<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-2
[X] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
File No. 333-70767
[X] Pre-Effective Amendment No. 1
[_] Post-Effective Amendment No.
and/or
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
File No. 811-5639
[X] Amendment No. 16
----------------
PACHOLDER FUND, INC.
Exact Name of Registrant as Specified in Charter
8044 Montgomery Road, Suite 382, Cincinnati, Ohio 45236
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
(513) 985-3200
Registrant's Telephone Number, including Area Code
----------------
James P. Shanahan, Jr., Secretary
8044 Montgomery Road, Suite 382, Cincinnati, Ohio 45236
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
Copies of Communications to:
Alan C. Porter, Esq.
Piper & Marbury L.L.P.
1200 Nineteenth Street, N.W.
Washington, DC 20036-2430
----------------
Approximate Date of Proposed Public Offering: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis in reliance on Rule 415 under the Securities Act
of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [X]
----------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Title of Securities Being Amount Being Offering Aggregate Amount of
Registered Registered Price Per Unit (1) Offering Price Registration Fees (2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value and Rights to
subscribe therefor.... 2,375,662 $14.78 $35,112,285 $9,762
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457 on the basis of $15.56 per share, the net asset
value per share on February 10, 1999.
(2) Of this amount, $9,586 was paid on January 19, 1999 in connection with the
registration of 2,374,907 shares
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
CROSS REFERENCE SHEET
Part A -- Prospectus
<TABLE>
<CAPTION>
Items in Part A of Form N-2 Location in Prospectus
--------------------------- ----------------------
<C> <C> <S>
1. Outside Front Cover......................... Outside Front Cover
2. Cover Pages; Other Offering Information..... Inside Front Cover; Outside
Back Cover
3. Fee Table and Synopsis...................... Fee Table and Example;
Summary
4. Financial Highlights........................ Financial Highlights;
Information Regarding Senior
Securities
5. Plan of Distribution........................ Outside Front Cover;
Summary; The Offer
6. Selling Shareholders........................ Not applicable
7. Use of Proceeds............................. Use of Proceeds
8. General Description of the Registrant....... Outside Front Cover;
Summary; The Fund; Trading
and Net Asset Value
Information; Investment
Policies and Limitations;
Risk Factors and Special
Considerations;
Incorporation of Financial
Information by Reference
9. Management.................................. Summary; Management of the
Fund
10. Capital Stock, Long-Term Debt, and Other Se- Description of Capital Stock
curities...................................
11. Defaults and Arrears on Senior Securities... Not applicable
12. Legal Proceedings........................... Not applicable
13. Table of Contents of the Statement of
Additional Information..................... Not applicable
Part B -- Statement of Additional Information
<CAPTION>
Items in Part B of Form N-2
---------------------------
<C> <C> <S>
14. Cover Page.................................. Not applicable
15. Table of Contents........................... Not applicable
16. General Information and History............. Summary; The Fund
17. Investment Objective and Policies........... Summary; Investment Policies
and Limitations
18. Management.................................. Summary; Management of the
Fund
19. Control Persons and Principal Holders of Se- Management of the Fund;
curities................................... Description of Capital Stock
20. Investment Advisory and Other Services...... Summary; Management of the
Fund; The Offer; Custodian,
Transfer Agent, Dividend
Disbursing Agent and
Registrar; Experts
21. Brokerage Allocation and Other Practices.... Management of the Fund
22. Tax Status.................................. Federal Taxation
23. Financial Statements........................ Incorporation of Financial
Statements By Reference
</TABLE>
Part C -- Other Information
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information in this prospectus is not complete and may be changed. We may not +
+sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PACHOLDER FUND, INC.
2,375,662 Shares of Common Stock
Issuable Upon Exercise of Rights to Subscribe
for Such Shares of Common Stock
-----------
Pacholder Fund, Inc. is issuing non-transferable rights to its shareholders.
You will receive one right for each share of common stock you own on the record
date, which is February 23, 1999. These rights entitle you to subscribe for
shares of the Fund's common stock. You may purchase one new share of common
stock for every three rights you receive. If you receive fewer than three
rights, you will be entitled to buy one share. Also, you may purchase the
shares not acquired by other shareholders in this rights offering, subject to
the limitations as discussed in this prospectus.
The subscription price will be 95% of the net asset value of a share of
common stock on the expiration date of the offer. You will not know the actual
subscription price at the time you exercise your rights. Once you subscribe for
shares and your payment is received, you will not be able to change your
decision.
The Fund's shares of common stock are listed, and the shares issued in this
offer will be listed, on the American Stock Exchange under the symbol "PHF." On
February 23, 1999, the net asset value per share of the Fund's common stock was
$ and the last reported sale price of a share on the Exchange was $ .
This offer will expire at 5:00 p.m., Eastern time, on March 18, 1999, unless
the Fund extends the offer as described in this prospectus.
The Fund is a diversified, closed-end management investment company with a
leveraged capital structure. The Fund's investment objective is to provide a
high level of total return through current income and capital appreciation by
investing primarily in "high yield, high risk" fixed income securities
(commonly referred to as "junk bonds") of domestic companies.
The Fund's investments in "high yield, high risk" securities and its
leveraged capital structure involve special risks. An investment in the fund is
not appropriate for all investors. No assurance can be given that the Fund will
achieve its investment objective. See the "Risk Factors and Special
Considerations" section on page 25 of this prospectus for a more comprehensive
discussion of risks.
Further information concerning the Fund and the securities in which it
invests can be found in the Fund's registration statement, of which this
prospectus constitutes a part, on file with the Securities and Exchange
Commission.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Securities and Exchange Commission passed upon
the accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
- --------------------------------------------------------------------------------
<S> <C> <C>
Estimated Subscription Price................................... $ $
- --------------------------------------------------------------------------------
Sales Load..................................................... $ $
- --------------------------------------------------------------------------------
Estimated Proceeds to Fund..................................... $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this prospectus and to retain it for future reference.
All questions and inquiries relating to the offer should be directed to
Shareholder Communications Corporation toll free at (800) 733-8481, ext. 480.
The Fund's address is 8044 Montgomery Road, Suite 382, Cincinnati, Ohio 45236,
and its telephone number is (513) 985-3200.
Winton Associates, Inc.
The date of this Prospectus is February , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................... 3
Fee Table and Example...................................................... 6
Financial Highlights....................................................... 7
Capitalization at December 31, 1998........................................ 8
Information Regarding Senior Securities.................................... 8
Trading and Net Asset Value Information.................................... 9
The Fund................................................................... 9
The Offer.................................................................. 11
Use of Proceeds............................................................ 19
Investment Policies and Limitations........................................ 19
Risks Factors and Special Considerations................................... 25
Management of the Fund..................................................... 30
Net Asset Value............................................................ 35
Dividends and Distributions................................................ 35
Federal Taxation........................................................... 37
Description of Capital Stock............................................... 39
Custodian, Transfer Agent, Dividend Disbursing Agent and Registrar......... 42
Legal Opinions............................................................. 42
Reports to Shareholders.................................................... 42
Experts.................................................................... 43
Incorporation of Financial Statements by Reference......................... 43
Further Information........................................................ 43
Appendix A................................................................. A-1
Appendix B................................................................. B-1
</TABLE>
2
<PAGE>
SUMMARY
This summary highlights some of the information from this Prospectus. It may
not contain all of the information that is important to you. To understand the
Offer fully, you should read the entire Prospectus carefully, including the
risk factors.
Purpose of the Offer
The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its shareholders to increase the number of
outstanding shares of the Fund and to increase the assets of the Fund available
for investment. In reaching its decision, the Board noted that investment
opportunities in the lower rated "high yield, high risk" fixed income
securities market have broadened, and that many more investment opportunities
for the Fund exist now than in the recent past. The Board concluded that an
increase in the assets of the Fund would permit the Fund to take advantage of
attractive investment opportunities, consistent with the Fund's investment
objective and policies, while retaining attractive investments in the Fund's
portfolio.
In addition, the Board believes that the issuance of additional shares may
enhance the liquidity of the Fund's shares on the American Stock Exchange.
Also, the Offer may lower the Fund's expense ratio slightly by spreading the
Fund's fixed costs over a larger asset base. The Board believes that the Offer
would permit the Fund to accomplish these objectives while providing existing
shareholders with an opportunity to purchase additional shares of Common Stock
at a price below net asset value without paying a brokerage commission.
The Board of Directors has considered the impact of the Offer on its current
policy to maintain, subject to market conditions, a relatively stable level of
dividends. Based on current market conditions, the Board believes that the
Offer will not result in a decrease in the Fund's current level of dividends
per share, while achieving other net benefits to the Fund.
Important Terms of the Offer
<TABLE>
<S> <C>
Aggregate number of 2,375,662
Shares offered.........
Number of Rights issued
to each shareholder.... One Right for each whole share owned on the Record Date
Estimated Subscription $
Price..................
Subscription ratio...... One Share for every three Rights (1-for-3)
</TABLE>
Important Dates to Remember
<TABLE>
<S> <C>
.Record Date............................................. February 23, 1999
. Expiration Date (payment for Shares and Notices of
Guaranteed Delivery due)............................... March 18, 1999*
. Due date for delivery by brokerage firms or custodian
banks of payment and Subscription Certificates to
Subscription Agent pursuant to Notice of Guaranteed
Delivery............................................... March 23, 1999*+
. Confirmation Mailed to Exercising Rights Holders Not
later than............................................. March 30, 1999*
</TABLE>
- --------
*Unless the Offer is extended.
+ A shareholder exercising Rights must deliver either (i) a Subscription
Certificate and payment for Shares or (ii) a Notice of Guaranteed Delivery
by March 18, 1999, unless the Offer is extended.
3
<PAGE>
Shareholders Should Direct Their Questions to the Information Agent:
Shareholder Communications Corporation 17 State Street, 27th Floor New York,
New York 10004 Toll Free: (800) 733-8481, ext. 480
How to Exercise Rights
If your existing shares are held in a brokerage account or by a custodian
bank or trust company, contact your broker or financial advisor for additional
instructions on how to participate in the Offer. Complete, sign and date the
enclosed Subscription Certificate. Make your check or money order payable to
"Pacholder Fund, Inc." in the amount of $ for each Share you wish to buy,
including any Shares you wish to buy pursuant to the Over-Subscription
Privilege. This payment may be more or less than the actual Subscription Price.
Additional payment may be required when the actual Subscription Price is
determined.
You should mail the Subscription Certificate and your payment in the enclosed
envelope to State Street Bank and Trust Company in a manner that will ensure
receipt prior to 5:00 p.m., Eastern time, on March 18, 1999, unless extended.
Once you subscribe for Shares and your payment is received, you will not be
able to change your decision. See "The Offer--Method for Exercising Rights" and
"--Payment for Shares."
Terms of the Offer
The Fund is issuing Rights to its Record Date Shareholders. The Rights
entitle you to subscribe for Shares at the rate of one Share for every three
Rights held by you. You will receive one Right for each share of Common Stock
you hold on the Record Date. For example, if you own 300 shares, you will
receive 300 Rights entitling you to purchase up to 100 additional Shares at the
Subscription Price. You may exercise Rights at any time from the date of this
Prospectus until 5:00 p.m., Eastern time, on March 18, 1999, unless extended.
In addition, if you subscribe for the maximum number of Shares to which you
are entitled, you also may subscribe for Shares that were not otherwise
subscribed for by other shareholders. Shares acquired pursuant to the Over-
Subscription Privilege are subject to allotment, which is more fully discussed
below under "The Offer--Over-Subscription Privilege" on page 12.
The Fund
The Fund has been engaged in business as a diversified, closed-end management
investment company since 1988. The Fund's investment objective is to provide a
high level of total return through current income and capital appreciation by
investing primarily in "high yield, high risk" fixed income securities of
domestic companies.
The Fund invests in a portfolio comprised primarily of lower rated "high
yield, high risk" fixed income securities (commonly referred to as "junk
bonds") and other types of high risk securities. The Fund maintains a leveraged
capital structure which creates the opportunity for greater total returns, but
also involves certain substantial additional risks.
No assurance can be given that the Fund will achieve its investment
objective.
The Adviser
Pacholder & Company, LLC serves as the Fund's investment adviser. The Fund's
prior investment adviser, Pacholder & Company, served as the Fund's investment
adviser from the date the Fund commenced operations in 1988 until August 1998.
4
<PAGE>
The overall portfolio management strategy for the Fund is determined under
the general supervision and direction of William J. Morgan. Anthony L. Longi,
Jr. is responsible for the day-to-day management of the Fund's portfolio.
The Adviser's fee is based on the average net assets of the Fund. Thus, the
Adviser will benefit from an increase in the Fund's assets resulting from the
Offer. The Dealer Manager, the Administrator and Pacholder Associates,
affiliates of the Adviser, also will benefit from the Offer.
Risk Factors and Special Considerations
Before exercising your Rights pursuant to the Offer, you should consider the
factors described in this Prospectus, including without limitation, the factors
described under "The Fund," "Investment Policies and Limitations" and "Risk
Factors and Special Considerations."
As discussed more fully in the body of this Prospectus, investment in the
Fund involves a number of significant risks, including:
. the possibility that the lower quality securities in which the Fund
invests may be more likely to default and more volatile than other debt
securities
. the fluctuation of the Fund's net asset value in connection with changes
in the value of its portfolio securities
. risks associated with the Fund's investments in restricted and illiquid
securities, foreign securities, and use of certain investment strategies
The Fund's leveraged capital structure involves certain substantial additional
risks, including:
. exaggeration of any increases or decreases in the net asset value of the
Common Stock and the yield on the Fund's portfolio
. the possibility that the dividends payable on the Preferred Stock may
exceed the income from the securities purchased by the Fund
The Offer also involves the risk of an immediate dilution of the aggregate
net asset value of your shares of Common Stock if you do not fully exercise
your Rights.
5
<PAGE>
FEE TABLE AND EXAMPLE
The following Fee Table and Example are intended to assist investors in
understanding the costs and expenses that an investor in the Fund will bear
directly or indirectly.
<TABLE>
<S> <C>
Fee Table:
Shareholder Transaction Expenses
Sales Load (as a percentage of the Subscription Price per Share)(1)... 2.90%
Annual Expenses (as a percentage of net assets attributable to Common
Stock)
Management Fees(2).................................................... 1.35%
Administration Fees................................................... 0.15%
Other Expenses(3)..................................................... 0.23%
----
Total Annual Expenses............................................... 1.73%
====
</TABLE>
- --------
(1) The Fund will pay to broker-dealers that have executed and delivered a
Soliciting Dealer Agreement with the Fund solicitation fees equal to 2.00%
of the Subscription Price per Share for each Share issued pursuant to the
exercise of Rights as a result of their soliciting efforts. The Fund has
agreed to pay Winton Associates, Inc. (the "Dealer Manager") a fee for its
financial advisory, marketing and soliciting services equal to 0.90% of
the aggregate Subscription Price for Shares issued pursuant to the Offer.
The Fund also has agreed to reimburse the Dealer Manager for its expenses
relating to the Offer up to an aggregate of $50,000. In addition, the Fund
has agreed to pay fees to the Subscription Agent and the Information
Agent, estimated to be $7,500 and $5,500, respectively, for their services
related to the Offer, excluding reimbursement for their out-of-pocket
expenses. These fees and expenses will be borne by the Fund and indirectly
by all of the Fund's shareholders, including those shareholders who do not
exercise their Rights.
(2) Based on the 0.90% "fulcrum fee" applied to the Fund's net assets
attributable to Common Stock as required by SEC regulations. The Fund pays
the Adviser a monthly fee at an annual rate ranging from 0.40% to 1.40%.
For the fiscal year ended December 31, 1998, the Fund paid Management Fees
equal to 0.80% of its net assets attributable to Common Stock and 0.52% of
its average net assets. See "Management of the Fund--The Adviser."
(3) Amounts are based on estimated amounts for the Fund's current fiscal year
after giving effect to anticipated net proceeds of the Offer assuming that
all of the Rights are exercised and assuming the Fund increases its
leverage by issuing an additional series of Preferred Stock as described
under "Description of Capital Stock" at page 39 of this Prospectus.
Example:
<TABLE>
<CAPTION>
Cumulative Expenses Paid for the Period of:
-------------------------------------------
1 Year 3 Years 5 Years 10 Years
-------------------- ----------------------
<S> <C> <C> <C> <C>
An investor would pay the
following expenses on a $1,000
investment, assuming a 5%
annual return throughout the
periods........................ $ 47 $ 84$ 124 $ 234
</TABLE>
The Example set forth above assumes reinvestment of all dividends and other
distributions at net asset value, and an annual expense ratio of 1.73%. The
Fee Table above and the assumption in the Example of a 5% annual return are
required by SEC regulations applicable to all management investment companies.
The Example and fee table should not be considered as a representation of past
or future expenses or annual rates of return, which may be more or less than
those assumed for purposes of the example and fee table. In addition, while
the Example assumes reinvestment of all dividends and other distributions at
net asset value, participants in the Fund's Dividend Reinvestment Plan may
receive shares purchased or issued at a price or value different from net
asset value. See "Dividends and Distributions."
