<PAGE>
PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
Dear Stockholders:
For the first half of the year, the Pacholder Fund, Inc.'s (the "Fund") total
return was 4.25% compared to 2.82% for the CS First Boston High Yield Index(TM)
(the "Index"), outperforming the Index by 143 basis points. However, for the
quarter ended June 30, 1999, the Fund recorded a total return of -0.10% com-
pared to the Index total return of 1.16%, under-performing the Index by 126 ba-
sis points. This underperformance in the second quarter was due primarily to
stronger performance in the emerging market sector of the high yield market, a
segment in which the fund does not invest.
Overview of Second Quarter 1999
Interest rates continued to rise during the quarter as the yield on the
benchmark 10-Year Treasury Note increased from 5.24% at the end of March to
5.78% at the end of June. Interest rates have increased steadily since last
fall, as the U.S. economy continued to grow and concerns over an interest rate
hike by the Federal Reserve overshadowed the market. As expected by most high
yield market participants, the Federal Reserve did raise short-term borrowing
rates by 25 basis points at its meeting on June 30th. It appears likely that
there may be another 25 basis point increase at the Federal Reserve's next reg-
ular meeting in late August, given the recent strong economic reports released
so far in the third quarter. Although rising interest rates is never a favora-
ble scenario for fixed income securities, the high yield sector, with its rela-
tively low interest rate sensitivity due to high coupon rates and intermediate
maturity structure, should continue to compare favorably to other fixed income
sectors.
The high yield market, with considerable spread tightening during the first
quarter, and to a lesser extent in the second quarter, has outperformed most
other intermediate fixed income sectors of the market in the first half of the
year. The spread-to-Treasuries of the Index, which stood at 657 basis points on
December 31, 1998, tightened to 574 basis points on June 30, 1999. The average
price of the Index only fell slightly during the second quarter from 89.84% to
89.29% of par. The strong relative performance of the high yield market is not
surprising given the fact that the economy is healthy, commodity prices have
recovered, stock market valuations have been strong, and merger and acquisition
activity has been high.
We continue to maintain a diversified portfolio of high yield securities,
holding securities of 134 companies across 26 different industries. We have our
highest portfolio concentration in the telecommunications and broadcasting seg-
ments of the market, 13.4% and 9.6%, respectively, because of the value we per-
ceive in them. These segments have had considerable growth through technology
improvements, penetration rates, and merger and acquisition activity during the
past few years and we believe this trend will continue. No other industry rep-
resents more than 7% of the portfolio. Also, we have become a bit more con-
structive on certain cyclical segments of the market. For example, we increased
our exposure to the forest products segment to 4.4% from 2.3% at the beginning
of the year, as commodity price increases have had a favorable impact on the
creditworthiness of companies in this industry.
[PERFORMANCE CHART APPEARS HERE]
Performance Comparison*
(For the six months ended June 30, 1999)
Since
Six Inception
Months (Annualized)**
Pacholder Fund, Inc.*** 4.25% 11.11%
CS First Boston High Yield Index/TM/ 2.82% 10.42%
*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 distributions 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.
As always, we appreciate your interest in the Fund and look forward to your
continued support.
Sincerely,
/s/ Anthony L. Longi, Jr.
Anthony L. Longi, Jr.
President
August 3, 1999
- --------------------------------------
DIVIDEND REINVESTMENT PLAN
The Fund's Dividend Reinvestment Plan offers you an automatic way to reinvest
