<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
DEAR STOCKHOLDERS:
The USF&G Pacholder Fund, Inc. (the "Fund") recorded a total return of 4.34%
during the quarter ended March 31, 1998, compared to 3.01% for the CS First
Boston High Yield Index(TM) (the "Index"), exceeding our benchmark index by 133
basis points (1.33%). The Fund's over-weighting in single-B rated issues con-
tributed significantly to the quarterly performance, as the single-B ratings
category outperformed all other ratings categories in the market for the quar-
ter. In addition, the Fund's performance was enhanced by increasing its expo-
sure to telecommunication-related issuers.
OVERVIEW OF FIRST QUARTER 1998
The supply and demand characteristics of the high yield market continued to
be in balance during the first quarter. Record new issue volume exceeded $48
billion, easily surpassing the previous record of $37 billion set in the third
quarter of 1997. However, the supply of new issues did not have a material im-
pact on spreads due to the continued growth in investors' appetites for high
yield bonds. For example, high yield mutual funds experienced nearly $7.8 bil-
lion of net inflows during the quarter, compared to $3.7 billion for the same
period last year. In addition, a number of large, private, structured finance
vehicles (CBOs and CLOs), which use high yield bonds as their primary asset
class, were significant buyers in the first quarter.
Given the technical strength of the market, spreads were stable during the
quarter. The spread of the Index compared to U.S. Treasury yields tightened
slightly during the first quarter, compressing to 378 basis points (3.78%) from
386 basis points (3.86%). However, the average yield on the Index decreased
during the quarter due to the fall in interest rates.
OUTLOOK
While we remain positive in our outlook for the market for the remainder of
the year, we continue to believe that credit selection will be the critical de-
terminant of performance in 1998. The new issue market continues to provide at-
tractive purchasing opportunities, although the enormous demand has allowed
more marginal deals to be completed, requiring greater scrutiny in security se-
lection.
PERFORMANCE SUMMARY
The performance of the Fund as compared to the Index is illustrated in the
following table.
- --------------------------------------------------------------------------------
Performance Comparison*
(For the three months ended March 31, 1998)
------------------------------------------------------------------------------
Since
Three Inception
Months (Annualized)**
- --------------------------------------------------------------------------------
USF&G Pacholder Fund, Inc.*** 4.34% 13.06%
- --------------------------------------------------------------------------------
CS First Boston High Yield Index(TM) 3.01% 11.83%
- --------------------------------------------------------------------------------
* The CS First Boston High Yield Index(TM) is an unmanaged index that is
widely used as a measurement of high yield market performance. These figures
assume reinvestment of interest, dividends and capital gains distibutions
and participation in rights offerings, as applicable.
Past performance is no guarantee of future results.
** Inception date -- November 11, 1988.
*** Return based on Net Asset Value.
We thank you for your continued support of the Fund and look forward to
serving your investment needs in the future.
Sincerely,
/s/ Anthony L. Longi, Jr.
Anthony L. Longi, Jr.
President
May 5, 1998
- --------------------------------------
DIVIDEND REINVESTMENT PLAN
The Dividend Reinvestment Plan offers you an automatic way to reinvest your
dividends and capital gains distributions in shares of the Fund. For an enroll-
ment form and detailed information about the Plan, please contact Fifth Third
Bank Corporate Trust Services, 38 Fountain Square Plaza MD-1090F5, Cincinnati,
Ohio 45263, (800) 837-2755.
This report is sent to the shareholders of USF&G Pacholder Fund, Inc. for
their information. It is not a prospectus, offering circular or other represen-
tation intended for use in connection with the purchase or sale of shares of
the Fund or any securities mentioned in this report.