6
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth certain specified information for a share of
Common Stock outstanding throughout each period presented. The financial
highlights for each of the five years ended December 31, 1998 have been
audited by Deloitte & Touche LLP, the Fund's independent auditors, whose
report thereon was unqualified. The information should be read in conjunction
with the financial statements and notes thereto, which are incorporated herein
by reference, in the Fund's December 31, 1998 Annual Report which is available
upon request from the Fund.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Per Share Operating Per-
formance:
Net asset value,
beginning of year...... $17.40 $17.44 $16.02 $16.86 $19.23
--------- --------- --------- --------- -------
Net investment income... 2.30 2.22 2.16 2.19 2.12
Net realized and
unrealized gain/(loss)
on investments......... (2.32) 0.83 1.42 (0.06) (1.64)
--------- --------- --------- --------- -------
Net increase in net
asset value resulting
from operations........ (0.02) 3.05 3.58 2.13 0.48
--------- --------- --------- --------- -------
Distributions to
Stockholders from:
Preferred dividends..... (0.49) (0.49) (0.46) (0.29) (0.24)
Common:
Net investment income
and short-term gains... (1.70) (1.72) (1.70) (1.90) (1.92)
Net realized long-term
gains.................. -- (0.16) -- -- --
--------- --------- --------- --------- -------
Total distributions to
preferred and
common stockholders.... (2.19) (2.37) (2.16) (2.19) (2.16)
--------- --------- --------- --------- -------
Capital Change Resulting from the
Issuance of Fund Shares:
Common Shares........... -- (0.69) -- (0.67) (0.69)
Preferred Shares........ -- (0.03) -- (0.11) --
--------- --------- --------- --------- -------
-- (0.72) -- (0.78) (0.69)
--------- --------- --------- --------- -------
Net asset value, end of
year................... $15.19 $17.40 $17.44 $16.02 $16.86
========= ========= ========= ========= =======
Market value per share,
end of year............ $16.38 $18.19 $17.88 $17.38 $16.75
========= ========= ========= ========= =======
Total Investment Return:
Based on market value
per share (1).......... (0.16%) 13.23% 14.37% 16.04% (11.12%)
Based on net asset value
per share (2).......... (3.19%) 15.44% 20.40% 10.68% 0.72%
Ratios To Average Net
Assets (3):
Expenses................ 0.83% 1.47% 1.80% 0.86% 1.64%
Net investment income... 9.72% 8.92% 9.21% 10.45% 10.17%
Supplemental Data:
Net assets at end of
year, net of preferred
stock (000)............ $108,190 $123,442 $87,054 $79,596 $58,925
Average net assets
during year, net
of preferred stock
(000).................. $119,223 $118,893 $83,074 $79,614 $59,002
Portfolio turnover
rate................... 88% 116% 76% 83% 102%
Number of preferred
shares outstanding
at end of year......... 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
year................... $64 $70 $73 $66 $7,852
Liquidation and average
market value
per share of preferred
stock.................. $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.
7
<PAGE>
CAPITALIZATION AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
Amount Held
Amount By Fund For
Title of Class Amount Authorized Outstanding Its Account
-------------- ----------------- ---------------- -----------
<S> <C> <C> <C>
Common Stock, $.01 par value.... 47,550,000 shares 7,124,721 shares 0 shares
Cumulative Preferred Stock, $.01
par value...................... 2,450,000 shares 2,450,000 shares 0 shares
</TABLE>
INFORMATION REGARDING SENIOR SECURITIES
The following table shows certain information regarding each class of senior
security of the Fund as of the end of each fiscal year of the Fund since its
inception.
<TABLE>
<CAPTION>
Involuntary
Liquidation Approximate
Total Amount Asset Coverage for Preference Market Value
At December 31 Outstanding (shs) Shares ($) (4) Per Share ($) Per Share (5)
-------------- ----------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
8.60% Cumulative
Preferred Stock........ 1992(1) 10,000 4,400 1,000 --
1993 9,400 5,730 1,000 --
1994 8,600 7,852 1,000 --
6.95% Cumulative Pre-
ferred Stock........... 1995(2) 1,650,000 66 20 --
1996 1,650,000 73 20 --
Cumulative Preferred
Stock.................. 1997(3) 2,450,000 70 20 --
1998(3) 2,450,000 64 20 --
</TABLE>
- --------
(1) On April 15, 1992, the Fund issued 10,000 shares of 8.60% Cumulative
Preferred Stock. In 1993, the Fund redeemed shares of such stock having an
aggregate liquidation value of $600,000, and in 1994 the Fund redeemed
shares of such stock having an aggregate liquidation value of $800,000.
(2) On August 15, 1995, the remaining shares of 8.60% Cumulative Preferred
Stock were called for redemption and the Fund issued 1,650,000 shares of
6.95% Cumulative Preferred Stock.
(3) On March 3, 1997, the shares of 6.95% Cumulative Preferred Stock were
exchanged on a share-for-share basis for shares of Series A Cumulative
Preferred Stock and the Fund issued 800,000 shares of Series B Cumulative
Stock. On December 14, 1998, the shares of Series A and Series B
Cumulative Preferred Stock were exchanged on a share-for-share basis for
shares of Series C and Series D Cumulative Preferred Stock, respectively.
The Fund expects to issue an additional series of Cumulative Preferred
Stock upon completion of the Offer. See "The Fund," "Risk Factors and
Special Considerations" and "Description of Capital Stock--Preferred
Stock."
(4) Amount shown is per share of Preferred Stock. Calculated by subtracting
the Fund's total liabilities (not including senior securities constituting
debt but including Preferred Stock) from the Fund's total assets and
dividing such amount by the number of outstanding shares of Preferred
Stock.
(5) All shares of Preferred Stock have been issued in private placements and
there have been no market transactions.
8
<PAGE>
TRADING AND NET ASSET VALUE INFORMATION
In the past, the Fund's shares have traded both at a premium and at a
discount in relation to net asset value. Although the Fund's shares recently
have been trading at a premium above net asset value, there can be no
assurance that this premium will continue after the Offer or that the shares
will not again trade at a discount. Shares of closed-end investment companies
frequently trade at a discount from net asset value. See "Risk Factors and
Special Considerations."
The following table shows the high and low sales prices of the Fund's Common
Stock on the American Stock Exchange (the "Exchange"), quarterly trading
volume on the Exchange, the high and low net asset value per share, and the
high and low premium or discount at which the Fund's shares were trading for
each fiscal quarter during the two most recent fiscal years.
<TABLE>
<CAPTION>
Market Price Net Asset Value Premium/(Discount)
--------------- Quarterly Trading --------------- To Net Asset
Quarter Ended High Low Volume (000s) High Low Value (%)
------------- ------- ------- ----------------- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, 1997.......... 18.75 16.625 2,061 18.06 16.68 5.18 (5.87)
June 30, 1997........... 18.00 16.625 597 17.74 16.57 2.72 (0.31)
September 30, 1997...... 18.00 17.3125 799 18.15 17.32 2.14 (1.40)
December 31, 1997....... 18.6875 17.4375 843 17.96 17.36 4.77 (1.57)
March 31, 1998.......... 18.875 18.00 652 18.13 17.51 4.94 2.28
June 30, 1998........... 18.8125 17.875 473 17.89 17.39 6.38 1.17
September 30, 1998...... 18.4375 14.50 664 17.57 15.07 6.38 (9.94)
December 31, 1998....... 16.8125 15.00 460 15.64 14.30 11.48 4.89
</TABLE>
The net asset value per share of the Fund's Common Stock at the close of
business on January 14, 1999 (the last trading date on which the Fund publicly
reported its net asset value prior to the announcement of the Offer), and on
February 23, 1999, was $15.28 and $ , respectively, and the last reported
sales price of a share of the Fund's Common Stock on the Exchange on those
dates was $16.1875 and $ , respectively.
THE FUND
Pacholder Fund, Inc. (the "Fund") is a diversified, closed-end management
investment company with a leveraged capital structure. The Fund's investment
objective is to provide a high level of total return through current income
and capital appreciation by investing primarily in "high yield, high risk"
fixed income securities of domestic companies. An investment in the Fund may
not be appropriate for all investors, and no assurance can be given that the
Fund will achieve its investment objective.
The Fund invests primarily in fixed income securities rated in the lower
categories by established rating agencies, consisting principally of fixed
income securities rated BB or lower by Standard & Poor's Ratings Group ("S&P")
and Ba or lower by Moody's Investors Service, Inc. ("Moody's"), or non-rated
fixed income securities deemed by the Adviser to be of comparable quality.
Securities rated BB or lower by S&P or Ba or lower by Moody's are commonly
referred to as "high yield, high risk" securities or "junk bonds." Such
securities generally are regarded by the rating agencies as significantly more
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation and more likely to default than
higher quality debt securities. (See Appendix A for a description of Bond
Ratings.) The Fund also may invest in U.S. dollar denominated high yield debt
securities issued by foreign companies, as well as securities issued or
guaranteed by foreign governments, quasi-governmental entities, governmental
agencies, supranational entities and other governmental entities. No more than
25% of the Fund's total assets will be invested in U.S. dollar denominated
foreign issues. Investment in lower rated securities and foreign securities
involves special risks. See "Investment Policies and Limitations" and "Risk
Factors and Special Considerations."
9
<PAGE>
The Fund may invest up to 25% of its total assets in securities that are
restricted as to disposition under the federal securities laws or are
otherwise not readily marketable, as well as in repurchase agreements maturing
in more than seven days. Securities eligible for resale in accordance with
Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"),
that have legal or contractual restrictions on resale but are otherwise liquid
("Rule 144A Securities") are not subject to this 25% limitation. The Adviser
monitors the liquidity of such restricted securities under the supervision of
the Board of Directors. The Fund may invest in securities that are in the
lower rating categories or non-rated securities, but only when the Adviser
believes that the potential return from such investments remains attractive
despite the risks involved. In addition to investing in such lower rated debt
securities, the Fund also may invest in equity and other debt securities, and
hybrid securities having debt and equity characteristics.
The Fund is a closed-end investment company. These companies differ from
open-end investment companies (commonly referred to as "mutual funds") in that
closed-end investment companies have a fixed capital base, whereas open-end
companies issue securities redeemable at net asset value at any time at the
option of the shareholder and typically engage in a continuous offering of
their shares. Accordingly, open-end investment companies are subject to
periodic asset in-flows and out-flows that can complicate portfolio
management. Closed-end investment companies do not face the prospect of having
to liquidate portfolio holdings to satisfy redemptions at the option of
shareholders or having to maintain cash positions to meet the possibility of
such redemptions. The Fund will, however, be required to have sufficient cash
or cash equivalents to meet dividend payments on its preferred stock and to
fund certain redemptions of the outstanding shares of preferred stock in
certain circumstances. See "Description of Capital Stock--Preferred Stock."
The Fund completed a non-transferable rights offering in March 1993 which
permitted shareholders to acquire, at a subscription price of $16.56, one new
share for every four rights held as of the record date of such rights
offering. In addition, the Fund completed non-transferable right offerings on
March 24, 1994, March 16, 1995 and March 14, 1997, which permitted
shareholders to acquire, at a subscription price of $17.71, $15.65 and $16.25,
respectively, one new share for each three rights held as of the respective
record dates of such rights offerings. All of the rights issued by the Fund
pursuant to the rights offerings completed in March 1993 and March 1994 were
exercised and, as a result, 459,088 shares of Common Stock were issued in
March 1993 with net proceeds to the Fund of approximately $7.4 million and
1,160,115 shares of Common Stock were issued in March 1994 with net proceeds
to the Fund of approximately $20.4 million. All of the rights issued by the
Fund pursuant to the rights offerings completed in March 1995 and March 1997
were exercised plus an additional 25% pursuant to the exercise of an over-
allotment option by subscribers and, as a result, 1,457,942 new shares of
Common Stock were issued in March 1995 with net proceeds to the Fund of
approximately $22.0 million and 2,079,850 new shares of Common Stock were
issued in March 1997 with net proceeds to the Fund of approximately $32.7
million. All of the net proceeds from the exercise of the rights issued
pursuant to the prior rights offerings have been invested in accordance with
the Fund's investment objective and policies.
The Fund was organized as a corporation under the laws of Maryland on August
17, 1988 and has registered with the SEC under the Investment Company Act of
1940, as amended (the "1940 Act"). The Fund's principal office is located at
8044 Montgomery Road, Suite 382, Cincinnati, Ohio 45236, and its telephone
number is (513) 985-3200. The Fund's investment adviser is Pacholder &
Company, LLC (the "Adviser"), an investment management firm registered with
the SEC under the Investment Advisers Act of 1940. See "Management of the
Fund--The Adviser."
10
<PAGE>
THE OFFER
Purpose of the Offer
The Board of Directors of the Fund has determined that it is in the best
interests of the Fund and its shareholders to increase the number of
outstanding shares of Common Stock and to increase the assets of the Fund
available for investment by making the Offer. The Adviser informed the Board
of Directors that it believes the high-yield bond market presents a number of
attractive investment opportunities. The Board of Directors concluded that an
increase in the assets of the Fund would permit the Fund to take advantage of
these opportunities, consistent with the Fund's investment objective and
policies, while retaining attractive investments in the Fund's portfolio. The
Board of Directors believes that the Offer would permit the Fund to accomplish
this objective while allowing existing shareholders an opportunity to purchase
additional shares of Common Stock at a price below net asset value without
paying a brokerage commission.
The Board of Directors believes that a larger number of outstanding shares
and a larger number of shareholders could increase the level of market
interest in the Fund and the liquidity of the Fund's shares on the Exchange.
The Board of Directors also believes that increasing the size of the Fund may
lower its expenses as a percentage of average net assets slightly because the
Fund's fixed costs can be spread over a larger asset base.
The Board of Directors also considered the impact of the Offer on the Fund's
current monthly dividends. Based on the Adviser's assessment of current market
conditions in the lower rated debt market and available leverage
opportunities, the Board of Directors believes the Offer will not result in a
decrease in the Fund's current level of dividends per share. For a further
discussion of the anticipated impact of the Offer on the Fund's dividends and
other distributions, please refer to "Risk Factors and Special
Considerations--Dividends and Distributions."
In considering the Offer and its effect on the Fund and its shareholders,
the Board of Directors retained the Dealer Manager to provide the Fund with
financial advisory, marketing and soliciting services relating to the Offer,
including the structure, timing and terms of the Offer. In addition to the
foregoing, the Board of Directors considered, among other things, the benefits
and drawbacks of conducting a transferable rights offering versus a non-
transferable offering, the pricing structure of the Offer, the effect on the
Fund if the Offer is undersubscribed, and the experience of the Dealer Manager
in conducting rights offerings.
The Dealer Manager, the Adviser and the Administrator are affiliates of
Pacholder Associates. Since the fees of the Adviser, the Administrator and
Pacholder Associates are based on the Fund's average net assets, the Adviser,
the Administrator and Pacholder Associates will benefit from an increase in
the Fund's assets resulting from the Offer. See "Management of the Fund--The
Adviser" and "--Administrative and Accounting Services."
The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms which
may or may not be similar to the Offer. Any such future rights offering will
be made in accordance with the 1940 Act.
Terms of the Offer
The Fund is issuing to its shareholders of record ("Record Date
Shareholders"), as of the close of business on February 23, 1999 (the "Record
Date"), non-transferable rights ("Rights") entitling the holders thereof to
subscribe for an aggregate of 2,375,662 shares (the "Shares") of the Fund's
Common Stock (the "Offer"). Each Record Date Shareholder is being issued one
Right for each whole share of Common Stock owned on the Record Date. The
Rights entitle the holders thereof to subscribe for one Share for every three
Rights held (1-for-3) (the "Primary Subscription"). Fractional shares will not
be issued upon the exercise of Rights. Record Date Shareholders issued fewer
than three Rights are entitled to subscribe for one Share pursuant to the
Primary Subscription.
11
<PAGE>
The Rights are non-transferable and therefore may not be purchased or sold.
The Rights will not be admitted for trading on the Exchange. However, the
Shares have been approved for listing on the Exchange. Record Date
Shareholders purchasing Shares in the Primary Subscription or pursuant to the
Over-Subscription Privilege are hereinafter referred to as "Exercising Rights
Holders."
Rights may be exercised at any time during the subscription period (the
"Subscription Period"), which commences on February 24, 1999 and ends at 5:00
p.m., Eastern time, on March 18, 1999, unless extended by the Fund (the
"Expiration Date"). The Rights are evidenced by subscription certificates
("Subscription Certificates") that will be mailed to Record Date Shareholders,
except as discussed below under "Foreign Shareholders."
Shares not subscribed for in the Primary Subscription will be offered, by
means of the over-subscription privilege (the "Over-Subscription Privilege"),
to those Record Date Shareholders who have exercised all Rights issued to them
and who wish to acquire more than the number of Shares they are entitled to
purchase pursuant to the exercise of their Rights (other than those Rights
which cannot be exercised because they represent the right to acquire less
than one Share). Shares acquired pursuant to the Over-Subscription Privilege
are subject to allotment, as more fully discussed below under "Over-
Subscription Privilege." For purposes of determining the maximum number of
Shares a shareholder may acquire pursuant to the Offer, shareholders whose
shares are held of record by Cede & Co. ("Cede"), as nominee for The
Depository Trust Company ("DTC"), or by any other depository or nominee will
be deemed to be the holders of the Rights that are issued to Cede or such
other depository or nominee on their behalf.
The first dividend to be paid on Shares acquired upon exercise of Rights
will be the first monthly dividend, the record date for which occurs after the
issuance of the Shares. Assuming the Subscription Period is not extended, it
is expected that the first dividend received by shareholders acquiring Shares
in the Offer will be the April dividend, which will be paid on the tenth day
of May to shareholders of record as of the last Business Day of April.
"Business Day" means a day on which the Exchange is open for trading and which
is not a Saturday or Sunday or a holiday, including New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Thanksgiving Day, Christmas Day, or any other
day on which banks in New York City are authorized or obligated by law or
executive order to close.