your dividends and capital gains distributions in additional shares of the
Fund. For an enrollment form and detailed information about the Plan, please
contact Firstar Bank, N.A. Corporate Trust Services, 425 Walnut Street, ML
5125, P.O. Box 1118, Cincinnati, OH 45201-1118, (800) 637-7549.
<PAGE>
PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- 95.5%
AUTO PARTS & EQUIPMENT -- 4.5%
Dura Operating Corp., Sr Sub Nt,
9%, 5/1/09/2/ $ 1,600 $ 1,528,000 0.7%
Group 1 Automotive, Inc., Sr Sub Nt,
10.875%, 3/1/09 1,500 1,462,500 0.7
Harvard Industries, Inc., Sr Sec Nt,
14.5%, 9/1/03 1,500 1,635,000 0.8
Hayes Lemmerz Intl, Inc., Sr Sub Nt,
9.125%, 7/15/07 1,500 1,503,750 0.7
JL French Automotive Castings, Inc., Sr Sub Nt,
11.5%, 6/1/09/2/ 1,000 1,020,000 0.5
JPS Automotive Products Corp., Sr Nt,
11.125%, 6/15/01 1,350 1,377,000 0.6
Safety Components International, Inc., Sr Sub Nt,
10.125%, 7/15/07 1,000 952,500 0.5
----------- ---
9,478,750 4.5
BROADCAST RADIO & TV -- 9.6%
Ackerly Group, Inc., Sr Sub Nt,
9%, 1/15/09 1,000 987,500 0.5
Citadel Broadcasting Company, Sr Sub Nt, 10.25%,
7/1/07 1,500 1,616,250 0.8
Cumulus Media, Inc., Sr Sub Nt,
10.375%, 7/1/08 2,550 2,703,000 1.3
Granite Broadcasting Corp., Sr Sub Nt,
10.375%, 5/15/05 2,375 2,398,750 1.1
Lamar Advertising Co., Sr Sub Nt,
9.25%, 8/15/07 1,000 1,052,500 0.5
LIN Holdings Corp., Sr Disc Nt,
0/10%, 3/1/08 1,500 990,000 0.5
LIN Television Corp., Sr Sub Nt,
8.375%, 3/1/08 1,000 955,000 0.5
Radio One, Inc., Sr Sub Nt,
7/12%, 5/15/04 2,220 2,286,600 1.1
Salem Communications, Sr Sub Nt,
9.5%, 10/1/07 1,000 1,050,000 0.5
Spanish Broadcasting System, Sr Nt,
12.5%, 6/15/02 500 550,000 0.3
Spanish Broadcasting System, Sr Nt,
11%, 3/15/04 1,625 1,738,750 0.8
Tri-State Outdoor Media, Sr Nt,
11%, 5/15/08 2,000 2,035,000 1.0
Young Broadcasting Inc., Sr Sub Nt,
8.75%, 6/15/07 1,500 1,455,000 0.7
----------- ---
19,818,350 9.6
</TABLE>
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
BUILDING -- 4.6%
American Builders & Contractors Supply Co., Inc.,
Sr Sub Nt, 10.625%, 5/15/07 $ 2,500 $ 2,353,125 1.1%
Associated Materials, Inc., Sr Sub Nt,
9.25%, 3/1/08 1,000 1,000,000 0.5
Fedders North America, Inc., Sr Sub Nt,
9.375%, 8/15/07 1,500 1,515,000 0.7
MMI Products, Inc., Sr Sub Nt,
11.25%, 4/15/07 1,500 1,537,500 0.7
Omega Cabinets, Ltd, Sr Sub Nt,
10.5%, 6/15/07 2,250 2,261,250 1.1
Williams Scotsman, Inc., Sr Nt,
9.875%, 6/1/07 1,000 990,000 0.5
----------- ---
9,656,875 4.6
BUSINESS SERVICES & EQUIPMENT -- 2.9%
Iron Mountain, Inc., Sr Sub Nt,
8.75%, 9/30/09 1,125 1,091,250 0.5
Knoll Inc., Sr Sub Nt,
10.875%, 3/15/06 1,525 1,677,500 0.8
Pierce Leahy Command Corp., Sr Nt.
8.125%, 5/15/08 1,000 945,000 0.5
Pierce Leahy Corp., Sr Sub Nt,
11.125%, 7/15/06 1,375 1,491,875 0.7
United Stationers Supply Co., Sr Sub Nt, 12.75%,
5/1/05 833 912,135 0.4
----------- ---
6,117,760 2.9
CABLE TELEVISION -- 3.5%
Avalon Cable of Michigan, LLC, Sr Sub Nt, 9.375%,
12/1/08/2/ 1,000 1,016,250 0.5
Classic Communications, Inc., Sr Nt
w/warrant, 0/13.25%, 8/1/09/2/ 1,750 1,242,500 0.6
Fundy Cable Ltd., Sr Nt,
11%, 11/15/05 1,500 1,635,000 0.8
Mediacom LLC/Capital Corp., Sr Nt,
7.875%, 2/15/11/2/ 1,500 1,338,750 0.6
RCN Corp., Sr Nt, 10%, 10/15/07 1,400 1,407,000 0.7
RCN Corp., Sr Disc Nt,
0/9.8%, 2/15/08 1,000 630,000 0.3
----------- ---
7,269,500 3.5
</TABLE>
2
<PAGE>
PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets (continued)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
CHEMICALS/PLASTIC -- 4.1%
Berry Plastics Corp., Sr Sub Nt,
12.25%, 4/15/04 $ 1,750 $ 1,802,500 0.9%
Indesco International, Inc., Sr Sub Nt,
9.75%, 4/15/08 1,750 1,277,500 0.6
Philipp Brothers Chemicals, Inc.,
Sr Sub Nt, 9.875%, 6/1/08 1,750 1,592,500 0.8
Polymer Group, Inc., Sr Sub Nt,
9%, 7/1/07 1,500 1,455,000 0.7
Portola Packaging Inc., Sr Nt,
10.75%, 10/1/05 1,250 1,275,000 0.6
Tekni-Plex Inc., Sr Sub Nt,
9.25%, 3/1/08 1,000 975,000 0.5
----------- ---
8,377,500 4.1
CLOTHING & TEXTILE -- 2.2%
Coyne International Enterprises Corp., Sr Sub Nt,
11.25%, 6/1/08 2,500 2,325,000 1.1
Delta Mills, Inc., Sr Nt,