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- 95.4%
AUTO PARTS & EQUIPMENT -- 4.3%
Cambridge Industries, Inc., Sr Sub Nt, 10.25%,
7/15/07 $1,000 $ 1,035,000 0.6%
Chief Auto Parts, Inc., Sr Nt,
10.5%, 5/15/05 500 505,000 0.3
Glasstech Inc., Co Gtd, 12.75%, 7/1/04 1,000 970,000 0.6
Harvard Industries, Inc., Bank Loan, 13%,
5/8/99/3/ 2,000 2,000,000 1.1
Harvard Industries, Inc., Sr Nt, 11.125%,
8/1/05/4/ 1,500 555,000 0.3
JPS Automotive Products Corp., Sr Nt, 11.125%,
6/15/01 1,350 1,485,000 0.8
Safety Components International, Inc., Sr Sub Nt,
10.125%, 7/15/07 1,000 1,030,000 0.6
------------ ---
7,580,000 4.3
BROADCAST RADIO & TV -- 5.2%
Big City Radio, Inc., Sr Disc Nt, 0/11.25%,
3/15/05/2/ 1,500 1,100,625 0.6
Citadel Broadcasting Company, Sr Sub Nt, 10.25%,
7/1/07 1,500 1,650,000 1.0
Commodore Media Inc., Sr Sub Nt, 7.5/13.25%,
5/1/03 780 873,600 0.5
Heritage Media Services, Sr Sub Nt, 11%, 10/1/02 1,000 1,047,500 0.6
LIN Holdings Corp., Sr Disc Nt,
0/10%, 3/1/08/2/ 1,750 1,098,125 0.6
Radio One, Inc., Sr Sub Nt,
7/12%, 5/15/04 1,000 1,013,750 0.6
Spanish Broadcasting System, Sr Nt, 7.5/12.5%,
6/15/02 500 572,500 0.3
Spanish Broadcasting System, Sr Nt, 11%, 3/15/04 1,500 1,638,750 1.0
------------ ---
8,994,850 5.2
</TABLE>
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
BUILDING -- 4.0%
American Builders & Contractors Supply Co., Inc.,
Sr Sub Nt,
10.625%, 5/15/07 $1,125 $ 1,171,406 0.7%
Associated Materials, Inc., Sr Sub Nt, 9.25%,
3/1/08 1,000 1,010,000 0.6
Harrow Industries Inc., Sr Sub Deb, 12.375%,
4/15/02 1,378 1,378,000 0.8
MMI Products, Inc., Sr Sub Nt,
11.25%, 4/15/07 1,250 1,384,375 0.8
Riverside Group Inc., Sub Nt,
13%, 9/30/99/3/ 1,000 900,000 0.5
Triangle Pacific Corp., Sr Nt,
10.5%, 8/1/03 1,000 1,050,000 0.6
------------ ---
6,893,781 4.0
BUSINESS SERVICES & EQUIPMENT -- 2.2%
Autotote Corp., Sr Nt, 10.875%, 8/1/04 1,000 1,055,000 0.6
Day International Group Inc., Sr Sub Nt, 11.125%,
6/1/05 1,000 1,092,500 0.6
Knoll Inc., Sr Sub Nt,
10.875%, 3/15/06 650 737,750 0.4
United Stationers Supply Co., Sr Nt, 12.75%,
5/1/05 833 962,115 0.6
------------ ---
3,847,365 2.2
CABLE TELEVISION -- 1.9%
Fundy Cable Ltd., Sr Nt,
11%, 11/15/05 1,500 1,661,250 0.9
James Cable Partners L.P., Sr Nt, 10.75%, 8/15/04 1,250 1,331,250 0.8
Optel, Inc., Sr Nt,
13%, 2/15/05 278 308,580 0.2
------------ ---
3,301,080 1.9
</TABLE>
- --------------------------------------------------------------------------------
2
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONTINUED)
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
CHEMICALS/PLASTIC -- 6.5%
AEP Industries, Inc., Sr Sub Nt, 9.875%,