There is no minimum number of Rights which must be exercised in order for
the Offer to close.
Over-Subscription Privilege
Shares not subscribed for by Record Date Shareholders (the "Excess Shares")
will be offered, by means of the Over-Subscription Privilege, to the Record
Date Shareholders who have exercised all exercisable Rights issued to them
(other than those Rights which cannot be exercised because they represent the
right to acquire less than one Share) and who wish to acquire more than the
number of Shares for which the Rights issued to them are exercisable. Record
Date Shareholders should indicate, on the Subscription Certificate which they
submit with respect to the exercise of the Rights issued to them, how many
Excess Shares they are willing to acquire pursuant to the Over-Subscription
Privilege. If sufficient Excess Shares remain, all Record Date Shareholders'
over-subscription requests will be honored in full. If Record Date Shareholder
requests for Shares pursuant to the Over-Subscription Privilege exceed the
Excess Shares available, the available Excess Shares will be allocated pro
rata among Record Date Shareholders who oversubscribe based on the number of
Rights originally issued to such Record Date Shareholders.
Banks, brokers, trustees and other nominee holders of Rights will be
required to certify to the Subscription Agent (as defined herein), before any
Over-Subscription Privilege may be exercised with respect to any particular
beneficial owner, as to the aggregate number of Rights exercised pursuant to
the Primary Subscription and the number of Shares subscribed for pursuant to
the Over-Subscription Privilege by such beneficial owner and that such
beneficial owner's Primary Subscription was exercised in full. Beneficial
Owner Certification Forms will be distributed to banks, brokers, trustees and
other nominee holders with the Subscription Certificates.
12
<PAGE>
The Fund will not offer or sell in connection with the Offer any Shares that
are not subscribed for pursuant to the Primary Subscription or the Over-
Subscription Privilege.
Subscription Price
The Subscription Price for each Share to be issued pursuant to the Offer
will be 95% of the net asset value of a share of Common Stock as of the close
of business on the Expiration Date.
Exercising Rights Holders will not know the actual Subscription Price at the
time of exercise and will be required initially to pay for Shares at the
Estimated Subscription Price of $ per Share (based on the Fund's net asset
value per share on February 23, 1999). The actual Subscription Price may be
more than the Estimated Subscription Price.
The Fund announced its intention to make the Offer after the close of
trading on the Exchange on January 20, 1999. The net asset values per share at
the close of business on January 14, 1999 (the last trading date on which the
Fund publicly reported its net asset value prior to the announcement) and on
February 23, 1999 were $15.28 and $ , respectively, and the last reported
sales prices of a share on the Exchange on those dates were $16.1875 and
$ , respectively.
Expiration of the Offer
The Offer will expire at 5:00 p.m., Eastern time, on March 18, 1999, unless
extended by the Fund. The Rights will expire on the Expiration Date and
thereafter may not be exercised. The Fund may make one or more extensions of
the Offer, as discussed below, up to an aggregate of 45 days from the
Expiration Date. Any extension of the Offer will be followed as promptly as
practicable by announcement thereof. Such announcement will be issued no later
than 9:00 a.m., Eastern time, on the next Business Day following the
previously scheduled Expiration Date. Without limiting the manner in which the
Fund may choose to make such announcement, the Fund will not, unless otherwise
required by law, have any obligation to publish, advertise or otherwise
communicate any such announcement other than by making a release to the Dow
Jones News Service or such other means of announcement as the Fund deems
appropriate.
Subscription Agent
The subscription agent is State Street Bank and Trust Company (the
"Subscription Agent"). The Subscription Agent will receive for its
administrative, invoicing and other services as subscription agent a fee
estimated to be approximately $7,500, excluding reimbursement for its
processing and out-of-pocket expenses related to the Offer. Questions
regarding the Subscription Certificates should be directed to Shareholder
Communications Corporation at (800) 733-8481, ext. 480 (toll free);
shareholders may also consult their brokers or nominees. Completed
Subscription Certificates must be sent together with proper payment of the
Estimated Subscription Price for all Shares subscribed for in the Primary
Subscription and the Over-Subscription Privilege to the Subscription Agent by
one of the methods described below. Alternatively, Notices of Guaranteed
Delivery may be sent by brokerage firms and custodian banks and trust
companies exercising Rights on behalf of Exercising Rights Holders whose
Shares are held by such institutions by facsimile to (781) 575-4817 to be
received by the Subscription Agent prior to 5:00 p.m., Eastern time, on the
Expiration Date. Facsimiles should be confirmed by telephone at (781) 575-
4816. The Fund will accept only properly completed and executed Subscription
Certificates actually received at any of the addresses listed below, prior to
5:00 p.m., Eastern time, on the Expiration Date or by the close of business on
the third Business Day after the Expiration Date following timely receipt of a
Notice of Guaranteed Delivery. See "Payment for Shares" below.
(1)BY FIRST CLASS MAIL:
EquiServe L.P.
Corporate Actions Dept.
P.O. Box 9573
Boston, MA 02205-8686
13
<PAGE>
(2)BY OVERNIGHT COURIER:
EquiServe L.P.
Corporate Actions Dept.
40 Campanelli Drive
Braintree, MA 02184
(3)BY HAND:
Securities Transfer & Reporting Services, Inc.
c/o EquiServe L.P.
100 William Street, Galleria
New York, NY 10038
DELIVERY TO AN ADDRESS OTHER THAN ONE OF THE ADDRESSES LISTED ABOVE WILL NOT
CONSTITUTE VALID DELIVERY.
Method for Exercising Rights
Rights are evidenced by Subscription Certificates that, except as described
below under "Foreign Shareholders," will be mailed promptly following the
Record Date to Record Date Shareholders or, if a shareholder's shares are held
by Cede or any other depository or nominee on their behalf, to Cede or such
depository or nominee. Rights may be exercised by completing and signing the
Subscription Certificate that accompanies this Prospectus and mailing it in
the envelope provided, or otherwise delivering the completed and signed
Subscription Certificate to the Subscription Agent, together with payment in
full for the Shares to be purchased at the Estimated Subscription Price by the
Expiration Date. Rights may also be exercised by contacting your broker, bank
or trust company, which can arrange, on your behalf, to guarantee delivery of
payment and delivery of a properly completed and executed Subscription
Certificate pursuant to a Notice of Guaranteed Delivery by the close of
business on March 23, 1999, the third Business Day after the Expiration Date.
A fee may be charged by the broker, bank or trust company for this service.
Fractional Shares will not be issued upon the exercise of Rights.
Completed Subscription Certificates must be received by the Subscription
Agent prior to 5:00 p.m., Eastern time, on the Expiration Date at one of the
addresses set forth above (unless the guaranteed delivery procedures are
complied with as described below under "Payment for Shares"). Exercising
Rights Holders will have no right to rescind their subscriptions after receipt
of their payment for Shares by the Subscription Agent.
Shareholders Who are Record Owners. Shareholders who are record owners can
choose between two options to exercise their Rights, as described below under
"Payment for Shares." If time is of the essence, option (2) under "Payment for
Shares" below will permit delivery of the Subscription Certificate and payment
after the Expiration Date, but such delivery of the Subscription Certificate
must be accompanied by a Notice of Guaranteed Delivery from a financial
institution meeting certain requirements.
Shareholders Whose Shares are Held by a Nominee. Shareholders whose shares
are held by a nominee, such as a bank, broker or trustee, must contact that
nominee to exercise their Rights. In such case, the nominee will complete the
Subscription Certificate on behalf of the shareholder and arrange for proper
payment by one of the methods described below under "Payment for Shares."
Nominees. Nominees who hold shares for the account of others should notify
the beneficial owners of such shares as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the nominee should complete the
Subscription Certificate and submit it to the Subscription Agent with the
proper payment as described below under "Payment for Shares."
14
<PAGE>
Information Agent
Any questions or requests for assistance concerning the method of
subscribing for Shares or for additional copies of this Prospectus or
Subscription Certificates or Notices of Guaranteed Delivery may be directed to
Shareholder Communications Corporation (the "Information Agent") at its
telephone number and address listed below:
17 State Street, 27th floor
New York, New York 10004
Toll Free: (800) 733-8481, ext. 480
Shareholders also may contact their brokers or nominees for information with
respect to the Offer. The Information Agent will receive a fee estimated to be
$5,500, excluding reimbursement for its out-of-pocket expenses related to the
Offer.
Payment for Shares
Shareholders who wish to acquire Shares pursuant to the Offer may choose
between the following methods of payment:
(1) An Exercising Rights Holder may send the Subscription Certificate
together with payment (based on the Estimated Subscription Price) for
the Shares acquired in the Primary Subscription and any additional
Shares subscribed for pursuant to the Over-Subscription Privilege to
the Subscription Agent. A subscription will be accepted when payment,
together with a properly completed and executed Subscription
Certificate, is received by the Subscription Agent's office at one of
the addresses set forth above no later than 5:00 p.m., Eastern time, on
the Expiration Date. The Subscription Agent will deposit all checks and
money orders received by it for the purchase of Shares into a
segregated interest-bearing account (the interest from which will
accrue to the benefit of the Fund) pending proration and distribution
of Shares. A PAYMENT PURSUANT TO THIS METHOD MUST BE IN U.S. DOLLARS BY
MONEY ORDER OR CHECK DRAWN ON A BANK OR BRANCH LOCATED IN THE UNITED
STATES, MUST BE PAYABLE TO PACHOLDER FUND, INC. AND MUST ACCOMPANY A
PROPERLY COMPLETED AND EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH
SUBSCRIPTION CERTIFICATE TO BE ACCEPTED. EXERCISE BY THIS METHOD IS
SUBJECT TO ACTUAL COLLECTION OF CHECKS BY 5:00 P.M., EASTERN TIME, ON
THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT
LEAST FIVE BUSINESS DAYS TO CLEAR, SHAREHOLDERS ARE STRONGLY URGED TO
PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF A CERTIFIED OR CASHIER'S CHECK
OR MONEY ORDER.
(2) Alternatively, an Exercising Rights Holder may acquire Shares, and a
subscription will be accepted by the Subscription Agent if, prior to
5:00 p.m., Eastern time, on the Expiration Date, the Subscription Agent
has received a Notice of Guaranteed Delivery by facsimile (telecopy) or
otherwise FROM A FINANCIAL INSTITUTION THAT IS A MEMBER OF THE
SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, THE STOCK EXCHANGE
MEDALLION PROGRAM OR THE NEW YORK STOCK EXCHANGE MEDALLION SIGNATURE
PROGRAM guaranteeing delivery of (i) payment of the Estimated
Subscription Price for the Shares subscribed for in the Primary
Subscription and any additional Shares subscribed for pursuant to the
Over-Subscription Privilege, and (ii) a properly completed and executed
Subscription Certificate. The Subscription Agent will not honor a
Notice of Guaranteed Delivery unless a properly completed and executed
Subscription Certificate and full payment for the Shares is received by
the Subscription Agent by the close of business on March 23, 1999, the
third Business Day after the Expiration Date.
On a date within eight Business Days following the Expiration Date (the
"Confirmation Date"), the Subscription Agent will send to each Exercising
Rights Holder (or, if shares are held by Cede or any other depository or
nominee, to Cede or such other depository or nominee) a confirmation showing
(i) the number of
15
<PAGE>
Shares purchased pursuant to the Primary Subscription, (ii) the number of
Shares, if any, acquired pursuant to the Over-Subscription Privilege, (iii)
any excess to be refunded by the Fund to such Exercising Rights Holder as a
result of payment for Shares pursuant to the Over-Subscription Privilege which
the Exercising Rights Holder is not acquiring and (iv) any additional amount
payable by such Exercising Rights Holder to the Fund or any excess to be
refunded by the Exercising Rights Holder to the Fund, in each case, based on
the actual Subscription Price as determined on the Expiration Date. Any
additional payment required from Exercising Rights Holders must be received by
the Subscription Agent within seven Business Days after the Confirmation Date.
Any excess payment to be refunded by the Fund to an Exercising Rights Holder
will be mailed by the Subscription Agent as promptly as practicable. All
payments by Exercising Rights Holder must be in U.S. dollars by money order or
check drawn on a bank or branch located in the United States and payable to
PACHOLDER FUND, INC.
The Subscription Agent will deposit all checks received by it prior to the
final payment date into a segregated interest-bearing account (which interest
will accrue to the benefit of the Fund) pending proration and distribution of
the Shares.
WHICHEVER OF THE TWO METHODS DESCRIBED ABOVE IS USED, ISSUANCE OF THE SHARES
PURCHASED IS SUBJECT TO COLLECTION OF CHECKS AND ACTUAL PAYMENT. IF A HOLDER
OF RIGHTS WHO SUBSCRIBES FOR SHARES PURSUANT TO THE PRIMARY SUBSCRIPTION OR
OVER-SUBSCRIPTION PRIVILEGE DOES NOT MAKE PAYMENT OF ANY AMOUNTS DUE BY THE
TENTH BUSINESS DAY AFTER THE CONFIRMATION DATE, THE SUBSCRIPTION AGENT
RESERVES THE RIGHT TO TAKE ANY OR ALL OF THE FOLLOWING ACTIONS: (I) FIND OTHER
RECORD DATE SHAREHOLDERS FOR SUCH SUBSCRIBED AND UNPAID FOR SHARES; (II) APPLY
ANY PAYMENT ACTUALLY RECEIVED BY IT TOWARD THE PURCHASE OF THE GREATEST WHOLE
NUMBER OF SHARES WHICH COULD BE ACQUIRED BY SUCH HOLDER UPON EXERCISE OF THE
PRIMARY SUBSCRIPTION AND/OR OVER-SUBSCRIPTION PRIVILEGE, AND/OR (III) EXERCISE
ANY AND ALL OTHER RIGHTS OR REMEDIES TO WHICH IT MAY BE ENTITLED, INCLUDING
WITHOUT LIMITATION, THE RIGHT TO SET OFF AGAINST PAYMENTS ACTUALLY RECEIVED BY
IT WITH RESPECT TO SUCH SUBSCRIBED SHARES.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE FUND WILL BE AT THE ELECTION AND RISK OF THE
EXERCISING RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO
5:00 P.M., EASTERN TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL
CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED
TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR
MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Fund, whose determinations
will be final and binding. The Fund in its sole discretion may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Subscription Agent determines in its sole discretion. The Subscription Agent
will not be under any duty to give notification of any defect or irregularity
in connection with the submission of Subscription Certificates or incur any
liability for failure to give such notification.
EXERCISING RIGHTS HOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION
AFTER RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT, EXCEPT AS
PROVIDED BELOW UNDER "NOTICE OF NET ASSET VALUE DECLINE."
16
<PAGE>
Distribution Arrangements
Winton Associates, Inc., 8044 Montgomery Road, Suite 382, Cincinnati, Ohio,
which is a broker-dealer and member of the National Association of Securities
Dealers, Inc., will act as the Dealer Manager for the Offer. Under the terms
and subject to the conditions contained in the Dealer Manager Agreement dated
the date hereof (the "Dealer Manager Agreement"), the Dealer Manager will
provide financial advisory and marketing services in connection with the Offer
and will solicit the exercise of Rights and participation in the Over-
Subscription Privilege. The Offer is not contingent upon any number of Rights
being exercised.
The Fund has agreed to pay the Dealer Manager a fee for its financial
advisory, marketing and soliciting services equal to 0.90% of the aggregate
Subscription Price for Shares issued pursuant to the Offer. In addition, the
Fund may reimburse the Dealer Manager up to an aggregate of $50,000 for its
out-of-pocket costs and expenses incurred in connection with the Offer.
The Fund will pay to broker-dealers that have entered into a Soliciting
Dealer Agreement with the Fund, solicitation fees equal to 2.00% of the
Subscription Price per Share for each Share issued pursuant to the exercise of
Rights as a result of their soliciting efforts. Fees will be paid to the
broker-dealer designated on the applicable portion of the Subscription
Certificate.
The Fund has agreed to indemnify the Dealer Manager or contribute to losses
arising out of certain liabilities, including liabilities under the Securities
Act. The Dealer Manager Agreement also provides that the Dealer Manager will
not be subject to any liability to the Fund in rendering the services
contemplated by such Agreement except for any act of bad faith, willful
misconduct or gross negligence of the Dealer Manager, or reckless disregard by
the Dealer Manager of its obligations and duties under such Agreement.
The Dealer Manager is a wholly-owned subsidiary of Pacholder Associates, an
affiliate of the Adviser. See "Management of the Fund--The Adviser." William
J. Morgan and James P. Shanahan, Jr., officers and/or directors of the Fund,
are officers and directors of the Dealer Manager.
Delivery of Share Certificates
Except as described herein, certificates representing Shares acquired in the
Primary Subscription and representing Shares acquired pursuant to the Over-
Subscription Privilege will be mailed promptly after the expiration of the
Offer once full payment for such Shares has been received and cleared.
Participants in the Fund's Dividend Reinvestment Plan (the "Plan") will have
any Shares acquired in the Primary Subscription and pursuant to the Over-
Subscription Privilege credited to their shareholder dividend reinvestment
accounts in the Plan. Participants in the Plan wishing to exercise Rights for
the shares held in their accounts in the Plan must exercise such Rights in
accordance with the procedures set forth above. Shareholders whose shares are
held of record by Cede or by any other depository or nominee on their behalf
or their broker-dealer's behalf will have any Shares acquired in the Primary
Subscription credited to the account of Cede or such other depository or
nominee. Shares acquired pursuant to the Over-Subscription privilege will be
certificated and certificates representing such Shares will be sent directly
to Cede or such other depository or nominee. Stock certificates will not be
issued for Shares credited to Plan accounts.
