<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [X] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
[_] 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
USF&G PACHOLDER FUND, INC.
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(Name of Registrant as Specified in Its Charter)
PACHOLDER FUND, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] 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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
USF&G PACHOLDER FUND, INC.
8044 Montgomery Road, Suite 382
Cincinnati, OH 45236
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on June 30, 1998
NOTICE IS HEREBY GIVEN that the annual meeting of the stockholders of USF&G
Pacholder Fund, Inc. (the "Fund") will be held on Tuesday, June 30, 1998, 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 four Directors to serve until the next annual
meeting and until their successors are elected and qualified;
2. To approve or disapprove a new investment advisory agreement between
the Fund and Pacholder & Company, LLC;
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,
1998; 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
Stockholders of record as of the close of business on June __, 1998 are
entitled to notice of and to vote at the meeting.
_____ __, 1998
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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.
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<PAGE>
USF&G PACHOLDER FUND, INC.
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 stockholders to be held on June 30, 1998, 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, 1997, has been previously mailed to stockholders.
This proxy statement was first mailed to stockholders on or about June __, 1998.
The Board of Directors has fixed the close of business on June __, 1998 as
the record date for the determination of stockholders entitled to notice of and
to vote at the meeting and any adjournments thereof. As of the record date, the
Fund had outstanding 7,104,829 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) 93.2% 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
beneficially ___% of the Fund's outstanding Common Stock.
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
<PAGE>
they determine that adjournment and additional solicitation is reasonable and in
the interests of stockholders of the Fund.
PROPOSAL 1: ELECTION OF DIRECTORS
The Fund currently has a Board of seven Directors. The directors have
determined to reduce the size of the board to four. The size and composition of
the Fund's Board of Directors is being altered so that the safe harbor provided
by Section 15(f) of the Investment Company Act of 1940, as amended (the "1940
Act"), will be available in connection with the proposed acquisition by
Pacholder Associates, Inc. ("Pacholder Associates") of the 50% partnership
interest in the Fund's investment adviser, Pacholder & Company, and the stock of
Pacholder Associates owned by an affiliate of USF&G Corporation. See Proposal
2. Section 15(f) of the 1940 Act provides, in effect, that the investment
adviser of a registered investment company, or an affiliated person of such
adviser, may receive any amount or benefit in connection with the sale of the
adviser's business provided that certain conditions are satisfied. One such
condition is that during the three-year period immediately following a
transaction to which Section 15(f) is applicable, at least 75% of the investment
company's board of directors must not be "interested persons" (as defined in the
1940 Act) of either the successor or predecessor investment adviser.
The Board of Directors has nominated the four persons listed below for
election as directors, each to hold office until the next annual meeting of
stockholders and until his successor is elected and qualified. Each of the
nominees is currently serving as a director of the Fund and was elected at the
annual meeting of stockholders held on May 22, 1997. The remaining three
directors of the Fund (Messrs. Pacholder, Shanahan and Sweeney), who are
"interested persons" (as defined in the 1940 Act) of the Fund, are not being
renominated as a result of the reduction of the size of the board; however, they
will continue to serve as directors until their terms of office expire at the
annual meeting. It is anticipated that Mr. Morgan will replace Dr. Pacholder as
Chairman of the new Board of Directors.
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 directors of the
Fund. The Board of Directors has nominated Messrs. Grant and Morgan for
election by holders of the Common Stock and Messrs. Williamson and Woodard 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.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
Year First Shares
Elected Beneficially
Position as a Principal Occupation Owned as of
Name Age with the Fund Director During Past Five Years June __, 1998
- ------------------ ------- --------------- ---------- ---------------------------- --------------
<S> <C> <C> <C> <C> <C>
William J. Morgan* 43 Executive 1988 President, Secretary and
Vice President, Director, Pacholder
Treasurer and Associates, Inc.
Director Director, Duckwall-ALCO
Stores, Inc. (variety and
discount stores); ICO,
Inc. (oil field services);
Kaiser Ventures, Inc.
(environmental services) and
Smith-Corona Corporation
(office equipment
manufacturer).
Daniel A. Grant 53 Director 1992 President, Utility
Management Services.
John F. Williamson 60 Director 1991 President and Chief
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).
George D. Woodard 51 Director 1995 Closely Held Business
Specialist, Henry & Horne,
P.L.C. (accounting and tax
services) since 1996;
Principal, George D.
Woodard, C.P.A. (1995-
1996); 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>
___________________
* Nominee who is considered an "interested person" of the Fund (as defined in
the 1940 Act) by reason of his affiliation with the Fund's investment adviser.
- 3 -
<PAGE>
Mr. Morgan is an officer and stockholder of Pacholder Associates, a
general partner of the Fund's investment adviser. The general and limited
partners of the Fund's administrator are wholly-owned subsidiaries of Pacholder
Associates. See "Administrative and Other Services" below.