11/15/07/2/ $1,000 $ 1,048,750 0.6%
Applied Extrusion Technologies Inc., Sr Unsecd Nt,
11.5%, 4/1/02 2,000 2,120,000 1.2
Berry Plastics Corp., Sr Sub Nt, 12.25%, 4/15/04 1,400 1,536,500 0.9
Calmar Inc., Sr Sub Nt,
11.5%, 8/15/05 1,500 1,590,000 0.9
Envirodyne Industries, Inc., Sr Nt,
12%, 6/15/00 1,500 1,597,500 0.9
Portola Packaging Inc., Sr Nt,
10.75%, 10/1/05 1,250 1,340,625 0.8
Printpack Inc., Sr Sub Nt,
10.625%, 8/15/06 1,000 1,087,500 0.6
Tekni-Plex Inc., Sr Sub Nt,
9.25%, 3/1/08/2/ 1,000 1,027,500 0.6
------------ ---
11,348,375 6.5
CLOTHING & TEXTILE -- 2.6%
Brazos Sportswear, Inc., Sr Nt,
10.5%, 7/1/07 1,500 1,513,125 0.9
J Crew Operating Corp., Sr Sub Nt, 10.375%,
10/15/07/2/ 1,000 940,000 0.5
Polymer Group, Inc., Sr Sub Nt,
9%, 7/1/07 1,500 1,548,750 0.9
US Leather, Inc., Sr Nt,
10.25%, 7/31/03/4/ 1,250 562,500 0.3
------------ ---
4,564,375 2.6
CONGLOMERATE -- 0.2%
Siebe Inc., Sr Sec Nt,
11.22%, 1/29/01/3/ 417 416,862 0.2
------------ ---
CONTAINERS & GLASS PRODUCTS -- 0.6%
Graham Packaging, Floating Rate Note, 1/15/08/2/ 1,000 1,000,000 0.6
------------ ---
COSMETICS/TOILETRIES -- 1.6%
Chattem Inc., Sr Sub Nt,
12.75%, 6/15/04 1,500 1,695,000 1.0
JB Williams Holdings Inc., Sr Nt,
12%, 3/1/04 1,000 1,040,000 0.6
------------ ---
2,735,000 1.6
</TABLE>
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
DRUGS -- 1.2%
NBTY, Inc., Sr Sub Nt,
8.625%, 9/15/07/2/ $1,000 $ 1,020,000 0.6%
Twin Laboratories, Inc., Co Gtd, 10.25%, 5/15/06 1,000 1,090,000 0.6
------------ ---
2,110,000 1.2
ECOLOGICAL SERVICES & EQUIPMENT -- 1.4%
ICF Kaiser International Inc., Sr Sub Nt 13%,
12/31/03 1,500 1,575,000 0.9
Norcal Waste Systems, Co Gtd,
13.5%, 11/15/05 750 870,000 0.5
------------ ---
2,445,000 1.4
ELECTRONICS/ELECTRIC -- 5.0%
Airxcel, Inc., Sr Sub Nt,
11%, 11/15/07/2/ 1,000 1,065,000 0.6
Celestica International, Sr Sub Nt, 10.5%,
12/31/06 500 545,000 0.3
Communications Instruments, Inc., Sr Sub Nt, 10%,
9/15/04 1,250 1,300,000 0.7
Elgar Holdings, Inc., Sr Nt,
9.875%, 2/1/08/2/ 1,500 1,515,000 0.9
Jordan Telecommunication Products, Inc., Sr Nt,
9.875%, 8/1/07 1,750 1,859,375 1.1
Plantronics Inc., Sr Nt,
10%, 1/15/01 800 832,000 0.5
Viasystems, Inc., Sr Sub Nt,
9.75%, 6/1/07 1,000 1,040,000 0.6
Viasystems, Inc., Sr Sub Nt Add-On, 9.75%,
6/1/07/2/ 500 520,000 0.3
------------ ---
8,676,375 5.0
EQUIPMENT LEASING -- 1.1%
Coinmach Corp., Ser D Sr Nt,
11.75%, 11/15/05 1,700 1,895,500 1.1
------------ ---
FARMING/AGRIGULTURE -- 1.2%
Cuddy International Corp., Sr Nt, 10.75%,
12/1/07/2/ 1,000 1,000,000 0.6
GSI Group, Inc., Sr Sub Nt,
10.25%, 11/1/07/2/ 1,000 1,050,000 0.6
------------ ---
2,050,000 1.2
FINANCIAL INTERMEDIARIES -- 0.6%