Foreign Shareholders
Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (the term "United States"
includes the states, the District of Columbia, and the territories and
possessions of the United States) ("Foreign Record Date Shareholders").
Foreign Record Date Shareholders will be sent written notice of the Offer. The
Rights to which such Subscription Certificates relate will be held by the
Subscription Agent for such Foreign Record Date Shareholders' accounts until
instructions are received to exercise the Rights. If no instructions have been
received by 5:00 p.m., Eastern time, on the Expiration Date, the Rights of
those Foreign Record Date Shareholders will expire and thereafter may not be
exercised.
17
<PAGE>
Federal Income Tax Consequences of the Offer
The U.S. federal income tax consequences to shareholders with respect to the
Offer will be as follows:
1. The distribution of Rights to Record Date Shareholders will not result
in taxable income to such shareholders nor will such shareholders realize
taxable income as a result of the exercise of the Rights. No loss will be
realized if the Rights expire without exercise.
2. The basis of a Right to a Record Date Shareholder will be (a) zero, if
the Right's fair market value on the distribution date is less than 15% of
the fair market value on that date of the Share with regard to which it is
issued (unless the holder elects with respect to all Rights received, by
filing a statement with his or her timely filed federal income tax return
for the year in which the Rights are received, to allocate the basis of the
Share between the Right and the Share based on their respective fair market
values on that date), or (b) a portion of the basis in the Share based upon
those respective fair market values, if the Right's fair market value on
that date is 15% or more of the Share's fair market value on that date. The
basis of a Right to a Record Date Shareholder who allows the Right to
expire will be zero.
3. The holding period of a Right received by a Record Date Shareholder
includes the holding period of the share with regard to which the Right is
issued. If the Right is exercised, the holding period of the Share acquired
begins on the date the Right is exercised.
4. An Exercising Rights Holder's basis for determining gain or loss upon
the sale of a Share acquired upon the exercise of a Right will be equal to
the sum of the Record Date Shareholder's basis in the Right, if any, and
the Subscription Price per Share. An Exercising Rights Holder's gain or
loss recognized upon a sale of a Share acquired upon the exercise of a
Right will be capital gain or loss if the Share was held at the time of
sale as a capital asset and will be long-term capital gain or loss if the
Share is held for more than one year.
The foregoing is a general summary of the material U.S. federal income tax
consequences of the Offer under the provisions of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), and Treasury regulations presently in
effect that are generally applicable to Record Date Shareholders that are
United States persons within the meaning of the Code, and does not cover
foreign, state or local taxes. The Code and such regulations are subject to
change by legislative or administrative action, which may be retroactive.
Record Date Shareholders should consult their tax advisors regarding specific
questions as to foreign, federal, state or local taxes. See "Federal
Taxation."
Notice of Net Asset Value Decline
The Fund has, as required by the SEC's registration form, undertaken to
suspend the Offer until it amends this Prospectus if, subsequent to the
effective date of the Fund's Registration Statement, the Fund's net asset
value declines more than 10% from its net asset value as of that date.
Accordingly, the Expiration Date would be extended and the Fund would notify
Record Date Shareholders of any such decline and permit Exercising Rights
Holders to cancel their exercise of Rights.
Employee Plan Considerations
Shareholders that are tax-deferral arrangements, such as plans qualified
under Code section 401(a) (including corporate savings plans, 401(k) plans,
and Keogh plans of self-employed individuals), individual retirement accounts
under Code section 408(a) ("IRAs"), Roth IRAs under Code section 408A, and
custodial accounts under Code section 403(b) (collectively, "Retirement
Plans"), should be aware that additional contributions of cash to a Retirement
Plan (other than permitted rollover contributions or trustee-to-trustee
transfers from another Retirement Plan) in order to exercise Rights, when
taken together with contributions previously made, may result in, among other
things, excise taxes for excess or nondeductible contributions or the
Retirement Plan's loss of its tax-favored status. Furthermore, the sale or
transfer of Rights may be treated as a distribution or result in other adverse
tax consequences. In the case of Retirement Plans qualified under Code section
401(a) and certain other Retirement Plans, additional cash contributions could
cause the maximum contribution limitations of Code section 415 or other
qualification rules to be violated.
18
<PAGE>
Retirement Plans and other tax-exempt entities, including governmental
plans, should also be aware that if they borrow in order to finance their
exercise of Rights, they may become subject to the tax on unrelated business
taxable income ("UBTI") under Code section 511. If any portion of an IRA or a
Roth IRA is used as security for a loan, the portion so used is also treated
as distributed to the IRA or Roth IRA owner, which may result in current
income taxation and penalty taxes.
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
contains fiduciary responsibility requirements, and ERISA and the Code contain
prohibited transaction rules that may apply to the exercise of Rights by
Retirement Plans. Retirement Plans that are not subject to ERISA (such as
governmental plans) may be subject to state law restrictions that could affect
the decision to exercise or transfer Rights. Due to the complexity of these
rules and the penalties for noncompliance, shareholders that are Retirement
Plans should consult with their counsel and other advisors regarding the
consequences of their exercise of Rights under ERISA, the Code, and, where
applicable, state law.
USE OF PROCEEDS
Assuming all Shares offered hereby are sold at the Estimated Subscription
Price of $ per Share, the net proceeds of the Offer are estimated to be
$ after payment of the Dealer Manager's fees, the solicitation fees and the
estimated offering expenses. These expenses will be borne by the Fund and will
reduce the net asset value of the Fund's shares. The Adviser anticipates that
investment of substantially all of such net proceeds in accordance with the
Fund's investment objective and policies will take up to sixty days from their
receipt by the Fund, depending on market conditions and the availability of
appropriate securities for purchase, but in no event is such investment
expected to take longer than six months. Pending such investment, the proceeds
will be held in high quality short-term money market instruments and U.S.
Government securities (which term includes obligations of the U.S. Government,
its agencies or instrumentalities).
INVESTMENT POLICIES AND LIMITATIONS
The Fund's investment objective is to provide a high level of total return
through current income and capital appreciation by investing primarily in
"high yield, high risk" fixed income securities of domestic companies. No
assurance can be given that the Fund will be able to achieve its investment
objective. The Fund's investment objective and non-fundamental investment
policies may be changed by the Board of Directors without shareholder
approval.
Investment Philosophy and Analysis
The Adviser seeks to identify and purchase for the Fund fixed income
securities which have a higher relative value and more favorable risk return
characteristics than the high yield market as a whole. As part of this
strategy, the Fund may seek to invest a portion of its portfolio in securities
which are trading at a significant discount from their face value or principal
amount. These securities offer the potential for significant capital
appreciation if the issuer is able to pay the security at maturity or to
redeem the issue at face value, or if the credit quality of the security
improves. Conversely, these securities may take considerable time to
appreciate in value and, in some cases, may become less valuable or worthless,
particularly in the event of a default or the bankruptcy of the issuer.
The Adviser believes that the risks associated with investing in securities
trading at a significant discount from their face value or principal amount
can be managed through credit, financial and legal analysis and research, and
through portfolio diversification. The Adviser also attempts to manage risk
through acquisition of securities generally at or near its estimate of their
liquidation values.
In analyzing prospective investments for the Fund, the Adviser generally
considers a number of factors including the following:
1. Financial Condition. The Adviser performs credit and financial
analysis, emphasizing cash flow, on all investments. Generally, the Fund
will avoid investment in a company if the Adviser believes accurate
financial and business information is not available.
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<PAGE>
2. Value of Assets. The Adviser generally estimates the value of a
company to measure the risk of loss in case the company is unable to meet
its debt obligations. If the investment is purchased at or below this
value, the ultimate risk of loss may be reduced. Additionally, in certain
cases, sale of the assets of a company may provide more value than its
continued operation.
3. Business Prospects. The Adviser generally considers the industry
outlook and competitive factors, which may include supplier and customer
relationships, strengths and weaknesses of products, viability of product
lines and other considerations in an effort to determine the company's
business prospects. In most cases a high level of total return will be
realized through the value inherent in the continued operation of the
company's business.
4. Capital Structure. The Adviser reviews the terms of each debt
instrument in order to assess the priority of the Fund's investment
relative to other debt and equity holders. The Fund generally will seek a
position in the capital structure of a company which will enable it to
preserve the value of its investment in the case of a restructuring or a
liquidation. In some cases, seniority in the capital structure,
particularly when coupled with secured status, provides the opportunity for
significant influence in the event of a bankruptcy or restructuring.
5. Management. The Adviser considers the depth and capabilities of the
management team to assess its ability to lead a company through financial
or operating difficulties. The Adviser also considers management's
ownership interest in the company. When management has a substantial equity
stake in the company, the Adviser believes management will be motivated to
enhance and protect its interest in the company and to avoid liquidation,
reorganization or bankruptcy.
6. Capital Requirements. The Adviser considers a company's needs for
additional capital and the potential sources for such capital.
Portfolio Investments
The Fund invests in a diversified portfolio comprised primarily of publicly
traded bonds, debentures, notes and preferred stocks issued by domestic
companies which generally have market capitalizations (including debt) of at
least $100 million. These securities are generally traded in the over-the-
counter market, but may be listed on an exchange. The Fund is not restricted
as to the nature or type of debt or equity securities in which it may invest.
Debt securities in which the Fund invests may or may not bear fixed or
variable rates of interest, or carry equity features, such as conversion or
exchange rights, or warrants for the acquisition of shares of stock of the
same or a different company, and may or may not have been issued in connection
with a leveraged buy-out. The Fund also may invest in privately placed debt
securities and in hybrid securities, such as debt with warrants attached, and
other privately held obligations of, in most cases, public companies, such as
loans, credit paper and loan participations.
As of December 31, 1998, the percentage of the Fund's assets invested in
fixed income securities within the various rating categories, determined on a
dollar-weighted average, were as follows:
<TABLE>
<CAPTION>
Rating Category Percentage*
--------------- -----------
<S> <C>
BB or Ba...................................................... 11.16
B............................................................. 66.77
CCC or Caa.................................................... 5.99
CC or Ca...................................................... 0
C............................................................. 0.16
D............................................................. 0
Non-rated..................................................... 10.53
Equity........................................................ 3.07
Cash and Cash Equivalents..................................... 2.32
------
Total Investments........................................... 100.00
======
</TABLE>
--------
* Based on the S&P rating if the security is rated by S&P,
otherwise based on the Moody's rating.
20
<PAGE>
The Adviser anticipates that most of the companies issuing securities
acquired by the Fund will not be involved, at the time of acquisition or
thereafter, in reorganization, restructuring or bankruptcy proceedings.
However, the Fund may from time to time become an active participant in those
activities. It is the policy of the Fund not to invest in the securities of an
issuer for the purpose of exercising control or management. The Adviser may,
however, intentionally seek an active role in reorganization, restructuring or
bankruptcy proceedings at the time of investment, or may decide to assume such
a role as a result of subsequent events. Active participation is often
necessary to monitor a non-accruing security and to avoid the divisive
techniques used by management and certain creditors to enhance their own
positions at the expense of other creditors. The Adviser's active
participation in reorganization, restructuring or bankruptcy proceedings,
whether as a member of creditors' or equity holders' committees or otherwise,
may restrict for some time the Fund's ability to sell the related portfolio
securities.
Additional Investment Policies
Private Placements. The Fund may invest up to 25% of its total assets in
securities that are subject to restrictions on resale because they have not
been registered under the Securities Act. The Fund may purchase restricted
securities that, although privately placed, may be offered and sold to
"qualified institutional buyers" pursuant to Rule 144A under the Securities
Act. The Fund's Board of Directors may determine, when appropriate, that
specific Rule 144A securities are liquid and such securities will not be
subject to the 25% limitation. Should the Board of Directors make this
determination, it will carefully monitor the Rule 144A security (focusing on
such factors, among others, as trading activity and availability of
information) to determine that it continues to be liquid. It is not possible
to predict with assurance exactly how the market for restricted securities
offered and sold under Rule 144A will develop. Investment in Rule 144A
securities could have the effect of increasing the level of illiquidity of the
Fund's portfolio to the extent that qualified institutional buyers are for a
time uninterested in purchasing Rule 144A securities held by the Fund.
Zero Coupon Securities. The Fund may invest in zero coupon securities. Zero
coupon securities are debt securities which are issued at a discount to their
face amount and do not entitle the holder to any periodic payments of interest
prior to maturity. Rather, interest earned on zero coupon securities accretes
at a stated yield until the security reaches its face amount at maturity.
Generally, the prices of zero coupon securities may be more sensitive to
market interest rate fluctuations than conventional securities.
Foreign Investments. The Fund may invest up to 25% of its total assets in
U.S. dollar denominated securities or other obligations of foreign companies
issued or trading in the United States. Investing in the securities of foreign
issuers involves special risks not typically associated with investing in U.S.
companies. See "Risk Factors and Special Considerations--Foreign Securities"
for a discussion of the risks of investing in foreign securities.
Non-Accruing Securities. Some of the Fund's portfolio investments may not be
current on payment of interest or dividends or may be in default at the time
of acquisition ("non-accruing securities"). Non-accruing securities may
present the opportunity for significant capital appreciation based on the
Adviser's estimation of their liquidation or reorganization value. There can
be no assurance, however, that such capital appreciation will occur or that it
will occur within the time frame estimated by the Adviser. Non-accruing
securities may be less liquid and more volatile than other portfolio
securities. Consistent with the Fund's objective of obtaining high levels of
current income, non-accruing securities will generally comprise no more than
20% of the Fund's net assets. However, some portfolio securities may become
non-accruing securities after they are acquired by the Fund. Given the
unpredictability of performance by the issuers of the Fund's portfolio
investments, it is impossible to estimate the amount of the Fund's assets
which could become invested in non-accruing securities. Accordingly, there can
be no assurance that the level of non-accruing securities will not exceed 20%
of the Fund's net assets. The Adviser will not purchase additional non-
accruing securities for the Fund if, at the time of proposed acquisition, non-
accruing securities comprise 20% or more of the net assets of the Fund.
Equity Securities. Equity securities will generally comprise no more than
10% of the Fund's total assets. Equity securities are defined as common stocks
and preferred stocks without mandatory redemption features and
21
<PAGE>
do not include bonds, debentures or other debt obligations that are
convertible into equity securities. The Adviser will not purchase additional
equity securities for the Fund if, at the time of proposed acquisition, equity
securities comprise 10% or more of the Fund's total assets. However, there can
be no assurance that the Fund's investments in equity securities will not
exceed 10% of its total assets, particularly if issuers of portfolio
securities become involved in restructuring or reorganization proceedings that
result in the conversion of debt obligations into equity securities or if
there is an increase in the value of the equity securities held by the Fund
relative to the Fund's debt obligations.
Industrial Development Bonds. The Fund may from time to time invest in
certain industrial development bonds, including pollution control revenue
bonds. Industrial development bonds are issued by governmental entities but
are payable solely by the companies which own and operate the facilities
financed by the bonds. The Fund will not invest in industrial development
bonds to obtain any tax benefits associated with such investments.
Temporary Investments. There may be times when securities satisfying the
Adviser's investment criteria are unavailable or when, in the Adviser's
judgment, conditions in the securities markets render investment in such
securities inconsistent with the Fund's investment strategy and the best
interests of shareholders. During these periods, or pending investment in such
securities, the Fund may invest in temporary investments. For this purpose,
temporary investments include (i) short-term debt obligations, such as
commercial paper, bank certificates of deposit, bankers' acceptances and
short-term obligations of the U.S. Government, its agencies or
instrumentalities, and repurchase agreements with respect to any of the
foregoing, and (ii) certain corporate fixed income securities, such as
variable or floating rate notes and preferred stock, with structural
characteristics which are intended to reduce the risk of loss from interest
rate fluctuations. Temporary investments with longer maturities may be rated
in the lower rating categories classified by Moody's or S&P or may not be
rated. The yield on temporary investments generally will tend to be lower than
the yield on the Fund's other portfolio securities. All temporary investments
will be paying interest currently at the time of purchase. It is impossible to
predict when, for how long or to what extent temporary investments will be
utilized.
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. When-issued and delayed
delivery transactions arise when securities are purchased and sold with
delivery and payment beyond the regular settlement date. The settlement of
when-issued transactions can take place a month or more after the date of the
transaction. The prices of the securities so purchased are subject to market
fluctuation during this period and no interest accrues to the purchaser prior
to the date of settlement. At the time the Fund makes the commitment to
purchase securities on a when-issued or delayed delivery basis, it will record
the transaction and thereafter reflect the value of the security in
determining the net asset value of the Fund. At the time of delivery of the
securities, the value may be more or less than the purchase price. An increase
in the percentage of the Fund's assets committed to the purchase of securities
on a when-issued or delayed delivery basis will have the effect of leverage
and may increase the volatility of the Fund's net asset value. In addition,
since the Fund is dependent on the party issuing the when-issued or delayed
delivery security to complete the transaction, failure by the other party to
deliver the securities as arranged would result in the Fund's loss of an
investment opportunity.
When, As and If Issued Securities. The Fund may purchase securities on a
"when, as and if issued" basis under which the issuance of the security
depends upon the occurrence of a subsequent event, such as approval of a
merger, corporate reorganization or debt restructuring. The commitment for the
purchase of any such security will not be recognized in the portfolio of the
Fund until the Adviser determines that issuance of the security is probable.
At that time, the Fund will record the transaction and, in determining its net
asset value, will reflect the value of the security. An increase in the
percentage of the Fund's assets committed to the purchase of securities on a
"when, as and if issued" basis may increase the volatility of its net asset
value.
