PACHOLDER FUND INC, DEF 14A, 1997-04-09

PACHOLDER FUND INC
DEF 14A, 1997-04-09

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<PAGE>

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934

(AMENDMENT NO. )

FILED BY A PARTY OTHER THAN THE
FILED BY THE REGISTRANT [X] REGISTRANT [_]

CHECK THE APPROPRIATE BOX:

[_]Preliminary Proxy Statement [_]Confidential, for use of the

Commission only (as permitted by
[X]Definitive Proxy Statement Rule 14c-5(d)(2))

[_]Definitive Additional Materials

[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

PACHOLDER FUND, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

PACHOLDER FUND, INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):

[X]No fee required.

[_]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

[_]$500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).

[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:

[_]Fee paid previously with preliminary materials.

[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:

Notes:
<PAGE>

USF&G PACHOLDER FUND, INC.

Bank One Towers
8044 Montgomery Road, Suite 382
Cincinnati, OH 45236

---------------------

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 22, 1997

---------------------

NOTICE IS HEREBY GIVEN that the annual meeting of the shareholders of USF&G
Pacholder Fund, Inc. (the "Fund") will be held on Thursday, May 22, 1997, at
10 o'clock a.m., Eastern time, at The Harley Hotel, 8020 Montgomery Road,
Cincinnati, Ohio, for the following purposes:

1. To elect a Board of seven Directors to serve until the next annual
meeting and until their successors are elected and qualified;

2. To approve or disapprove amendment of the Fund's fundamental policies
on borrowing and issuance of senior securities;

3. To ratify or reject the selection of the firm of Deloitte & Touche LLP
as the Fund's independent accountants for the fiscal year ending December
31, 1997; and

4. To consider and act upon such other business as may properly come
before the meeting and any adjournments thereof.

James P. Shanahan, Jr.,
Secretary

Shareholders of record as of the close of business on April 4, 1997 are
entitled to notice of and to vote at the meeting.

April 7, 1997

- --------------------------------------------------------------------------------
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED. YOUR
PROMPT RETURN OF THE PROXY WILL HELP ENSURE A QUORUM AT THE MEETING AND
AVOID THE EXPENSE TO THE FUND OF FURTHER SOLICITATION.
- --------------------------------------------------------------------------------
<PAGE>

USF&G PACHOLDER FUND, INC.

Bank One Towers
8044 Montgomery Road, Suite 382
Cincinnati, OH 45236
---------------------

PROXY STATEMENT
---------------------

This proxy statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of USF&G Pacholder Fund, Inc. (the
"Fund") for use at the annual meeting of shareholders to be held on May 22,
1997, and at any adjournments thereof. If the enclosed proxy is executed
properly and returned in time to be voted at the meeting, the shares
represented will be voted according to the instructions contained therein.
Executed proxies that are unmarked will be voted for the election of all
nominees for director and in favor of all other proposals. A proxy may be
revoked at any time prior to its exercise by filing with the Secretary of the
Fund a written notice of revocation, by delivering a duly executed proxy
bearing a later date, or by attending the meeting and voting in person.

The Fund's Annual Report, including audited financial statements for the
fiscal year ended December 31, 1996, has been previously mailed to
shareholders. This proxy statement was first mailed to shareholders on or
about April 9, 1997.

The Board of Directors has fixed the close of business on April 4, 1997 as
the record date for the determination of shareholders entitled to notice of
and to vote at the meeting and any adjournments thereof. As of the record
date, the Fund had outstanding 7,078,136 shares of Common Stock, par value
$.01 per share, and 2,450,000 shares of Cumulative Preferred Stock, par value
$.01 per share, each share being entitled to one vote. As of such date, Cede &
Co., nominee for The Depository Trust Company, 55 Water Street, New York, NY
10046, held of record (and not beneficially) 93.16% of the Fund's outstanding
Common Stock. According to information available to the Fund, as of the record
date, no person owned beneficially 5% or more of the outstanding Common Stock
of the Fund; and Principal Mutual Life Insurance Company, 711 High Street, Des
Moines, IA 50392, owned of record all of the Fund's outstanding Cumulative
Preferred Stock. On the record date, the directors and officers of the Fund as
a group owned less than one percent of the Fund's outstanding shares.