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
$1,500 or $1,000 for each meeting of the Board of Directors attended in person
or by telephone, respectively, and reimburses directors for travel and other
out-of-pocket expenses incurred by them in connection with attending in-person
meetings. The following table provides compensation information for the fiscal
year ended December 31, 1997 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
Aggregate Retirement Benefits Estimated Annual from Fund and
Name of Person, Compensation From Accrued As Part of Benefits upon Fund Complex Paid
Position Fund Fund Expenses Retirement to Directors
- ------------------------ ----------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Asher O. Pacholder 0 0 0 0
Chairman and Director
William J. Morgan 0 0 0 0
Executive Vice President,
Treasurer and Director
James P. Shanahan, Jr. 0 0 0 0
Secretary and Director
Daniel A. Grant $16,500 0 0 $16,500
Director
John C. Sweeney 0 0 0 0
Director
John F. Williamson $16,500 0 0 $16,500
Director
George D. Woodard $16,500 0 0 $16,500
Director
</TABLE>
For the fiscal year ended December 31, 1997, the directors of the Fund as a
group received aggregate remuneration from the Fund of $49,500.
- 4 -
<PAGE>
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, 1997, the Board of Directors met
six times. No director attended fewer than 75% of the board meetings. The
Audit Committee held one meeting during 1997 at which all committee members were
in attendance.
The Fund's other directors and executive officers, and their principal
occupations during the past five years, are set forth below. The address of
each is 8044 Montgomery Road, Cincinnati, OH 45236.
<TABLE>
<CAPTION>
Principal Occupation
Name Age Position(s) with the Fund During Past Five Years
- ------------------------- ----------- --------------------------------- ----------------------------
<S> <C> <C> <C>
Asher O. Pacholder 61 Chairman and Director Chairman and Chief
Executive Officer,
Pacholder Associates, Inc.;
Chairman and Chief
Financial Officer, ICO,
Inc. (since 1995).
James P. Shanahan, Jr. 36 Secretary and Director Executive Vice President
and General Counsel,
Pacholder Associates, Inc.
Anthony L. Longi, Jr. 32 President and Assistant Treasurer Executive Vice President,
Pacholder Associates, Inc.
James E. Gibson 33 Senior Vice President Executive Vice President,
Pacholder Associates, Inc.
Mark H. Prenger 27 Assistant Treasurer Vice President, Pacholder
Associates, Inc. (since
1994); full-time university
student prior thereto.
</TABLE>
- 5 -
<PAGE>
PROPOSAL 2: APPROVE OR DISAPPROVE A NEW INVESTMENT ADVISORY AGREEMENT WITH
PACHOLDER & COMPANY, LLC
INTRODUCTION
The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and its stockholders to terminate the Investment
Advisory Agreement dated November 16, 1988, as amended (the "Current
Agreement"), between the Fund and Pacholder & Company (the "Current Adviser")
and to enter into a new investment advisory agreement (the "New Agreement"), a
form of which is attached to this proxy statement as Exhibit A, with Pacholder &
Company, LLC (the "New Adviser").
The Current Adviser, located at 8044 Montgomery Road, Suite 382,
Cincinnati, OH 45236, has served as the Fund's investment adviser since the Fund
commenced operations in 1988. The Current Adviser was organized in 1988 as an
Ohio general partnership between Pacholder Associates and USF&G Marketing
Services Co. ("Marketing Services"), which each have a 50% partnership interest
in the Current Adviser. In a general partnership, each of the partners is
jointly and severally liable for all obligations of the partnership.
Pacholder Associates is an investment advisory firm formed in December 1983
which specializes in high yield, fixed income securities. Pacholder Associates
currently manages in excess of approximately $750 million for institutional
clients and provides research and consulting services to those clients and
others. Approximately $500 million of the accounts currently managed by
Pacholder Associates are dedicated to investing in securities similar to those
in which the Fund invests. Pacholder Associates is the sub-adviser
responsible for investing in high yield, fixed income securities for the
Hyperion Total Return Fund, Inc., a closed-end investment company. A majority
of Pacholder Associates' outstanding stock is owned by Asher O. Pacholder who is
Chairman of Pacholder Associates and the Fund. William J. Morgan and James P.
Shanahan, Jr., officers and directors of the Fund, are also stockholders,
officers and directors of Pacholder Associates.
Marketing Services is an indirect wholly-owned subsidiary of USF&G
Corporation ("USF&G"). In April 1998, USF&G merged with a wholly-owned
subsidiary of The St. Paul Companies, Inc. ("St. Paul"). The combined company
is operating under the St. Paul name and is the eighth-largest property/casualty
company in the United States, based on 1996 net written premiums. USF&G's
primary subsidiary, United States Fidelity and Guaranty Company, owns
approximately 21% of the outstanding stock of Pacholder Associates. John C.
Sweeney, a director of the Fund, is an officer of USF&G.
In May 1998, Pacholder Associates and USF&G entered into an agreement
providing for the purchase by Pacholder Associates of the stock of Pacholder
Associates owned by United States Fidelity and Guarantee Company and the 50%
partnership interest in the Current Adviser owned by Marketing Services. The
closing of the transactions contemplated by this agreement is subject to a
number of conditions, including
- 6 -
<PAGE>
regulatory approval of the acquisition of a 49% equity interest in the New
Adviser by Banc One Investment Advisors Corporation ("Banc One Investment
Advisors") and approval of the New Agreement by stockholders of the Fund.
