PHILADELPHIA FUND, INC.
PRESIDENT'S LETTER - July 6, 1999
Dear shareholders,
As the twentieth century draws to a close, the United States enjoys brisk
economic activity. The Federal Reserve increased the federal funds rate
by one quarter of one percent, which equates to watering down the party's
punch. This rate increase, along with the market's increase in long-term
rates, should temper the economy's momentum. The question is whether the
deceleration will be enough to alleviate inflationary wage pressure caused
by shortages of skilled labor. Despite concern over a warming economy, the
rest of the world watches the American economic expansion with envy.
Manufacturing, new home sales, and consumer confidence are at high levels.
However, new home sales slowed recently in response to higher interest rates
over the last several months. The eyes of the investment community will be
fixed on corporate profits as the year progresses. In our last report, six
months ago, we said eleven thousand on the Dow was within reach. We have
exceeded that mark.
Worry about inflation will be paramount for the rest of the year. Much of
the good news is behind us. Higher oil prices have been sustained by a
surprisingly disciplined oil cartel. Higher commodity prices could translate
from a minor worry to a major problem. The overriding mood on Wall Street
seems to be Don't Worry, Be Happy! When emotions are this ebullient, we
practice restraint. Overseas economies appear to have bottomed; this will
stimulate our economy.
In the first half of our fiscal year we eliminated our positions in Armstrong
World, Beckman Coulter, Ball Corporation, Crown, Cork & Seal, General
Dynamics, Sealed Air, Pennzoil-Quaker State Company, Texaco, and Western
Resources in order to invest in a diversified group of companies which we
think offer greater potential.
Anixter International supplies more than 60,000 products for computer
networking and electrical power applications. AT&T owns 20% of the company.
Corn Products is one of the largest producers of quality food products. It
would be surprising if one of the company's products is not in your kitchen
at this moment. In spite of the ubiquity of its products, its stock is
trading near book value. Cox Communications is the fifth largest cable
operator in the United States, with broadband cable supporting its strategy
in the industry's technological revolution. Ryder Systems has a new focus
on logistics services; this should help revenue growth and earnings. Golden
State Bancorp has over 400 offices in California and a strong presence in
Nevada. Your fund purchased 300,000 Golden State shares then pared its
holdings to 195,000 shares. The bank is well managed and has increased
market share. SLM Holding Corporation (Sallie Mae) provides liquidity to
banks and universities originating federally guaranteed student loans. The
company's efficiency in handling this financing should help increase market
share, despite a federally mandated reduced profit margin.
These changes result from countless hours of sifting information and
evaluating market forces. We look forward to the new millennium with
confidence.
We have evaluated our computer systems and do not foresee any Y2K problems
as we turn the last page of the calendar and ring in the new century.
Since my next report to you will be after the New Year, may I be the first
to wish you a happy New Year and a happy new century.
Very truly yours,
/s/ Donald H. Baxter
Donald H. Baxter
President
<PAGE>
PHILADELPHIA FUND, INC.
PORTFOLIO OF INVESTMENTS - MAY 31, 1999
<TABLE>
<CAPTION>
Shares Value
- ------- -------------
COMMON STOCKS - 80.4 %
<C> <S> <C>
BANKS - 13.9 %
195,000 *Golden State Bancorp................................. $ 4,789,687
70,000 National City Corp................................... 4,633,125
115,000 PNC Bank Corp........................................ 6,583,750
-------------
16,006,562
-------------
CABLE TV - 17.3 %
90,000 Comcast Corp. Class "A".............................. 3,245,625
270,000 Comcast Corp. Special Class "A"...................... 10,395,000
160,000 *Cox Communications Inc. ............................. 6,250,000
-------------
19,890,625
-------------
COMMUNICATIONS - 6.0 %
136,000 SBC Communications Inc. ............................. 6,953,000
-------------
CONTAINERS - 1.9 %
45,000 Ball Corp............................................ 2,190,938
-------------
ELECTRONICS - 2.7 %
175,000 *Anixter International Inc............................ 3,095,313
-------------
FINANCIAL SERVICES - 13.4 %
20,000 American Express Co.................................. 2,423,750
110,000 Federal National Mortgage Association ............... 7,480,000
135,000 SLM Holding Corp .................................... 5,602,500
-------------
15,506,250
-------------
FOOD 6.1%
125,000 Corn Products International.......................... 3,687,500
110,000 Dole Food Company, Inc. ............................. 3,375,625
-------------
7,063,125
-------------
FOOD-RETAIL 1.0%
95,000 Ingles Markets, Inc. Class "A"...................... 1,163,750
-------------
HEALTHCARE - 3.0 %