Amresco, Inc., Sr Nt,
8.75%, 7/1/99 1,000 1,010,000 0.6
------------ ---
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONTINUED)
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
FOOD/DRUG RETAILERS -- 1.5%
Grand Union Co., Sr Nt,
12%, 9/1/04/4/ $1,500 $ 832,500 0.5%
Great American Cookie Co., Sr Nt, 10.875%, 1/15/01 1,750 1,811,250 1.0
------------ ---
2,643,750 1.5
FOOD SERVICE -- 7.7%
Advantica Restaurant Group, Inc., Sr Nt, 11.25%,
1/15/08 1,087 1,152,742 0.6
American Restaurant Group, Inc., Sr Nt, 11.5%,
2/15/03/2/ 1,500 1,515,000 0.9
CFP Holdings, Inc., Sr Nt,
11.625%, 1/15/04 1,000 992,500 0.5
Foodmaker Corp., Sr Nt,
9.75%, 11/1/03 1,000 1,062,500 0.6
Host Marriott Travel Plaza, Sr Nt,
9.5%, 5/15/05 1,250 1,326,563 0.8
The Krystal Co., Sr Nt,
10.25%, 10/1/07 1,000 1,026,250 0.6
Planet Hollywood International, Inc., Sr Sub Nt,
12%, 4/1/05/2/ 1,000 1,020,000 0.6
Richmont Marketing, Sr Sub Nt, 10.125%,
12/15/07/2/ 1,500 1,556,250 0.9
Southern Foods Group, L.P., Sr Sub Nt, 9.875%,
9/1/07/2/ 1,000 1,065,000 0.6
Specialty Foods Corp., Sr Nt,
11.125%, 10/1/02 1,500 1,515,000 0.9
TPI Enterprises, Sub Deb,
8.25%, 7/15/02 1,440 1,195,200 0.7
------------ ---
13,427,005 7.7
FOREST PRODUCTS -- 2.5%
Crown Packaging, Ltd., Ser B Sr Nt, 10.75%,
11/1/00 1,000 920,000 0.5
Crown Paper Company, Sr Sub Nt, 11%, 9/1/05 2,000 2,135,000 1.2
Fonda Group, Inc., Sr Sub Nt,
9.5%, 3/1/07 1,500 1,470,000 0.8
------------ ---
4,525,000 2.5
HEALTH CARE -- 0.1%
Physicians Resource Group, Sub Deb, 6%, 12/1/01/2/ 265 162,975 0.1
------------ ---
</TABLE>
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
HOME FURNISHINGS -- 0.3%
Decorative Home Accents, Inc., Sr Nt, 13%,
6/30/02/4/ $1,000 $ 540,000 0.3%
------------ ---
HOTEL & CASINOS -- 6.1%
Aladdin Gaming, Sr Disc Nt w/ warrant, 0/13.5%,
3/1/10 2,750 1,416,250 0.8
Alliance Gaming Corp., Sr Sub Nt,
10%, 8/1/07 1,500 1,550,625 0.9
Club Regina, Sr Nt w/ warrant,
13%, 12/1/04/2/ 3,000 3,180,000 1.8
Fitzgeralds Gaming Corporation, Sr Sec Nt, 12.25%,
12/15/04/2/ 1,000 1,010,000 0.6
HMC Acquisition Properties, Sr Nt,
9%, 12/15/07 1,000 1,047,500 0.6
Hollywood Park, Inc., Sr Sub Nt,
9.5%, 8/1/07 1,250 1,312,500 0.8
Majestic Star Casino LLC, Sr Nt, 12.75%, 5/15/03 500 540,000 0.3
Showboat Marina Casino, 1st Mtg, 13.5%, 3/15/03 500 588,750 0.3
------------ ---
10,645,625 6.1
INDUSTRIAL EQUIPMENT -- 5.0%
Anchor Lamina, Inc., Sr Sub Nt, 9.875%, 2/1/08/2/ 1,000 1,012,500 0.6
Desa International, Inc., Sr Sub Nt, 9.875%,
12/15/07/2/ 1,250 1,284,375 0.7
Elgin National Industries, Sr Nt,
11%, 11/1/07/2/ 1,000 1,062,500 0.6
Fisher Scientific International, Inc., Sr Sub Nt,
