<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
The USF&G Pacholder Fund, Inc. (the "Fund") recorded a total return of 14.08%
during the nine months ended September 30, 1997, compared to the CS First Bos-
ton High Yield Index(TM) (the "Index") of 10.84%, exceeding our benchmark index
by 324 basis points (3.24%). The Fund has outperformed the Index in every month
but one through the first nine months of 1997.
The spread of the Index compared to U.S. Treasury yields was relatively flat
throughout the third quarter, compressing slightly to 335 basis points (3.35%)
from 339 basis points (3.39%). However, this trend has reversed itself during
October as investors' concerns over falling equity valuations spilled over into
the high yield market.
The high yield market has had incredible technical strength this year, sup-
ported by a relatively low interest rate environment, a growing economy and
strong equity market valuations. According to the Investment Company Institute,
there has been over $13.3 billion of net inflows into open-end high yield funds
during the first nine months of 1997, which is on pace to surpass the record
inflows of $15.5 billion in 1996. Open-end fund flows are believed to be the
most objective measure of the demand trend for high yield bonds, however, there
have been estimates that they only account for as little as 25% of total de-
mand.
Due to the strong demand, the market has had no difficulty digesting the rec-
ord $92 billion of newly issued high yield debt during this same period. One
noticeable trend in the new issue market this year has been the increase in the
number of international emerging market corporate issuers (excluding sovereigns
and Euro-bonds). It has been estimated that this segment represented nearly 20%
of the dollar volume of high yield new issuance in the first nine months of
1997. We have chosen to underweight our exposure to international emerging mar-
ket issuers for a few reasons. First, we are not entirely comfortable with the
currency and other risks inherent in investing abroad; second, we are not con-
fident that buyers are being adequately compensated on a spread basis to take
these risks; third, spreads on international emerging market debt have com-
pressed significantly over the last year or so. In addition, we believe that
there has been an adequate supply of both primary issuance and secondary oppor-
tunities to make profitable investments for the Fund in the domestic sectors of
the high yield market.
We have maintained a very diversified portfolio and believe the Fund is prop-
erly positioned in today's environment. We are looking forward to taking advan-
tage of market opportunities in the fourth quarter as we expect to see some
volatility going into year end.
We thank you for your continued support of the Fund and look forward to serv-
ing your investment needs in the future.
Sincerely,
/s/ Anthony L. Longi, Jr.
Anthony L. Longi, Jr.