The presence in person or by proxy of the holders entitled to cast a
majority of all the votes entitled to be cast at the meeting will constitute a
quorum for the transaction of business at the annual meeting. Broker non-
votes, abstentions and withhold-authority votes all count for the purpose of
determining a quorum. If a quorum is present at the meeting but sufficient
votes in favor of one or more proposals are not received, the persons named as
proxies may propose one or more adjournments of the meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative
vote of a majority of the shares present at the meeting or represented by
proxy. The persons named as proxies will vote in favor of such adjournment if
they determine that adjournment and additional solicitation is reasonable and
in the interests of shareholders of the Fund.
<PAGE>

ELECTION OF DIRECTORS

(Proposal 1)

The Board of Directors has nominated the seven persons listed below for
election as directors, each to hold office until the next annual meeting of
shareholders and until his successor is elected and qualified. Each of the
nominees is currently serving as a director of the Fund. Each director was
elected at the annual meeting of shareholders held on June 4, 1996. Each
nominee has consented to being named in this proxy statement and has agreed to
serve as a director of the Fund if elected; however, should any nominee become
unable or unwilling to accept nomination or election, the persons named in the
proxy will exercise their voting power in favor of such other person or
persons as the Board of Directors of the Fund may recommend. There are no
family relationships among the nominees.

Under the Fund's charter, the holders of the outstanding shares of Common
Stock, voting as a separate class, are entitled to elect two directors; the
holders of the outstanding shares of Cumulative Preferred Stock, voting as a
separate class, are entitled to elect two directors; and the holders of the
outstanding shares of Common Stock and Cumulative Preferred Stock, voting
together as a single class, are entitled to elect the remaining three
directors of the Fund. The Board of Directors has nominated Messrs. Morgan and
Pacholder for election by holders of the Common Stock and Messrs. Woodard and
Shanahan for election by the holders of the Cumulative Preferred Stock. The
directors will be elected by a plurality of the votes cast at the meeting,
provided that a quorum is present. Broker non-votes, abstentions and withhold-
authority votes will not be considered votes cast for this purpose.

</TABLE>

2
<PAGE>

<TABLE>
<CAPTION>
SHARES
YEAR FIRST BENEFICIALLY
POSITION WITH ELECTED AS PRINCIPAL OCCUPATION OWNED AS OF
NAME AGE THE FUND A DIRECTOR DURING PAST FIVE YEARS MARCH 28, 1997
---- --- ------------- ---------- ---------------------- --------------
<C> <C> <C> <C> <S> <C>
James P. Shanahan, Jr.* 35 Secretary and Director 1988 Executive Vice President 16,233
and General Counsel,
Pacholder Associates,
Inc. Director, LaBarge,
Inc. (electronic
components and devices).
Daniel A. Grant 52 Director 1992 President, Utility 1,407
Management Services.
John C. Sweeney* 58 Director 1992 Senior Vice President 0
and Chief Investment
Officer, USF&G
Investment Management
Group, Inc.
John F. Williamson 58 Director 1991 President and Chief 3,398
Executive Officer,
Williamson Associates,
Inc. (investment
adviser) (since Jan.
1997); Executive Vice
President and Chief
Financial Officer, Asset
Allocation Concepts,
Inc. (1995 to 1996);
Vice President and
Senior Portfolio
Manager, American Life &
Casualty Insurance Co.
(1993 to 1994);
Financial Consultant
(1991 to 1992).
George D. Woodard 50 Director 1995 Principal, George D. 5,000
Woodard, C.P.A. (since
1995); Vice President,
Rider Kenley &
Associates (accounting
and tax services) (1994
to 1995); Principal,
George D. Woodard,
C.P.A. for more than
five years prior
thereto.
</TABLE>
- --------
* Nominees considered "interested persons" of the Fund (as defined in the
Investment Company Act of 1940) by reason of their affiliations with the
Fund's investment adviser.