9%, 2/1/08/2/ 1,000 1,015,000 0.6
International Knife & Saw, Sr Sub Nt, 11.375%,
11/15/06 2,000 2,190,000 1.3
Newcor, Inc., Sr Sub Nt,
9.875%, 3/1/08/2/ 1,000 1,010,000 0.6
Specialty Equipment Co., Sr Sub Nt, 11.375%,
12/1/03 1,000 1,080,000 0.6
------------ ---
8,654,375 5.0
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONTINUED)
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
LEISURE -- 3.1%
Bally Total Fitness Holding Corp., Sr Sub Nt,
9.875%, 10/15/07 $1,000 $ 1,062,500 0.6%
Guitar Center Mgmt., Sr Nt,
11%, 7/1/06 1,520 1,694,800 1.0
Riddell Sports Inc., Sr Nt,
10.5%, 7/15/07 1,500 1,575,000 0.9
Station Casinos, Inc., Sr Sub Nt, 9.625%, 6/1/03 1,000 1,035,000 0.6
------------ ---
5,367,300 3.1
NON-FERROUS METALS -- 1.7%
Easco Corp., Sr Nt,
10%, 3/15/01 1,000 1,025,000 0.6
Echo Bay Mines Ltd., Jr Sub Debs, 11%, 4/1/27 1,000 900,000 0.5
Renco Metals Inc., Sr Nt,
11.5%, 7/1/03 1,000 1,072,500 0.6
------------ ---
2,997,500 1.7
OIL & GAS -- 2.7%
Costilla Energy, Inc., Sr Nt,
10.25%, 10/1/06/2/ 1,000 1,020,000 0.6
Giant Industries Inc., Sr Sub Nt,
9%, 9/1/07 1,500 1,533,750 0.9
Mariner Energy, Inc., Sr Sub Nt,
10.5%, 8/1/06 1,000 1,040,000 0.6
United Refining Co., Co Gtd,
10.75%, 6/15/07 1,000 1,050,000 0.6
------------ ---
4,643,750 2.7
PUBLISHING -- 2.6%
The Learning Co., Inc., Sr Nt,
5.5%, 11/1/00 1,000 918,750 0.5
Perry-Judd, Sr Sub Nt,
10.625%, 12/15/07/2/ 1,500 1,590,000 0.9
Sun Media Corp., Sr Sub Nt,
9.5%, 2/15/07 813 867,878 0.5
Young America Corp., Sr Sub Nt, 11.625%,
2/15/06/2/ 1,250 1,231,250 0.7
------------ ---
4,607,878 2.6
</TABLE>
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
RETAILERS -- 4.6%
Braun's Fashions Corp., Sr Nt,
12%, 1/1/05 $2,468 $ 2,430,488 1.4%
Central Tractor Farm & Country, Sr Nt, 10.625%,
4/1/07 1,500 1,593,750 0.9
Frank's Nursery & Crafts, Sr Sub Nt, 10.25%,
3/1/08/2/ 1,000 1,000,000 0.6
Herff Jones Inc., Sr Sub Nt,
11%, 8/15/05 1,250 1,381,250 0.8
Travelcenters of America, Sr Sub Nt, 10.25%,
4/1/07 1,500 1,590,000 0.9
------------ ---
7,995,488 4.6
STEEL -- 0.7%
Algoma Steel Inc., 1st Mtg,
12.375%, 7/15/05 1,000 1,190,000 0.7
------------ ---
TRANSPORTATION -- 4.3%
Greyhound Lines, Inc., Sr Nt,
11.5%, 4/15/07 1,500 1,668,750 1.0
Holt Group, Sr Nt,
9.75%, 1/15/06/2/ 1,000 1,018,750 0.6
Moran Transport Co., 1st Mtg,
11.75%, 7/15/04 1,500 1,676,250 1.0
Trism Inc., Sr Sub Nt,
10.75%, 12/15/00 2,000 1,760,000 1.0
Teekay Shipping, Sr Sec Nt,
9.625%, 7/15/03 1,240 1,292,700 0.7
------------ ---
7,416,450 4.3
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
U SF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONTINUED)
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS/CELLULAR