President
October 24, 1997
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES -- 97.5%
AIR TRANSPORTATION -- 0.7%
Atlas Air, Inc., Sr Nt, 10.75%, 8/1/05/2/ $1,250 $ 1,312,500 0.7%
------------ ---
AUTO PARTS & EQUIPMENT -- 4.2%
Cambridge Industries, Inc., Sr Sub Nt, 10.25%,
7/15/07/2/ 1,000 1,045,000 0.6
Chief Auto Parts, Inc., Sr Nt, 10.5%, 5/15/05 1,000 1,010,000 0.6
Glasstech Inc., Co Gtd w/ warrants, 12.75%,
7/1/04/2/ 1,000 1,067,500 0.6
Harvard Industries, Inc., Sr Nt, 11.125%,
8/1/05/4/ 1,500 585,000 0.3
JPS Automotive Products Corp., Sr Nt, 11.125%,
6/15/01 1,350 1,496,813 0.9
Safety Components International, Inc., Sr Sub Nt,
10.125%, 7/15/07/2/ 1,000 1,010,000 0.6
Venture Holdings Trust, Sr Nt, 9.5%, 7/1/05/2/ 1,000 982,500 0.6
------------ ---
7,196,813 4.2
BEVERAGE & TOBACCO -- 0.5%
Consolidated Cigar Acquisition Corp., Sr Sub Nt,
10.5%, 3/1/03 800 832,000 0.5
------------ ---
BROADCAST RADIO & TV -- 8.1%
Allbritton Communications Co., Sr Sub Deb, 11.5%,
8/15/04 500 525,000 0.3
Albritton Communications, Sr Sub Deb, 9.75%,
11/30/07 1,750 1,745,625 1.0
Argyle Television Inc., Sr Sub Nt, 9.75%, 11/1/05 1,225 1,335,250 0.8
Citadel Broadcasting Company, Sr Sub Nt, 10.25%,
7/1/07/2/ 1,500 1,612,500 0.9
Commodore Media Inc., Sr Sub Nt, 7.5/13.25%,
5/1/03 780 856,050 0.5
Heritage Media Services, Sr Sub Nt, 11%, 10/1/02 1,000 1,055,000 0.6
Heritage Media Services, Sr Nt, 11%, 6/15/02 1,500 1,578,750 0.9
Radio One, Inc., Sr Sub Nt, 7/12%, 5/15/04/2/ 1,000 960,000 0.5
Sinclair Broadcasting Group, Sr Sub Nt, 10%,
12/15/03 1,000 1,037,500 0.6
Spanish Broadcasting System, Sr Nt, 7.5/12.5%,
6/15/02 500 570,000 0.3
Spanish Broadcasting System, Sr Nt, 11%, 3/15/04 1,500 1,635,000 0.9
</TABLE>
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
BROADCAST RADIO & TV (continued)
Young Broadcasting Inc., Co Gtd, 8.75%, 6/15/07 $1,500 $ 1,462,500 0.8%
------------ ---
14,373,175 8.1
BUILDING -- 5.5%
American Builders & Contractors Supply Co., Inc.,
Sr Sub Nt, 10.625%, 5/15/07 1,125 1,175,625 0.7
Collins & Aikman Floorcoverings, Inc., Sr Sub Nt,
10%, 1/15/07 2,000 2,045,000 1.2
Fedders North America, Inc., Co Gtd, 9.375,
8/15/07/2/ 1,000 1,015,000 0.6
Harrow Industries Inc., Sr Sub Deb, 12.375%,
4/15/02 1,378 1,378,000 0.8
MMI Products, Inc., Sr Sub Nt, 11.25%, 4/15/07/2/ 1,250 1,356,250 0.8
Nortek, Inc., Sr Nt, 9.25%, 3/15/07 500 507,500 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 1,070,000 0.6
------------ ---
9,447,375 5.5
BUSINESS SERVICES & EQUIPMENT -- 3.6%
Autotote Corp., Sr Nt, 10.875%, 8/1/04/2/ 1,000 1,020,000 0.6
Day International Group Inc., Sr Sub Nt, 11.125%,
6/1/05 1,000 1,063,750 0.6
Knoll Inc., Sr Sub Nt, 10.875%, 3/15/06 650 724,750 0.4
Loomis Fargo & Co, Sr Sub Nt, 10%, 1/15/04 750 765,000 0.4
Pierce Leahy Corp., Sr Sub Nt, 11.125%, 7/15/06 650 731,250 0.4
San Jacinto Holdings, Sr Sub Nt, 12%, 12/31/02 950 646,000 0.4
United Stationer Supply, Sr Nt, 12.75%, 5/1/05 1,250 1,417,188 0.8