Asher O. Pacholder, William J. Morgan and James P. Shanahan, Jr. are
officers and shareholders of Pacholder Associates, Inc., a general partner of
the Fund's investment adviser. John C. Sweeney is an officer of USF&G
Corporation, which is the indirect parent of USF&G Marketing Services Co., a
general partner of the Fund's adviser. The general and limited partners of the
Fund's administrator are wholly-owned subsidiaries of Pacholder Associates,
Inc. See "Investment Advisory and Other Services" below.

3
<PAGE>

Directors and officers of the Fund who are employed by the Fund's investment
adviser or a corporate affiliate of the investment adviser, or are retired
from such employment, serve without compensation from the Fund. The Fund pays
each director who is not an employee of the investment adviser or any
corporate affiliate of the investment adviser an annual fee of $10,000 plus
$1,000 for each meeting of the Board of Directors attended, and reimburses
directors for travel and other out-of-pocket expenses incurred by them in
connection with attending such meetings. The following table provides
compensation information for the fiscal year ended December 31, 1996 for all
of the Fund's directors and the highest-paid executive officers who received
compensation in excess of $60,000.

<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION
NAME OF AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL FROM FUND AND FUND
PERSON, COMPENSATION FROM ACCRUED AS PART OF BENEFITS UPON COMPLEX PAID TO
POSITION FUND FUND EXPENSES RETIREMENT DIRECTORS
- -------- ----------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Asher O. 0 0 0 0
Pacholder
Chairman
of the
Board
William J. 0 0 0 0
Morgan
Executive
Vice
President,
Treasurer
and
Director
James P. 0 0 0 0
Shanahan,
Jr.
Secretary
and
Director
Daniel A. $15,000 0 0 $15,000
Grant
Director
John C. 0 0 0 0
Sweeney
Director
John F. $15,000 0 0 $15,000
Williamson
Director
George D. $15,000 0 0 $15,000
Woodard
Director
</TABLE>
- --------

For the fiscal year ended December 31, 1996, the directors of the Fund as a
group received aggregate remuneration from the Fund of $45,000.

The Board of Directors has an Audit Committee which makes recommendations to
the Board of Directors with respect to the engagement of the Fund's
independent accountants and reviews with the independent accountants the scope
and results of the audit engagement and matters having a material effect upon
the financial operations of the Fund. The Audit Committee also reviews the
pricing of illiquid securities held in the Fund's portfolio. The members of
the Audit Committee are Daniel A. Grant, John F. Williamson and George D.
Woodard. It is anticipated that Messrs. Grant, Williamson and Woodard will
constitute the Audit Committee of the new Board of Directors. The Board of
Directors does not have a Nominating Committee.

During the fiscal year ended December 31, 1996, the Board of Directors met
five times. No director attended fewer than seventy-five percent of the board
meetings. The Audit Committee held one meeting during 1996 at which all
committee members were in attendance.

4
<PAGE>

The Fund's executive officers who are not directors, and their principal
occupations during the past five years, are set forth below. The address of
each is Bank One Towers, 8044 Montgomery Road, Cincinnati, OH 45236.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AGE POSITION(S) WITH THE FUND DURING PAST FIVE YEARS
---- --- ------------------------- ----------------------
<C> <C> <C> <S>
Anthony L. Longi, Jr. 31 President and Assistant Treasurer Executive Vice
President, Pacholder
Associates, Inc.
James E. Gibson 32 Senior Vice President Senior Vice President,
Pacholder Associates,
Inc.
Mark H. Prenger 26 Assistant Treasurer Assistant Vice
President, Pacholder
Associates, Inc. (since
1994); full-time
university student prior
thereto.
</TABLE>

