<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
DEAR STOCKHOLDERS:
The USF&G Pacholder Fund, Inc. (the "Fund") recorded a total return of 1.98%
during the first quarter ended March 31, 1997, compared to the CS First Boston
High Yield Index(TM) of 1.47%, exceeding our benchmark index by 51 basis points
(0.51%).
The First Quarter in Review
During the first two months of the quarter, the high yield market continued
the trend of spread contraction that started in the beginning of 1996. This was
caused by very strong demand for high yield bonds from all types of buyers.
However, the trend reversed itself in March, giving back some of the total re-
turn from the first two months. We view this spread widening, spread being the
premium that bond buyers receive for taking credit risk, as a healthy and much
needed correction in the high yield market.
The market was driven primarily by the increase in interest rates and a re-
valuation of assets in the equity market, primarily small-cap and mid-cap
stocks which have not fared as well as the large-cap stocks this year. In addi-
tion, fund flows into open-end high yield mutual funds for the month of March
were negative for the first time since November 1994. These factors contributed
to more realistic valuations for high yield bonds. We believe that the market
will continue to be volatile in the coming months; this should present opportu-
nities for the Fund to shift some of its defensive assets into more value ori-
ented investments as risk and reward characteristics become attractive.
Lastly, the Fund successfully completed its rights offering during the quar-
ter. The offering was oversubscribed and had broad shareholder participation.
The offering raised approximately $32.7 million in net proceeds for the Fund on
March 14, 1997. In addition, the Fund privately placed a $16 million 7.05% Pre-
ferred Stock in conjunction with the rights offering, maintaining the leverage
on the Fund below 30%. The Fund closed the first quarter with net assets of ap-
proximately $167 million. We invested a significant portion of the proceeds
from the rights offering and the placement of the preferred stock in relatively
high coupon, short duration investments due to our view that the market was
somewhat overbought.
We believe the Fund is well positioned in the current market environment and
we will continue to pursue our goal of attaining superior long term performance
in the high yield market.
Performance Summary
The performance of the Fund as compared to the Index is illustrated in the
following table.
<TABLE>
<CAPTION>
- -------------------------------------------------------------
PERFORMANCE COMPARISON*
(FOR THE THREE MONTHS ENDED MARCH 31, 1997
- -------------------------------------------------------------
SINCE
THREE INCEPTION**
MONTHS (ANNUALIZED)
- -------------------------------------------------------------
<S> <C> <C>
USF&G PACHOLDER FUND, INC.*** 1.98% 12.48%
- -------------------------------------------------------------
CS FIRST BOSTON HIGH YIELD INDEX(TM) 1.47% 11.54%
- -------------------------------------------------------------
</TABLE>
* The CS First Boston High Yield Index/(TM)/ is an unmanaged index that is
widely used as a measurement of high yield market performance. These figures
assume reinvestment of interest, dividends and capital gains distributions.
Past performance is no guarantee of future results.
** Inception date--November 11, 1988.
*** Return based on Net Asset Value.
We thank you for your support of the Fund and look forward to continuing to
serve your investment needs in the future.
Sincerely,
/s/ Anthony L. Longi, Jr.
Anthony L. Longi, Jr.