------------ ---
6,367,938 3.6
CABLE TELEVISION -- 3.0%
Fundy Cable Ltd., Sr Nt, 11%, 11/15/05 1,500 1,635,000 0.9
James Cable Partners L.P., Sr Nt, 10.75%,
8/15/04/2/ 1,250 1,303,125 0.7
Marcus Cable Company, LP, Sr Debs, 11.875%,
10/1/05 2,000 2,175,000 1.2
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
CABLE TELEVISION (continued)
Optel, Inc., Sr Nt w/ warrant, 13%, 2/15/05 $ 375 $ 371,719 0.2%
------------ ---
5,484,844 3.0
CHEMICALS/PLASTIC -- 7.3%
Applied Extrusion Technologies Inc., Sr Unsecd Nt,
11.5%, 4/1/02 1,500 1,590,000 0.9
Berry Plastics Corp., Sr Sub Nt, 12.25%, 4/15/04 1,400 1,534,750 0.9
Calmar Inc., Sr Sub Nt, 11.5%, 8/15/05 1,500 1,597,500 0.9
Envirodyne Industries, Inc., Sr Nt, 10.25%,
12/1/01 800 802,000 0.5
Envirodyne Industries, Inc., Sr Nt, 12%, 6/15/00 1,500 1,631,250 0.9
Plastic Specialties & Technologies Inc., Sr Nt,
11.25%, 12/1/03 2,000 2,165,000 1.2
Portola Packaging Inc., Sr Nt, 10.75%, 10/1/05 1,250 1,287,500 0.7
Printpack Inc., Sr Sub Nt, 10.625%, 8/15/06 1,000 1,080,000 0.6
RBX Corp., Co Gtd, 11.25%, 10/15/05 500 440,000 0.3
Sovereign Specialty Chemicals, Inc., Sr Sub Nt,
9.5%, 8/1/07/2/ 750 765,000 0.4
------------ ---
12,893,000 7.3
CLOTHING & TEXTILE -- 3.0%
Brazos Sportswear, Inc., Sr Nt, 10.5%, 7/1/07 1,500 1,500,000 0.9
Polymer Group, Inc., Sr Sub Nt, 9%, 7/1/07/2/ 1,500 1,515,000 0.9
PT Polysindo, Co Gtd, 11.375%, 6/15/06 1,000 1,085,000 0.6
Polytama International Finance B.V., Gtd Sec Nt,
11.25%, 6/15/07 1,000 987,500 0.6
------------ ---
5,087,500 3.0
CONGLOMERATE -- 1.4%
Interlake Corp., Sr Sub Deb, 12.125%, 3/1/02 2,000 2,075,000 1.2
Siebe Inc., Sr Sec Nt, 11.22%, 1/29/01/3/ 417 416,862 0.2
------------ ---
2,491,862 1.4
COSMETICS/TOILETRIES -- 1.4%
Chattem Inc., Sr Sub Nt, 12.75%, 6/15/04 1,200 1,342,500 0.8
</TABLE>
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
COSMETICS/TOILETRIES (continued)
JB Williams Holdings Inc., Sr Nt, 12%, 3/1/04 $1,000 $ 1,070,000 0.6%
------------ ---
2,412,500 1.4
DRUGS -- 1.8%
ICN Pharmaceuticals, Inc., Sr Nt, 9.25%,
8/15/05/2/ 1,000 1,050,000 0.6
NBTY, Inc., Sr Sub Nt, 8.625%, 9/15/07/2/ 1,000 995,000 0.6
Twin Laboratories, Inc., Co Gtd, 10.25%, 5/15/06 1,000 1,070,000 0.6
------------ ---
3,115,000 1.8
ECOLOGICAL SERVICES & EQUIPMENT -- 1.4%
ICF Kaiser International Inc., Sr Sub Nt 13%,
12/31/03 1,500 1,575,000 0.9
Norcal Waste Systems, Co Gtd, 13%, 11/15/05 750 862,500 0.5
------------ ---
2,437,500 1.4
ELECTRONICS/ELECTRIC -- 2.7%
Celestica International, Sr Sub Nt, 10.5%,
12/31/06 500 541,250 0.3
Communications Instruments, Inc., Sr Sub Nt, 10%,
9/15/04/2/ 750 750,000 0.4
Jordan Telecommunication Products, Inc., Sr Nt,
9.875%, 8/1/07/2/ 1,750 1,798,125 1.0
Plantronics Inc., Sr Nt, 10%, 1/15/01 750 783,750 0.4
Viasystems, Inc., Sr Sub Nt, 9.75%, 6/1/07/2/ 1,000 1,040,000 0.6
------------ ---
4,913,125 2.7
EQUIPMENT LEASING -- 0.9%
Coinmach Corp., Sr Nt, 11.75%, 11/15/05 1,450 1,587,750 0.9