Repurchase Agreements. When cash may be available for only a few days, it
may be invested by the Fund in repurchase agreements until such time as it may
otherwise be invested or used for payments of obligations of the Fund. These
agreements, which are considered to be loans under the 1940 Act, typically
involve the acquisition by the Fund of debt securities from a selling
financial institution such as a bank or broker-
22
<PAGE>
dealer. The agreement provides that the Fund will sell back to the
institution, and that the institution will repurchase, the underlying
securities ("collateral"), which are held by the Fund's custodian bank, at a
specified price and at a fixed time in the future, usually not more than seven
days from the date of purchase. The Fund will receive interest from the
institution until the date when the repurchase is to occur. Repurchase
agreements involve certain risks not associated with direct investments in
debt securities and the Fund will follow procedures designed to minimize these
risks. The procedures include effecting repurchase transactions only with
larger, well-capitalized and well-established financial institutions, whose
financial condition will be continually monitored. In addition, the Adviser
will attempt to ensure that the value of the collateral underlying the
repurchase agreement is always at least equal to the repurchase price,
including any accrued interest earned on the repurchase agreement. In the
event of a default or bankruptcy by a selling financial institution, the Fund
will seek to liquidate the collateral. Exercise of the Fund's right to
liquidate the collateral, however, could involve certain costs or delays, and,
to the extent that proceeds from any sale upon a default of the obligation to
repurchase were less than the repurchase price, the Fund could suffer a loss.
In addition, to the extent the Fund's security interest in the collateral may
not be properly perfected, the Fund could suffer a loss of up to the entire
amount of the collateral.
Lending Securities
Consistent with applicable regulatory requirements, the Fund may lend up to
25% of its net assets to brokers, dealers, banks or other recognized
institutional borrowers of securities, provided that such loans are callable
at any time by the Fund and are at all times secured by cash or equivalent
collateral that is equal to at least the market value, determined daily, of
the loaned securities. The advantage of such loans is that the Fund continues
to receive the interest and dividends, if any, on the loaned securities, while
at the same time earning a fee or interest from the borrower.
A loan may be terminated by the borrower on one business day's notice or by
the Fund at any time. If the borrower fails to maintain the requisite amount
of collateral, the loan automatically terminates, and the Fund could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over collateral. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in
the collateral should the borrower of the securities fail financially.
However, these loans of portfolio securities will only be made to firms that
the Adviser and the Board of Directors deem to be creditworthy. On termination
of the loan, the borrower is required to return the securities to the Fund,
and any gain or loss in the market price during the loan would inure to the
Fund.
Since voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loan, in whole or in
part as may be appropriate, to permit the exercise of such rights if the
matters involved would have a material effect on the Fund's investment in the
securities which are the subject of the loan. The Fund will pay reasonable
finder's, administrative and custodial fees in connection with a loan of its
securities and may share the interest earned on collateral with the borrower.
Investment Restrictions
The following restrictions are fundamental policies. All percentage
limitations on investments will apply at the time of the making of an
investment and will not be considered violated unless an excess or deficiency
occurs or exists immediately after and as a result of such investment.
The Fund may not:
(1) Borrow money (through repurchase agreements or otherwise) or issue
senior securities unless immediately thereafter the Fund has an asset
coverage of all senior securities and borrowing of at least 200%;
(2) Make short sales of securities or purchase securities or evidences of
interests therein on margin (except it may make covered short sales of
securities and obtain short-term credit necessary for the clearance of
transactions), or write or purchase put or call options (except to the
extent that a purchase of a stand-by commitment may be considered the
purchase of a put);
23
<PAGE>
(3) Underwrite any issue of securities, except to the extent that in
connection with the disposition of its portfolio investments it may be
deemed to be an underwriter under the federal securities laws;
(4) Purchase or sell real estate, including limited partnership interests
therein (except securities which are secured by real estate and
securities of companies, such as real estate investment trusts, that
deal in real estate or interests therein), or oil, gas or other mineral
leases, commodities or commodity contracts in the ordinary course of
its business, except such interests and other property acquired as a
result of owning other securities, though securities will not be
purchased in order to acquire any of these interests;
(5) Make loans, except as described under "Lending Securities" above or by
entering into repurchase agreements;
(6) Purchase or sell municipal obligations, including debt obligations
issued by states, cities, local authorities and possessions and
territories of the United States except for certain industrial
development bonds as described under "Additional Investment Policies--
Industrial Development Bonds" above;
(7) Purchase or retain the securities of any company if, to the knowledge
of the Fund, those officers and directors of the Fund or managers of
the Adviser who each own beneficially more than 0.5% of the securities
of that company, together own more than 5% of the securities of the
company;
(8) Purchase or retain the securities of any company controlled by an
affiliate of the Fund or the Adviser or purchase or sell any security
from or to any account controlled by the Adviser or its affiliates; and
(9) Invest more than 5% of its total assets (valued at the time of
investment) in securities of any one issuer, except that this
restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, or acquire more
than 10% of the outstanding voting securities of any one issuer (at the
time of acquisition); except that up to 25% of the Fund's total assets
(at the time of investment) may be invested without regard to the
limitations set forth in this paragraph 9.
Asset Coverage Restrictions
The Fund's portfolio investments are subject to certain coverage and other
financial tests and restrictions adopted in connection with the issuance of
the Preferred Stock. While any shares of the Preferred Stock are outstanding,
these tests and restrictions will remain in effect. In general, the coverage
tests require that the Fund maintain sufficient assets to meet both an
eligible portfolio test and an asset coverage test. Under the eligible
portfolio test the Fund must maintain sufficient eligible portfolio assets
such that, when discounted by applicable factors, the Fund will meet the
required eligible portfolio coverage. The eligible portfolio coverage test
does not impose any limitation on the amount of Fund assets which may be
invested in non-eligible assets, and the amount of such holdings may vary from
time to time based upon the nature of the Fund's other investments. Under the
asset coverage test, the Fund must maintain a specified ratio of total assets
less certain indebtedness to the sum of (i) the aggregate amount of senior
securities representing indebtedness of the Fund, (ii) the aggregate
liquidation preference of all outstanding shares of Preferred Stock, and (iii)
the amount of all unpaid dividends accrued to and including the date of
determination, whether or not declared by the Fund, on all outstanding shares
of Preferred Stock. Finally, the Fund is required to comply with certain
investment restrictions, which are in addition to and more limiting than the
investment restrictions set forth above. These additional investment
restrictions relate to (i) the diversification of the Fund's portfolio, (ii)
the amount the Fund invests in any one issue of securities or in securities
other than publicly traded domestic fixed income securities, and (iii) the
Fund's incurrence of debt. The Adviser does not expect these coverage and
other financial tests and restrictions to have a material adverse effect on
holders of the Fund's Common Stock or on the Fund's ability to achieve its
investment objective. See "Description of Capital Stock--Preferred Stock--
Asset Coverage and Other Financial Tests."
Portfolio Management and Turnover Rate
Portfolio trading may be undertaken to accomplish the investment objective
of the Fund. In addition, a security or obligation may be sold and another of
comparable quality purchased at approximately the same time
24
<PAGE>
to take advantage of what the Adviser believes to be a temporary disparity in
the normal yield relationship between the two securities. From time to time,
the Fund also may engage in short-term trading consistent with its investment
objective. Securities may be sold in anticipation of a market decline (a rise
in interest rates) or purchased in anticipation of a market rise (a decline in
interest rates) and later sold.
Subject to the foregoing, the Fund will attempt to achieve its investment
objective by thorough research and analysis and prudent selection of portfolio
securities with a view to holding them for investment. The Fund's annual
portfolio turnover rate (the lesser of the value of securities purchased or
sold, divided by the average value of securities owned during the year) will
not be a limiting factor when the Fund deems it desirable to sell or purchase
securities.
RISK FACTORS AND SPECIAL CONSIDERATIONS
An investment in the Fund is subject to a number of risks and special
considerations, including the following:
Dilution
You may experience an immediate dilution of the aggregate net asset value of
your shares of Common Stock if you do not fully exercise your Rights pursuant
to the Offer. This is because the Subscription Price per Share will be less
than the Fund's net asset value per share on the Expiration Date, and the
number of shares of Common Stock outstanding after the Offer will increase in
a greater percentage than the increase in the size of the Fund's assets. Such
dilution could be substantial. For example, assuming that all Rights are
exercised at the Estimated Subscription Price of $ , the Fund's net asset
value per share (after payment of the Dealer Manager's fee, solicitation fees
and the estimated offering expenses) would be reduced by approximately $ per
share.
You should also expect that if you do not fully exercise your Rights you
will, at the completion of the Offer, own a smaller proportional interest in
the Fund than would otherwise be the case.
Risk of Leverage
The Fund's leveraged capital structure creates special risks not associated
with unleveraged funds having similar investment objectives and policies.
These risks include a higher volatility of the net asset value of the Common
Stock and potentially more volatility in the market value of the Common Stock.
If the investment performance of the assets purchased with the proceeds of any
leverage fails to cover the dividends on such leverage, the value of the
Common Stock may decrease more quickly than would otherwise be the case and
dividends thereon will be reduced or eliminated. This is the speculative
effect of leverage.
The dividend rate on the Fund's Preferred Stock is 7.15% for the Series C
shares and 7.05% for the Series D shares. Based on these dividend rates
payable under the Fund's charter, the annual return of the Fund's portfolio
must equal at least 2.22% in order to cover the dividend payments on the
outstanding Preferred Stock. In addition, the Fund expects to issue an
additional series of Preferred Stock upon completion of the Offer. See
"Description of Capital Stock--General."
You, as holders of Common Stock, will bear any decline in the net asset
value of the Fund's investments. As a result, the effect of leverage in a
declining market would result in a greater decrease in net asset value to
holders of Common Stock than if the Fund were not leveraged. This would likely
be reflected in a greater decline in the market price for the Common Stock. In
an extreme case, if the Fund's current investment income were not sufficient
to meet dividend payments due in respect of any leverage, it could be
necessary for the Fund to liquidate certain of its investments, thereby
reducing the net asset value attributable to the Common Stock. In addition, a
decline in the net asset value of the Fund's investments may affect the
ability of the Fund to make dividend payments on the Common Stock and such
failure to pay dividends or make distributions may result in the Fund ceasing
to qualify as a regulated investment company under the Code.
25
<PAGE>
The issuance of the Preferred Stock and other forms of leverage may
constitute a substantial lien and burden on the Common Stock by reason of
their prior claim against the income of the Fund and against the net assets of
the Fund in liquidation.
The following table illustrates the effect of leverage (using senior
securities--i.e., $49.0 million of currently outstanding Preferred Stock) on
the return of a holder of Common Stock, assuming a Fund portfolio of
approximately $157 million, the annual returns set forth in such table and
assuming an effective dividend rate of 7.12% payable on the Preferred Stock:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Assumed Return on Portfolio (Net of
Expenses)................................. (10)% (5)% 0 % 2.22% 5% 10%
- -----------------------------------------------------------------------------------------------------
Corresponding Return to Common
Stockholders.............................. (17.77)% (10.50)% (3.23)% 0% 4.04% 11.31%
</TABLE>
The purpose of this table is to assist you in understanding the effects of
leverage. The figures in the table are hypothetical and the actual returns to
a holder of Common Stock may be greater or less than those appearing in the
table.
The Fund will not be permitted to declare dividends or other distributions
with respect to the Common Stock or purchase shares of Common Stock unless the
Fund meets certain asset coverage requirements, including those imposed by the
1940 Act. Further, the Fund will not be permitted to pay any dividends or
other distributions with respect to the Common Stock if a default or an event
of default has occurred and is continuing under the Fund's charter or if
payment of such dividend or distribution would result in a default or an event
of default under the charter. Failure to pay dividends or other distributions
could result in the Fund ceasing to qualify as a regulated investment company
under the Code.
In the event the Fund fails to satisfy certain asset coverage requirements,
the Fund may be required to redeem immediately all outstanding shares of
Preferred Stock. Redeeming the Preferred Stock would reduce the Fund's
leverage and could negatively affect potential returns on the Common Stock.
Discount from Net Asset Value
Shares of closed-end funds frequently trade at a market price which is less
than the value of the net assets attributable to those shares. The possibility
that shares of the Fund will trade at a discount from net asset value is a
separate risk from the risk that the Fund's net asset value will decrease. It
should be noted, however, that in some cases shares of closed-end funds may
trade at a premium to net asset value. The Fund's shares have traded in the
market above, at and below net asset value since the commencement of the
Fund's operations. The Fund cannot predict whether its shares will trade at,
below or above net asset value.
The risk of purchasing shares of a closed-end investment company that might
trade at a discount is more pronounced for investors who wish to sell their
shares in a relatively short period of time. For these investors, realization
of gain or loss on their investments is likely to be more dependent upon the
existence of a premium or discount than upon portfolio performance.
High Yield Investments
The Fund is designed for long-term investors who can accept the risks
entailed in seeking a high level of total return through current income and
capital appreciation by investing in "high yield, high risk" fixed income
securities. Consistent with long-term investment approach, investors in the
Fund should not rely on the Fund for their short-term financial needs. The
principal value of the lower quality securities in which the Fund invests will
be affected by interest rate levels, general economic conditions, specific
industry conditions and the creditworthiness of the individual issuer.
Although the Fund seeks to reduce risk by portfolio diversification, extensive
credit analysis, and attention to trends in the economy, industries and
financial markets, such efforts will not eliminate risk.
26
<PAGE>
Fixed income securities offering the high current income sought by the Fund
will ordinarily be in the lower rating categories of recognized rating
agencies or will not be rated. The values of such securities tend to reflect
individual corporate developments or adverse economic change to a greater
extent than higher rated securities, which react primarily to fluctuations in
the general level of interest rates. Periods of economic uncertainty and
changes generally result in increased volatility in the market prices and
yields of high yield, high risk securities and thus in the Fund's net asset
value. The rating agencies generally regard these securities as predominantly
speculative with respect to capacity to pay interest and repay principal and
riskier than securities in the higher rating categories.
The Fund may incur additional expenses to the extent it is required to seek
recovery upon a default in the payment of principal of or interest on its
portfolio holdings. The high yield, high risk securities held by the Fund are
frequently subordinated to the prior payment of senior indebtedness and are
traded in markets that may be relatively less liquid than the market for
higher rated securities. Changes by recognized rating agencies in their
ratings of any fixed income security and in the ability of an issuer to make
payments of interest and principal may also affect the value of the Fund's
investments. Changes in the value of portfolio securities will not necessarily
affect cash income derived from such securities, but will affect the Fund's
net asset value.
The Fund will rely on the Adviser's judgment, analysis and experience in
evaluating the creditworthiness of an issuer. In this evaluation, the Adviser
will take into consideration, among other things, the issuer's financial
resources, its sensitivity to economic conditions and trends, its operating
history, the quality of the issuer's management and regulatory matters.
Some of the lower-rated securities in which the Fund invests were issued to
raise funds in connection with the acquisition of a company, in a so-called
"leveraged buy-out" transaction. The highly leveraged capital structure of
such issuers may make them especially vulnerable to adverse changes in
economic conditions, including rising interest rates.
Generally, when interest rates rise, the value of fixed-rate debt
obligations, including high yield, high risk securities, tends to decrease;
when interest rates fall, the value of fixed rate debt obligations tends to
increase. In addition, in a period of rising interest rates the high cost of
the Fund's leverage and/or increasing defaults by issuers of high-yield debt
obligations would likely exacerbate any decline in the Fund's net asset value.
If an issuer of a high yield, high risk security containing a redemption or
call provision exercises either provision in a declining interest rate market,
the Fund would have to replace the security, which could result in a decreased
return for shareholders.
The market for high yield, high risk securities has expanded rapidly in
recent years. This expanded market has not yet completely weathered an
economic downturn. An economic downturn or an increase in interest rates could
have a negative effect on the high yield, high risk securities market and on
the market value of the high yield, high risk securities held by the Fund, as
well as on the ability of the issuers of such securities to repay principal
and interest on their borrowings.
The credit ratings issued by rating agencies may not fully reflect the true
risks of an investment. For example, credit ratings typically evaluate the
safety of principal and interest payments, not market value risk, of high
yield, high risk securities. Also, rating agencies may fail to change on a
timely basis a credit rating to reflect change in economic or company
conditions that affect a security's market value. Although the Adviser
considers ratings of recognized rating agencies such as Moody's and S&P, the
Adviser primarily relies on its own credit analysis, which includes a study of
existing debt, capital structure, ability to service debt and to pay
dividends, the issuer's sensitivity to economic conditions, its operating
history and the current trend of earnings. The Adviser continually monitors
the investments in the Fund's portfolio and carefully evaluates whether to
dispose of or retain high yield, high risk securities whose credit ratings
have changed. As of December 31, 1998, approximately 97% of the market value
of the Fund's total investments was represented by fixed income securities
regarded by the rating agencies as below investment grade (that is rated Ba1
or lower by Moody's or BB+ or lower by S&P).
27
<PAGE>
At times a major portion of an issue of lower-rated securities may be held
by relatively few institutional purchasers. Although the Fund generally
considers such securities to be liquid because of the availability of an
institutional market for such securities, under adverse market or economic
conditions or in the event of adverse changes in the financial condition of
the issuer, the Fund may find it more difficult to sell such securities when
the Adviser believes it advisable to do so or may be able to sell such
securities only at prices lower than if the securities were more widely held.
