<PAGE>
PHILADELPHIA FUND, INC.
PRESIDENT'S LETTER - July 7, 2000
The famous Tulip bulb craze of the seventeenth century compares with the
Internet craze of 1999 - 2000. When our fiscal 2000 year began, 84.7% of
our portfolio was invested in equities. As the first quarter wore on,
the market became worrisome, so we reduced our equity exposure to 69.4%.
The focal points of speculative fervor, technology and biotech stocks,
suffered a sharp decline during our second quarter. By the second quarter,
equity investments equaled 66.6% of our portfolio. We felt comforted by our
solid cash position.
The Federal Reserve raised interest rates six times since June 1999, and
the rates have begun to bite. An acknowledged rule of thumb says that it
takes six to nine months for changing interest rates to impact the economy.
The April durable goods report showed a drop of 6.4 percent, the sharpest
decline in eight years. In April, U.S. retail sales fell .2 percent; this
was the second month of deceleration.
U.S. construction spending dropped .6 percent in April, its first drop in
seven months. May's business index fell almost two points and its price
index dropped sharply. The National Association of Purchasing Managers said
the latest data "offer the possibility that manufacturer's prices may have
peaked in March". Further evidence of cooling showed in the National
Association of Purchasing Manager's index of manufacturing activity, which
dropped 2.6% to 51.8 in June, its fourth consecutive monthly decline. This
index is at its lowest level since January of 1999.
When this index is over 50, an expanding manufacturing sector is indicated.
A drop to 43.5, signals an economic decline.
Residential mortgage demand is declining, banks are more cautious in lending,
and the market for new issues of securities has dried to a trickle.
When combined, these indicators equate to an automobile's speedometer. It
appears the Fed's application of pressure to the economic brakes may avoid
putting us through the windshield. It is a delicate process.
In coming months, we shall be watching four key components to determine the
course of the economy. First, speed of demand growth must continue to slow.
Second, core price increases must remain low. The core personal consumption
price index (excluding food and energy) is rising at a 1.6% rate. Third,
advances in productivity must continue to grow. Growth has been at 4% for the
last few years. This may be the magic minimum number. Fourth, the labor
market must not tighten more. The unemployment rate may need to go up a bit.
Bad news for one group may be good news for the economy.
Wall Street was hypnotized by wild pricing of speculative stocks, but is
now turning to a more traditional valuation process.
Lower prices induced us to buy a number of issues which we believe offer
good value: Home Depot, Luby's, Delphi Automotive, and Costco.
We look forward to the second half of the year 2000 and the opportunities
we expect to find.
Very truly yours,
/s/ Donald H. Baxter
Donald H. Baxter
President
<PAGE>
PHILADELPHIA FUND, INC.
PORTFOLIO OF INVESTMENTS - MAY 31, 2000
<TABLE>
<CAPTION>
Shares Value
------- -------------
<C> <S> <C>
COMMON STOCKS - 66.6 %
AUTOMOTIVE PARTS- 4.3 %
225,000 Delphi Automotive Systems Corp..................... $ 4,064,063
-------------
BANKS - 6.2 %
115,000 PNC Bank Corp...................................... 5,793,125
-------------
CABLE TV - 11.0 %
180,000 *Comcast Corp. Special Class A"..................... 6,817,500
80,000 *Cox Communications Inc. Class"A"................... 3,530,000
-------------
10,347,500
-------------
CHEMICALS - 4.4 %
150,000 Great Lakes Chemical Group......................... 4,162,500
-------------
ELECTRONICS - 6.5 %
215,000 *Anixter International Inc.......................... 6,073,750
-------------
FINANCIAL SERVICES - 8.8 %
30,000 American Express Co................................ 1,614,375
110,000 Federal National Mortgage Association.............. 6,613,750
-------------
8,228,125
-------------
INSURANCE - 2.4 %
20,000 American International Group Inc................... 2,251,250
-------------
PUBLISHING - 2.1 %
4,000 Washington Post Co. Class "B"...................... 2,002,000
-------------
RESTAURANTS - 3.8 %
400,000 Luby's Inc......................................... 3,525,000
-------------
RETAIL SPECIALTY - 8.7 %
150,000 *Costco Wholesale Corp.............................. 4,790,625
70,000 Home Depot, Inc.................................... 3,416,875
-------------
8,207,500
-------------
Shares Value
------- -------------
SEMICONDUCTORS - 6.4 %
70,000 *Altera Corp........................................ $ 6,011,250
-------------
SOFTWARE - 2.0 %
30,000 *Microsoft Corp..................................... 1,876,875
-------------
Total Value of Common Stocks
(cost $42,046,166 ).............................. 62,542,938
-------------
Principal
Amount
---------
U.S. GOVERNMENT OBLIGATIONS - 6.7 %
$5,000M U.S. Treasury Bond, 13 3/4% due 08/15/04
(cost $6,028,076)............................... 6,275,000
-------------
SHORT-TERM CORPORATE NOTES - 27.0 %