------------ ---
FINANCIAL INTERMEDIARIES -- 0.6%
Amresco, Inc., Sr Nt, 8.75%, 7/1/99 1,000 1,015,000 0.6
------------ ---
FOOD/DRUG RETAILERS -- 2.5%
Grand Union Co., Sr Nt, 12%, 9/1/04 1,650 759,000 0.4
Great American Cookie Co., Sr Nt, 10.875%, 1/15/01 1,750 1,785,000 1.0
Pueblo Xtra International, Inc., Sr Nt, 9.5%,
8/1/03 2,000 1,990,000 1.1
------------ ---
4,534,000 2.5
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
FOOD SERVICE -- 6.6%
CFP Holdings, Inc., Sr Nt, 11.625%, 1/15/04 $2,000 $ 2,010,000 1.1%
Carrols Corp., Sr Nt, 11.5%, 8/15/03 2,250 2,393,438 1.4
Del Monte Corp., Sr Sub Nt, 12.25%, 4/15/07 500 542,500 0.3
Flagstar Corp., Sr Nt, 10.75%, 9/15/01 1,000 1,040,000 0.6
Foodmaker Corp., Sr Nt, 9.75%, 11/1/03 1,000 1,031,771 0.6
Host Marriott Travel Plaza, Sr Nt, 9.5%, 5/15/05 1,250 1,321,875 0.8
The Krystal Co., Sr Nt, 10.25%, 10/1/07/2/ 500 507,500 0.3
Southern Foods Group, L.P., Sr Sub Nt, 9.875%,
9/1/07/2/ 1,000 1,037,500 0.6
Specialty Foods Corp., Sr Nt, 11.125%, 10/1/02 1,500 1,507,500 0.9
------------ -----
11,392,084 6.6
FOREST PRODUCTS -- 4.4%
Crown Packaging, Ltd., Ser B Sr Nt, 10.75%,
11/1/00 1,000 920,000 0.5
Crown Paper Company, Sr Sub Nt, 11%, 9/1/05 1,500 1,620,000 0.9
FSW International, Sr Nt, 12.5%, 11/1/06 1,500 1,477,500 0.8
Fonda Group, Inc., Sr Sub Nt, 9.5%, 3/1/07 1,500 1,455,000 0.8
Gaylord Container Corp., Sr Sub Debs, 12.75%,
5/15/05 1,250 1,365,625 0.8
Indah Kiat Finance Mauritius Ltd., Co Gtd Sr Nt,
10%, 7/1/07/2/ 1,000 985,000 0.6
------------ -----
7,823,125 4.4
HEALTH CARE -- 0.8%
Dade International Inc., Sr Sub Nt, 11.125%,
5/1/06 1,250 1,401,563 0.8
------------ -----
HOME FURNISHINGS -- 0.3%
Decorative Home Accents, Inc., Sr Nt, 13%,
6/30/02/4/ 1,000 540,000 0.3
------------ -----
HOTEL & CASINOS -- 4.2%
Alliance Gaming Corp., Sr Sub Nt, 10%, 8/1/07/2/ 1,000 1,002,500 0.6
Casino America, Inc., Sr Nt, 12.5%, 8/1/03 1,000 1,070,000 0.6
HMC Acquisition Properties, Sr Nt, 9%, 12/15/07 750 770,625 0.4
</TABLE>
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
HOTEL & CASINOS (continued)
Hollywood Park, Inc., Sr Sub Nt, 9.5%, 8/1/07/2/ $1,000 $ 1,082,500 0.6%
Isle of Capri Black Hawk LLC, 1st Mtg, 13%,
8/31/04/2/ 750 757,500 0.4
Majestic Star Casino LLC, Sr Nt, 12.75%, 5/15/03 500 551,250 0.3
Showboat Marina Casino, 1st Mtg, 13.5%, 3/15/03 500 575,000 0.3
Trump Atlantic City, Co Gtd, 11.25%, 5/1/06 1,750 1,695,313 1.0
------------ -----
7,504,688 4.2
INDUSTRIAL EQUIPMENT -- 2.6%
International Knife & Saw, Sr Sub Nt, 11.375%,
11/15/06 2,000 2,175,000 1.2
Specialty Equipment Co., Sr Sub Nt, 11.375%,
12/1/03 2,250 2,446,875 1.4
------------ -----
4,621,875 2.6
LEISURE -- 5.1%
Bally Total Fitness Holding Corp., Sr Sub Nt,
9.875%, 10/15/07/2/ 1,000 1,000,000 0.6
Booth Creek Ski Hldgs, Sr Nt, 12.5%, 3/15/07 1,000 1,025,000 0.6
Discovery Zone, Inc., Sr Sec Nt w/warrant, 13.5%,
8/1/02/2/ 1,000 1,067,500 0.6
Guitar Center Mgmt., Sr Nt, 11%, 7/1/06 1,520 1,687,200 1.0