The Fund's name as specified in its charter is "Pacholder Fund, Inc.", and
the trademark "USF&G" has been licensed to the Fund by USF&G. The Fund has
entered into an agreement with USF&G which requires the Fund to cease using the
trademark "USF&G" upon the occurrence of certain events, including termination
of the Current Agreement. It is expected that the Fund will cease using the
trademark "USF&G" as of the effective date of the New Agreement. This change is
not expected to have a material adverse effect on the Fund or its stockholders.
DESCRIPTION OF THE NEW ADVISER
The New Adviser is a limited liability company organized under Ohio law.
Pacholder Associates will own 51% of the equity interest in the New Adviser
and Banc One Investment Advisors will own the remaining 49%. Unlike the
partners of a general partnership, the members of a limited liability company
generally are not liable for the obligations of the limited liability company.
Banc One Investment Advisors is an indirect wholly-owned subsidiary of Banc
One Corporation, a bank holding company located in the state of Ohio. As of
December 31, 1997, Banc One Investment Advisors managed over $52 billion in
assets. Banc One Corporation has affiliate banking organizations in 12 states
and has several affiliates that engage in data processing, venture capital,
investment and merchant banking, and other diversified services including trust
management, investment management, brokerage, equipment leasing, mortgage
banking, consumer finance, and insurance. On a consolidated basis, Banc One
Corporation had assets of over $115 billion as of December 31, 1997.
Banc One Investment Advisors represents a consolidation of the investment
advisory staffs of a number of bank affiliates of Banc One Corporation, which
have considerable experience in the management of open-end management investment
company portfolios, including The One Group/(R)/ (an open-end management
investment company which offers units of beneficial interest in 33 separate
funds).
The address of the New Adviser is 8044 Montgomery Road, Suite 382,
Cincinnati, OH 45236.
TERMS OF CURRENT AND NEW AGREEMENTS
Except for differences in the effective and renewal dates, the terms of the
Current and New Agreements are substantially similar. Pursuant to the terms of
each agreement, the adviser, subject to the supervision of the Fund's Board of
Directors and in accordance with the Fund's investment objective, policies and
restrictions, identifies securities suitable for investment by the Fund, makes
investment decisions, and places purchase and sale orders. Each agreement
- 7 -
<PAGE>
provides that the adviser will obtain and evaluate such information and advice
relating to the economy, securities markets and specific securities as it
considers necessary or useful to make investment decisions on behalf of the
Fund, and will manage continuously the assets of the Fund in a manner consistent
with its investment objective and policies.
Under the terms of each agreement, in addition to managing the Fund's
investments, the adviser maintains certain of the Fund's records and furnishes,
at its own expense, such office space, facilities, equipment, clerical help and
bookkeeping as the Fund may reasonably require in the conduct of its business.
In addition, the adviser pays the salaries of all personnel, including officers
of the Fund who are employees of the adviser.
Expenses not expressly assumed by an adviser under the agreement are paid
by the Fund. The expenses borne by the Fund include, but are not limited to,
the following: investment advisory fees; fees and expenses of any registrar,
custodian, stock transfer and dividend disbursing agent; brokerage commissions;
taxes; expenses of registration of the Fund and its shares under Federal and
state securities laws; all expenses of stockholders' and directors' meetings and
of preparing, printing and mailing prospectuses, proxy statements and reports to
stockholders; directors' fees and expenses; expenses incident to any dividend
reinvestment program; charges and expenses of any outside service used for
pricing of the Fund's portfolio securities; fees and expenses of legal counsel
and independent accountants; membership dues of industry associations; interest
on borrowings; fees and expenses incident to the listing of the Fund's shares on
any stock exchange; insurance premiums; and extraordinary expenses (including,
but not limited to, legal claims and liabilities and litigation costs and any
indemnification relating thereto).
Each agreement provides that in the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations thereunder, the
adviser is not liable to the Fund or its stockholders for any act or omission by
the adviser or for any losses sustained by the Fund or its stockholders.
Neither agreement restricts the adviser from acting as investment manager or
adviser to others, including entities that may have investment objectives
similar or identical to those of the Fund.
Both the Current Agreement and the New Agreement are renewable annually (i)
by the Board of Directors of the Fund or by vote of the holders of "a majority
of the outstanding voting securities" (as defined in the 1940 Act) of the Fund
and (ii) by the vote of a majority of the directors of the Fund who are not
parties to the agreement or "interested persons" (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such approval. The Board of Directors most recently approved renewal of the
Current Agreement on May 18, 1998. The Current and New Agreements terminate
automatically in the event of an "assignment" (as defined in the 1940 Act) and
may be terminated without penalty at any time (i) by majority vote of the entire
Board of Directors of the Fund or by vote of the holders of "a majority of the
outstanding voting securities" (as defined in the 1940 Act) of the Fund on 30
days' written notice to the adviser, or (ii) by the adviser on 180 days' written
notice to the Fund.
- 8 -
<PAGE>
INVESTMENT ADVISORY FEE
As full compensation for the services provided, facilities furnished and
expenses paid by the adviser under both the Current and New Agreement, the
adviser is entitled to receive an annual investment advisory fee which increases
or decreases from a "fulcrum fee" of 0.90% of the Fund's average net assets
based on the total return investment performance of the Fund for the prior 12-
month period relative to the percentage change in the CS First Boston High Yield
Index/TM/ (the "Index") for the same period (the "Index Return"). A general
description of the Index is set forth in the Appendix to this proxy statement.