In such circumstances, the Fund also may find it more difficult to value such
securities for purposes of computing the Fund's net asset value. Securities
for which market quotations are not readily available will be valued at fair
value as determined in good faith by or under the direction of the Board of
Directors of the Fund. The Fund also purchases a significant number of Rule
144A securities which are considered "restricted" securities but which may be
treated as liquid by the Fund in appropriate circumstances, in accordance with
SEC guidelines. The Adviser, pursuant to procedures adopted by the Board of
Directors supervision, makes a determination regarding the liquidity of such
securities prior to their purchase and continues to analyze the liquidity of
such securities. Investing in Rule 144A securities, however, could have the
effect of increasing the illiquidity of the Fund's assets to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these securities.
Dividends and Distributions
Subject to market conditions, the Fund seeks to provide holders of its
Common Stock with a relatively stable level of dividends per share. However,
the Fund cannot give any assurance that it will be able to maintain its
current level of dividends per share. The Board of Directors may, in its sole
discretion, change the Fund's current dividend policy or its current level of
dividends per share in response to market or other conditions. The Fund's
ability to maintain a stable level of dividends is a function of the yield
generated by the Fund's investments, which depends on market conditions at the
time those investments are made and on the performance of those investments.
To the extent that the Fund's portfolio investments generate income
exceeding that which is required to pay any target level of dividends set by
the Board of Directors, the Fund may decide to retain and accumulate that
portion of the Fund's income which exceeds such dividend level and may pay
applicable taxes thereon, including any federal income or excise taxes.
Alternatively, to the extent that the Fund's current income is not sufficient
to pay any target level of dividends set by the Board of Directors, the Fund
may distribute to holders of its Common Stock all or a portion of any retained
earnings or make a return of capital to maintain such target level. The Fund
currently has accumulated undistributed net investment income upon which it
will pay taxes.
Based on information provided by the Adviser on current market conditions in
the high-yield bond market, the Board of Directors believes that the Offer
will not result in a decrease in the Fund's current level of dividends per
share.
Restricted and Illiquid Securities
The Fund may invest a large portion of its assets in certain restricted
securities. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities, the Fund's continued
investment in such securities may have the effect of increasing the level of
illiquidity in its investment portfolio.
Foreign Securities
Investing in the U.S. dollar denominated obligations of non-U.S. companies
involves certain risk considerations not typically associated with investing
in the obligations of domestic companies. These risks may include: (i) price
volatility and less liquidity; (ii) exposure to political and economic risks,
including the risk of nationalization, expropriation of assets and war; (iii)
possible imposition of foreign taxes and exchange control and currency
restrictions; (iv) lack of uniform accounting, auditing and financial
reporting standards; (v) less governmental supervision of issuers; (vi)
difficulty in enforcing legal rights outside of the United States; and (vii)
higher costs.
28
<PAGE>
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 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 Adviser believes that it possesses the legal authority to perform the
investment advisory services contemplated by the Advisory 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 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 Adviser, the Board of Directors of the Fund would
review the Fund's relationship with the 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 shareholders.
Year 2000 Processing Issue
Many computer systems were designed using only two digits to signify the
year (i.e., 98 for 1998). On January 1, 2000, if these systems are not
corrected, they may incorrectly interpret 00 as 1900 instead of 2000, leading
to computer shutdowns and errors. To the extent these systems conduct forward-
looking calculations, the computer problems could occur prior to January 1,
2000. Like other investment companies and financial and business
organizations, the Fund could be adversely affected in its ability to process
securities trades, price securities, provide shareholder account services and
otherwise conduct normal business operations if the computer systems used by
the Adviser or other service providers do not adequately address this problem
in a timely manner. The Adviser, the Administrator and Pacholder Associates do
not anticipate that the year 2000 processing issue will have any material
impact on their ability to continue to service the Fund. In addition, the Fund
has sought assurances from its other service providers that they are taking
the steps necessary to deal with the problems associated with computer
processing of the year 2000. The cost of any systems remediation by persons
other than the Fund will not be borne by the Fund. However, no assurance can
be given that the actions taken by the Fund's service providers will be
sufficient to avoid any adverse effect on the Fund.
Additional Risk Considerations
The Fund may not achieve its investment objective.
The Fund's non-fundamental investment policies may be changed without
shareholder approval.
Investment in the Fund should not be considered a complete investment
program and may not be appropriate for all investors. Investors should
carefully consider their ability to assume these risks before making an
investment in the Fund.
29
<PAGE>
MANAGEMENT OF THE FUND
Directors and Officers
The directors and officers of the Fund, their addresses, their ages and
their principal occupations for at least the past five years are set forth
below.
<TABLE>
<CAPTION>
Positions with Principal Occupations During
Name and Address Registrant Age Past Five Years
---------------- -------------- --- ----------------------------
<S> <C> <C> <C>
William J. Morgan* (1)... Chairman of the 44 President, Secretary and
8044 Montgomery Road, Board Director, Pacholder
Suite 382 and Treasurer Associates, Inc.
Cincinnati, OH 45236
Daniel A. Grant (1)(2)... Director 54 President, Utility
1440 Greenfield Crossing Management Services.
Ballwin, MO 63021
John F. Williamson Director 60 Chairman and President,
(2)(3).................. Williamson Associates, Inc.
2109 S.W. Cedar Hill (since 1997); Executive
Lane Lee's Summit, MO Vice President and Chief
64081 Financial Officer, Asset
Allocation Concepts, Inc.
(1995 to 1996); Vice
President and Senior
Portfolio Manager, American
Life & Casualty Insurance
Co. (1993 to 1994).
George D. Woodard(2)(3).. Director 52 Closely Held Business
22229 North 54th Way Specialist, Henry & Horne,
Phoenix, AZ 85054-7144 P.L.C. (since 1996);
Principal, George D.
Woodard, C.P.A. (1995-
1996); Vice President,
Rider Kenley & Associates
(1994 to 1995).
</TABLE>
<TABLE>
<S> <C> <C> <C>
Anthony L. Longi, Jr...... President and 33 Executive Vice President,
8044 Montgomery Road, Assistant Pacholder Associates, Inc.
Suite 382 Treasurer
Cincinnati, OH 45236
James P. Shanahan, Jr. ... Secretary 37 Executive Vice President and
8044 Montgomery Road, General Counsel, Pacholder
Suite 382 Associates, Inc.
Cincinnati, OH 45326
James E. Gibson........... Senior Vice 34 Executive Vice President,
8044 Montgomery Road, President Pacholder Associates, Inc.
Suite 382
Cincinnati, OH 45236
Mark H. Prenger........... Assistant Treasurer 28 Vice President, Pacholder
8044 Montgomery Road, Associates, Inc.
Suite 382
Cincinnati, OH 45236
</TABLE>
- --------
* Directors who are "interested persons" of the Fund, as defined in the 1940
Act.
(1) Elected by holders of the Common Stock.
(2) Directors who are members of the Audit Committee of the Fund's Board of
Directors.
(3) Elected by holders of the Preferred Stock.
30
<PAGE>
For the fiscal year ended December 31, 1998, the Fund's directors received
the following compensation for serving as directors.
<TABLE>
<CAPTION>
Total
Compensation
Director from Fund(1)
-------- ------------
<S> <C>
William J. Morgan............................................ None
Daniel A. Grant.............................................. $17,000
John F. Williamson........................................... $17,000
George D. Woodard............................................ $17,000
</TABLE>
--------
(1) The Fund does not currently provide pension or retirement
plan benefits to directors. The Fund is not part of a fund
complex.
Holdings of Common Stock
As of December 31, 1998, The Depository Trust Company, 7 Hanover Square, New
York, New York 10004, owned of record 6,646,084 shares representing 93% of the
outstanding shares of Common Stock. Principal Mutual Life Insurance Company,
711 High Street, Des Moines, Iowa 50392, owns all of the Fund's outstanding
Preferred Stock.
As of December 31, 1998, all directors and officers of the Fund owned in the
aggregate less than 1% of the Common Stock.
The Adviser
Pacholder & Company, LLC (the "Adviser"), 8044 Montgomery Road, Suite 382,
Cincinnati, Ohio 45236, is the Fund's investment adviser. The Adviser is an
Ohio limited liability company organized in June 1998. Pacholder Associates,
Inc. ("Pacholder Associates") owns 51% of the equity interest in the Adviser,
and Banc One Investment Advisors Corporation ("Banc One Advisors") owns the
remaining 49%. Pacholder Associates was a general partner of the Fund's
previous investment adviser, Pacholder & Company, which served as the Fund's
investment adviser from the time the Fund commenced operations in 1988 until
August 1998. The Fund is the only client of the Adviser.
Pacholder Associates is an investment advisory firm formed in 1983 which
specializes in high yield, high risk fixed income securities. Pacholder
Associates currently manages in excess of $625 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
eligible for purchase by the Fund. Asher O. Pacholder owns a majority of
Pacholder Associates' outstanding stock. Employees of Pacholder Associates own
the remaining outstanding stock. William J. Morgan, James P. Shanahan, Jr.,
Anthony L. Longi, Jr., James E. Gibson and Mark H. Prenger, directors and/or
officers of the Fund, are shareholders, officers and/or directors of Pacholder
Associates.
Banc One Advisors is an indirect wholly-owned subsidiary of BANK ONE
CORPORATION, a bank holding company located in the state of Illinois. As of
December 31, 1998, Banc One Advisors managed over $62 billion in assets. BANK
ONE CORPORATION has affiliated banking organizations in 18 states and has
several affiliates that engage in data processing, venture capital, investment
and merchant banking, and other diversified services including trust
management, investment management, brokerage, equipment leasing, mortgage
banking, consumer finance, and insurance. On a consolidated basis, BANK ONE
CORPORATION had assets of over $260 billion as of December 31, 1998.
Banc One Advisors represents a consolidation of the investment advisory
staffs of a number of bank affiliates of BANK 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 35 separate
funds).
31
<PAGE>
The overall portfolio management strategy for the Fund is determined under
the general supervision and direction of William J. Morgan. Mr. Morgan is
President and Managing Director of Pacholder Associates and is responsible for
the overall management of the firm. He has been responsible for Pacholder
Associates' investment management operations since the inception of the firm.
Prior to co-founding Pacholder Associates in 1983, Mr. Morgan was the Fixed
Income Portfolio Manager at Union Central Life Insurance Company and was
responsible for research and management of a wide variety of securities,
primarily fixed-income debt obligations of the U.S. Government and corporate
issuers. Anthony L. Longi, Jr. is responsible for day-to-day management of the
Fund. Mr. Longi is an Executive Vice President of Pacholder Associates where
he has worked as an investment grade and high yield bond investment analyst
and trader, portfolio manager and special situations analyst for more than
eleven years.
Advisory Agreement
Pursuant to an Investment Advisory Agreement dated August 20, 1998 (the
"Advisory Agreement"), the Adviser manages the investment and reinvestment of
the Fund's assets and continuously reviews, supervises and administers the
Fund's investment program. The Adviser determines in its discretion the
securities to be purchased or sold, subject to the ultimate supervision and
direction of the Fund's Board of Directors.
The Adviser bears all expenses of its employees and overhead incurred in
connection with its duties under the Advisory Agreement.
As compensation for its services, the Adviser receives an annual 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 Credit Suisse
First Boston High Yield Index(TM) (the "Index") for the same period (the
"Index Return"). A general description of the Index, and the Index Return and
total return investment performance of the Fund for the 12-month periods ended
December 31, 1989 through 1998 are set forth in Appendix B.
The 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 that
period, up to the maximum fee of 1.40% or down to the minimum fee of 0.40%.
The following table shows the fee rates that would be applicable based on
the relative performance of the Fund and the Index during for a particular 12-
month period:
<TABLE>
<CAPTION>
Fund Performance Advisory Fee Rate*
(net of fees and expenses) (% 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%.
32
<PAGE>
For the fiscal years ended December 31, 1996, 1997 and 1998, the Adviser
received advisory fees totaling $1,624,992, $1,948,943 and $869,714,
respectively, which represent 1.40%, 1.18% and 0.52%, respectively, of the
Fund's average net assets during such periods.
The advisory fee paid by the Fund has exceeded for certain periods, and may
in the future exceed, 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 advisory
fees paid 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 though 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
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
Advisory Agreement and the fee payable under the new advisory agreement.
The Advisory Agreement was approved by the Fund's shareholders on June 30,
1998. The Advisory Agreement will continue in effect until June 30, 1999, and
thereafter from year to year if specifically approved at least annually by the
Fund's Board of Directors or by a vote of the holders of a majority of the
Fund's outstanding voting securities. In either event, the Advisory Agreement
also must be approved annually by vote of a majority of the directors who are
not parties to the agreement or "interested persons" (as defined in the 1940
Act) of any such party ("Independent Directors"), cast in person at a meeting
called for that purpose. The Advisory Agreement may be terminated by either
party at any time without penalty upon 30 days' written notice, and will
terminate automatically in the event of its assignment. Termination will not
affect the right of the Adviser to receive payments of any unpaid compensation
earned prior to termination.
The Adviser will not be liable for any error of judgment or for any loss
suffered by the Fund in connection with the performance of its obligations
under the Advisory Agreement, except a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of,
or from reckless disregard by it of its obligations and duties under, such
Agreement, or damages resulting from a breach of fiduciary duty with respect
to receipt of compensation for services.
The services of the Adviser are not deemed to be exclusive, and nothing in
the Advisory Agreement prevents the Adviser, or any affiliate thereof, from
providing similar services to other investment companies and other clients
(whether or not their investment objectives and policies are similar to those
of the Fund) or from engaging in other activities.
Portfolio Transactions
Subject to policy established by the Board of Directors of the Fund, the
Adviser is responsible for arranging for the execution of the Fund's portfolio
transactions and the allocation of brokerage transactions. In executing
portfolio transactions, the Adviser seeks to obtain the best net results for
the Fund, taking into account such factors as price (including the applicable
brokerage commission or dealer spread), size of order, difficulty of execution
and operational facilities of the firm involved. The Fund may invest in
securities traded in the over-the- counter markets and deal directly with the
dealers who make markets in the securities involved, unless a better price or
execution could be obtained by using a broker. Fixed income securities are
traded principally in the over-the-counter market on a net basis through
dealers acting for their own account and not as brokers. The cost of
securities purchased from underwriters includes an underwriter's commission or
concession, and the prices at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down. While the Adviser generally
will seek reasonably competitive commission rates, payment of the lowest
commission is not necessarily consistent with obtaining the best results in
particular transactions.
33
<PAGE>
In placing orders with brokers and dealers, the Adviser will attempt to
obtain the best net price and the most favorable execution for orders;
however, the Adviser may, in its discretion, purchase and sell portfolio
securities through brokers and dealers who provide the Adviser with research,
analysis, advice and similar services. The research services provided by
broker-dealers may be useful to Pacholder Associates in serving its clients,
but they can also be useful to the Adviser in serving the Fund. Not all of
such services may be used by the Adviser in connection with the Fund. The Fund
may, in return for research and analysis, pay brokers a higher commission than
may be charged by other brokers, provided that the Adviser determines in good
faith that such commission is reasonable in terms either of that particular
transaction or of the overall responsibility of the Adviser and its affiliates
to the Fund and other clients, and that the total commission paid by the Fund
will be reasonable in relation to the benefits to the Fund over the long term.
Information and research received from such brokers and dealers will be in
addition to, and not in lieu of, the services required to be performed by the
Adviser under its Advisory Agreement with the Fund, and the advisory fee that
the Fund pays to the Adviser will not be reduced as a consequence of the
Adviser's receipt of brokerage and research services.
The term "brokerage and research services" includes advice as to the value
of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or of purchasers or sellers of
securities; furnishing analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the
performance of accounts; and effecting securities transactions and performing
functions incidental thereto such as clearance and settlement.
The Adviser's investment management personnel evaluate the quality of
research provided by brokers or dealers. The Adviser sometimes uses
evaluations resulting from this effort as a consideration in the selection of
brokers or dealers to execute portfolio transactions. However, the Adviser is
unable to quantify the amounts of commission that might be paid as a result of
such research because certain transactions might be effected through brokers
which provide research but which would be selected principally because of
their execution capabilities.
Investment decisions for the Fund and for other investment accounts managed
by Pacholder Associates are made independently of each other in the light of
differing considerations for the various accounts. However, the same
investment decision may be made for two or more such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then averaged
as to price and allocated to accounts according to a formula deemed equitable
to each account. While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as the Fund is
concerned, in other cases it is believed to be beneficial to the Fund.
The Fund has no obligation to deal with any broker or group of brokers in
the execution of transactions.
Administrative and Accounting Services
Kenwood Administrative Management, Limited Partnership (the
"Administrator"), 8044 Montgomery Road, Suite 382, Cincinnati, Ohio 45236, an
affiliate of Pacholder Associates, serves as the administrator of the Fund
pursuant to an Administration Agreement with the Fund dated June 5, 1996 (the
"Administration Agreement"). 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. Under the Administration Agreement, the Fund pays the Administrator a
monthly fee at the annual rate of 0.10% of the Fund's average weekly net
assets.
The Administration Agreement was approved by the Fund's shareholders on June
4, 1996. Continuation of the Administration Agreement was approved by the
Fund's Board of Directors, including a majority of the Independent Directors,
most recently on May 30, 1998. It may continue from year to year if
specifically approved at least annually by the Fund's Board of Directors or by
a vote of a majority of the Fund's outstanding voting securities. In either
event, the Administration Agreement also must be approved annually by vote of
a majority of the Independent Directors, cast in person at a meeting called
for that purpose.