9.625%, 9/1/07 1,500 1,440,000 0.7
Pillowtex Corp., Sr Sub Nt,
9%, 12/15/07 1,000 940,000 0.4
----------- ---
4,705,000 2.2
COSMETICS/TOILETRIES -- 0.2%
JB Williams Holdings Inc., Sr Nt,
12%, 3/1/04 375 375,000 0.2
----------- ---
DRUGS -- 0.9%
King Pharmaceutical, Inc., Sr Sub Nt,
10.75%, 2/15/09 1,250 1,290,625 0.6
Twin Laboratories, Inc., Sr Sub Nt,
10.25%, 5/15/06 650 630,500 0.3
----------- ---
1,921,125 0.9
ECOLOGICAL SERVICES & EQUIPMENT -- 2.3%
American Eco Corp., Sr Nt,
9.625%, 5/15/08 2,000 1,160,000 0.6
ICF Kaiser International Inc., Sr Sub Nt
13%, 12/31/03 1,500 825,000 0.4
Norcal Waste Systems, Sr Nt,
13.5%, 11/15/05 1,250 1,381,250 0.7
Safety-Kleen Corp., Sr Nt,
9.25%, 5/15/09/2/ 1,250 1,256,250 0.6
----------- ---
4,622,500 2.3
</TABLE>
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
- --------------------------------------------------------------------
<S> <C> <C> <C>
ELECTRONICS/ELECTRIC -- 6.2%
Airxcel, Inc., Sr Sub Nt,
11%, 11/15/07 $ 1,500 $ 1,477,500 0.7%
Communications Instruments, Inc.,
Sr Sub Nt, 10%, 9/15/04 2,130 1,917,000 0.9
Dialog Corp., Sr Sub Nt,
11%, 11/15/07 2,000 1,810,000 0.9
Elgar Holdings, Inc., Sr Nt,
9.875%, 2/1/08 1,000 800,000 0.4
Flextronics Int'l Ltd, Sr Sub Nt,
8.75%, 10/15/07 1,820 1,810,900 0.9
Viasystems, Inc., Sr Sub Nt,
9.75%, 6/1/07 2,500 2,187,500 1.0
Wesco Distribution, Inc., Sr Sub Nt,
9.125%, 6/1/08 2,500 2,418,750 1.2
Windmere-Durable Holdings, Inc.,
Sr Sub Nt, 10%, 7/31/08 500 477,500 0.2
----------- ---
12,899,150 6.2
EQUIPMENT LEASING -- 1.6%
Coinmach Corp.,
11.75%, 11/15/05 1,750 1,885,625 0.9
United Rentals, Inc., Sr Sub Nt,
9.5%, 6/1/08 1,000 1,005,000 0.5
United Rentals, Inc., Sr Sub Nt,
9%, 4/1/09 500 490,000 0.2
----------- ---
3,380,625 1.6
FOOD SERVICE -- 5.3%
American Restaurant Group, Inc., Sr Nt,
11.5%, 2/15/03 1,250 1,137,500 0.5
American Rice, Inc., Bank Debt,
10.75%, 5/31/99 474 355,626 0.2
Apple South, Inc., Sr Nt,
9.75%, 6/1/06 1,500 1,462,500 0.7
Avado Brands, Inc., Sr Sub Nt,
11.75%, 6/15/09/2/ 500 492,500 0.2
Domino's, Inc., Sr Sub Nt,
10.375%, 1/15/09 1,625 1,641,250 0.8
Foodmaker Corp., Sr Nt,
9.75%, 11/1/03 1,000 1,023,750 0.5
Fresh Foods, Inc., Sr Nt,
10.75%, 6/1/06 2,500 2,481,250 1.2
TPI Enterprises, Sub Deb,
8.25%, 7/15/02 1,440 712,800 0.3
Volume Services America, Inc.,
Sr Sub Nt, 11.25%, 3/1/09/2/ 1,750 1,907,500 0.9
----------- ---
11,214,676 5.3
</TABLE>
3
<PAGE>
PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets (continued)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
- -------------------------------------------------------------------
<S> <C> <C> <C>
FOREST PRODUCTS -- 4.4%
Ainsworth Lumber Co. Ltd., Sr Nt,
12.5%, 7/15/07 $4,000 $ 4,470,000 2.1%
Crown Packaging, Ltd., Ser B Sr Nt,
10.75%, 11/1/00 2,000 1,490,000 0.7
Millar Western Forest Products Ltd,
Sr Nt, 9.875%, 5/15/08 1,500 1,445,625 0.7
Riverwood Int'l Corp., Sr Nt,
10.875%, 4/1/08 2,000 1,945,000 0.9
------------ ---
9,350,625 4.4
HEALTH CARE -- 2.6%
Fisher Scientific International, Inc.,
Sr Sub Nt, 9%, 2/1/08 1,600 1,520,000 0.7
Fisher Scientific International, Inc.,
Sr Sub Nt, Add-on, 9%, 2/1/08 225 213,750 0.1
Hanger Orthopedic Group, Inc.,
Sr Sub Nt, 11.25%, 6/15/09/2/ 1,000 1,015,000 0.5
Rose Hills Co., Sr Sub Nt,
9.5%, 11/15/04 1,750 1,579,375 0.8
Rural/Metro Corp., Sr Nt,
7.875%, 3/15/08 1,250 1,131,250 0.5
------------ ---
5,459,375 2.6
HOME FURNISHINGS -- 0.4%
Home Products Intl, Inc., Sr Sub Nt,
9.625%, 5/15/08 1,000 912,500 0.4
------------ ---
HOTEL & CASINOS -- 2.8%
Aladdin Gaming, Sr Disc Nt,
0/13.5%, 3/1/10 2,750 1,210,000 0.6
Harrahs Operating Co., Inc., Sr Nt,
7.875%, 12/15/05 1,000 967,500 0.5
Hollywood Park, Inc., Sr Sub Nt,
9.5%, 8/1/07 1,250 1,246,875 0.6
Prime Hospitality Corp., 1st Mtg,
9.25%, 1/15/06 1,000 1,000,000 0.5
Prime Hospitality Corp., Sr Sub Nt,
9.75%, 4/1/07 1,375 1,333,750 0.6
------------ ---
5,758,125 2.8
</TABLE>
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
INDUSTRIAL EQUIPMENT -- 5.4%
Anchor Lamina, Inc., Sr Sub Nt,
9.875%, 2/1/08 $ 2,000 $ 1,840,000 0.9%