The investment advisory fee is paid quarterly at an annual rate which
varies between 0.40% and 1.40% of the Fund's average net assets. The fee is
structured so that it will be 0.90% if the Fund's investment performance for the
preceding 12 months (net of all fees and expenses, including the advisory fee)
equals the Index Return. The advisory fee increases or decreases from the 0.90%
"fulcrum fee" by 10% of the difference between the Fund's investment performance
during the preceding 12 months and the Index Return during the period, up to the
maximum fee of 1.40% or down to the minimum fee of 0.40%. The following table
shows examples of the fee rates that would be applicable based on the relative
performance of the Fund and the Index during a particular 12-month period:
<TABLE>
<CAPTION>
Fund Performance Advisory Fee Rate*
(net of fees and expenses) (as % of average net assets)
-------------------------- ----------------------------
<S> <C>
Index Return + 5% 1.40
Index Return + 4% 1.30
Index Return + 3% 1.20
Index Return + 2% 1.10
Index Return + 1% 1.00
Index Return 0.90
Index Return - 1% 0.80
Index Return - 2% 0.70
Index Return - 3% 0.60
Index Return - 4% 0.50
Index Return - 5% 0.40
</TABLE>
________
* The advisory fee increases or decreases from a "fulcrum fee" of
0.90%.
Under the New Agreement, the compensation payable to the New Adviser will
equal the amount calculated as described above reduced by the compensation
previously paid by the Fund to the Current Adviser in respect of the applicable
12-month period. In the event that the prior payments to the Current Adviser
should exceed the amount of the annual advisory fee, the New Adviser is required
to remit the excess as soon as practicable after the end of the quarter.
- 9 -
<PAGE>
For the fiscal year ended December 31, 1997, the aggregate fee paid by the Fund
to the Current Adviser was $1,948,943. If the New Agreement had been in effect
during the same period, the New Adviser would have received the same amount.
The investment advisory fee paid by the Fund has exceeded, for certain
periods, and may exceed in the future, the fees paid by other closed-end
investment companies. In addition, the 0.90% "fulcrum fee" is higher than the
fees paid by many closed-end funds. The advisory fee paid by the Fund may
exceed the fees paid by other comparable funds, even if the Fund's investment
performance is not equal to the Index Return. Moreover, the adviser could
receive the maximum fee, even if the Fund's absolute investment performance is
negative. The adviser also could receive the minimum fee when the Fund
experiences significant positive performance.
In the event the Index is no longer published or available or becomes an
inappropriate measure of the Fund's performance, the Board of Directors will
meet to approve another appropriate index or will negotiate a fixed advisory fee
with the adviser, in which event the advisory fee payable for the immediately
preceding 180-day period will be the lesser of the fee payable under the current
agreement and the fee payable under a new advisory agreement.
BANKING LAW MATTERS
Banking laws and regulations generally permit bank holding companies and
their non-bank affiliates to act as an investment advisers to registered closed-
end investment companies. However, banking laws and regulations, including the
Glass-Steagall Act as currently interpreted by the Board of Governors of the
Federal Reserve System, prohibit a bank holding company registered under the
Federal Bank Holding Company Act of 1956, or any affiliate thereof, from
sponsoring, organizing, controlling or distributing the shares of a registered,
open-end investment company continuously engaged in the issuance of its shares,
and prohibit banks generally from issuing, underwriting, selling or distributing
securities.
The New Adviser believes that it possesses the legal authority to perform
the investment advisory services contemplated by the New Agreement without
violation of applicable statutes and regulations. Future changes in either
Federal or state statutes and regulations relating to the permissible activities
of banks or bank holding companies and the subsidiaries or affiliates of those
entities, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent or
restrict the New Adviser from continuing to perform such services for the Fund.
Depending upon the nature of any changes in the services which could be provided
by the New Adviser, the Board of Directors of the Fund would review the Fund's
relationship with the New Adviser and consider taking all action necessary in
the circumstances. It is not anticipated, however, that any such change would
affect the net asset value of the Fund's shares or result in any financial loss
to any stockholder.
- 10 -
<PAGE>
CONSIDERATION BY THE BOARD OF DIRECTORS
The Board of Directors of the Fund met on May 18, 1998 to consider, among
other matters, the New Agreement. Pacholder Associates reviewed the proposal in
full with the directors and provided them with information to assist in their
deliberations. The materials provided by Pacholder Associates included the
following: (i) information concerning Pacholder Associates and Banc One
Investment Advisors; (ii) information regarding the New Adviser, its members,
ownership structure, personnel, operations and financial condition; and (iii) an
analysis of the investment performance and expenses of the Fund, as well as
comparative advisory fee and expense information for closed-end funds similar to
the Fund.
The Board of Directors considered all of the information provided by
Pacholder Associates. In reaching its decision, the directors gave careful
consideration to a number of factors. First, the directors evaluated the
proposal in light of the fact that Pacholder Associates and USF&G have agreed to
consummate transactions which will result in the termination of the Current
Adviser and that new arrangements for management of the Fund will have to be
made. Second, the directors considered the fact that Pacholder Associates will
have a majority interest in the New Adviser, that the overall portfolio
management strategy for the Fund will continue to be determined under the
general supervision and direction of Messrs. Pacholder and Morgan, and that
Mr. Longi will continue to be responsible for the day-to-day management of the
Fund's portfolio. The directors also considered the fact that through the New
Adviser, the capabilities and resources of Banc One Investment Advisors and its
affiliates in the area of investment management, including investment and
economic research and analysis, will become available to the Fund. Finally, the
directors considered the fact that the terms of the Current Agreement and the
New Agreement are substantially similar and that the investment advisory fee
payable by the Fund will not change as a result of the New Agreement.