AMENDMENT OF THE FUND'S FUNDAMENTAL POLICIES ON BORROWING
AND ISSUANCE OF SENIOR SECURITIES

(Proposal 2)

BACKGROUND

The Fund's fundamental investment policies currently permit the Fund to
borrow money in an amount up to 20% of the value of its net assets at the time
of borrowing. The Fund may use such borrowings as a temporary source of
liquidity to permit the purchase of new investments, without the necessity of
liquidating existing investments under circumstances where it would not be
prudent, and to provide flexibility in connection with dividend distributions
or repurchases of Fund shares. The Fund's fundamental policies also currently
permit the Fund to utilize leverage by issuing preferred stock. As described
below, the Fund may issue preferred stock so long as the asset coverage of
such stock under the Investment Company Act of 1940 (the "1940 Act") is at
least 200%.

The Fund's investment adviser has recommended, and the Board of Directors of
the Fund has approved, a proposed change in the Fund's fundamental policies on
borrowing and issuance of senior securities. The proposed change would enable
the Fund to issue either debt securities or preferred stock, or any
combination thereof, provided that the asset coverage for the aggregate of all
such senior securities is at least 200%. Thus, the amount of leverage that the
Fund is permitted to incur would not be increased; however, the Fund would be
able to incur such leverage by issuing debt securities as well as preferred
stock. Accordingly, if the proposed change is approved by shareholders, the
Board of Directors of the Fund will have the ability to take advantage of
available opportunities in both the debt and equity markets when structuring
the Fund's leverage.

The Fund currently has outstanding shares of Cumulative Preferred Stock with
an aggregate liquidation preference of $49,000,000. As of March 31, 1997, the
net assets of the Fund were approximately $166.52 million and the asset
coverage of the Fund's outstanding Cumulative Preferred Stock under the 1940
Act was 334%. The Board of Directors has no plans to restructure the Fund's
leverage at the present time.

5
<PAGE>

REGULATORY CONSIDERATIONS

The Fund's capital structure is regulated under the 1940 Act. Under the 1940
Act, the Fund may not issue any class of senior security representing
indebtedness unless, immediately after such issuance, it will have an asset
coverage of at least 300%, and the Fund may not issue any class of senior
security which is a preferred stock unless, immediately after such issuance,
it will have an asset coverage of at least 200%. In addition, the Fund may not
declare any cash dividend or other distribution on its capital stock (in the
case of senior securities representing indebtedness) or its common stock (in
the case of preferred stock) unless, at the time of such declaration, such
asset coverage is met. The 1940 Act also requires senior securities issued by
the Fund to have certain voting rights, including the right to elect a
majority of the Fund's Board of Directors under certain circumstances. Except
as provided in the 1940 Act, or as otherwise required by law, every share of
preferred stock issued by the Fund is required to be voting stock and to have
equal voting rights with every other outstanding voting stock of the Fund. The
Fund may not have outstanding more than one class of senior security
representing indebtedness and more than one class of senior security which is
a stock. However, any such class may be issued in one or more series, provided
that no such series has a preference or priority over any other series in
respect of the payment of interest or dividends or upon the distribution of
the assets of the Fund.

If the Fund's fundamental policies are amended, any senior securities issued
by the Fund will remain subject to the requirements of the 1940 Act. In
addition, such senior securities will be subject to the 200% asset coverage
requirement imposed by the Fund's fundamental policy.

CURRENT AND PROPOSED FUNDAMENTAL POLICIES

The Fund's current fundamental policies provide that the Fund may not:

1. Issue senior securities, as defined in the Investment Company Act of
1940, other than preferred stock or except to the extent such issuance
might be involved with respect to borrowings described under
"Borrowing". . . [below].

