<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:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14C-5(D)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
USF&G 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
[_] 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.:
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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 1, 1998 are
entitled to notice of and to vote at the meeting.
June 1, 1998
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.
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 sent or given to stockholders on
or about June 3, 1998.
The Board of Directors has fixed the close of business on June 1, 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 1.2% of the Fund's outstanding Common Stock.
The presence in person or by proxy of stockholders 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 stockholders of the Fund.
<PAGE>
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 in connection with the proposed
change in the Fund's investment adviser. See Proposal 2.
The Fund's current investment adviser, Pacholder & Company, is a general
partnership between Pacholder Associates, Inc. ("Pacholder Associates") and
USF&G Marketing Services Co., each of which has a 50% partnership interest.
USF&G Marketing Service Co. is an indirect, wholly-owned subsidiary of USF&G
Corporation ("USF&G"). USF&G also owns indirectly approximately 21% of the
outstanding stock of Pacholder Associates. Pacholder Associates and USF&G have
entered into an agreement providing for the purchase by Pacholder Associates
of the Pacholder Associates' stock and 50% partnership interest in Pacholder &
Company owned by USF&G.
Section 15(f) of the Investment Company Act of 1940, as amended (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 size of the Board
of Directors is being reduced from seven to four, and three of the four
directors of the Fund who are "interested persons" are not being renominated,
so that this condition to the availability of the safe harbor provided by
Section 15(f) will be satisfied.
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) are not being
renominated; however, they will continue to serve as directors until their
terms of office expire at the 1998 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>
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF THE NOMINEES LISTED BELOW.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
YEAR FIRST OWNED AS OF
POSITION WITH ELECTED AS PRINCIPAL OCCUPATION JUNE 1,
NAME AGE THE FUND A DIRECTOR DURING PAST FIVE YEARS 1998(1)
- ---- --- ------------- ---------- ---------------------- ------------
<S> <C> <C> <C> <C> <C>
William J. Morgan* 43 Executive 1988 President, Secretary and 30,709(2)
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 1,604
Management Services.
John F. Williamson 60 Director 1991 Chairman and President, 6,287
Williamson Associates,
Inc. (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).
Director, ICO, Inc. (oil
field services).
George D. Woodard 51 Director 1995 Closely Held Business 5,000
Specialist, Henry &
Horne, P.L.C. (since
1996);
Principal, George D.
Woodard, CPA (1995-
1996); Vice President,
Rider Kenley &
Associates (1994 to
1995); Principal,
George D. Woodard, CPA
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.
(1) Each nominee owns less than 1% of the outstanding Common Stock.
(2) Includes 10,666 shares owned by a family company of which Mr. Morgan is an
officer, director and minority shareholder.
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."
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 FUND
NAME OF 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. 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.
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
4
<PAGE>
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.
Information regarding the Fund's other directors and executive officers is
set forth below. The address of each is 8044 Montgomery Road, Cincinnati, OH
45236.
<TABLE>
<CAPTION>
SHARES
YEAR FIRST BENEFICIALLY
POSITION(S) ELECTED AS PRINCIPAL OCCUPATION OWNED AS OF
NAME AGE WITH THE FUND AN OFFICER DURING PAST FIVE YEARS JUNE 1, 1998(1)
---- --- ------------- ---------- ---------------------- ---------------
<C> <C> <C> <C> <S> <C>
Asher O. Pacholder 61 Chairman and Director 1988 Chairman and Chief 17,621
Executive Officer,
Pacholder Associates,
Inc.; Chairman and Chief
Financial Officer, ICO,
Inc. (since 1995).
James P. Shanahan, Jr. 36 Secretary and Director 1988 Executive Vice President 16,881
and General Counsel,
Pacholder Associates,
Inc.
Anthony L. Longi, Jr. 32 President and Assistant 1994 Executive Vice 2,977
Treasurer President, Pacholder
Associates, Inc.
James E. Gibson 33 Senior Vice President 1995 Executive Vice 3,619
President, Pacholder
Associates, Inc.
Mark H. Prenger 27 Assistant Treasurer 1995 Vice President, 518
Pacholder Associates,
Inc. (since 1994);
full-time university
student prior thereto.
</TABLE>
- --------
(1) Each person owns less than 1% of the outstanding Common Stock.
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").
5
<PAGE>
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., 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.
USF&G Marketing Services Co. is an indirect wholly-owned subsidiary of
USF&G. On April 24, 1998, USF&G merged with a wholly-owned subsidiary of The
St. Paul Companies, Inc. The combined company is operating under the "St.