The Board of Directors was also advised by legal counsel regarding the
provisions of Section 15(f) of the 1940 Act. Section 15(f) provides, in effect,
that the investment adviser of a registered investment company, or an affiliated
person of such adviser, may receive any amount or benefit in connection with the
sale of the adviser's business provided that two conditions are satisfied.
First, an "unfair burden" must not be imposed on the investment company as a
result of the sale or any express or implied terms, conditions or understandings
applicable thereto. The term "unfair burden" as defined in the 1940 Act includes
any arrangement during the two-year period after the transaction whereby the
predecessor or successor investment adviser, or any "interested person" (as
defined in the 1940 Act) of such adviser, receives or is entitled to receive any
compensation, directly or indirectly, from any person in connection with the
purchase or sale of securities or other property to, from or on behalf of the
investment company (other than ordinary fees for bona fide principal
underwriting services), or from the investment company or its security holders
(other than fees for bona fide investment advisory and other services). The
Board of Directors was advised that management was not aware of any
circumstances relating to the proposal that might result in the imposition of an
"unfair burden" on the Fund. The second condition of Section 15(f) is that
during the three-year period immediately following the
- 11 -
<PAGE>
transaction, at least 75% of the investment company's board of directors must
not be "interested persons" (as defined in the 1940 Act) of the successor or
predecessor adviser. The composition of the Board of Directors of the Fund is
being altered to comply with this requirement. See Proposal 1.
After consideration of the proposal, and such other information as the
directors deemed relevant, the Board of Directors, including all of the
directors who are not "interested persons" (as defined in the 1940 Act) of the
Fund, approved the New Agreement.
REQUIRED VOTE
Approval of the proposal requires the affirmative vote of "a majority of
the outstanding voting securities" (as defined in the 1940 Act) of the Fund.
Under the 1940 Act, the vote of "a majority of the outstanding securities" 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. For this purpose, the
holders of the Preferred Stock and the Common Stock will vote together as one
class. 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.
If the New Agreement is not approved by stockholders of the Fund, the
Current Agreement will remain in effect until terminated in accordance with its
terms and the Board of Directors will consider whether to pursue alternative
action.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE NEW AGREEMENT.
PROPOSAL 3: RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors, including all of the directors who are not
"interested persons" (as defined in the 1940 Act) of the Fund, has selected the
firm of Deloitte & Touche LLP as the Fund's independent accountants for the
fiscal year ending December 31, 1998. The employment is conditioned on the
right of the Fund to terminate the employment without penalty by vote of "a
majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Fund. Deloitte & Touche LLP currently serves as the Fund's independent
accountants and the Fund's financial statements for the fiscal year ended
December 31, 1997 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
- 12 -
<PAGE>
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.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION
OF THE SELECTION OF DELOITTE & TOUCHE LLP. If the selection of Deloitte &
Touche LLP is not ratified by stockholders, the firm will not serve as the
Fund's independent accountants for the fiscal year ending December 31, 1998, and
the Board of Directors will be required to select new independent accountants.
ADMINISTRATIVE AND OTHER SERVICES
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 stock 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.
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<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.
STOCKHOLDER PROPOSALS
If a stockholder wishes to present a proposal for inclusion in the proxy
statement for the next annual meeting of stockholders, the proposal must be
submitted in writing and received by the Secretary of the Fund on or before
December 11, 1998.
ANNUAL REPORT
The Fund's Annual Report for the fiscal year ended December 31, 1997 may be
obtained without charge by writing to USF&G Pacholder Fund, Inc., 8044
Montgomery Road, Suite 382, Cincinnati, OH 45236, or by calling the Fund toll
free at 1-800-837-2755.
- 14 -
<PAGE>
APPENDIX
DESCRIPTION OF THE
CS FIRST BOSTON HIGH YIELD INDEX/TM/
The CS First Boston High Yield Index/TM/ (the "Index") is an index of high-
yield corporate debt securities, which at December 31, 1997 included ___ issues
with an aggregate par value of $____ billion and an aggregate market value of
$____ billion. The securities comprising the Index are selected primarily on
the basis of size, liquidity and diversification. The factors considered with
regard to diversification are industry, rating, yield and duration. With regard
to size, an issue is added to the Index if it is larger than $__ million at the
end of the issue month. Securities issued as investment grade securities but
which subsequently are reduced to a rating below investment grade may be
included in the Index subject to the same criteria, except that market value is
used instead of par value and a three-month period is required prior to
addition. A security that goes into default after inclusion in the Index whose
market value declines below $__ million for six consecutive months is deleted
from the Index. Likewise, non-defaulted issues whose market value falls below
$__ million for six consecutive months are deleted from the Index. On December
31, 1997, of the ___ issues comprising the Index, ___ (___% of market value)
were cash paying issues not in default, __ issues (___% of market value) were
zero coupon or deferred interest issues not in default, and __ issues (___% of
market value) were in default. The Index is calculated daily and published
monthly by CS First Boston Corporation High Yield Research Group. CS First
Boston Corporation High Yield Research Group may rebalance or reweight the Index
every year to match the industry and rating breakdown of the universe of the
high-yield public debt market.