60,000 United Healthcare Corp. ............................ 3,495,000
-------------
HORTICULTURE PRODUCTS - 2.5 %
65,000 *Scott Company Class "A" ............................ 2,860,000
-------------
Shares Value
- ------- -------------
INSURANCE - 5.0 %
50,000 American International Group Inc..................... $ 5,715,625
-------------
PUBLISHING - 3.1 %
20,000 Time Warner Inc. .................................... 1,361,250
4,000 Washington Post Co. Class "B"........................ 2,225,750
-------------
3,587,000
-------------
RENTAL and LEASING - 4.5 %
215,000 Ryder System, Inc.................................... 5,160,000
-------------
Total Value of Common Stocks (cost $54,820,460 )..... 92,687,188
-------------
Principal
Amount
- ---------
U.S. GOVERNMENT OBLIGATIONS - 5.9 %
$5,000M U.S. Treasury Bond,
13 3/4% due 08/15/04 (cost $6,227,345)................ 6,762,500
-------------
SHORT-TERM CORPORATE NOTES - 15.1 %
CIT Financial Corp,
$2,650M 4.851%, due 6/14/99................................... 2,650,000
Ford Motor Credit Corp.,
1,750M 4.819%, due 6/03/99 ................................ 1,750,000
2,300M 4.763%, due 6/03/99 ................................ 2,300,000
General Electric Credit Corp.,
4,600M 4.804%, due 6/01/99 ................................ 4,600,000
General Motors Acceptance Corp.,
2,800M 4.801%, due 6/10/99 ................................ 2,800,000
Norwest Financial Group,
3,300M 4.834%, due 6/07/99 ................................ 3,300,000
-------------
Total Value of Short-Term Corporate Notes
(cost $17,400,000)................................... 17,400,000
-------------
Total Value of Investments(cost $78,447,805)... 101.4% $116,849,688
Excess of Liabilities Over Other Assets........ (1.4) (1,557,584)
------ -------------
Net Assets..................................... 100.0% $115,292,104
====== =============
</TABLE>
*Non-income producing security
See notes to financial statements
2
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - MAY 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
Investments in securities, at value
(identified cost $78,447,805) (Note 1A)..... $116,849,688
Cash.......................................... 19,646
Dividends and interest receivable............. 285,372
Other assets.................................. 13,522
------------
TOTAL ASSETS............................... 117,168,228
LIABILITIES
Payables;
Investment securities purchased.............$1,695,313
Capital shares redeemed..................... 39,950
Accrued advisory and administrative fees.... 96,112
Other accrued expenses...................... 44,749
----------
TOTAL LIABILITIES.......................... 1,876,124
------------
NET ASSETS.......................................... $115,292,104
============
NET ASSETS CONSIST OF:
Capital paid in............................... $ 69,968,909
Undistributed net investment income .......... 170,841
Accumulated net realized gain on investments.. 6,750,471
Net unrealized appreciation in value of
investments................................. 38,401,883
------------
TOTAL...................................... $115,292,104
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
($115,292,104 / 13,012,953 shares outstanding)
30,000,000 shares authorized, $1.00 par value
(Note 2)..................................... $ 8.86
======
</TABLE>
See notes to financial statements
3
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF OPERATIONS - SIX MONTHS ENDED MAY 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends............................. $ 589,113
Interest.............................. 778,512
----------
TOTAL INCOME.................... $ 1,367,625
Expenses: (Notes 4 and 5)
Investment advisory fee .............. 436,962
Distribution plan expenses ........... 154,220
Administrative fee ................... 145,654
Professional fees..................... 38,425
Director fees and expenses............ 35,412
Fund accounting expense............... 24,636
Transfer agent and dividend disbursing
agent's fees and expenses........... 25,359
Custodian fees........................ 23,178
Other expenses........................ 34,788
----------
TOTAL EXPENSES...................... 918,634
Less: Custodian fees paid indirectly 4,907
----------
NET EXPENSES ................ 913,727
----------
INVESTMENT INCOME-NET............... 453,898
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 3):
Net realized gain on investments...... 6,750,471
Net unrealized appreciation of
investments......................... 542,602
----------
Net gain on investments............. 7,293,073
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $ 7,746,971
===========
</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,
1999 1998
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income............................. $ 453,898 $ 1,558,653
Net realized gain on investments.................. 6,750,471 22,650,046
Net unrealized appreciation (depreciation)
of investments................................. 542,602 (10,595,653)
------------- --------------
Net increase in net assets resulting from