Columbus McKinnon Corp., Sr Sub Nt, 8.5%, 4/1/08 1,250 1,200,000 0.6
Elgin National Industries, Sr Nt,
11%, 11/1/07 1,000 990,000 0.5
International Knife & Saw, Sr Sub Nt, 11.375%,
11/15/06 2,500 2,350,000 1.1
Jackson Products, Inc., Sr Sub Nt, 9.5%, 4/15/05 2,000 1,920,000 0.9
Precision Partners, Inc., Sr Sub Nt, 12%,
3/15/09/2/ 1,175 1,122,125 0.5
Simonds Industries, Inc., Sr Sub Nt, 10.25%,
7/1/08 1,800 1,764,000 0.8
Spincycle, Inc., Sr Disc Nt,
0/12.75%, 5/1/05 750 236,250 0.1
----------- ---
11,422,375 5.4
LEISURE -- 3.3%
Bally Total Fitness Holding Corp.,
Sr Sub Nt, 9.875%, 10/15/07 1,500 1,455,000 0.7
Guitar Center Mgmt., Sr Nt,
11%, 7/1/06 1,520 1,542,800 0.7
SFX Entertainment, Inc., Sr Sub Nt, 9.125%,
12/1/08 2,500 2,425,000 1.2
Six Flags Entertainment Corp., Sr Nt, 8.875%,
4/1/06 1,500 1,500,000 0.7
----------- ---
6,922,800 3.3
NON-FERROUS METALS -- 2.0%
Easco Corp., Sr Nt,
10%, 3/15/01 1,000 1,005,000 0.5
Echo Bay Mines Ltd., Jr Sub Debs, 11%, 4/1/27 1,000 560,000 0.3
Oglebay Norton Co., Sr Sub Nt,
10%, 2/1/09 1,625 1,551,875 0.7
Renco Metals Inc., Sr Nt,
11.5%, 7/1/03 1,000 1,015,000 0.5
----------- ---
4,131,875 2.0
</TABLE>
4
<PAGE>
PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
Statement of Net Assets (continued)
June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
OIL & GAS -- 2.3%
Giant Industries Inc., Sr Sub Nt,
9.75%, 11/15/03 $ 875 $ 841,094 0.4%
Giant Industries Inc., Sr Sub Nt,
9%, 9/1/07 1,000 910,000 0.4
Northern Offshore ASA, Sr Nt,
10%, 5/15/05 1,000 550,000 0.3
TransContinental Corp., Sr Sec Nt, 15%, 12/1/03/2/ 1,604 1,513,538 0.7
TransContinental Corp., Sr Sec Nt, Add On, 15%,
12/1/03/2/ 1,069 1,009,025 0.5
----------- ---
4,823,657 2.3
PUBLISHING -- 3.5%
Liberty Group Publishing, Inc., Sr Sub Nt, 9.375%,
2/1/08 2,000 1,880,000 0.9
Liberty Group Publishing, Inc., Sr Disc Nt,
0/11.625%, 2/1/09 1,125 607,500 0.3
Perry-Judd, Sr Sub Nt,
10.625%, 12/15/07 2,750 2,722,500 1.3
Phoenix Color Corp., Sr Sub Nt, 10.375%, 2/1/09 2,250 2,205,000 1.0
----------- ---
7,415,000 3.5
RETAILERS -- 4.3%
Central Tractor Farm & Country, Sr Nt, 10.625%,
4/1/07 1,500 1,530,000 0.7
Frank's Nursery & Crafts, Sr Sub Nt, 10.25%,
3/1/08 1,750 1,741,250 0.8
G&G Retail, Inc., Sr Sub Nt,
11%, 5/15/06/2/ 1,750 1,599,063 0.8
Herff Jones Inc., Sr Sub Nt,
11%, 8/15/05 1,250 1,337,500 0.6
Just for Feet, Inc., Sr Sub Nt,
11%, 5/1/09/2/ 1,750 1,128,750 0.5
Travelcenters of America, Sr Sub Nt, 10.25%,
4/1/07 2,000 1,990,000 0.9
----------- ---
9,326,563 4.3
STEEL -- 1.2%
NS Group, Inc., Sr Nt,
13.5%, 7/15/03 2,500 2,625,000 1.2
----------- ---
</TABLE>
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
TELECOMMUNICATIONS/CELLULAR
COMMUNICATION -- 13.4%
Alaska Communications Systems Holdings, Inc., Sr
Sub Nt,
9.375%, 5/15/09/2/ $ 1,000 $ 960,000 0.4%
Arch Communications Group, Inc., Sr Nt, 12.75%,
7/1/07 750 645,000 0.3
Arch Communications Group, Inc., Sr Nt, 14%,
11/1/04 1,250 1,187,500 0.6
CCPR Services, Inc., Sr Sub,
10%, 2/1/07 2,250 2,404,688 1.1
Centennial Cellular, Sr Sub Nt,
10.75%, 12/15/08 2,375 2,452,188 1.2
Convergent Communications, Inc., Sr Nt, 13%,
4/1/08 3,750 3,267,188 1.5
Crown Castle Int'l Corp., Sr Nt, 0/10.375%,
5/15/11/2/ 1,500 870,000 0.4
Dobson/Sygnet Communications Corp., Sr Nt, 12.25%,
12/15/08 1,750 1,820,000 0.9
DTI Holdings, Inc., Sr Disc Nt,
0/12.5%, 3/1/08 5,000 1,850,000 0.9
FaciliCom International, Sr Nt,
10.5%, 1/15/08 2,000 1,560,000 0.7
GCI, Inc., Sr Nt,
9.75%, 8/1/07 2,250 2,216,250 1.1
Metrocall Inc., Sr Sub Nt,
10.375%, 10/1/07 2,500 1,862,500 0.9
Paging Network do Brasil Holding Co. LLC, Sr Nt,
13.5%, 6/6/05 500 210,000 0.1
Pathnet, Inc., Sr Nt,
12.25%, 4/15/08 1,000 560,000 0.3
Phonetel Technologies, Inc., Sr Nt, 12%,
12/15/06/4/ 3,775 1,019,250 0.5
Price Communications Wireless, Inc., Sr Sec Nt,
9.125%, 12/15/06 1,000 1,010,000 0.5
Rural Cellular Corp., Sr Sub Nt, 9.625%, 5/15/08 2,050 2,060,250 1.0
Splitrock Services, Inc., Sr Nt,
11.75%, 7/15/08 2,250 2,103,750 1.0
----------- ----
28,058,564 13.4
</TABLE>
5
<PAGE>
PACHOLDER FUND, INC.