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Pursuant to an Accounting Services Agreement with the Fund dated May 20,
1991, as amended, Pacholder Associates, an affiliate of the Adviser, is
responsible for (i) accounting relating to the Fund and its investment
transactions, (ii) determining the net asset value per share of the Fund,
(iii) maintaining the Fund's books of account, and (iv) monitoring, in
conjunction with the Fund's custodian, all corporate actions, including
dividends and distributions and stock splits, taken in respect of securities
held by the Fund. For these services the Fund pays Pacholder Associates a
monthly fee 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, and reimburses it for out-of-pocket expenses.
Because the fees the Adviser, the Administrator and Pacholder Associates
receive from the Fund are based on the average net assets of the Fund, they
will benefit from any increase in the Fund's net assets resulting from the
Offer. It is not possible to state precisely the amount of additional
compensation the Adviser, the Administrator and Pacholder Associates will
receive as a result of the Offer because it is not known how many Shares will
be subscribed for and because the proceeds of the Offer will be invested in
additional portfolio securities which will fluctuate in value. However, based
on the estimated proceeds from the Offer assuming all Rights are exercised in
full for the Estimated Subscription Price of $ per Share, and assuming the
Adviser receives the 0.90% "fulcrum fee," the Adviser would receive additional
annual advisory fees of approximately $ , and the Administrator and
Pacholder Associates would receive additional annual fees of approximately
$ and $ , respectively, as a result of the increase in the average net
assets under management over the Fund's current assets under management,
assuming no fluctuations in the value of Fund portfolio securities.
NET ASSET VALUE
The net asset value of the Common Stock is computed at least weekly,
generally on Thursday of each week on which the Exchange is open for trading.
This determination is made as of the close of the Exchange by deducting the
amount of the Fund's liabilities (including accrued expenses) and the
liquidation value of the outstanding shares of Preferred Stock from the value
of the Fund's assets (including interest and dividends accrued but not
collected) and dividing the difference by the number of outstanding shares of
Common Stock. Fixed income securities (other than short-term obligations, but
including listed issues) are valued by an independent pricing service approved
by the Board of Directors which utilizes both dealer supplied valuations and
electronic data processing techniques that take into account appropriate
factors such as institutional size trading in similar groups of
characteristics and other market data, without exclusive reliance upon
exchange or over-the-counter prices. Securities (other than fixed income
securities) for which the principal market is one or more securities exchanges
are valued at the last reported sales price prior to the determination (or if
there has been no current sale, at the closing bid price) on the primary
exchange on which such securities are traded. If a securities exchange is not
the principal market for a security, such security will be valued, if market
quotations are readily available, at the closing bid prices in the over-the-
counter market. Portfolio securities for which there are no such valuations,
including restricted securities that are not liquid, are valued at fair value
as determined under procedures established and monitored by the Board of
Directors. Short-term investments which mature in less than 60 days will be
valued at amortized cost.
DIVIDENDS AND DISTRIBUTIONS
Dividend Policy
It is the Fund's present policy, which may be changed by the Board of
Directors, to pay dividends on a monthly basis to holders of its Common Stock
of investment company taxable income (but not including short-term capital
gains or "net capital gains," defined as the excess of net long-term capital
gains over net short-term capital losses), and to distribute any net short-
term capital gains and net capital gains annually. Under present law, if the
Fund were to retain ordinary income or net capital gains, taxes would be
imposed with respect to those amounts. Subject to market conditions, the Fund
seeks to provide holders of its Common Stock with a
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relatively stable level of dividends. However, there can be no assurance that
the Fund will be able to maintain its current level of dividends, and the
Board of Directors of the Fund may, in its sole discretion, change the Fund's
current dividend policy or its current level of dividends in response to
market or other conditions. See "Risk Factors and Special Considerations--
Dividends and Distributions." See also "Federal Taxation" and "Description of
Capital Stock--Common Stock" for a discussion of certain possible restrictions
on the Fund's ability to declare dividends on the Common Stock.
Dividend Reinvestment Plan
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all
shareholders whose shares are registered in their own names will have all
distributions reinvested automatically in additional shares of the Fund by
Star Bank, N.A. (the "Bank"), as agent under the Plan, unless a shareholder
elects to receive cash. An election to receive cash may be revoked or
reinstated at the option of the shareholder. Shareholders whose shares are
held in the name of a broker or nominee will have distributions reinvested
automatically by the broker or nominee in additional shares under the Plan,
unless the service is not provided by the broker or nominee, or unless the
shareholder elects to receive distributions in cash. If the service is not
available, such distributions will be paid in cash. Shareholders whose shares
are held in the name of a broker or nominee should contact the broker or
nominee for details. All distributions to investors who elect not to
participate (or whose broker or nominee elects not to participate) in the
Plan, will be paid by check mailed directly to the record holder by the Bank,
as dividend paying agent.
The Bank will furnish each person who buys shares in the offering with
written information relating to the Plan. Included in such information will be
procedures for electing to receive distributions in cash (or, in the case of
shares held in the name of a broker or nominee who does not participate in the
Plan, procedures for having such shares registered in the name of the
shareholder so that such shareholder may participate in the Plan).
If the Board of Directors of the Fund declares a dividend or capital gains
distribution payable either in shares of Common Stock or in cash, as holders
of Common Stock may have elected, then non-participants in the Plan will
receive cash and participants in the Plan will receive the equivalent in
shares of Common Stock valued at the lower of market price or net asset value.
Whenever market price is equal to or exceeds net asset value at the time
shares are valued for the purpose of determining the number of shares
equivalent to the cash dividend or capital gains distribution, participants
will be issued shares of Common Stock at the net asset value most recently
determined as provided under "Net Asset Value," but in no event less than 95%
of the market price. If the net asset value of the Common Stock at such time
exceeds the market price of Common Stock at such time, or if the Fund should
declare a dividend or capital gains distribution payable only in cash, the
Bank will, as agent for the participants, buy Common Stock in the open market,
on the Exchange or elsewhere, for the participants' accounts. If, before the
Bank has completed its purchases, the market price exceeds the net asset value
of the Common Stock, the average per share purchase price paid by the Bank may
exceed the net asset value of the Common Stock, resulting in the acquisition
of fewer shares than if the dividend or capital gains distribution has been
paid in Common Stock issued by the Fund. The Bank will apply all cash received
as a dividend or capital gains distribution to purchase Common Stock on the
open market as soon as practicable after the payment date of such dividend or
capital gains distribution, but in no event later than 30 days after such
date, except where necessary to comply with applicable provisions of the
federal securities laws.
The Bank maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in such accounts, including
information needed by shareholders for personal and tax records. Common Stock
in the account of each Plan participant will be held by the Bank in non-
certificated form in the name of the participant, and each shareholder's proxy
will include those shares purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Bank's fees for handling the reinvestment of
dividends and capital gains distributions will be paid by the Fund. There will
be no brokerage charges with respect to shares of Common Stock issued directly
by the Fund as a result of dividends
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or capital gains distributions payable either in stock or in cash. However,
each participant will pay a pro rata share of brokerage commissions incurred
with respect to the Bank's open market purchases in connection with the
reinvestment of dividends and capital gains distributions.
The automatic reinvestment of dividends and capital gains distributions will
not relieve participants of any income tax which may be payable on such
dividends or distributions.
Experience under the Plan may indicate that change are desirable.
Accordingly, the Fund reserves the right to amend or terminate the Plan as
applied to any dividend or capital gains distribution paid after written
notice of the change sent to participants in the Plan at least 90 days before
the record date for such dividend or capital gains distribution. The Plan also
may be amended or terminated by the Bank, with the Fund's prior written
consent but, except when necessary or appropriate to comply with applicable
law or the rules or policies of a regulatory body, only on at least 90 days'
written notice to participants in the Plan. All correspondence concerning the
Plan should be directed to Star Bank, N.A., Corporate Trust Services, at 425
Walnut Street, P.O. Box 1118, Cincinnati, Ohio 45201-1118; or telephone toll
free (800) 727-1919, ext. 5788, Monday through Friday from 9:00 a.m. to 5:00
p.m.
FEDERAL TAXATION
The following discussion offers only a brief outline of the federal income
tax consequences of investing in the Common Stock and is based on the federal
tax laws in effect on the date hereof. Such tax laws are subject to change by
legislative, judicial or administrative action, possibly with retroactive
effect. Investors should consult their own tax advisors for more detailed
information and for information regarding the impact of state, local and
foreign taxes on an investment in the Fund.
General
The Fund has elected to be, and qualifies for treatment as, a regulated
investment company ("RIC") under Subchapter M of the Code. To qualify, the
Fund must, among other things, (a) derive at least 90% of its gross income
each taxable year from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of securities or
foreign currencies, or other income (including gains from options or futures
contracts) derived from its business of investing in securities or those
currencies ("Income Requirement"); and (b) diversify its holdings so that, at
the end of each quarter of its taxable year, (i) at least 50% of the value of
its total assets is represented by cash, U.S. Government securities,
securities of other RICs and other securities, with such other securities
limited, in respect of any one issuer, to an amount that does not exceed 5% of
the value of its assets and that does not represent more than 10% of the
issuer's outstanding voting securities and (ii) not more than 25% of the value
of its total assets is invested in the securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer.
For each taxable year that the Fund qualifies as a RIC, it will not be
subject to federal income tax on that part of its investment company taxable
income (consisting generally of net investment income, net short-term capital
gain and net realized gain from certain foreign currency transactions) and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) that it distributes to its shareholders, if it distributes at
least 90% of its investment company taxable income for that year
("Distribution Requirement"). The Fund intends to make sufficient
distributions of its investment company taxable income each taxable year to
meet the Distribution Requirement.
The Fund also currently intends to distribute all realized net capital gain
annually. If, however, the Board of Directors determines for any taxable year
to retain all or a portion of the Fund's net capital gain, that decision will
not affect the Fund's ability to qualify as a RIC but will subject the Fund to
a tax of 35% of the amount retained. In that event, the Fund expects to
designate the retained amount as undistributed capital gains in a notice to
its shareholders, who (i) will be required to include their proportionate
shares of the undistributed amount in their gross income as long-term capital
gain and (ii) will be entitled to credit their proportionate shares of the 35%
tax paid by the Fund against their federal income tax liabilities. For federal
income tax purposes, the tax
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basis of shares owned by a Fund shareholder will be increased by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's gross income.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts. For this and other purposes, a distribution will be treated as
paid by the Fund and received by the shareholders on December 31 of a calendar
year if it is declared by the Fund in that month of that year, payable to
shareholders of record on a date in that month and paid by the Fund at any
time through the end of the following January. Any such distribution thus will
be taxable to shareholders in the year the distribution is declared, rather
than the year in which the distribution is received.
Dividends and Distributions
Dividends from the Fund's investment company taxable income will be taxable
to its shareholders as ordinary income, whether paid in cash or reinvested in
shares. Distributions of the Fund's net capital gain and undistributed capital
gains, if any, will be taxable to the shareholders as long-term capital gain,
regardless of how long they have held their shares. Dividends are not expected
to be, and capital gain distributions will not be, eligible for the dividends-
received deduction allowed to corporations.
A participant in the Dividend Reinvestment Plan who receives a distribution
that is reinvested in shares will be treated as having received a taxable
distribution and will have a basis for those shares equal to their fair market
value on the distribution date. Shareholders will be notified annually as to
the federal income tax status of distributions to them. Investors should be
careful to consider the tax implications of buying shares just prior to a
distribution. The price of shares purchased at that time may reflect the
amount of the forthcoming distribution. Those purchasing just prior to the
record date for a distribution will receive the distribution, which
nevertheless will be taxable to them.
Sale of Shares
On a sale of shares of the Fund, a shareholder will realize taxable gain or
loss depending upon the amount realized on the sale and the shareholder's
basis for the shares. That gain or loss will be treated as capital gain or
loss if the shareholder held the shares as capital assets and will be long-
term capital gain or loss if the shares were held for more than one year. Any
such loss will be disallowed to the extent the shares that were disposed of
are replaced (such as pursuant to the Dividend Reinvestment Plan) within a
period of 61 days beginning 30 days before and ending 30 days after the date
of disposition. In such a case, the basis of the acquired shares will be
adjusted to reflect the disallowed loss. Any loss realized by a shareholder on
the sale of shares held for six months or less will be treated as long-term,
instead of short-term, capital loss to the extent of any capital gain
distributions received by the shareholder on those shares or any undistributed
capital gains designated with respect thereto.
Original Issue Discount
The Fund may purchase debt securities (such as zero-coupon debt securities
and zero-fixed-coupon debt securities) that have original issue discount,
which generally is included in income annually over the term of the security
in accordance with a certain formula. The discount that accrues each year on
those securities thus will increase the Fund's investment company taxable
income, thereby increasing the amount that must be distributed to satisfy the
Distribution Requirement, without providing the cash with which to make the
distribution. Accordingly, the Fund may have to dispose of other securities,
thereby realizing gain or loss at a time when it otherwise might not want to
do so, to provide the cash necessary to make distributions to shareholders.
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Backup Withholding
The Fund is required to withhold federal income tax at the rate of 31% on
all dividends and capital gain distributions payable to any individuals and
certain other non-corporate shareholders who fail to provide the Fund with
their correct taxpayer identification number or (with respect to dividends and
capital gain distributions) who otherwise are subject to backup withholding.
Foreign Withholding Taxes
Income received by the Fund from sources within foreign countries, and gains
realized on foreign securities, may be subject to withholding and other taxes
imposed by such countries, which would reduce the Fund's yield and/or total
return. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes, and many foreign countries do not impose taxes
on capital gains from investments by foreign investors. It is impossible to
determine the rate of foreign tax in advance, because the amount of the Fund's
assets to be invested in various countries is not known. If, as is expected,
the Fund does not have more than 50% of its assets invested in the securities
of foreign corporations at the close of its taxable year, it will not be
entitled to "pass through" to its shareholders the amount of foreign taxes it
paid with the result that the income on foreign securities will effectively be
subject to both foreign and United States taxation.
Foreign Shareholders
U.S. federal income taxation of a shareholder who, as to the United States,
is a non-resident alien individual, foreign trust or estate, foreign
corporation or foreign partnership depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by the
shareholder. Ordinarily, income from the Fund will not be treated as so
"effectively connected." In such case, dividends will be subject to U.S.
withholding tax of 30% (or lower treaty rate). Foreign shareholders are
advised to consult their own tax advisors with respect to the particular tax
consequences to them of an investment in shares, including the effect of any
applicable tax treaties.
Other Taxation
The foregoing is only a summary of some of the important federal tax
considerations affecting the Fund and its shareholders. Distributions also may
be subject to state, local and foreign taxes, depending on each shareholder's
particular situation. Investors are advised to consult their own tax advisors
with respect to the particular tax consequences to them of an investment in
the Fund.
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of the Fund consists of 47,550,000 shares of
Common Stock, $.01 par value (the "Common Stock"), and 2,450,000 shares of
Cumulative Preferred Stock, $.01 par value (the "Preferred Stock"), consisting
of 1,650,000 Series C shares and 800,000 Series D shares. As of December 31,
1998, 7,124,721 shares of Common Stock and 2,450,000 shares of Preferred Stock
were outstanding. The Board of Directors has the authority to reclassify any
authorized but unissued shares of capital stock into one or more additional or
other classes or series of stock.
Upon completion of the Offer, it is expected that the Board of Directors
will adopt articles supplementary amending the charter of the Fund to classify
an additional series of Preferred Stock. The newly classified series of
preferred shares would be issued, in a private placement for new capital, in
an amount such that the percentage of the Fund's assets representing leverage
will be approximately the same as it was prior to completion of the Offer.
Except for the annual dividend rate of the series, the terms of the newly
classified preferred series are expected to be the same in all material
respects as the Fund's outstanding Series C and Series D Preferred Stock. The
Board of Directors is expected to set the annual dividend rate of the new
series at a spread of 130 basis points over the yield on the 6 5/8% U.S.
Treasury Note due March 2002 as of the third Business Day after the Expiration
Date.
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Common Stock
All shares of Common Stock have equal rights in all respects as to
dividends, assets and voting privileges and have no redemption or preemptive
rights. In the event of liquidation, each share is entitled to its proportion
of the Fund's assets after payment of debts and expenses and the liquidation
preference of any outstanding preferred stock. The outstanding shares of
Common Stock are, and when issued the Shares offered hereby will be, fully
paid and non-assessable. Holders of the Common Stock are entitled to one vote
per share and do not have cumulative voting rights.
The Fund's Common Stock is listed on the Exchange under the symbol "PHF."
The Fund may from time to time sell additional shares of Common Stock,
although it has no present intention of offering additional shares other than
pursuant to the Offer or under the Dividend Reinvestment Plan. Other
offerings, if made, would require the approval of the Fund's Board of
Directors. Any additional offering will be subject to the requirements of the
1940 Act that shares may not be sold at a price below net asset value
(exclusive of underwriting discounts and commissions) except in connection
with an offering to one or more classes of the Fund's capital stock or with
the consent of a majority of the outstanding shares of Common Stock.
Under the 1940 Act, the Fund may not declare or pay any dividend or
distribution on the Common Stock, or repurchase any shares of Common Stock,
unless full cumulative dividends on all shares of preferred stock have been
declared and paid, and unless immediately thereafter the preferred stock has
an "asset coverage" (as defined in the 1940 Act) of at least 200% after
deducting the amount of such dividend, distribution or purchase price, as the
case may be. See "Asset Coverage and Other Financial Tests" below.