operations................................. 7,746,971 13,613,046
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income............................. (769,799) (1,312,355)
Net realized gain on investments.................. (22,650,046) (9,189,061)
CAPITAL SHARE TRANSACTIONS
Increase in net assets resulting from
capital share transactions (Note 2)............. 12,890,355 1,468,841
------------- -------------
Net increase (decrease) in net assets........ ( 2,782,519) 4,580,471
NET ASSETS
Beginning of year................................. 118,074,623 113,494,152
------------- -------------
End of period (including undistributed net
investment income of $170,841 and $486,742,
respectively)................................... $ 115,292,104 118,074,623
============= =============
</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 28, 1999. 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 May 31, 1999 there were 13,012,953 shares outstanding.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
May 31, 1999 November 30, 1998
----------------------- ----------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Capital stock sold.... 15,355 $ 134,693 21,758 $ 218,602
Capital stock issued
in reinvestment of
distributions ........ 2,259,593 19,522,632 924,496 8,753,732
Capital stock
redeemed.............. (760,727) (6,766,970) (739,553) (7,503,493)
----------- ------------ ----------- ------------
Net increase....... 1,514,221 $ 12,890,355 206,701 $ 1,468,841
=========== ============ =========== ============
</TABLE>
6
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PURCHASES AND SALES OF SECURITIES
For the six months ended May 31, 1999, purchases and sales of securities,
other than United States Government obligations and short-term notes,
aggregated $43,480,596 and $44,423,171 respectively. There were no purchases
or sales of long-term United States Government obligations during the period.
At May 31, 1999, the cost of investments for Federal income tax
purposes was $78,447,805. Accumulated net unrealized appreciation on
investments was $38,401,883 consisting of $39,690,834 gross unrealized
appreciation and $1,288,951 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.
During the six months ended May 31, 1999, directors of the Fund who are not
affiliated with BFC received directors fees aggregating $24,650. 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 $4.907 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.
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>
<CAPTION>
Six Months
PER SHARE DATA Ended Year Ended November 30,
- -------------- May 31, -----------------------------------------
1999 1998 1997 1996 1995 1994
---------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year... $10.27 $10.05 $ 8.00 $ 7.81 $ 6.29 $ 7.52
---------- ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................ 0.04 0.13 0.09 0.13 0.14 0.13
Net Realized & Unrealized
Gains (Loss) on Investments........ 0.59 1.02 2.10 0.99 1.51 (0.61)
---------- ------ ------ ------ ------ ------
Total From Investment Operations..... 0.63 1.15 2.19 1.12 1.65 (0.48)
---------- ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net Investment Income................ 0.06 0.11 0.11 0.14 0.10 0.13
Net Realized Gains................... 1.98 0.82 0.03 0.79 0.03 0.62
---------- ------ ------ ------ ------ ------
Total Distributions.................. 2.04 0.93 0.14 0.93 0.13 0.75
---------- ------ ------ ------ ------ ------
Net Asset Value, End of Period....... 8.86 $10.27 $10.05 $ 8.00 $ 7.81 $ 6.29
========== ====== ====== ====== ====== ======
TOTAL RETURN (%)..................... 6.74 12.31 27.62 16.04 26.58 (7.17)
- ------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net Assets, End of Period
(in thousands)..................... $115,292 $118,075 $113,494 $97,300 $92,104 $80,225
Ratio to Average Net Assets:
Expenses (%)....................... 1.58(a) 1.53 1.53 1.56 1.62 1.67
Net Investment Income (%).......... 0.78(a) 1.32 1.02 1.69 1.86 1.89
Portfolio Turnover Rate (%).......... 45 37 17 14 59 28
</TABLE>
(a) Annualized
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
May 31, 1999, and the related statement of operations for the six months
then ended, the statements of changes in net assets for the six months
then ended and the year ended November 30, 1998 and financial highlights
for the six months ended May 31, 1999 and 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 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, 1999 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 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, 1999, and the results of its operations
for the six months then ended, the statements of changes in net assets for the
six months then ended and the year ended November 30, 1998 and financial
highlights for the six months ended May 31, 1999 and 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
June 18, 1999
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
FIRSTAR 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, 1999
[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.