Paul" name and is the eighth-largest property and casualty insurance
underwriter in the United States, based on 1996 net written premiums. USF&G
owns indirectly 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 and the 50% partnership interest in the Current Adviser owned
indirectly by USF&G. The closing of the transactions contemplated by this
agreement is subject to 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 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.
The address of the New Adviser is 8044 Montgomery Road, Suite 382, Cincinnati,
OH 45236.
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 $57 billion in
assets. Banc One Corporation has affiliate banking organizations in 12 states
and
6
<PAGE>
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). It is anticipated that a joint venture entity affiliated with
Pacholder Associates, Inc. and Banc One Investment Advisors will serve as
subadvisor to a high yield mutual fund to be organized within The One Group.
TERMS OF CURRENT AND NEW AGREEMENTS
Except for differences in the effective and renewal dates, the Current and
New Agreements are substantially similar. Pursuant to 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 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 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 each 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 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 by the vote of a majority of the directors of the Fund who are not
parties to the
7
<PAGE>
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. Stockholders of the Fund approved an amendment to the investment
advisory fee under the Current Agreement at the annual meeting held on August
15, 1994. 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 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 by the adviser on 180 days' written notice to the
Fund.
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.
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
8
<PAGE>
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. 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 adviser 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.
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
9
<PAGE>
(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 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 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 so that this condition will be satisfied. 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 New Agreement 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
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<PAGE>
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 STOCKHOLDERS VOTE FOR APPROVAL OF THE
NEW AGREEMENT. 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.
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
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 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 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
ADMINISTRATOR
Kenwood Administrative Management, Limited Partnership (the
"Administrator"), 8044 Montgomery Road, Suite 382, Cincinnati, OH 45236,
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.
ACCOUNTING AND PRICING AGENT
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
11
<PAGE>
custodian, all corporate actions, including dividends and distributions and
stock splits, in respect of securities held in the Fund's portfolio.
YEAR 2000 ISSUE
The Fund depends on the smooth functioning of computer systems in almost
every aspect of its business. Like other investment companies, businesses and
individuals, the Fund could be adversely affected if the computer systems used
by its service providers do not properly process dates on and after January 1,
2000 and distinguish between the year 2000 and the year 1900. The Fund has
made inquiry of its service providers to determine whether they expect to have
their computer systems adjusted for the year 2000 transition, and is seeking
assurances from each service provider that it expects its systems to
accommodate the year 2000 transition without material adverse consequences to
the Fund. While it is likely that these assurances will be obtained, the Fund
and its stockholders may experience losses if they prove to be incorrect or as
a result of year 2000 computer difficulties experienced by issuers of
portfolio securities or custodians, banks, broker-dealers or others with which
the Fund does business.
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.
OTHER BUSINESS
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
January 31, 1999.
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.
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<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 1,282
issues with an aggregate par value of $257 billion and an aggregate market
value of $247 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 $75 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 $20 million for
six consecutive months is deleted from the Index. Likewise, non-defaulted
issues whose market value falls below $50 million for six consecutive months
are deleted from the Index. On December 31, 1997, of the 1,282 issues
comprising the Index, 1,109 (84.9% of market value) were cash paying issues
not in default, 144 issues (14.3% of market value) were zero coupon or
deferred interest issues not in default, and 29 issues (0.8% 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
hereinafter 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 markets 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;
(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.
<PAGE>
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 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. Compensation.
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
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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
previously paid by the Fund to the Adviser and/or to Pacholder & Company in
respect of the applicable 12-month period. In the event that such prior
payments should exceed the amount 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 and research services
within the meaning of 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, 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 in 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 1940 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.
3
<PAGE>
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 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" (as defined in the 1940 Act) of the Fund or by
the Board of Directors of the Fund, 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 1940 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 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.
4
<PAGE>
12. Allocation of Services. The Adviser reserves the right to manage other
investment accounts, including those with investment objectives similar to the
Fund. Securities considered as investments for the Fund may also be
appropriate for other investment accounts 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 whenever decisions are made to purchase or sell securities by the
Fund and one or more of such other accounts 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, 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, the
size of investment commitments generally held by the Fund and such accounts,
and the opinions of the persons responsible for recommending investments to
the Fund and such other accounts.
13. Governing Law. This Agreement shall be construed in accordance with the
laws of the State of Ohio and the applicable provisions of the 1940 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
1940 Act or the Advisers Act, the latter shall control.
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: ___________________________________
5
<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
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</TABLE>
<PAGE>
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
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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. Woodward
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:
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Name:
Title:
Dated:
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