* * *

3. Borrow money, except in amounts not exceeding 20% of the Fund's assets
as described under "Borrowing". . . [below].

The Fund's Statement of Additional Information includes the following
disclosure under the caption "Borrowing":

The Fund is authorized to borrow money on a secured or unsecured basis in
an amount up to 20% of the value of its net assets at the time of
borrowing. . . . The Fund's investment policies allow the Fund to use
borrowing as a temporary source of liquidity to permit the purchase of new
investments consistent with the Fund's investment objectives without the
necessity of liquidating existing investments under circumstances where
liquidation would not be prudent. Borrowing may also be used to provide
flexibility in connection with dividend distributions or repurchases of the
Fund's shares.

As amended, the Fund's fundamental policies would provide that the Fund may
not:

1. Borrow money (through repurchase agreements or otherwise) or issue
senior securities unless immediately thereafter the Fund has an asset
coverage of all senior securities and borrowing of at least 200%.

6
<PAGE>

RISKS OF LEVERAGE

The leveraging of the Fund's Common Stock through the issuance of senior
securities involves certain risks to common shareholders. These risks include
a higher volatility of the net asset value and potentially the market price of
their shares. So long as the Fund is able to realize a higher net return on
its investment portfolio than the interest or dividends payable on the senior
securities, the effect of leverage will be to cause common shareholders to
realize a higher current rate of return than if the Fund were not leveraged.
However, if the net return on the Fund's investment portfolio were to approach
the interest or dividends payable on the senior securities, the Fund's
leveraged capital structure would result in a lower rate of return to common
shareholders. Similarly, since any decline in the net asset value of the
Fund's investment portfolio would be borne entirely by common shareholders,
the effect of leverage in a declining market will be to cause a greater
decrease in the net asset value of the Common Stock than if the Fund were not
leveraged, which would likely be reflected in a greater decline in the market
price of the Common Stock.

REQUIRED VOTE

The Fund's fundament policies may not be changed without the approval of a
majority of the outstanding shares of Common Stock and a majority of the
outstanding shares of Cumulative Preferred Stock, each voting as a separate
class. Under the Fund's charter and the 1940 Act, the vote of a majority of
the outstanding shares means the vote (i) of 67% or more of the shares present
at the meeting, if the holders of more than 50% of the shares are present or
represented by proxy; or (ii) of more than 50% of the shares, whichever is the
less. Abstentions and "broker non-votes" (i.e., shares held in the name of a
broker or nominee for which an executed proxy is received, but which have not
been voted because the broker or nominee does not have discretionary voting
power and voting instructions have not been received from the beneficial
owner) will not be considered votes cast and for purposes of (i) above will
have the same effect as votes cast against the proposal.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR AMENDMENT OF
THE FUND'S FUNDAMENTAL POLICIES. If the proposed amendment is not approved by
shareholders, the Fund's current fundamental policies on borrowing and
issuance of senior securities will remain in effect and will not be changed.

RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS

(Proposal 3)

The Board of Directors, including all of the directors who are not
"interested persons" of the Fund (as defined in the 1940 Act), has selected
the firm of Deloitte & Touche LLP as the Fund's independent accountants for
the fiscal year ending December 31, 1997. The employment is conditioned on the
right of the Fund to terminate the employment without penalty by vote of a
majority of the outstanding securities of the Fund (as defined in the 1940
Act). Deloitte & Touche LLP currently serves as the Fund's independent
accountants and the Fund's financial statements for the fiscal year ended
December 31, 1996 have been audited by Deloitte & Touche LLP, which expressed
an unqualified opinion on such financial statements. A representative of
Deloitte & Touche LLP is expected to be present at the meeting and will be
available to respond to appropriate questions raised at the meeting and to
make a statement if he wishes to do so.

Ratification of the selection of the firm of Deloitte & Touche LLP requires
the affirmative vote of a majority of all the votes cast at the meeting.
Abstentions and broker non-votes will not be considered votes cast for this
purpose.