President
April 28, 1997
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- 97.6%
AEROSPACE & DEFENSE -- 0.5%
Greenwich Air, Sr Nt, 10.5%, 6/1/06 $ 750 $ 862,500 0.5%
------------ ---
AUTO PARTS & EQUIPMENT -- 1.9%
APS Inc., Co Gtd, 11.875%, 1/15/06 1,000 1,002,500 0.6
JPS Automotive Products Corp., Sr Nt, 11.125%,
6/15/01 1,350 1,471,500 0.9
LDM Technologies, Inc., Sr Sub Nt, 10.75%,
1/15/07/2/ 625 634,375 0.4
------------ ---
3,108,375 1.9
BEVERAGE & TOBACCO -- 0.5%
Consolidated Cigar Aquisition Corp., Sr Sub Nt,
10.5%, 3/1/03 800 836,000 0.5
------------ ---
BROADCAST RADIO & TV -- 4.9%
Argyle Television Inc., Sr Sub Nt,
9.75%, 11/1/05 750 772,500 0.5
Granite Broadcasting Corp., Sr Sub Nt, 10.375%,
5/15/05 1,200 1,200,000 0.7
Heritage Media Services, Sr Sub Nt, 11%, 10/1/02 1,000 1,065,000 0.6
Heritage Media Services, Sr Nt,
11%, 6/15/02 1,500 1,593,750 1.0
Sinclair Broadcasting Group, Sr Sub Nt, 10%,
12/15/03 1,000 1,002,500 0.6
Spanish Broadcasting System, Sr Nt, 7.5/12.5%,
6/15/02 500 536,250 0.3
Spanish Broadcasting System, Sr Nt, 11%,
3/15/04/2/ 1,000 995,000 0.6
Young Broadcasting Inc., Sr Sub Nt, 9%, 1/15/06 1,000 950,000 0.6
------------ ---
8,115,000 4.9
BUILDING -- 4.0%
Atrium Companies Inc., Sr Sub Nt, 10.5%,
11/15/06/2/ 1,000 995,000 0.6
Collins & Aikman Floor Coverings, Sr Sub Nt, 10%,
1/15/07/2/ 2,000 1,975,000 1.2
Harrow Industries Inc., Sr Sub Deb, 12.375%,
4/15/02 1,378 1,364,220 0.8
Nortek, Inc., Sr Nt, 9.25%, 3/15/07/2/ 500 492,500 0.3
Riverside Group Inc., Sub Nt,
13%, 9/30/99/3/ 1,000 900,000 0.5
Triangle Pacific Corp., Sr Nt,
10.5%, 8/1/03 1,000 1,062,500 0.6
------------ ---
6,789,220 4.0
</TABLE>
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
BUSINESS SERVICES & EQUIPMENT -- 8.5%
Computervision Corp., Sr Sub Nt, 11.375%, 8/15/99 $2,000 $ 2,060,000 1.2%
Corporate Express, Inc., Sr Conv Nt, 4.5%, 7/1/00 2,000 1,692,500 1.0
Day International Group Inc., Sr Sub Nt, 11.125%,
6/1/05 1,000 1,042,500 0.6
Knoll Inc., Sr Sub Nt,10.875%, 3/15/06 1,000 1,095,000 0.7
Loomis Fargo & Co, Sr Sub Nt,
10%, 1/15/04/2/ 750 758,438 0.5
National Fiberstok Corp., Sr Nt, 11.625%, 6/15/02 1,000 1,015,000 0.6
Pen-Tab Industries, Inc., Sr Sub Nt, 10.875%,
2/1/07/2/ 1,650 1,637,625 1.0
Pierce Leahy Corp., Sr Sub Nt, 11.125%, 7/15/06 1,000 1,087,500 0.7
San Jacinto Holdings, Sr Sub Nt,
12%, 12/31/02 2,000 1,460,000 0.9
Unisys Corp., Sr Nt, 11.75%, 10/15/04 750 780,000 0.5
United Stationer Supply, Sr Nt,
12.75%, 5/1/05 1,250 1,400,000 0.8
------------ ---
14,028,563 8.5
CABLE TELEVISION -- 5.2%
Cablevision Systems Corp., Sr Sub Nt, 9.25%,
11/1/05 500 481,250 0.3
Falcon Holding Group L.P., Sr Sub Nt, 11%, 9/15/03 528 462,881 0.3
Fundy Cable Ltd., Sr Nt,
11%, 11/15/05 1,500 1,545,000 0.9
Jones Intercable, Sr Sub Deb,
11.5%, 7/15/04 2,000 2,140,000 1.3
Marcus Cable Company, LP, Sr Debs, 11.875%,
10/1/05 2,000 2,070,000 1.2
Optel, Inc., Sr Nt w/ warrant,
13%, 2/15/05/2/ 500 457,500 0.3
Rifkin Acq. Partners LP, Sr Sub Nt, 11.125%,
1/15/06 1,500 1,533,750 0.9
------------ ---
8,690,381 5.2