Hines Horticulture Inc., Sr Sub Nt, 11.75%,
10/15/05 1,500 1,635,000 0.9
Hollywood Theaters, Inc., Sr Sub Nt, 10.625%,
8/1/07/2/ 750 795,000 0.5
Riddell Sports Inc., Sr Nt, 10.5%, 7/15/07 1,500 1,563,750 0.9
------------ -----
8,773,450 5.1
NON-FERROUS METALS -- 1.8%
Easco Corp., Sr Nt, 10%, 3/15/01 1,000 1,030,000 0.6
Echo Bay Mines Ltd., Jr Sub Debs, 11%, 4/1/27 1,000 972,500 0.6
Renco Metals Inc., Sr Nt, 11.5%, 7/1/03 1,000 1,080,000 0.6
------------ -----
3,082,500 1.8
OIL & GAS -- 3.0%
Giant Industries Inc., Sr Sub Nt, 9.75%, 11/15/03 1,000 1,038,750 0.6
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
OIL & GAS (continued)
Giant Industries Inc., Sr Sub Nt, 9%, 9/1/07/2/ $ 500 $ 502,500 0.3%
Global Marine, Inc., Sr Nt, 12.75%, 12/15/99 1,000 1,025,000 0.6
Mariner Energy, Inc., Sr Sub Nt, 10.5%, 8/1/06 1,000 1,025,000 0.6
Pacalta Resources Ltd., Sr Nt, 10.75%, 6/15/04/2/ 500 521,250 0.3
United Refining Co., Co Gtd, 10.75%, 6/15/07/2/ 1,000 1,030,000 0.6
------------ -----
5,142,500 3.0
PUBLISHING -- 2.9%
Adams Outdoor Advertising, Sr Nt, 10.75%, 3/15/06 750 821,250 0.5
The Learning Co., Inc., Sr Nt, 5.5%, 11/1/00 1,000 886,250 0.5
Outdoor Communications, Inc., Sr Sub Nt, 9.25%,
8/15/07 1,000 995,000 0.6
Petersen Publishing, Sr Sub Nt, 11.125%, 11/15/06 1,000 1,122,500 0.6
Sun Media Corp., Sr Sub Nt, 9.5%, 2/15/07 1,250 1,293,750 0.7
------------ -----
5,118,750 2.9
RETAILERS -- 3.4%
Barnes & Noble, Inc., Sr Sub Nt, 11.875%, 1/15/03 300 322,875 0.2
Braun's Fashions Corp., Sr Nt, 12%, 1/1/05 1,495 1,311,863 0.7
Central Tractor Farm & Country, Sr Nt, 10.625%,
4/1/07 1,250 1,325,000 0.8
Herff Jones Inc., Sr Sub Nt, 11%, 8/15/05 1,250 1,362,500 0.8
Travelcenters of America, Sr Sub Nt, 10.25%,
4/1/07 1,500 1,567,500 0.9
------------ -----
5,889,738 3.4
STEEL -- 1.7%
Algoma Steel Inc., 1st Mtg, 12.375%, 7/15/05 1,000 1,167,500 0.7
Armco, Inc., Sr Nt, 11.375%, 10/15/99 1,750 1,793,750 1.0
------------ -----
2,961,250 1.7
TRANSPORTATION -- 4.0%
Global Ocean Carriers Ltd., Sr Nt, 10.25%,
7/15/07/2/ 1,500 1,488,750 0.9
Greyhound Lines, Inc., Sr Nt, 11.5%, 4/15/07 1,500 1,631,250 0.9
</TABLE>
<TABLE>
<CAPTION>
SHARES/ PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
TRANSPORTATION (continued)
Moran Transport Co., 1st Mtg, 11.75%, 7/15/04 $1,500 $ 1,683,750 1.0%
Trism Inc., Sr Sub Nt, 10.75%, 12/15/00 875 857,500 0.5
Teekay Shipping, Sr Sec Nt, 9.625%, 7/15/03 1,240 1,303,550 0.7
------------ -----
6,964,800 4.0
TELECOMMUNICATIONS/CELLULAR COMMUNICATION--8.1%
BTI Telecom Corp., Sr Nt, 10.5%, 9/15/07/2/ 1,000 1,030,000 0.6
Call-Net Enterprises, Inc.,
Sr Disc Nt, 0/9.27%, 8/15/07 1,000 665,000 0.4
Centennial Cellular, Sr Nt, 8.875%, 11/1/01 1,000 1,015,000 0.6
GCI, Inc., Sr Nt, 9.75%, 8/1/07 500 521,250 0.3
ITC Deltacom Inc., Sr Nt, 11%, 6/1/07/2/ 1,250 1,371,875 0.8
Iridium LLC and Iridium Capital Corp., Sr Nt,
13%, 7/15/05/2/ 1,000 1,045,000 0.6
MGC Communications, Inc., Sr Sec Nt w/warrant,