- -------------------------------------------------------------------------------
Statement of Net Assets (concluded)
June 30, 1999 (Unaudited)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Shares/Par of Net
Description (000) Value Assets
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
TRANSPORTATION -- 2.0%
Moran Transportation Co., Bank Debt, 8.25%,
12/31/05 $ 2,494 $ 2,493,750 1.2%
Moran Transportation Co., 1st Mtg, 11.75%,
7/15/04 1,500 1,620,000 0.8
----------- ----
4,113,750 2.0
Total Corporate Debt Securities
(amortized cost $206,778,988) 200,157,020 95.5
----------- ----
EQUITY INVESTMENTS -- 2.6%
Aladdin Gaming/Capital Corp., Warrants,
3/1/10/1/,/3/ 27,500 0 0.0
Allegiance Telecom, Inc., Warrants,
2/3/08/1/,/3/ 1,000 0 0.0
Arch Communications Group, Inc., Common
Stock/1/ 197,524 1,678,951 0.8
Arch Communications Group, Inc., Warrants,
9/1/01/1/ 22,928 20,062 0.0
Concentric Network Corp., Pfd, 13.5% PIK,
6/1/10 1,137 1,028,500 0.5
Convergent Communications, Inc., Warrants,
4/1/08/1/,/3/ 8,000 60,000 0.0
DTI Holdings, Inc., Warrants, 3/1/08/1/,/3/ 25,000 0 0.0
Glasstech, Inc., Warrants, 6/30/04/1/,/3/ 1,000 0 0.0
Gulf States Steel, Warrants, 4/15/03/1/,/3/ 500 0 0.0
Harvard Industries, Inc., Common Stock/1/ 41,199 293,542 0.2
Optel, Inc., Class C Common Stock/1/ 750 7 0.0
Orion Network Systems, Warrants, 1/15/07/1/,/3/ 1,250 0 0.0
Paging Network do Brasil Holding Co. LLC,
Warrants/1/,/3/ 500 0 0.0
Pathnet, Inc., Warrants, 4/15/08/1/,/3/ 1,000 0 0.0
Paxson Communications, Pfd, 12.5% PIK, 10/31/06 1,063 969,569 0.5
Rural Cellular Corp., Pfd,
11.375% PIK, 5/15/10 1,117 1,157,339 0.6
Sabreliner Corp., Warrants, 4/15/03/1/,/3/ 500 0 0.0
San Jacinto Holdings, Common Stock/1/,/3/ 2,246 0 0.0
Spincycle, Inc., Warrants, 5/1/05/1/,/3/ 750 0 0.0
</TABLE>
<TABLE>
<CAPTION>
Percent
Shares/Par of Net
Description (000) Value Assets
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Splitrock Services, Inc., Warrants,
7/15/08/1/ 1,250 $ 87,500 0.0%
TransContinental Corp, Pfd, 6%/1/ 60,000 40,980 0.0
TransContinental Corp, Pfd, 3%/1/ 41,494 28,340 0.0
TCR Holding Corp., Pfd, Class B/1/ 50,747 3,045 0.0
TCR Holding Corp., Pfd, Class C/1/ 27,911 1,563 0.0
TCR Holding Corp., Pfd, Class D/1/ 73,583 3,900 0.0
TCR Holding Corp., Pfd, Class E/1/ 152,241 9,591 0.0
US Leather Corp., Common Stock/1/ 93,269 93,269 0.0
------------ -----
Total Equity Investments
(cost $6,622,869) 5,476,158 2.6
SECURITIES LENDING PROGRAM ASSETS -- 4.8%
Lehman Brothers Holdings, Inc. 5.275%, dated
6/30/99, matures 7/1/99 3,989 3,989,342 1.9
Lehman Brothers Holdings, Inc. MTN Tranche
#TR00291, dated 3/3/98, daily resettable
floating rate due 3/3/00 1,000 997,270 0.5
Salomon Brothers Corp. 6.22%, dated 6/30/99,
matures 7/1/99 5,000 5,000,000 2.4
------------ -----
Total Securities Lending Program Assets
(at amortized cost) 9,986,612 4.8
TOTAL INVESTMENTS
(amortized cost $223,388,469) $215,619,790 102.9
Payable Upon Return of Securities Loaned (9,986,612) (4.8)
Other Assets in Excess of Liabilities 3,978,522 1.9
------------ -----
Net Assets $209,611,700 100.0
Less: Outstanding Preferred Stock (70,000,000)
------------
Net Assets Applicable to 9,502,648 Shares of
Common Stock Outstanding $139,611,700
============
Net Asset Value Per Common Share
($139,611,700 / 9,502,648) $14.69
============
- ------------------------------------------------------------------------------
</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 $19,509,251 or 9.3% of net assets.
/3/Board valued security. These securities amounted to $60,000 or less than
0.1% of net assets.
/4/Security is in default.
- -------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
6
<PAGE>
PACHOLDER FUND, INC.