CHEMICALS/PLASTIC -- 6.9%
Applied Extrustion Technologies Inc., Sr Unsecd
Nt, 11.5%, 4/1/02 1,500 1,552,500 0.9
Berry Plastics Corp., Sr Sub Nt, 12.25%, 4/15/04 1,400 1,536,500 0.9
Calmar Inc., Sr Sub Nt,
11.5%, 8/15/05 1,500 1,526,250 0.9
Envirodyne Industries, Inc., Sr Nt, 10.25%,
12/1/01 800 774,000 0.5
</TABLE>
2
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CHEMICALS/PLASTIC (continued)
Envirodyne Industries, Inc., Sr Nt,
12%, 6/15/00 $1,500 $ 1,612,500 1.0%
Plastic Specialties & Technologies Inc., Sr Nt,
11.25%, 12/1/03 2,000 2,160,000 1.3
Portola Packaging Inc., Sr Nt,
10.75%, 10/1/05 1,250 1,253,125 0.8
Printpack Inc., Sr Sub Nt,
10.625%, 8/15/06 1,000 1,042,500 0.6
----------- ---
11,457,375 6.9
CLOTHING & TEXTILE -- 1.2%
PT Polysindo, Co Gtd, 11.375%, 6/15/06 1,000 1,070,000 0.6
Tultex Corp, Sr Nt, 10.625%, 3/15/05 1,000 1,060,000 0.6
----------- ---
2,130,000 1.2
CONGLOMERATE -- 1.9%
Interlake Corp., Sr Sub Deb,
12.125%, 3/1/02 2,650 2,736,125 1.6
Siebe Inc., Sr Sec Nt, 11.22%, 1/29/01/3/ 435 434,682 0.3
----------- ---
3,170,807 1.9
CONTAINERS/GLASS PRODUCTS -- 2.3%
Owens Illinois, Inc., Sr Amortizing Nt,
11%, 12/1/03 2,000 2,215,000 1.3
Silgan Corp., Sr Sub Nt, 11.75%, 6/15/02 1,250 1,326,563 0.8
U.S. Can Corp., Sr Sub Nt,
10.125%, 10/15/06 350 364,000 0.2
----------- ---
3,905,563 2.3
COSMETICS/TOILETRIES -- 1.9%
Chattem Inc., Sr Sub Nt, 12.75%, 6/15/04 1,200 1,305,000 0.8
JB Williams Holdings Inc., Sr Nt,
12%, 3/1/04 1,000 1,002,500 0.6
Remington Product Co. LLC, Sr Sub Nt, 11%, 5/15/06 500 415,000 0.2
Revlon Corporation, Sr Disc Nt,
0/10.75%, 3/15/01/2/ 750 466,875 0.3
----------- ---
3,189,375 1.9
DRUGS -- 0.6%
Twin Laboratories, Inc., Co Gtd,
10.25%, 5/15/06 1,000 1,015,000 0.6
----------- ---
ECOLOGICAL SERVICES & EQUIPMENT -- 1.3%
ICF Kaiser International Inc., Sr Sub Nt 13%,
12/31/03 1,500 1,413,750 0.8
Norcal Waste Systems, Co Gtd,
13%, 11/15/05 750 832,500 0.5
----------- ---
2,246,250 1.3
</TABLE>
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRONICS/ELECTRIC -- 1.6%
Celestica International, Sr Sub Nt,
10.5%, 12/31/06/2/ $ 500 $ 526,250 0.3%
Communications & Power Industries, Sr Sub Nt, 12%,
8/1/05 1,000 1,107,500 0.7
EV International, Inc., Sr Sub Nt,
11%, 3/15/07/2/ 500 500,000 0.3
Plantronics Inc., Sr Nt, 10%, 1/15/01 420 436,800 0.3
---------- ---
2,570,550 1.6
EQUIPMENT LEASING -- 0.9%
Coinmach Corp., Sr Nt,
11.75%, 11/15/05 1,450 1,580,500 0.9
---------- ---
FARMING & AGRICULTURE -- 1.2%
Darling International Inc., Sr Sub Nt,
11%, 7/15/00 2,000 1,980,000 1.2
---------- ---
FINANCIAL INTERMEDIARIES -- 1.8%
Amresco, Inc., Sr Nt, 8.75%, 7/1/99 1,000 993,750 0.6
Amresco, Inc., Sr Sub Nt, 10%, 3/15/04 2,000 1,967,500 1.2
---------- ---
2,961,250 1.8
FOOD/DRUG RETAILERS -- 2.2%
Bruno's Inc., Sr Sub Nt, 10.5%, 8/1/05 1,500 1,524,375 0.9
Jitney-Jungle Stores, Co Gtd,
12%, 3/1/06 900 951,750 0.6
Pueblo Xtra International, Inc., Sr Nt,
9.5%, 8/1/03 1,250 1,190,625 0.7
---------- ---
3,666,750 2.2
FOOD SERVICE -- 5.9%
CFP Holdings, Inc., Sr Nt,