7
<PAGE>

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR RATIFICATION OF
THE SELECTION OF DELOITTE & TOUCHE LLP. If the selection of Deloitte & Touche
LLP is not ratified by shareholders, the firm will not serve as the Fund's
independent accountants for the fiscal year ending December 31, 1997, and the
Board of Directors will be required to select new independent accountants.

INVESTMENT ADVISORY AND OTHER SERVICES

Pacholder & Company (the "Adviser"), Bank One Towers, East Tower, 8044
Montgomery Road, Suite 382, Cincinnati, OH 45236, has served as the Fund's
investment adviser since the Fund commenced operations in 1988. The Adviser
was organized in 1988 as an Ohio general partnership between Pacholder
Associates, Inc. ("Pacholder Associates") and USF&G Marketing Services Co.
("Marketing Services"), which each have a fifty-percent partnership interest
in the Adviser. Pacholder Associates is an investment advisory firm which
specializes in high yield fixed-income securities. Marketing Services is an
indirect wholly-owned subsidiary of USF&G Corporation. USF&G Corporation is
composed of property/casualty and life insurance subsidiaries. Its primary
subsidiary is United States Fidelity and Guaranty Company, which holds a
$600,000 15% Promissory Note due November 1997 of Pacholder Associates and
owns 20% of Pacholder Associates' outstanding securities. Asher O. Pacholder,
William J. Morgan and James P. Shanahan, Jr., officers and directors of the
Fund, are shareholders, officers and directors of Pacholder Associates. John
C. Sweeney, a director of the Fund, is an officer of USF&G Corporation.

Kenwood Administrative Management, Limited Partnership (the "Administrator")
serves as administrator of the Fund. The Administrator is a limited
partnership whose general and limited partners are wholly-owned subsidiaries
of Pacholder Associates. The Administrator monitors the Fund's compliance with
various regulatory requirements, coordinates and monitors the activities of
the Fund's other service providers, handles various public and shareholder
relations matters, and assists in the preparation of financial and other
reports.

Pacholder Associates serves as accounting and pricing agent for the Fund and
is responsible for (i) accounting relating the Fund and its investment
transactions, (ii) determining the net asset value per share of the Fund,
(iii) maintaining the Fund's books of account, and (iv) monitoring, in
conjunction with the Fund's custodian, all corporate actions, including
dividends and distributions and stick splits, in respect of securities held in
the Fund's portfolio.

SOLICITATION OF PROXIES

In addition to solicitation by mail, solicitations on behalf of the Board of
Directors may be made by personal interview, telegram and telephone. Certain
officers and regular agents of the Fund, who will receive no additional
compensation for their services, may use their efforts, by telephone or
otherwise, to request the return of proxies. In addition, Shareholder
Communications Corporation, 17 State Street, New York, NY 10004, has been
retained at an estimated cost of $5,000 plus out-of-pocket expenses to perform
various proxy advisory and solicitation services. Shareholder Communications
Corporation will utilize approximately 32 persons in its solicitation efforts.
The costs of preparing, assembling, mailing and transmitting proxy materials
and of soliciting proxies on behalf of the Board of Directors (including the
fees and expenses of Shareholder Communications Corporation) will be borne by
the Fund. The Fund will reimburse, upon request, broker-dealers and other
custodians, nominees and fiduciaries for their reasonable expenses of sending
proxy soliciting material to beneficial owners.

8
<PAGE>

OTHER BUSINESS

The management of the Fund knows of no other business that may come before
the annual meeting. If any additional matters are properly presented at the
meeting, the persons named in the enclosed proxy, or their substitutes, will
vote such proxy in accordance with their best judgment on such matters.

SHAREHOLDER PROPOSALS

If a shareholder wishes to present a proposal for inclusion in the proxy
statement for the next annual meeting of shareholders, the proposal must be
submitted in writing and received by the Secretary of the Fund on or before
December 8, 1997.