COMMUNICATION -- 12.9%
Allegiance Telecom, Inc., Sr Disc Nt
w/ warrant, 0/11.75%, 2/15/08/2/ $1,000 $ 576,250 0.3%
American Mobile Satellite Corp., Sr Nt w/ warrant,
12.25%, 4/1/08/2/ 1,000 1,040,000 0.6
Centennial Cellular, Sr Nt,
8.875%, 11/1/01 1,000 1,025,000 0.6
Convergent Communications, Sr Nt
w/ warrant, 13%, 4/1/08/2/ 1,000 1,002,500 0.6
DTI Holdings, Inc., Sr Disc Nt
w/ warrant, 0/12.5%, 3/1/08/2/ 1,500 873,750 0.5
Esprit Telecom Group, plc, Sr Nt, 11.5%, 12/15/07 1,000 1,100,000 0.6
FaciliCom International, Sr Nt,
10.5%, 1/15/08/2/ 1,500 1,560,000 0.9
Focal Communications Corp., Sr Disc Nt, 0/12.125%,
2/15/08/2/ 1,000 582,500 0.3
GCI, Inc., Sr Nt,
9.75%, 8/1/07 1,500 1,597,500 0.9
ITC Deltacom Inc., Sr Nt,
11%, 6/1/07 1,250 1,418,750 0.8
International Wireless Communications, Sr Disc Nt,
0%, 8/15/01 1,000 400,000 0.2
Iridium LLC and Iridium Capital Corp., Sr Nt, 13%,
7/15/05 1,000 1,117,500 0.6
Metrocall Inc., Sr Sub Nt,
10.375%, 10/1/07 2,000 2,092,500 1.2
Netia Holdings, B.V., Co Gtd,
10.25%, 11/1/07/2/ 1,000 1,032,500 0.6
Nextlink Communications, Sr Nt, 12.5%, 4/15/06 1,000 1,150,000 0.6
Orbital Imaging Corp., Sr Nt
w/ warrants, 11.625%, 3/1/05/2/ 500 546,250 0.3
Paging Network do Brasil Holding Co. LLC, Sr Nt,
13.5%, 6/6/05 500 507,500 0.3
Salem Communications, Co Gtd,
9.5%, 10/1/07 1,000 1,047,500 0.6
USA Mobile Communications, Sr Nt 9.5%, 2/1/04 500 481,250 0.2
</TABLE>
<TABLE>
<CAPTION>
SHARES/ PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
USA Mobile Communications, Sr Nt 14%, 11/1/04 $1,000 $ 1,111,250 0.6%
Vialog Corporation, Co Gtd,
12.75%, 11/15/01/2/ 1,000 1,030,000 0.6
Winstar Equipment Corp., Co Gtd Sr Sec, 12.5%,
3/15/04 1,500 1,717,500 1.0
------------ ----
23,010,000 12.9
TOTAL CORPORATE DEBT SECURITIES
(amortized cost $159,620,979) 166,695,659 95.4
------------ ----
EQUITY INVESTMENTS -- 1.6%
Corporate Express, Common Stock 24,855 $ 247,773 0.1%
Glasstech, Inc., Warrants 1,000 1,000 0.0
Gulf States Steel, Warrants 4/15/03 500 25 0.0
ICF Kaiser International, Warrants 12/31/98 7,200 720 0.0
International Wireless Communications, Warrants 1,000 10 0.0
Iridium LLC and Iridium Capital Corp., Warrants
7/15/05 1,000 240,000 0.1
Optel, Inc., Class C Common Stock 750 3,000 0.0
Orion Network Systems, Warrants 1/15/07 1,250 1,750 0.0
Paging Network do Brasil Holding Co. LLC,
Warrants 500 0 0.0
Paxson Communications Pfd, 12.5% PIK, 10/31/06 2,250 2,362,500 1.4
Sabreliner Corp., Warrants 4/15/03 500 7,500 0.0
San Jacinto Holdings, Common Stock 2,246 2,246 0.0
Vialog Corporation, Warrants 1,000 60,000 0.0
------------ ----
TOTAL EQUITY INVESTMENTS