11.625%, 1/15/04/2/ 1,000 1,020,000 0.6
Carrols Corp., Sr Nt, 11.5%, 8/15/03 2,750 2,894,375 1.7
Gorges/Quick To Fix Foods, Sr Sub Nt, 11.5%,
12/1/06/2/ 1,000 1,015,000 0.6
Great American Cookie Co., Sr Nt,
10.875%, 1/15/01 1,750 1,680,000 1.0
Host Marriott Travel Plaza, Sr Nt,
9.5%, 5/15/05 1,250 1,265,625 0.8
Specialty Foods Corp., Sr Nt,
10.25%, 8/15/01 500 486,250 0.3
Specialty Foods Corp., Sr Nt,
11.125%, 10/1/02 1,500 1,496,250 0.9
---------- ---
9,857,500 5.9
</TABLE>
3
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOREST PRODUCTS -- 3.8%
APP International Finance, Gtd Sec Nt, 11.75%,
10/1/05 $ 500 $ 530,000 0.3%
Crown Paper Company, Sr Sub Nt,
11%, 9/1/05 1,000 922,500 0.6
FSW International, Sr Nt, 12.5%, 11/1/06 1,000 1,010,000 0.6
Fonda Group, Inc., Sr Sub Nt, 9.5%, 3/1/07/2/ 1,000 945,000 0.6
Gaylord Container Corp., Sr Sub Debs, 12.75%, 5/15/05 1,250 1,362,500 0.8
Stone Container Corp., Sr Nt,
11.875%, 8/1/16 1,500 1,522,500 0.9
--------- ---
6,292,500 3.8
HEALTH CARE -- 1.4%
Dade International Inc., Sr Sub Nt,
11.125%, 5/1/06 1,250 1,396,875 0.8
Maxxim Medical, Co Gtd, 10.5%, 8/1/06 1,000 1,027,500 0.6
--------- ---
2,424,375 1.4
HOME FURNISHINGS -- 0.3%
Decorative Home Accents, Inc., Sr Nt,
13%, 6/30/02 1,000 535,000 0.3
--------- ---
HOTEL & CASINOS -- 4.8%
Alliance Gaming Corp., Sr Secd Nt,
12.875%, 6/30/03 900 972,000 0.6
Casino America, Inc., Sr Nt, 12.5%, 8/1/03 1,000 962,500 0.6
Casino Magic-LA, 1st Mtg, 13%, 8/15/03/2/ 900 861,750 0.5
Courtyard by Marriott, Sr Nt,
10.75%, 2/1/08 1,000 1,023,750 0.6
HMC Acquisition Properties, Sr Nt,
9%, 12/15/07 750 744,375 0.4
Majestic Star Casino LLC, Sr Nt,
12.75%, 5/15/03 500 540,000 0.3
Prime Hospitality Corp., Sr Sub Nt,
9.75%, 4/1/07/2/ 1,000 1,003,750 0.6
Showboat Marina Casino, 1st Mtg,
13.5%, 3/15/03 500 552,500 0.3
Trump Atlantic City, Co Gtd, 11.25%, 5/1/06 1,750 1,579,375 0.9
--------- ---
8,240,000 4.8
INDUSTRIAL EQUIPMENT -- 3.4%
Hawk Corp., Sr Nt, 10.25%, 12/1/03/2/ 1,000 1,002,500 0.6
International Knife & Saw, Sr Sub Nt, 11.375%,
11/15/06 2,000 2,045,100 1.2
Packard Biosciences Company, Sr Sub Nt, 9.375%,
3/1/07/2/ 500 488,125 0.3
Specialty Equipment Co., Sr Sub Nt,
11.375%, 12/1/03 1,750 1,885,625 1.1
Tokheim Corp., Sr Sub Nt, 11.5%, 8/1/06 250 261,250 0.2
--------- ---
5,682,600 3.4
</TABLE>
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
LEISURE -- 6.0%
Booth Creek Ski Hldgs, Sr Nt,
12.5%, 3/15/07/2/ $2,000 $1,950,000 1.2%
E&S Holdings Corp., Sr Sub Nt,
10.375%, 10/1/06 1,000 1,025,000 0.6
Guitar Center Mgmt., Sr Nt, 11%, 7/1/06 2,280 2,485,200 1.5
Hines Horticulture Inc., Sr Sub Nt,
11.75%, 10/15/05 1,500 1,620,000 1.0
Selmer Company Inc., Sr Sub Nt,
11%, 5/15/05 1,500 1,631,250 1.0
Stuart Entertainment, Sr Sub Nt,
12.5%, 11/15/04/2/ 1,250 1,121,875 0.7
---------- ---
9,833,325 6.0
NON-FERROUS METALS -- 1.7%
Easco Corp., Sr Nt, 10%, 3/15/01 1,000 990,000 0.6
Echo Bay Mines Ltd., Jr Sub Debs,
11%, 4/1/27 750 757,500 0.5
Renco Metals Inc., Sr Nt, 11.5%, 7/1/03 1,000 1,040,000 0.6
---------- ---
2,787,500 1.7