- --------------------------------------------------------------------------------
Statement of Operations Statements of Changes in Net Assets
For the Six Months Ended June 30, 1999 (Unaudited)
- --------------------------------------- ---------------------------------------
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest.......................................................... $10,450,597
EXPENSES:
Investment advisory fee (Note 5).................................. 882,745
Administrative fee (Note 5)....................................... 93,950
Printing, postage and other....................................... 57,711
Custodian, transfer agent and accounting fees (Note 5)............ 41,510
Audit fee......................................................... 33,533
Directors' fees................................................... 30,279
Legal fees........................................................ 24,835
Insurance......................................................... 9,533
-----------
Total Expenses................................................... 1,174,096
-----------
Net Investment Income............................................ 9,276,501
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on investments........................... (2,417,471)
Net unrealized appreciation/(depreciation) on investments......... (35,465)
-----------
Net realized and unrealized gain/(loss) on investments........... (2,452,936)
-----------
Net increase/(decrease) in net assets resulting from operations... 6,823,565
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS............................ (2,091,769)
-----------
NET INCREASE/(DECREASE) IN NET ASSETS APPLICABLE TO COMMON
STOCKHOLDERS RESULTING FROM OPERATIONS AND DISTRIBUTIONS TO
PREFERRED STOCKHOLDERS............................................ $ 4,731,796
===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
June 30, Ended
1999 December 31,
(Unaudited) 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
INCREASE IN NET ASSETS:
Operations:
Net investment income............................. $ 9,276,501 $ 16,344,050
Net realized gain/(loss) on investments........... (2,417,471) (2,513,330)
Net unrealized appreciation/(depreciation) on
investments...................................... (35,465) (13,950,069)
------------ ------------
Net increase/(decrease) in net assets resulting
from operations................................... 6,823,565 (119,349)
DISTRIBUTIONS TO STOCKHOLDERS FROM:
Preferred dividends of $0.70 and $1.42 per share,
respectively..................................... (2,091,769) (3,487,500)
Common dividends:
Net investment income of $0.84 and net investment
income and short-term gains of $1.70 per share,
respectively.................................... (6,983,942) (12,084,472)
------------ ------------
Total decrease in net assets from distributions to
stockholders...................................... (9,075,711) (15,571,972)
FUND SHARE TRANSACTIONS (NOTES 2 AND 3):
Net proceeds/(cost) from issuance/(exchange) or
restructuring of preferred stock................. 20,898,401 (30,388)
Value of 2,265 and 28,314 shares issued in
reinvestment of dividends, respectively.......... 35,262 469,141
Net proceeds from 2,375,662 shares of common stock
issued in rights offering after deducting
$1,180,982 of offering expenses.................. 33,788,763 --
------------ ------------
Total increase in net assets derived from fund
share transactions................................ 54,722,426 438,753
------------ ------------
Total net increase/(decrease) in net assets........ 52,422,062 (15,252,568)
NET ASSETS:
Beginning of period............................... 157,189,638 172,442,206
------------ ------------
End of Period..................................... $209,611,700 $157,189,638
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
7
<PAGE>
PACHOLDER FUND, INC.
- -------------------------------------------------------------------------------
Financial Highlights
(Contained below is per share operating performance data for a share of common
stock outstanding, total return performance, ratios to average net assets and
other supplemental data. This information has been derived from information
provided in the financial statements and market price data for the Fund's
shares.)
<TABLE>
- ----------------------------------------------------------------------------------------------
<CAPTION>
For the Six
Months Ended
June 30, Year Ended December 31,
1999 ----------------------------------------------------
(Unaudited) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $15.19 $17.40 $17.44 $16.02 $16.86 $19.23
--------- --------- --------- --------- --------- -------
Net investment income... 1.10 2.30 2.22 2.16 2.19 2.12
Net realized and
unrealized gain/(loss)
on investments......... (0.29) (2.32) 0.83 1.42 (0.06) (1.64)
--------- --------- --------- --------- --------- -------
Net increase in net
asset value resulting
from operations........ 0.81 (0.02) 3.05 3.58 2.13 0.48
--------- --------- --------- --------- --------- -------
Distributions to
Stockholders from:
Preferred dividends..... (0.25) (0.49) (0.49) (0.46) (0.29) (0.24)
Common:
Net investment income
and short-term gains.. (0.83) (1.70) (1.72) (1.70) (1.90) (1.92)
Net realized long-term
gains................. -- -- (0.16) -- -- --
--------- --------- --------- --------- --------- -------
Total distributions to
preferred and common
stockholders........... (1.08) (2.19) (2.37) (2.16) (2.19) (2.16)
--------- --------- --------- --------- --------- -------
Capital Change Resulting
from the Issuance of
Fund Shares:
Common Shares........... (0.29) -- (0.69) -- (0.67) (0.69)
Preferred Shares........ -- -- (0.03) -- (0.11) --
--------- --------- --------- --------- --------- -------
(0.29) -- (0.72) -- (0.78) (0.69)
--------- --------- --------- --------- --------- -------
Net asset value, end of
period................. $14.69 $15.19 $17.40 $17.44 $16.02 $16.86
========= ========= ========= ========= ========= =======
Market value per share,
end of period.......... $14.69 $16.38 $18.19 $17.88 $17.38 $16.75
========= ========= ========= ========= ========= =======
TOTAL INVESTMENT RETURN:
Based on market value
per common share (1)... (6.02%) (0.16%) 13.23% 14.37% 16.04% (11.12%)
Based on net asset value
per common share (2)... 4.25% (3.19%) 15.44% 20.40% 10.68% 0.72%
RATIOS TO AVERAGE NET
ASSETS (3):
Expenses............... 1.24%* 0.83% 1.47% 1.80% 0.86% 1.64%
Net investment income.. 9.77%* 9.72% 8.92% 9.21% 10.45% 10.17%
SUPPLEMENTAL DATA:
Net assets at end of
period, net of
preferred stock (000).. $139,612 $108,190 $123,442 $87,054 $79,596 $58,925
Average net assets
during period, net of
preferred stock (000).. $128,896 $119,223 $118,893 $83,074 $79,614 $59,002
Portfolio turnover
rate................... 20% 88% 116% 76% 83% 102%
Number of preferred
shares outstanding at
end of period.......... 3,500,000 2,450,000 2,450,000 1,650,000 1,650,000 8,600
Asset coverage per share
of preferred stock
outstanding at end of
period................. $60 $64 $70 $73 $66 $7,852
Liquidation and average
market value per share
of preferred stock..... $20 $20 $20 $20 $20 $1,000
- ----------------------------------------------------------------------------------------------
</TABLE>
/1/Total investment return excludes the effects of commissions.