<PAGE>
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
-----------------------------
AGREEMENT made as of the ____ day of ____________, 1998 by and between
Pacholder Fund, Inc., a Maryland corporation (hereinafter called the "Fund"),
and Pacholder & Company, LLC, an Ohio a limited liability company (hereinafter
called the "Adviser").
WHEREAS, the Fund is engaged in business as a diversified closed-end
management investment company and is registered as such under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and engages in
the business of acting as investment adviser; and
WHEREAS, the Fund desires to retain the Adviser to render management
and investment advisory services in the manner and on the terms and conditions
hereafter set forth; and
WHEREAS, the Adviser desires to be retained to perform services on
said terms and conditions;
NOW, THEREFORE, in consideration of the promises and the mutual
covenants hereinafter contained, the Fund and the Adviser agree as follows:
1. Duties and Responsibilities of Adviser.
--------------------------------------
A. Investment Advisory Services. The Fund hereby retains the Adviser to
-----------------------------
act as investment manager of the Fund and, subject to the supervision of the
Fund's Board of Directors, to supervise the investment activities of the Fund as
hereinafter set forth giving due consideration to the policies of the Fund as
expressed in the Fund's Registration Statement on Form N-2 under the 1940 Act
and under the Securities Act of 1933, as amended, as well as to the factors
affecting the status of the Fund as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended. Without limiting the generality of
the foregoing, the Adviser:
(i) shall obtain and evaluate such information and advice relating to
the economy, securities market and securities as it deems necessary or useful to
discharge its duties hereunder;
(ii) shall continuously manage the assets of the Fund in a manner
consistent with the investment objectives and policies of the Fund;
<PAGE>
(iii) shall determine the securities to be purchased, sold or
otherwise disposed of by the Fund and the timing of such purchases, sales and
dispositions; and
(iv) shall take such further action, including the placing of
purchase and sale orders on behalf of the Fund, as the Adviser shall deem
necessary or appropriate. The Adviser shall also furnish to or place at the
disposal of the Fund such of the information, evaluations, analyses and opinions
formulated or obtained by the Adviser in the discharge of its duties as the Fund
may, from time to time, reasonably request.
B. Reports to Fund. The Adviser shall furnish to or place at the disposal
---------------
of the Fund such information, reports, evaluations, analyses and opinions as the
Fund may, at any time or from time to time, reasonably request or as the Adviser
may deem helpful to the Fund.
C. Fund Personnel. The Adviser agrees to permit individuals who are
--------------
officers or employees of the Adviser to serve (if duly elected or appointed) as
officers, directors, members of any committee of directors, members of any
Advisory board, or members of any other committee of the Fund, without
remuneration from or other cost to the Fund.
D. Personnel, Office Space, and Facilities of Adviser. The Adviser at its
--------------------------------------------------
own expense shall furnish or provide and pay the cost of such office space,
office equipment, office personnel, and office services as the Adviser requires
in the performance of its investment advisory and other obligations under this
Agreement.
2. Allocation of Expenses.
----------------------
A. Expenses Paid by Adviser. The Adviser shall bear the cost of rendering
------------------------
the investment management and supervisory services to be performed by it under
this Agreement, and shall, at its own expense, pay the compensation of the
officers and employees of the Fund who are employees of the Adviser or any
corporate affiliate of the Adviser, if any, and provide such office space,
facilities and equipment and such clerical help and bookkeeping services as the
Fund shall reasonably require in the conduct of its business. The Adviser shall
also bear the cost of telephone service, heat, light, power and other utilities
provided to the Fund.
B. Expenses Paid by Fund. The Fund assumes and shall pay or cause to be
----------------------
paid all other expenses of the Fund, including without limitation: the charges
and expenses of any registrar, any custodian or depository appointed by the Fund
for the safekeeping of its cash, portfolio securities and other property, and
any stock transfer or dividend agent or agents appointed by the Fund; brokers'
commissions chargeable to the Fund in connection with portfolio transactions to
which the Fund is a party; all taxes, including securities issuance and transfer
taxes, and fees payable by the Fund to federal, state or other governmental
agencies; the cost and expense of engraving or printing of certificates
representing shares of the Fund; all costs and expenses in connection with the
registration and maintenance of registration of the Fund and its shares with the
Securities and Exchange Commission and various states and other jurisdictions
(including filing fees and legal fees and disbursements of counsel and the costs
and expenses of
- 2 -
<PAGE>
preparation, printing (including typesetting) and distributing a prospectus for
such purposes); all expenses of stockholders' and directors' meetings and of
preparing, printing and mailing proxy statements and reports to stockholders;
fees of directors or members of any advisory board or committee who are not
employees of the Adviser or any corporate affiliate of the Adviser; travel
expenses of directors; all expenses incident to the payment of any dividend
reinvestment program; charges and expenses of any outside service used for
pricing of the Fund's portfolio securities; charges and expenses of legal
counsel, including counsel to the directors of the Fund who are not "interested
persons" (as defined in the Act) of the Fund or the Adviser, and of independent
accountants, in connection with any matter relating to the Fund; membership dues
of industry associations; interest payable on Fund borrowings; fees and expenses
incident to the listing of the Fund's shares on any stock exchange; postage;
insurance premiums on property or personnel (including officers and directors)
of the Fund which inure to its benefit; extraordinary expenses (including, but
not limited to, legal claims and liabilities and litigation costs and any
indemnification related thereto); fees and expenses of counsel, accountants and
investment bankers; and all other charges and costs of the Fund's operation
unless otherwise explicitly provided herein.