OIL & GAS -- 4.1%
Flores & Rucks, Inc., Sr Nt,
13.5%, 12/1/04 2,265 2,661,375 1.6
Giant Industries Inc., Sr Sub Nt,
9.75%, 11/15/03 1,000 1,007,500 0.6
Global Marine, Inc., Sr Nt,
12.75%, 12/15/99 1,000 1,058,750 0.6
Transamerican Refining, 1st Mtg,
0/18%, 2/15/02 500 461,250 0.3
Transamerican Refining, 1st Mtg,
16.5%, 2/15/02 650 702,000 0.4
United Refining Corp., Sr Nt w/warrant, 13.5%,
12/31/03/2/ 1,000 920,000 0.6
---------- ---
6,810,875 4.1
PUBLISHING -- 2.3%
Adams Outdoor Advertising, Sr Nt,
10.75%, 3/15/06 750 781,875 0.5
Outdoor Systems Inc., Sr Sub Nt,
9.375%, 10/15/06 500 493,750 0.3
Petersen Publishing, Sr Sub Nt,
11.125%, 11/15/06 1,000 1,055,000 0.6
Universal Outdoor Inc., Sr Sub Nt,
9.75%, 10/15/06 1,000 1,007,500 0.6
Universal Outdoor Inc. Series B, Sr Sub Nt, 9.75%,
10/15/06/2/ 500 491,250 0.3
---------- ---
3,829,375 2.3
</TABLE>
4
<PAGE>
USF&G PACHOLDER FUND, INC.
- -------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONCLUDED)
MARCH 31, 1997
(UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
RETAILERS -- 2.6%
Braun's Fashions Corp., Sr Nt,
12%, 1/1/05 $ 750 $ 560,625 0.3%
Central Tractor Farm & Country, Sr Nt, 10.625%,
4/1/07 750 750,938 0.4
Herff Jones Inc., Sr Sub Nt, 11%, 8/15/05 1,000 1,077,500 0.6
Michaels Stores, Inc., Sr Nt,
10.875%, 6/15/06 1,200 1,227,000 0.7
Travelcenters of America, Sr Sub Nt, 10.25%,
4/1/07/2/ 1,000 982,500 0.6
---------- ---
4,598,563 2.6
STEEL -- 0.9%
Algoma Steel Inc., 1st Mtg,
12.375%, 7/15/05 1,000 1,070,000 0.6
Gulf States Steel--Alabama, 1st Mtg, 13.5%, 4/15/03 500 476,250 0.3
---------- ---
1,546,250 0.9
TRANSPORTATION -- 4.5%
Atlantic Express Transportation Corp., Co Gtd,
10.75%, 2/1/04/2/ 500 503,750 0.3
Greyhound Lines, Inc., Debs,
10%, 7/31/01 2,600 2,678,000 1.6
Moran Transport Co., 1st Mtg,
11.75%, 7/15/04 1,500 1,638,750 1.0
Trism Inc., Sr Sub Nt, 10.75%, 12/15/00 1,400 1,256,500 0.8
Teekay Shipping, Sr Sec Nt,
9.625%, 7/15/03 1,250 1,268,750 0.8
---------- ---
7,345,750 4.5
TELECOMMUNICATIONS/CELLULAR
COMMUNICATION -- 6.6%
Advanced Radio Telecom Corp., Sr Nt
w/warrant, 14%, 2/15/07 850 926,500 0.6
Globalstar Telecommunications, Ltd., Sr Nt
w/warrant, 11.375%, 2/15/04/2/ 1,000 980,000 0.6
McCaw International Ltd., Sr Disc Nt
w/warrant, 0/13%, 4/15/07/2/ 1,750 822,500 0.5
Metrocall Inc., Sr Sub Nt,
10.375%, 10/1/07 2,550 2,040,000 1.2
Mobilemedia Corp., Sr Sub Nt,
0/10.5%, 12/1/03 1,450 261,000 0.2
Mobilemedia Corp., Sr Sub Nt,
9.375%, 11/1/07 1,250 275,000 0.2
Nextlink Communications, Sr Nt,
12.5%, 4/15/06 1,500 1,511,250 0.9
</TABLE>
<TABLE>
<CAPTION>
SHARES/ PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS/CELLULAR
COMMUNICATION (continued)
Orion Network Systems, Inc., Sr Nt
w/warrant, 11.25%, 1/15/07 $ 750 $ 738,750 0.4%
Western Wireless, Sr Sub Nt,
10.5%, 2/1/07 1,000 990,000 0.6
Winstar Equipment Corp., Co Gtd Sr Sec, 12.5%,
3/15/04/2/ 2,500 2,400,000 1.4
------------ -----
10,945,000 6.6
TOTAL CORPORATE DEBT SECURITIES
(amortized cost $161,357,900) 163,032,072 97.6
------------ -----
EQUITY INVESTMENTS -- 0.1%
