
Fund accounting expense............... 49,869
Transfer agent and dividend disbursing
agent's fees and expenses........... 34,728
Custodian fees........................ 34,181
Other expenses........................ 56,432
----------
TOTAL EXPENSES...................... 1,811,737
Less: Custodian fees paid indirectly 6,024
----------
NET EXPENSES ................ 1,805,713
----------
INVESTMENT INCOME-NET............... 1,558,653
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 3):
Net realized gain on investments...... 22,650,046
Net unrealized depreciation of
investments......................... (10,595,653)
----------
Net gain on investments............. 12,054,393
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $13,613,046
===========
</TABLE>
See notes to financial statements
5
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS - YEARS ENDED NOVEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income............................. $ 1,558,653 $ 1,059,020
Net realized gain on investments.................. 22,650,046 9,197,530
Net unrealized appreciation (depreciation)
of investments................................. (10,595,653) 15,173,415
------------- -----------
Net increase in net assets resulting from
operations................................. 13,613,046 25,429,965
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. (1,312,355) (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)............. 1,468,841 (7,639,496)
------------- -----------
Net increase in net assets................... 4,580,471 16,193,837
NET ASSETS
Beginning of year................................. 113,494,152 97,300,315
------------- -----------
End of year (including undistributed net
investment income of $486,742 and $240,444,
respectively.................................... $ 118,074,623 113,494,152
============= ===========
</TABLE>
See notes to financial statements
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 30, 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
6
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
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, 1998 there were 11,498,732 shares outstanding.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- ----------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Capital stock sold.... 21,758 $ 218,602 32,832 $ 281,352
Capital stock issued
in reinvestment of
distributions ........ 924,496 8,753,732 152,288 1,296,925
Capital stock
redeemed.............. (739,553) (7,503,493) (1,054,871) (9,217,773)
----------- ------------ ----------- ------------
Net increase
(decrease).. 206,701 $ 1,468,841 (869,751) $(7,639,496)
=========== ============ =========== ============
</TABLE>
3. PURCHASES AND SALES OF SECURITIES
For the year ended November 30, 1998, purchases and sales of securities,
other than United States Government obligations and short-term notes,
aggregated $36,645,182 and $62,002,586 respectively. There were no purchases
or sales of long-term United States Government obligations during the year.
At November 30, 1998, the cost of investments for Federal income tax
purposes was $83,724,909. Accumulated net unrealized appreciation on
investments was $37,859,281 consisting of $38,529,507 gross unrealized
appreciation and $670,226 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.
7
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
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, 1998, directors of the Fund who are not
affiliated with BFC received directors fees aggregating $36,150. 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, 1998.
The Fund's Custodian has provided credits in the amount of $6,024 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.
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 $2,025 a
share, consisting of $1.981 from realized gains and $.044 from ordinary income
was declared on December 7, 1998. The distribution is payable on December 31,
1998 to the shareholders of record on December 28, 1998.
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, 1998
- -------------- ---------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year...$10.05 $ 8.00 $ 7.81 $ 6.29 $ 7.52
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................ 0.13 0.09 0.13 0.14 0.13
Net Realized & Unrealized
Gains (Loss) on Investments........ 1.02 2.10 0.99 1.51 (0.61)
------ ------ ------ ------ ------
Total From Investment Operations..... 1.15 2.19 1.12 1.65 (0.48)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net Investment Income................ 0.11 0.11 0.14 0.10 0.13
Net Realized Gains................... 0.82 0.03 0.79 0.03 0.62
------ ------ ------ ------ ------
Total Distributions.................. 0.93 0.14 0.93 0.13 0.75
------ ------ ------ ------ ------
Net Asset Value, End of Year.........$10.27 $10.05 $ 8.00 $ 7.81 $ 6.29
====== ====== ====== ====== ======
TOTAL RETURN (%)..................... 12.31 27.62 16.04 26.58 (7.17)
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Year
(in thousands).....................$118,075 $113,494 $97,300 $92,104 $80,225
Ratio to Average Net Assets:
Expenses (%)....................... 1.53 1.53 1.56 1.62 1.67
Net Investment Income (%).......... 1.32 1.02 1.69 1.86 1.89
Portfolio Turnover Rate (%).......... 37 17 14 59 28
</TABLE>
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, 1998, and the related statements of operations for the year then ended,
and the statement of changes in net assets and financial highlights for each
of the two years in the period ended November 30, 1998. 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 three 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 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, 1998 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 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, 1998, and the results of its
operations for the year then ended and changes in its net assets and financial
highlights for each of the two years in the period ended November 30, 1998, in
conformity with generally accepted accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
December 18, 1998 (Except for Note 6 as to which the date is December 28,
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 ANNUAL
(561) 395-2155 REPORT
November 30, 1998
[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.