3. Advisory Fee.
------------
A. Fulcrum Fee. As full compensation for the services provided,
-----------
facilities furnished and expenses paid by the Adviser under this Agreement, the
Fund agrees to pay the Adviser an annual investment advisory fee, which
increases and decreases proportionately based on the investment performance of
the Fund in relation to the investment record of the CS First Boston High Yield
Index/TM/ (the "Index"). The advisory fee shall be accrued [at least] weekly
and paid quarterly as soon as practicable after the end of each calendar
quarter, as follows:
(i) If the Fund's investment performance for the twelve months
immediately preceding the end of the quarter is equivalent to the investment
record of the Index for the same 12 month period, then the advisory fee shall be
computed at the annual rate of 0.90% of the Fund's average net assets. The rate
at which the advisory fee is computed shall be increased or decreased from the
0.90% fulcrum fee by 10% of the amount by which the investment performance of
the Fund exceeds or is less than the investment record of the Index, up to a
maximum of 1.40% and down to a minimum of 0.40%. For purposes of calculating the
amount of the advisory fee, the Fund's average net assets shall be determined by
taking the average of all determinations of such net assets during the
applicable 12 month period. The investment performance of the Fund and the
investment record of the Index shall be determined in accordance with the
Advisers Act and the rules and regulations promulgated thereunder.
(ii) The compensation payable to the Adviser after the end of each
quarter shall be equal to the amount of the annual advisory fee calculated as
provided in sub-paragraph (i) above reduced by the compensation paid by the Fund
to Pacholder & Company in respect of the applicable 12 month period. In the
event that such prior payments should exceed the amount
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<PAGE>
of the annual advisory fee payable hereunder, the Adviser shall remit to the
Fund such excess as soon as practicable after the end of the quarter.
B. Proration. If the Adviser shall serve for less than the whole of any
---------
quarter, the investment advisory fee shall be prorated on the basis of the
twelve-month period immediately preceding the date of termination of this
Agreement.
4. Brokerage. Subject to the approval of the Board of Directors of
---------
the Fund, the Adviser, in carrying out its duties under Section 1. A., may cause
the Fund to pay a broker-dealer which furnishes brokerage or research services,
as such services are defined under Section 28(e) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), a higher commission than that which
might be charged by another broker-dealer which does not furnish brokerage or
research services or which furnishes brokerage or research services deemed to be
of lesser value, if such commission is deemed reasonable in relation to the
brokerage and research services provided by the broker-dealer, viewed in terms
of either that particular transaction or the overall responsibilities of the
Adviser with respect to the accounts as to which it exercises investment
discretion (as such term is defined under Section 3(a)(35) of the Exchange Act).
5. Adviser's Use of the Services of Others. The Adviser may (at its
---------------------------------------
cost except as contemplated by Sections 2 and 4 of this Agreement) employ,
retain or otherwise avail itself of the services or facilities of other persons
or organizations for the purpose of providing the Adviser or the Fund with such
statistical and other factual information, such advice regarding economic
factors and trends, such advice as to occasional transactions in specific
securities or such other information, advice or assistance as the Adviser may
deem necessary, appropriate or convenient for the discharge of its obligations
hereunder or otherwise helpful to the Fund, or in the discharge of Adviser's
overall responsibilities with respect to the other accounts which it serves as
investment adviser.
6. Ownership of Records. All records required to be maintained and
--------------------
preserved by the Fund pursuant to the provisions of rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the Act and maintained
and preserved by the Adviser on behalf of the Fund are the property of the Fund
and will be surrendered by the Adviser promptly on request by the Fund.
7. Limitation of Liability of Adviser. The Adviser will use its best
----------------------------------
efforts in the supervision and management of the investment activities of the
Fund, but in the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations hereunder the Adviser shall not be liable
to the Fund or any of its shareholders for any error of judgment or mistake of
law or for any act or omission by the Adviser or for any losses sustained by the
Fund or its shareholders.
8. Services to Other Clients. Subject to Section 12 of this
-------------------------
Agreement, nothing contained in this Agreement shall prevent the Adviser or any
affiliated person of the Adviser from acting as investment adviser or manager
for any other person, firm or corporation
- 4 -
<PAGE>
and shall not in any way bind or restrict the Adviser or any such affiliated
person from buying, selling or trading any securities or commodities for their
own accounts or for the account of others for whom they may be acting. Nothing
in this Agreement shall limit or restrict the right of any director, officer or
employee of the Adviser to engage in any other business or to devote his or her
time and attention in part to the management or other aspects of any other
business whether of a similar or dissimilar nature.