Data Documents, Common Stock/1/ 22,596 225,960 0.1
Gulf States Steel, Warrants 4/15/03/1/ 500 250 0.0
ICF Kaiser International, Warrants 12/31/98/1/ 7,200 1,800 0.0
Sabreliner Corp., Warrants 4/15/03/1/ 500 2,500 0.0
San Jacinto Holdings, Common Stock/1/ 2,246 4,492 0.0
------------ -----
TOTAL EQUITY INVESTMENTS
(cost $2,535) 235,002 0.1
TOTAL INVESTMENTS
(amortized cost $161,360,435) $163,267,074 97.7
OTHER ASSETS IN EXCESS OF LIABILITIES 3,779,475 2.3
------------ -----
NET ASSETS $167,046,549 100.0%
LESS: OUTSTANDING PREFERRED STOCK (49,000,000)
------------
NET ASSETS APPLICABLE TO 7,078,136 SHARES OF COMMON
STOCK OUTSTANDING $118,046,549
============
NET ASSET VALUE PER COMMON SHARE ($118,046,549 /
7,078,136) $16.68
============
</TABLE>
- -------------------------------------------------------------------------------
/1/ Non-income producing security.
/2/ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. These securities
amounted to $25,946,563 or 15.5% of net assets.
/3/ Board valued security. These securities amounted to $1,334,682 or 0.8% of
net assets.
5
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan
The Dividend Reinvestment Plan offers you an automatic way to reinvest your
dividends and capital gains distributions in shares of the Fund. For an
enrollment form and detailed information about the Plan, please contact Fifth
Third Bank Corporate Trust Services, 38 Fountain Square Plaza MD-1090F5,
Cincinnati, Ohio 45263, (800) 837-2755.
-------------
This report is sent to the shareholders of USF&G Pacholder Fund, Inc. for their
information. It is not a prospectus, offering circular or other representation
intended for use in connection with the purchase or sale of shares of the Fund
or any securities mentioned in this report.
6
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE>
- --------------------------------------------------------------------------------
USF&G
PACHOLDER FUND, INC.
FIRST QUARTER REPORT
MARCH 31, 1997
- --------------------------------------------------------------------------------
USF&G
PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
Asher O. Pacholder John C. Sweeney
Chairman Director
Anthony L. Longi, Jr. John F. Williamson
President Director
William J. Morgan George D. Woodard
Director and Treasurer Director
James P. Shanahan, Jr. James E. Gibson
Director and Secretary Senior Vice President
Daniel A. Grant Mark H. Prenger
Director Assistant Treasurer
INVESTMENT OBJECTIVE
A closed-end fund seeking a high level of total return
through current income and capital appreciation by
investing primarily in high yield, high risk fixed-income securities
of domestic companies.
INVESTMENT ADVISOR
Pacholder & Company
ADMINISTRATOR
Kenwood Administrative Management, L.P.
CUSTODIAN
Star Bank, N.A.
TRANSFER AGENT
Fifth Third Bank
LEGAL COUNSEL
Piper & Marbury L.L.P.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
EXECUTIVE OFFICES
USF&G Pacholder Fund, Inc.
Bank One Towers
8044 Montgomery Road
Suite 382
Cincinnati, Ohio 45236
513-985-3200