/2/Dividends and distributions, if any, are assumed, for purposes of this
calculation, to be reinvested at prices obtained under the Fund's dividend
reinvestment plan. Rights offerings, if any, are assumed, for purposes of
this calculation, to be fully subscribed under the terms of the rights
offering.
/3/Ratios calculated on the basis of expenses and net investment income
applicable to both the common and preferred shares relative to the average
net assets of both the common and preferred shareholders.
* Annualized
See accompanying Notes to Financial Statements.
8
<PAGE>
PACHOLDER FUND, INC.
- -------------------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES -- Pacholder Fund, Inc. (the "Fund") is a
closed-end, diversified management investment company registered under the
Investment Company Act of 1940. The Fund seeks 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. The
Fund was incorporated under the laws of the State of Maryland in August,
1988.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Portfolio securities are priced at the bid side of
the market by an independent pricing service. Restricted securities, portfo-
lio securities not priced by the independent pricing service and other as-
sets are valued at fair value as determined under procedures established by
the Board of Directors. At June 30, 1999, there were board valued securities
of $60,000, or less than 0.1% of net assets as of such date. Short-term ob-
ligations with remaining maturities of 60 days or less at the date of pur-
chase are valued at amortized cost.
B. FEDERAL TAXES -- It is the Fund's policy to make sufficient distributions
to shareholders of net investment income and net realized capital gains to
comply with the requirements of the Internal Revenue Code applicable to reg-
ulated investment companies. A provision of $32,828 for federal excise tax
was required at December 31, 1998 because the Fund distributed less than 98%
of net investment income, although the Fund did comply with the Internal
Revenue Code's requirements applicable to investment companies.
The Fund intends to continue to qualify as a regulated investment company by
complying with the appropriate provisions of the Internal Revenue Code of
1986, as amended.
C. SECURITIES TRANSACTIONS -- Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Realized gains
and losses on securities transactions are determined on an identified cost
basis. Interest income is recorded on an accrual basis. The Fund amortizes
discounts or premiums on purchases of portfolio securities on the same basis
for both financial reporting and tax purposes. The Fund has elected to defer
the accretion of market discount until disposition of the security.
D. SECURITY LENDING -- The Fund lends its securities to approved brokers to
earn additional income and receives cash as collateral to secure the loans.
Collateral is maintained at not less than 102% of the value of loaned secu-
rities. Although the risk of lending is mitigated by the collateral, the
Fund could experience a delay in recovering its securities and a possible
loss of income or value if the borrower fails to return them.
E. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and ex-
penses are accrued at least weekly. Dividends to stockholders are paid from
net investment income monthly, and distributions of net realized capital
gains, if any, are paid at least annually. Dividends to preferred stockhold-
ers are accrued at least weekly and are paid quarterly from net investment
income.
F. UNFUNDED LOAN INTERESTS -- As of June 30, 1999, the Fund had unfunded loan
commitments of $475,413, which would be extended at the option of the bor-
rower, pursuant to the loan agreement with American Rice, Inc.
G. WHEN, AS AND IF ISSUED SECURITIES -- The Fund may engage in "when-issued"
or "delayed delivery" transactions. The Fund records when-issued securities
on the trade date and maintains security positions such that sufficient liq-
uid assets will be available to make payment for the securities purchased.
Securities purchased on a when-issued or delayed delivery basis are marked
to market weekly and begin earning interest on the settlement date. No
"when-issued" or "delayed delivery" purchase commitments were included in
the portfolio of investments as of June 30, 1999.
H. ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make esti-
mates and assumptions that affect the reported amounts of assets and liabil-
ities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses dur-
ing the reporting period. Actual results could differ from those estimates.
2. COMMON STOCK -- At June 30, 1999, there were 46,500,000 shares of common
stock with a $.01 par value authorized and 9,502,648 shares outstanding. Dur-
ing the six months ended June 30, 1999, the Fund issued 2,265 shares of com-
mon stock in connection with its dividend reinvestment plan.
On March 18, 1999, the Fund issued 2,375,662 shares of common stock at $14.72
per share as part of a rights offering for the common stockholders of the
Fund. Expenses related to the rights offering totaling $1,180,982 were re-
corded as a reduction of the proceeds of the offering. These expenses in-
cluded $314,723 paid to Winton Associates, Inc., a wholly-owned subsidiary of
Pacholder Associates, Inc. (an
9
<PAGE>
PACHOLDER FUND, INC.
- -------------------------------------------------------------------------------
Notes to Financial Statements (Concluded)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
affiliate of the Fund's investment advisor), for financial and advisory serv-
ices, including advising the Fund regarding the structure of the rights of-
fering and the materials utilized therewith, coordinating the distribution
arrangements for the rights offering, and providing information and support
services to soliciting broker-dealers.