13%, 10/1/04/2/ 1,000 1,040,000 0.6
Metrocall Inc., Sr Sub Nt, 10.375%, 10/1/07 2,000 2,032,500 1.2
Nextlink Communications, Sr Nt, 12.5%, 4/15/06 1,500 1,725,000 0.9
Orion Network Systems, Inc., Sr Nt w/warrant,
11.25%, 1/15/07 1,250 1,368,750 0.8
Winstar Equipment Corp., Co Gtd Sr Sec, 12.5%,
3/15/04/2/ 2,000 2,190,000 1.3
------------ -----
14,004,375 8.1
TOTAL CORPORATE DEBT SECURITIES
(amortized cost $164,074,973) 170,722,577 97.5
------------ -----
EQUITY INVESTMENTS -- 0.4%
Data Documents, Common Stock/1/ 22,596 474,516 0.3
Gulf States Steel, Warrants 4/15/03/1/ 500 250 0.0
ICF Kaiser International, Warrants 12/31/98/1/ 7,200 2,700 0.0
Iridium LLC and Iridium Capital Corp., Warrants
7/15/05/1/ 1,000 150,000 0.1
Optel, Inc., Class C Common Stock/1/ 750 8 0.0
Sabreliner Corp., Warrants 4/15/03/1/ 500 5,000 0.0
San Jacinto Holdings, Common Stock/1/ 2,246 8,985 0.0
------------ -----
TOTAL EQUITY INVESTMENTS
(cost $2,535) 641,459 0.4
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
USF&G PACHOLDER FUND, INC.
- -------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONCLUDED)
SEPTEMBER 30, 1997
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
COMMERCIAL PAPER -- 1.2%
American Express Credit Corp,
5.58%, 10/3/97 $ 450 $ 449,860 0.3%
American General Finance Corp, 5.56%, 10/9/97 250 249,691 0.1
Ford Motor Credit Corp., 5.53%, 10/9/97 250 249,693 0.1
General Electric Capital Corp., 5.62%, 10/3/97 400 399,875 0.3
General Electric Capital Corp., 5.56%, 10/9/97 250 249,691 0.1
Prudential Funding, 5.62%, 10/3/97 450 449,860 0.3
------------ -----
TOTAL COMMERCIAL PAPER
(at amortized cost) 2,048,670 1.2
TOTAL INVESTMENTS
(amortized cost $166,126,178) $173,412,706 99.1
</TABLE>
<TABLE>
<CAPTION>
PERCENT
OF NET
DESCRIPTION VALUE ASSETS
<S> <C> <C>
- ---------------------------------------------------------------
OTHER ASSETS IN EXCESS OF LIABILITIES $ 1,624,836 0.9%
------------ -----
NET ASSETS $175,037,542 100.0%
LESS: OUTSTANDING PREFERRED STOCK (49,000,000)
------------
NET ASSETS APPLICABLE TO 7,085,043
SHARES OF COMMON STOCK OUTSTANDING $126,037,542
============
NET ASSET VALUE PER COMMON SHARE
($126,037,542 / 7,085,043) $17.79
======
</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 $39,051,875 or 22.3% of net assets.
/3/ Board valued security. These securities amounted to $1,316,862 or 0.8% of
net assets.
/4/ Security is in default.
See accompanying Notes to Financial Statements.
- -------------------------------------------------------------------------------
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.
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6
<PAGE>
USF&G
PACHOLDER FUND, INC.
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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
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USF&G
PACHOLDER FUND, INC.
THIRD QUARTER REPORT
SEPTEMBER 30, 1997
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