4,800M CIT Group, Inc. 6.419%, due 6/01/2000.............. 4,800,000
4,800M Firstar Corp, 6.472%, due 6/05/2000................ 4,800,000
4,600M Ford Motor Co.,6.505%, due 6/08/2000............... 4,600,000
1,400M General Electric Capital Corp., 6.478%,
due 06/02/2000.................................... 1,400,000
1,000M General Electric Capital Corp.,6.560%,
due 06/07/2000.................................... 1,000,000
4,800M Norwest Financial Corp. 6.515%, due 6/12/2000...... 4,800,000
4,000M Prudential Corp. 6.515%, due 6/15/2000............. 4,000,000
-------------
Total Value of Short-Term Corporate Notes
(cost $25,400,000)............................... 25,400,000
-------------
Total Value of Investments
(cost $73,474,242).........................100.3% 94,217,938
Excess of Liabilities Over Other Assets......( 0.3) (301,068)
------ -------------
Net Assets...................................100.0% $ 93,916,870
====== =============
*Non-income producing security
</TABLE>
See notes to financial statements
2
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - MAY 31, 2000
<TABLE>
<S> <C> <C>
ASSETS
Investments in securities, at value
(identified cost $73,474,242) (Note 1A)..... $ 94,217,938
Cash.......................................... 531,687
Dividends and interest receivable............. 287,855
Other assets.................................. 12,016
------------
TOTAL ASSETS............................... 95,049,496
LIABILITIES
Payable for investment securities purchased...$ 984,876
Payable for capital shares redeemed........... 41,235
Accrued advisory and administrative fees...... 78,293
Other accrued expenses........................ 28,222
----------
TOTAL LIABILITIES.......................... 1,132,626
------------
NET ASSETS.......................................... $ 93,916,870
============
NET ASSETS CONSIST OF:
Capital paid in............................... $ 68,975,314
Undistributed net investment income .......... 462,798
Accumulated net realized gain on investments.. 3,735,062
Net unrealized appreciation in value of
investments................................. 20,743,696
------------
TOTAL...................................... $ 93,916,870
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
($93,916,870 / 12,923,926 shares outstanding)
30,000,000 shares authorized, $1.00 par value
(Note 2)..................................... $ 7.27
======
</TABLE>
See notes to financial statements
3
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF OPERATIONS - SIX MONTHS ENDED MAY 31, 2000
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Interest.............................. $ 914,472
Dividends............................. 480,250
----------
TOTAL INCOME.................... $ 1,394,722
Expenses: (Notes 4 and 5)
Investment advisory fee .............. 372,018
Administrative fee ................... 124,006
Distribution plan expenses ........... 115,389
Director fees and expenses............ 29,610
Professional fees..................... 29,013
Fund accounting expense............... 22,714
Transfer agent and dividend disbursing
agent's fees and expenses........... 20,598
Custodian fees........................ 20,462
Other expenses........................ 35,627
----------
TOTAL EXPENSES...................... 769,437
Less: Custodian fees paid indirectly 5,821
----------
NET EXPENSES ....................... 763,616
----------
INVESTMENT INCOME-NET............... 631,106
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (Note 3):
Net realized gain on investments...... 3,735,062
Net unrealized depreciation of
investments......................... (13,684,235)
----------
Net loss on investments............. (9,949,173)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $(9,318,067)
===========
</TABLE>
See notes to financial statements
4
<PAGE>
PHILADELPHIA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Six Months Year Ended
Ended November 30,
May 31, 2000 1999
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Net investment income........................... $ 631,106 $ 792,643
Net realized gain on investments................ 3,735,062 9,539,160
Net unrealized depreciation of investments...... (13,684,235) (3,431,350)
------------- -------------
Net increase (decrease) in net assets
resulting from operations.................. ( 9,318,067) 6,900,453
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income........................... ( 356,169) ( 1,091,524)
Net realized gain on investments................ ( 9,539,160) (22,650,046)
CAPITAL SHARE TRANSACTIONS
Increase in net assets resulting from
capital share transactions (Note 2)........... 3,330,024 8,566,736
------------- -------------
Net decrease in net assets................... (15,883,372) (8,274,381)
NET ASSETS
Beginning of year............................... 109,800,242 118,074,623
------------- -------------
End of period (including undistributed net
investment income of $462,798 and $187,861,
respectively.................................. $ 93,916,870 $ 109,800,242
============= =============
</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 are valued at the closing sales price on May 31, 2000.