3. PREFERRED STOCK -- On March 26, 1999 the Fund issued 1,050,000 shares of
Series E 6.46% Preferred Stock due March 2, 2002 at an offering price of $20
per share. The Series E Preferred Stock has substantially identical terms and
conditions to the Series C and D Preferred Stocks, with the exception of an
additional dividend coverage test. At June 30, 1999, accrued preferred divi-
dends were $1,197,284. The offering expenses of the preferred stock were
$101,599, which were recorded as a reduction of paid-in capital for common
stockholders. These expenses included $52,500 paid to Winton Associates, Inc.
for financial and advisory services, including advising the Fund regarding
the structure of the preferred stock offering and the materials utilized
therewith, and coordinating the arrangements of the preferred stock offering.
4. PURCHASES AND SALES OF SECURITIES -- Purchases and sales of securities (ex-
cluding commercial paper) for the six months ended June 30, 1999 aggregated
$91,704,267 and $36,833,436, respectively.
At June 30, 1999, the federal income tax basis of securities was
$215,655,656; net unrealized depreciation aggregated $10,022,478, of which
$5,528,320 related to appreciated securities and $15,550,798 related to de-
preciated securities.
At December 31, 1998, the Fund had available a capital loss carryforward of
$2,513,330, which expires in 2006, to offset any future net capital gains.
5. TRANSACTIONS WITH INVESTMENT ADVISOR, ADMINISTRATOR AND ACCOUNTING SERVICES
AGENT -- The Fund has an investment advisory agreement with Pacholder & Com-
pany, LLC (the "Advisor") pursuant to which the Advisor serves as the Fund's
investment advisor. The Fund pays the Advisor an advisory fee that varies
based on the total return investment performance of the Fund for the prior
twelve-month period relative to the percentage change in the CS First Boston
High Yield Index.(TM) The fee, which is accrued at least weekly and paid
quarterly, ranges from a maximum of 1.40% to a minimum of 0.40% (on an
annualized basis) of the average weekly net assets of the Fund. For the six
months ended June 30, 1999, the Fund's total return was 4.25%. For the same
period, the total return of the CS First Boston High Yield Index(TM) was
2.82%. For the period ended June 30, 1999, the advisory fee is calculated
based on 1.04% of average weekly net assets of the Fund. Certain officers and
directors of the Fund are also members of the Executive Committee of the Ad-
visor. At June 30, 1999, prepaid advisory fees were $119,729.
The Fund has an administrative services agreement with Kenwood Administrative
Management, Inc. ("KAM") (an affiliate of the Advisor) pursuant to which KAM
provides certain administrative services to the Fund. Under the agreement,
KAM receives from the Fund a fee, accrued at least weekly and paid monthly,
at the annual rate of 0.10% of the average weekly net assets of the Fund. At
June 30, 1999, accrued administrative fees were $17,829.
The Fund has an agreement with Pacholder Associates, Inc. (an affiliate of
the Advisor) to provide portfolio accounting and pricing services to the
Fund. Under the agreement, Pacholder Associates, Inc. receives from the Fund
a fee, accrued at least weekly and paid monthly, at the annual rate of 0.025%
of the first $100 million of the Fund's average weekly net assets and 0.015%
of such assets in excess of $100 million. At June 30, 1999, accrued account-
ing fees were $4,493.
6. NET ASSETS CONSIST OF:
<TABLE>
<CAPTION>
June 30,
1999 December 31,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
Common Stock ($.01 par value)..................... $ 95,026 $ 71,247
Preferred Stock................................... 70,000,000 49,000,000
Paid-in capital................................... 150,970,230 117,319,801
Undistributed net investment income............... 1,245,924 1,045,134
Accumulated net realized gain/(loss) on
investments...................................... (4,930,801) (2,513,330)
Unrealized appreciation/(depreciation) on
investments...................................... (7,768,679) (7,733,214)
------------ ------------
$209,611,700 $157,189,638
============ ============
</TABLE>
YEAR 2000:
Similar to other financial orga-
nizations, the Fund could be ad-
versely affected if the computer
systems used by the Fund's service
providers do not properly process
and calculate the date-related in-
formation and data from and after
January 1, 2000. The Fund's Advisor
and its affiliates are taking mea-
sures that they believe are reason-
ably designed to address the Year
2000 issue with respect to computer
systems that they use and to obtain
reasonable assurances that compara-
ble steps are being taken by each
of the Fund's other service provid-
ers. At this time, however, there
can be no assurance that these
steps will be sufficient to avoid
any adverse impact on the Fund.
10
<PAGE>
- --------------------------------------------------------------------------------
Pacholder Fund, Inc.
Semi-Annual Report
June 30, 1999
- --------------------------------------------------------------------------------
PACHOLDER FUND, INC.
Directors and Officers
William J. Morgan Anthony L. Longi, Jr.
Chairman and Treasurer
President
John F. WilliamsonJames P. Shanahan, Jr.
Director Secretary
George D. Woodard James E. Gibson
Director 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, LLC
Administrator
Kenwood Administrative Management, Inc.
Custodian
Firstar Bank, N.A.
Transfer Agent
Firstar Bank, N.A.
Legal Counsel
Piper & Marbury L.L.P.
Independent Auditors
Deloitte & Touche LLP
Executive Offices
Pacholder Fund, Inc.
8044 Montgomery Road
Suite 382
Cincinnati, Ohio 45236
(513) 985-3200
This report is sent to the
shareholders of Pacholder Fund,
Inc. for their information. It is
not a prospectus, offering circu-
lar, or other representation in-
tended for use in connection with
the purchase or sale of shares of
the Fund or any securities men-
tioned in this report.
- --------------------------------------------------------------------------------