(cost $2,280,660) 2,926,524 1.6
------------ ----
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
USF&G PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
STATEMENT OF NET ASSETS (CONCLUDED)
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES/ PERCENT
PAR OF NET
DESCRIPTION (000) VALUE ASSETS
- --------------------------------------------------------------
<S> <C> <C> <C>
COMMERCIAL PAPER -- 1.2%
Chevron Oil Finance Corp.,
5.60%, 4/07/98 700 $ 699,238 0.4%
Ford Motor Credit Corp.,
5.65%, 4/07/98 700 699,231 0.4
General Electric Capital Corp.,
5.65%, 4/07/98 700 699,231 0.4
------------ -----
TOTAL COMMERCIAL PAPER
(at amortized cost) 2,097,700 1.2
------------ -----
TOTAL INVESTMENTS
(amortized cost $163,999,339) $171,719,883 98.2
OTHER ASSETS IN EXCESS OF LIABILITIES 3,065,867 1.8
------------ -----
NET ASSETS $174,785,750 100.0%
LESS: OUTSTANDING PREFERRED STOCK (49,000,000)
------------
NET ASSETS APPLICABLE TO 7,096,407
SHARES
OF COMMON STOCK OUTSTANDING $125,785,750
============
NET ASSET VALUE PER COMMON SHARE
($125,785,750/7,096,407) $17.73
======
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</TABLE>
/1/ Non-income producing security.
/2/ Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. These securities
amounted to $41,382,350 or 23.7% of net assets.
/3/ Board valued security. These securities amounted to $3,316,862 or 1.9% of
net assets.
/4/ Security is in default.
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7
<PAGE>
USF&G
PACHOLDER FUND, INC.
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DIRECTORS AND OFFICERS
Asher O. Pacholder John C. Sweeney
Chairman Director
Anthony L. Longi, Jr. John F. Williamson
President Director
William J. Morgan George D. Woodard
Director and Treasurer Director
James P. Shanahan, Jr. James E. Gibson
Director and Secretary Senior Vice President
Daniel A. Grant Mark H. Prenger
Director Assistant Treasurer
INVESTMENT OBJECTIVE
A closed-end fund seeking a high level of total return
through current income and capital appreciation by
investing primarily in high yield, lower rated fixed-income securities
of domestic companies.
INVESTMENT ADVISOR
Pacholder & Company
ADMINISTRATOR
Kenwood Administrative Management, L.P.
CUSTODIAN
Star Bank, N.A.
TRANSFER AGENT
Fifth Third Bank
LEGAL COUNSEL
Piper & Marbury L.L.P.
INDEPENDENT AUDITORS
Deloitte & Touche LLP
EXECUTIVE OFFICES
USF&G Pacholder Fund, Inc.
Bank One Towers
8044 Montgomery Road
Suite 382
Cincinnati, Ohio 45236
(513) 985-3200
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USF&G
PACHOLDER FUND, INC.
FIRST QUARTER REPORT
MARCH 31, 1998
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