9. Use of Adviser's Name. The Fund may include the name "Pacholder"
---------------------
or any other name derived from the name "Pacholder" only for so long as this
Agreement or any extension, renewal or amendment hereof remains in effect,
including any similar agreement with any organization which shall have succeeded
to the business of the Adviser as investment adviser. At such time as this
Agreement or any extension, renewal or amendment hereof, or such other similar
agreement shall no longer be in effect, the Fund will (by corporate action, if
necessary) cease to use any name derived from the name "Pacholder", any name
similar thereto or any other name indicating that it is advised by or otherwise
connected with the Adviser, or with any organization which shall have succeeded
to the Adviser's business as investment adviser.
10. Term of Agreement. This Agreement shall become effective as of
-----------------
the date first written above and, unless sooner terminated as provided herein
shall continue in effect until _______ __, 1999. Thereafter, if not terminated,
this Agreement shall continue in effect for successive periods of 12 months each
ending on _______ __ of each year, provided such continuance is specifically
approved at least annually by the vote of holders of "a majority of the
outstanding voting securities" of the Fund or by the Board of Directors of the
Fund (as defined in the Act), and, in either event, by the vote of a majority of
the directors of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval. Notwithstanding the
foregoing (a) the Fund may, at any time and without the payment of any penalty,
terminate this Agreement upon 30 days' written notice to the Adviser, either by
majority vote of the directors of the Fund or by the vote of the holders of a
majority of the outstanding voting securities of the Fund; (b) this Agreement
shall immediately terminate in the event of its assignment (to the extent
required by the Act and the rules thereunder) unless such automatic termination
shall be prevented by an exemptive order of the Securities and Exchange
Commission; and (c) the Adviser may terminate this Agreement without payment of
penalty on 180 days' written notice to the Fund. In the event the Adviser
elects to terminate this Agreement, the advisory fee payable during the 180-day
period will be the lesser of the fee payable under this Agreement or the fee
which will be payable to the Adviser under any new advisory agreement with the
Fund. Any notice under this Agreement shall be given in writing, addressed and
delivered, or mailed post-paid, to the other party at the principal office of
such party.
11. Amendment. This Agreement may be amended by the parties without
---------
the vote or consent of the stockholders of the Fund to supply any omission, to
cure, correct or supplement any ambiguous, defective or inconsistent provision
hereof, or if they deem it
- 5 -
<PAGE>
necessary to conform this Agreement to the requirements of applicable federal
laws or regulations, but neither the Fund nor the Adviser shall be liable for
failing to do so.
12. Allocation of Services. The Adviser reserves the right to manage
----------------------
other investment accounts and funds, including those with investment objectives
similar to the Fund. Securities considered as investments for the Fund may also
be appropriate for other investment accounts and funds that may be managed by
the Adviser. Subject to applicable laws and regulations, the Adviser will
attempt to allocate equitably portfolio transactions among the portfolios of its
other investment accounts and funds purchasing securities whenever decisions are
made to purchase or sell securities by the Fund and one or more of such other
accounts or funds simultaneously. In making such allocations, the main factors
to be considered by the Adviser will be the respective investment objectives of
the Fund and such other accounts and funds, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment by the Fund and such other accounts and funds, the size of investment
commitments generally held by the Fund and such accounts and funds, and the
opinions of the persons responsible for recommending investments to the Fund and
such other accounts and funds.
13. Governing Law. This Agreement shall be construed in accordance
-------------
with the laws of the State of Ohio and the applicable provisions of the Act and
the Advisers Act. To the extent the applicable law of the State of Ohio, or any
of the provisions herein, conflict with the applicable provisions of the Act or
the Advisers Act, the latter shall control.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the day and year first above written in Cincinnati, Ohio.
WITNESS: PACHOLDER FUND, INC.
By:
- ------------------------------- -------------------------------------
WITNESS: PACHOLDER & COMPANY, LLC
By:
- ------------------------------- -------------------------------------
- 7 -
<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
stockholders to be held on June 30, 1998, 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.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN 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
<TABLE>
<CAPTION>
<S> <C> <C>
1.) Election of Directors. With- For All 2.) With respect to the investment For Against Abstain
For hold Except advisory agreement with [_] [_] [_]
[_] [_] [_] Pacholder & Company, LLC.
Daniel A. Grant and William J. Morgan
Instruction: To withhold authority to vote for any 3.) With respect to ratification of For Against Abstain
individual nominee, mark the "For All Except" box and the selection of Deloitte & [_] [_] [_]
strike a line through the nominee(s) name. Your shares Touche LLP as independent
will be voted for the remaining nominee(s). accountants.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Please be sure to sign and date this Proxy Date________________ Mark box at right if comments or address change
have been noted on the reverse side of this card. [_]
- -------------------------------------------------------------------
__________________________ __________________________
Shareholder sign here Co-owner sign here RECORD DATE SHARES
- -------------------------------------------------------------------
</TABLE>
<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 stockholders to be held on June 30, 1998, 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 the nominee(s) name. Your
shares will be voted for the remaining nominee(s).
John F. Williamson and George D. Woodard
2. FOR [_] AGAINST [_] ABSTAIN [_] With respect to the investment
advisory agreement with
Pacholder & Company, LLC.
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:________________________