ANNUAL REPORT

The Fund's Annual Report for the fiscal year ended December 31, 1996 may be
obtained without charge by writing to USF&G Pacholder Fund, Inc., Bank One
Towers, 8044 Montgomery Road, Suite 382, Cincinnati, OH 45236, or by calling
the Fund toll free at 1-800-837-2755.

9
<PAGE>

PROXY
USF&G PACHOLDER FUND, INC.

COMMON STOCK, $.01 PAR VALUE

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Anthony L. Longi, Jr. and James P. Shanahan,
Jr., and each of them, as proxies with power of substitution, and hereby
authorizes each of them to represent and to vote as designated on the reverse of
this card, all the shares of Common Stock, par value $.01 per share, of USF&G
Pacholder Fund, Inc. which the undersigned is entitled to vote at the annual
meeting of shareholders to be held on May 22, 1997, and at any adjournments
thereof.

This proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder's; if no direction is given, this proxy will be
voted "FOR" the election of all nominees for Director and "FOR" Proposals 2 and
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.

- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.

Please sign this proxy exactly as your name appears on this proxy. An executor,
administrator, trustee or guardian should sign as such. If more than one
trustee, all should sign. ALL JOINT OWNERS MUST SIGN. If a corporation, please
provide the full name of the corporation and the name of the authorized officer
signing on its behalf.
- --------------------------------------------------------------------------------

HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?

- --------------------------------- ---------------------------------

[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE

1.) Election of Directors. For Withhold For All Except
[_] [_] [_]

Daniel A. Grant, William J. Morgan, Asher O. Pacholder,
John C. Sweeney and John F. Williamson

Instruction: To withhold authority to vote for any individual
nominee, mark the "For All Except" box and strike a line through
that nominee's name. Your shares will be voted for the remaining
nominee(s).

2.) With respect to amendment of For Against Abstain
the Fund's fundamental policies [_] [_] [_]
on borrowing and issuance of
senior securities.

3.) With respect to ratification of the For Against Abstain
selection of Deloitte & Touche LLP [_] [_] [_]
as independent accountants.

Mark box at right if comments or address change
have been noted on the reverse side of this card. [_]

Please be sure to sign and date this Proxy

Date
----------------

- -----------------------------
Shareholder sign here

- -----------------------------
Co-owner sign here

<PAGE>

PROXY

USF&G PACHOLDER FUND, INC.

Cumulative Preferred Stock, $.01 Par Value,
Series A and Series B

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints Anthony L. Longi, Jr. and James P.
Shanahan, Jr., and each of them, as proxies with power of substitution, and
hereby authorizes each of them to represent and to vote as designated below, all
the shares of Series A and Series B Cumulative Preferred Stock, par value $.01
per share, of USF&G Pacholder Fund, Inc. which the undersigned is entitled to
vote at the annual meeting of shareholders to be held on May 22, 1997, and at
any adjournments thereof.

This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder; if no direction is given, this proxy
will be voted "FOR" the election of all nominees for Director and "FOR"
Proposals 2 and 3. In their discretion, the proxies are authorized to vote upon
such other business as may properly come before the meeting.

1. Election of Directors: [_] FOR [_] WITHHOLD [_] FOR ALL EXCEPT

Instruction: To withhold authority to vote for any individual nominee, mark
the "For All Except" box and strike a line through that nominee's name. Your
shares will be voted for the remaining nominee(s).

Daniel A. Grant, James P. Shanahan, Jr., John C. Sweeney, John F. Williamson and
George D. Woodard

2. FOR [_] AGAINST [_] ABSTAIN [_] with respect to amendment of the Fund's
fundamental policies on borrowing and
issuance of senior securities.

3. FOR [_] AGAINST [_] ABSTAIN [_] with respect to ratification of the
selection of Deloitte & Touche LLP as
independent accountants.

PRINCIPAL MUTUAL LIFE INSURANCE COMPANY

By: ______________________________________
Name:
Title:

PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
(For the Benefit of Primart)

By: ______________________________________
Name:
Title:

Dated:________________________