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, 2000, there were 12,923,926 shares outstanding. Transactions in
capital stock were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
May 31, 2000 November 30, 1999
------------------------ ----------------------
Shares Amount Shares Amount
---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Capital stock sold.... 99,768 $ 738,364 39,030 $ 337,749
Capital stock issued
in reinvestment of
distributions......... 1,047,207 8,225,796 2,289,896 19,785,412
Capital stock
redeemed.............. (741,448) (5,634,136) (1,309,259) (11,556,425)
----------- ------------ ----------- ------------
Net increase....... 405,527 $ 3,330,024 1,019,667 $8,566,736
=========== ============ =========== ============
</TABLE>
6
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
3. PURCHASES AND SALES OF SECURITIES
For the six months ended May 31, 2000, purchases and sales of securities,
other than short-term corporate notes and short-term United States Government
obligations aggregated $24,782,992 and $45,524,381 respectively. There were
no purchases or sales of long-term United States Government obligations during
the six month period.
At May 31, 2000, the cost of investments for Federal income tax purposes
was $73,474,242. Accumulated net unrealized appreciation on investments was
$20,743,696 consisting of $23,792,300 gross unrealized appreciation and
$3,048,604 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, 2000, directors of the Fund who are not
affiliated with BFC received directors' fees aggregating $21,500. 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 $5,821 against
custodian charges based on the uninvested cash balances of the Fund.
5. DISTRIBUTION PLAN
Pursuant to an amended Distribution Plan adopted under rule 12b-1 of the
1940 Act, the Fund may pay a fee in an amount up to .5% of the Fund's average
net assets calculated monthly. A component of the 12b-1 fee (.25% of the
Fund's average net assets) is paid to BFC for providing shareholder services,
which includes advice and information regarding: share accounts;
applications; use of the prototype retirement plans of the Fund; assistance
with questions or problems regarding the Fund's transfer agent, as well as
other information and services. In its discretion, BFC may make payments to
registered broker-dealers and members of the National Association of
Securities Dealers, Inc. for providing Fund Shareholders with similar services.
7
<PAGE>
PHILADELPHIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
The remainder of the fee may be used to pay brokers and dealers which enter
into agreements with BFC or which provide sales, promotional, or advertising
services to the Fund, and to pay for other distribution, advertising,
registration and promotional expenses associated with the sale of Fund shares.
Beginning in April 2000 and continuing until further notice, BFC has agreed
to waive all 12b-1 fees in excess of .15% per annum of the Fund's average net
assets.
8
<PAGE>
PHILADELPHIA FUND, INC.
FINANCIAL HIGHLIGHTS
The following table sets forth the per share operating performance data for
a share of capital stock outstanding, total return, ratios to average net
assets and other supplemental data for each period indicated.
<TABLE>
<CAPTION>
Six Months
PER SHARE DATA Ended Year Ended November 30, 1999
-------------- May 31, ------------------------------------------
2000 1999 1998 1997 1996 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year...$ 8.77 $10.27 $10.05 $ 8.00 $ 7.81 $ 6.29
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income................ 0.05 0.06 0.13 0.09 0.13 0.14
Net Realized & Unrealized
Gains (Loss) on Investments........ (0.75) 0.51 1.02 2.10 0.99 1.51
------ ------ ------ ------ ------ ------
Total From Investment Operations..... (0.70) 0.57 1.15 2.19 1.12 1.65
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS FROM:
Net Investment Income................ 0.03 0.09 0.11 0.11 0.14 0.10
Net Realized Gains................... 0.77 1.98 0.82 0.03 0.79 0.03
------ ------ ------ ------ ------ ------
Total Distributions.................. 0.80 2.07 0.93 0.14 0.93 0.13
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period.......$ 7.27 $ 8.77 $10.27 $10.05 $ 8.00 $ 7.81
====== ====== ====== ====== ====== ======
TOTAL RETURN (%)..................... (8.70) 5.96 12.31 27.62 16.04 26.58
------------
RATIOS/SUPPLEMENTAL DATA
------------------------
Net Assets, End of Year
(in thousands).....................$93,917 $109,800 $118,075 $113,494 $97,300 $92,104
Ratio to Average Net Assets:
Expenses (%)....................... 1.55(a) 1.55 1.53 1.53 1.56 1.62
Net Investment Income (%).......... 1.27(a) 0.71 1.32 1.02 1.69 1.86
Portfolio Turnover Rate (%).......... 32 81 37 17 14 59
</TABLE>
(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,
2000, 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, 1999 and financial highlights for the six months
ended May 31, 2000 and each of the three years in the period ended November 30,
1999. 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 two 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, 2000 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, 2000, 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, 1999 and financial
highlights for the six months ended May 31, 2000 and each of the three years
in the period ended November 30, 1999, in conformity with generally accepted
accounting principles.
BRIGGS, BUNTING & DOUGHERTY, LLP
Philadelphia, Pennsylvania
June 19, 2000
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
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, 2000
[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.