Preferred Stock
The outstanding shares of Preferred Stock are fully paid and non-assessable,
are not convertible into shares of Common Stock (or any other capital stock of
the Fund), and have no preemptive rights. The terms of the Preferred Stock, as
fixed by the Fund's Articles Supplementary Creating and Fixing the Rights of
Series C and Series D Cumulative Preferred Stock dated December 1, 1998 (the
"Articles Supplementary"), are summarized below. The following summary does
not purport to be complete and is qualified by reference to the Articles
Supplementary, which have been filed with the SEC as an exhibit to the Fund's
Registration Statement. See "Further Information."
Dividends. Holders of the Preferred Stock are entitled to receive cumulative
cash dividends payable quarterly at the annual rate of 7.15%, in the case of
the Series C shares, and 7.05%, in the case of the Series D shares, of the
liquidation preference ($20 per share) of the Preferred Stock. A quarterly
dividend may not be declared or paid on the Preferred Stock unless full
cumulative dividends have been or contemporaneously are declared and paid on
all outstanding shares of Preferred Stock through the most recent quarterly
dividend payment dates therefor. If full cumulative dividends have not been
paid, any dividends on the Preferred Stock are required to be paid pro rata on
all outstanding shares.
Liquidation Preference. In the event of any liquidation, dissolution or
winding up of the affairs of the Fund, whether voluntary or involuntary,
holders of the Preferred Stock will be entitled to receive a preferential
liquidating distribution in the amount of $20 per share, plus an amount equal
to all accrued and unpaid dividends to the date of distribution, before any
distribution or payment is made in respect of the Common Stock. If the assets
of the Fund are insufficient to pay holders of the Preferred Stock the
liquidating distribution to which they are entitled, then holders of the
Preferred Stock will share ratably in any assets available for distribution.
Unless and until the liquidation preference of the Preferred Stock has been
paid in full, the Fund may not pay any dividends or distributions on the
Common Stock.
Redemption. On March 2, 2002, the Fund is required to redeem all of the then
outstanding shares of Preferred Stock at a price equal to $20 per share plus
accumulated and unpaid dividends through the date of redemption. In addition,
if the financial restrictions described below under "Asset Coverage and Other
Financial
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Tests" are not met as of the evaluation dates prescribed in the Articles
Supplementary, then the Fund may be required to redeem such number of shares
at the liquidation value thereof that, after giving effect to such redemption,
the restrictions would be met. The Fund also may redeem the Preferred Stock,
in whole or in part, at any time at a redemption price equal to $20 per share,
plus accumulated and unpaid dividends through the date of redemption and a
make-whole premium equal to the discounted value of the remaining scheduled
payments with respect to the redeemed shares over the amount of the
liquidation preference of such shares.
Voting Rights. Except as described below, holders of the Preferred Stock
have equal voting rights with holders of the Common Stock of one vote per
share, and holders of the Preferred Stock and the Common Stock vote together
as a single class. Under the Articles Supplementary, holders of the Preferred
Stock, as a class, are entitled to elect two directors; holders of the Common
Stock, as a class, are entitled to elect two directors; and holders of the
Common Stock and the Preferred Stock, voting together as a single class, are
entitled to elect the remaining directors of the Fund. In addition, if at any
time dividends on the Preferred Stock shall be unpaid in an amount equal to
two full years' dividends, or if the Fund shall have failed to redeem any
shares of Preferred Stock as required, then holders of the outstanding shares
of Preferred Stock will be entitled to elect a majority of the Fund's
directors.
As long as any shares of Preferred Stock are outstanding: (1) the Fund may
not (a) petition the courts to file the Fund into bankruptcy, dissolve the
Fund or liquidate the Fund's assets, or consent to a petition seeking
liquidation, reorganization or other relief under applicable laws of any
jurisdiction relating to bankruptcy, insolvency or reorganization, (b) merge
or consolidate with any corporation, (c) convert to open-end status, or (d)
sell all or substantially all of its assets, without approval of a majority of
the outstanding shares of Preferred Stock and Common Stock, each voting as a
separate class; (2) the adoption of any plan of reorganization adversely
affecting either the Preferred Stock or the Common Stock requires the separate
approval of a majority of the outstanding shares of such class; (3) any action
requiring a vote of security holders under Section 13(a) of the 1940 Act
requires the approval of a majority of the outstanding shares of Preferred
Stock and Common Stock, each voting as a separate class; (4) the Fund may not
amend, alter or repeal any of the preferences, rights or powers of the
Preferred Stock without the approval of a majority of the outstanding shares
of Preferred Stock, voting separately as a class; (5) the Fund may not (a)
increase or decrease the number of shares of Preferred Stock authorized to be
issued; (b) create, authorize or issue any class or series of stock ranking on
a parity with or senior to the Preferred Stock with respect to the payment of
dividends or the distribution of assets in liquidation, dissolution or the
winding up of the affairs of the Fund; (c) create, authorize, assume or suffer
to exist any indebtedness for borrowed money or any direct or indirect
guarantee of such indebtedness; or (d) create, incur or suffer to exist or
agree to the creation, incurrence or existence of any lien, mortgage, pledge,
charge or security upon any of the assets of the Fund without the approval of
a majority of the outstanding shares of Preferred Stock, voting separately as
a class; (6) holders of the Preferred Stock and the Common Stock vote as
separate classes in connection with the election of directors as described
above; and (7) the Common Stock and the Preferred Stock vote as separate
classes to the extent otherwise required under Maryland law or the 1940 Act.
For purposes of the foregoing, a "majority of the outstanding shares" means
the vote, at the annual or a special meeting of shareholders, (i) of 67% or
more of the shares present at such meeting, if the holders of more than 50% of
the outstanding shares are present or represented by proxy; or (ii) of more
than 50% of the outstanding shares, whichever is the less.
Asset Coverage and Other Financial Tests. The Articles Supplementary require
the Fund to determine periodically that certain asset coverage and other
financial tests have been met and that the Fund has complied with certain
other restrictions. In the event that, on any date of determination, the Fund
does not comply with an applicable test or restriction, then the Fund will be
required to cure such violation within a stated cure period or, if such
violation cannot be cured, to redeem the Preferred Stock. For so long as any
shares of Preferred Stock are outstanding, the Fund is required (i) to
determine (a) weekly and (b) the Business Day immediately preceding the
declaration date of each dividend on the Common Stock, or any repurchase of
shares of Common Stock, that the ratio of the value of the Fund's total
assets, less all liabilities and indebtedness not representing senior
securities (as defined in the 1940 Act), to the aggregate amount of senior
securities representing indebtedness of
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the Fund, plus the aggregate liquidation value of all outstanding shares of
Preferred Stock and the amount of all unpaid dividends accrued to and
including the date of determination on all outstanding shares of Preferred
Stock is at least 250%; and (ii) to make bi-weekly determinations that the
amount of certain eligible portfolio property (as defined in the Articles
Supplementary) equals or exceeds the basic maintenance amount (as defined in
the Articles Supplementary). The Articles Supplementary provide that the Fund
shall not, without prior written confirmation that such action will not have
an adverse effect on the rating of the Preferred Stock, (i) lend securities,
(ii) issue any class of stock ranking prior to or on a parity with the
Preferred Stock with respect to the payment of dividends or the distribution
of assets upon dissolution, liquidation or winding up of the Fund;
(iii) engage in short sales; (iv) sell or purchase futures or options; (v)
merge or consolidate with any other corporation; (vi) authorize, assume or
suffer to exist any indebtedness for borrowed money or any direct or indirect
guarantee of such indebtedness, provided that the Fund may borrow money to
clear securities transactions if the asset coverage and eligible portfolio
coverage tests are met after giving effect to such borrowing; or (vii) engage
in reverse repurchase obligations.
Special Voting Requirements
The Fund's Articles of Incorporation contain an election to be governed by
Sections 3-601 through 3-603 of the Maryland General Corporation Law, which
require, among other things, a "super-majority" vote with respect to "business
combinations" (defined as any merger or similar fundamental transaction
subject to a statutory vote and certain transactions involving a transfer of
assets or securities to interested stockholders and their affiliates) between
Maryland corporations and "interested stockholders" (defined as beneficial
owners of more than 10% of the outstanding voting stock of such corporations).
Unless certain value and other standards are met (in the case of merger-type
transactions) or an exemption is available, business combinations with
interested stockholders may not be consummated unless recommended by the Board
of Directors of the Fund and approved by the affirmative vote of at least 80%
of the votes entitled to be cast by the shareholders and two-thirds of the
votes entitled to be cast by the shareholders other than the interested
stockholders.
The foregoing provisions will make it difficult to change the Fund's
management and could have the effect of depriving shareholders of an
opportunity to sell their shares at a premium over prevailing market prices by
discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. The Board of Directors has considered
these provisions and believes that they are in the shareholders' best
interest.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND REGISTRAR
The Fund's securities and cash are held by Star Bank, N.A., whose principal
business address is 425 Walnut Street, Cincinnati, Ohio 45201-1118, as
custodian under a custodian contract. Star Bank, N.A. serves as dividend
disbursing agent, as agent under the Fund's Dividend Reinvestment Plan, and as
transfer agent and registrar for the Common Stock.
LEGAL OPINIONS
The validity of the Shares offered hereby will be passed on for the Fund by
Piper & Marbury L.L.P., Baltimore, Maryland. Certain matters will be passed on
for the Dealer Manger by James P. Shanahan, Jr., Executive Vice President and
General Counsel of the Dealer Manager.
REPORTS TO SHAREHOLDERS
The Fund will send unaudited semi-annual and audited annual reports to its
shareholders, including a list of investments held.
42
<PAGE>
EXPERTS
The financial statements incorporated in this Prospectus by reference from
the Fund's December 31, 1998 Annual Report have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference and have been so incorporated in reliance
upon the report of such firm given their authority as experts in accounting
and auditing. The address of Deloitte & Touche LLP is 1700 Courthouse Plaza,
NE, Dayton, Ohio 45402.
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE
The Fund's Annual Report, which includes financial statements for the fiscal
year ended December 31, 1998, which either accompanies this Prospectus or has
previously been provided to the person to whom this Prospectus is being sent,
is incorporated herein by reference with respect to all information other than
information set forth in the Letter to Shareholders included therein. Any
statement contained in the Fund's Annual Report that was incorporated herein
shall be deemed modified or superseded for purposes of this Prospectus to the
extent a statement contained in this Prospectus varies from such statement.
Any such statement so modified or superseded shall not, except as so modified
or superseded, be deemed to constitute a part of this Prospectus. The Fund
will furnish, without charge, a copy of its Annual Report upon request to Star
Bank, N.A., Corporate Trust Services, 425 Walnut Street, P.O. Box 1118,
Cincinnati, Ohio 45201-1118; or telephone toll free (800) 727-1919, ext. 5788,
Monday through Friday from 9:00 a.m. to 5:00 p.m.
FURTHER INFORMATION
The Fund has filed with the SEC, Washington, D.C. 20549, a Registration
Statement under the Securities Act with respect to the Shares offered hereby.
Further information concerning these securities and the Fund may be found in
the Registration Statement, of which this Prospectus constitutes a part, on
file with the SEC. The Registration Statement may be inspected without charge
at the SEC's office in Washington, D.C., and copies of all or any part thereof
may be obtained from such office after payment of the fees prescribed by the
SEC.
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith files
reports and other information with the SEC. Such reports and other information
can be inspected and copied at the public reference facilities maintained by
the SEC at 450 Fifth Street, NW, Washington, D.C. 20549 and the SEC's regional
offices at Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the SEC at
450 Fifth Street, NW, Washington, D.C. 20549 at prescribed rates. Such reports
and other information concerning the Fund also may be inspected at the offices
of the Exchange. The SEC maintains a Web site (http://www.sec.gov) that
contains material incorporated by reference into this Prospectus, and reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. In addition, reports, proxy and
information statements and other information concerning the Fund can be
inspected at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006-1881.
43
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS
MOODY'S INVESTORS SERVICE
Long-Term Ratings
<TABLE>
<C> <S>
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuations of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa: Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
</TABLE>
Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted.
Among the obligations covered are commercial paper, Eurocommercial paper,
bank deposits, bankers' acceptances and obligations to deliver foreign
exchange. Obligations relying upon support mechanisms such as letters-of-
credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
<TABLE>
<C> <S>
Prime-1: Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
</TABLE>
A-1
<PAGE>
--Leading market positions in well-established industries.
--High rates of return on funds employed.
--Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
--Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-- Well-established access to a range of financial markets and assured
sources of alternate liquidity.
<TABLE>
<C> <S>
Prime-2: Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above
but to a lesser degree. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in
changes in the level of debt protection measurements and may require
relatively high financial leverage. Adequate alternate liquidity is
maintained.
</TABLE>
<TABLE>
<C> <S>
Not Prime: Issuers rated Not Prime do not fall within any of the Prime rating
categories.
</TABLE>
Preferred Stock Ratings
Preferred stock rating symbols and their definitions are as follows:
<TABLE>
<C> <S>
aaa: An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa: An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is reasonable assurance that earnings
and asset protection will remain relatively well maintained in the
foreseeable future.
a: An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classification, earnings and asset protections are,
nevertheless, expected to be maintained at adequate levels.
baa: An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings
and asset protection appear adequate at present but may be questionable
over any great length of time.
ba: An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
b: An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
caa: An issue which is rated "caa" is likely to be in arrears on dividend
payments. This rating designation does not purport to indicate the future
status of payments.
ca: An issue which is rated "ca" is speculative in a high degree and is
likely to be in arrears on dividends with little likelihood of eventual
payments.
c: This is the lowest rated class of preferred or preference stock. Issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
</TABLE>
Note: Moody's applies numerical modifiers 1, 2 and 3 in each ratings
category from Aa to Caa. The modifier 1 indicates that the issuer is in the
higher end of its letter rating category; the modifier 2 indicates a mid-range
ranking; the modifier 3 indicates that the issuer is in the lower end of the
letter rating category.
A-2
<PAGE>
STANDARD & POOR'S CORPORATION
Long-Term Issue Credit Ratings
<TABLE>
<C> <S>
AAA: An obligation rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA: An obligation rated "AA" differs from the highest rated obligations only
in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A: An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in the higher rated categories. However, the obligor's
capacity to meet its financial commitment is still strong.
BBB: An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligator to meet its
financial commitment on the obligation.
</TABLE>
Obligations rated "BB", "B", "CCC", "CC" and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
<TABLE>
<C> <S>
BB: An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B: An obligation rated "B" is more vulnerable to nonpayment than obligations
rated "BB," but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
CCC: An obligation rated "CCC" is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial, or economic conditions, the obligor
is not likely to have the capacity to meet its financial commitment on
the obligation.
CC: An obligation rated "CC" is currently highly vulnerable to nonpayment.
C: The "C" rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on
this obligation are being continued.
D: An obligation rated "D" is in payment default. The "D" rating category is
used when payments on an obligation are not made on the date due even if
the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grace period. The
"D" rating also will be used upon the filing of a bankruptcy petition or
the taking of a similar action if payments on an obligation are
jeopardized.
</TABLE>
Plus (+) or Minus (-): The ratings from 'AA' to 'CCC' may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
<TABLE>
<S> <C>
NR: Indicates that no public rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate
a particular type of obligation as a matter of policy.
</TABLE>
Short-Term Issue Credit Ratings
<TABLE>
<C> <S>
A-1: A short-term obligation rated "A-1" is rated in the highest category by
Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor's capacity to meet its financial commitment on these obligations
is extremely strong.
</TABLE>
A-3
<PAGE>
<TABLE>
<C> <S>
A-2: A short-term obligation rated "A-2" is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity
to meet its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated "A-3" exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the
obligor to meet its financial commitment on the obligation.
B: A short-term obligation rated "B" is regarded as having significant
speculative characteristics. The obligor currently has the capacity to
meet its financial commitment on the obligation; however, it faces major
ongoing uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
C: A short-term obligation rated "C" is currently vulnerable to nonpayment
and is dependent upon favorable business, financial and economic
conditions for the obligor to meet its financial commitment on the
obligation.
D: A short-term obligation rated "D" is in payment default. The "D" rating
category is used when payments on an obligation are not made on the date
due even if the applicable grace period has not expired, unless Standard
& Poor's believes that such payments will be made during such grace
period. The "D" rating also will be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation
are jeopardized.
Preferred Stock
A Standard & Poor's preferred stock rating is an assessment of the capacity
and willingness of an issuer to pay preferred stock dividends and any
applicable sinking fund obligations. A preferred stock rating differs from a
bond rating inasmuch as it is assigned to an equity issue, which issue is
intrinsically different from, and subordinated to, a debt issue. Therefore, to
reflect this difference, the preferred stock rating symbol will normally not
be higher than the debt rating symbol assigned to, or that would be assigned
to, the senior debt of the same issuer.
The preferred stock ratings are based on the following considerations:
1. Likelihood of payment--capacity and willingness of the issuer to meet the
timely payment of preferred stock dividends and any applicable sinking fund
requirements in accordance with the terms of the obligation;
2. Nature of, and provisions of, the issue;
3. Relative position of the issue in the event of bankruptcy, reorganization,
or other arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: This is the highest rating that may be assigned by Standard & Poor's to a
preferred stock issue and indicates an extremely strong capacity to pay
the preferred stock obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations in
very strong, although not as overwhelming as for issues rated "AAA."
A: An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for preferred stock in this category than for issues in the "A"
category.
</TABLE>
A-4
<PAGE>
<TABLE>
<C> <S>
BB, B: Preferred stock rated "BB", "B" or "CCC" are regarded, on balance, as
CCC: predominately speculative with respect to the issuer's capacity to pay
preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest degree of speculation. While such
issues will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
CC: The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C: A preferred stock rated "C" is a non-paying issue.
D: A preferred stock rated "D" is a non-paying issue with the issuer in
default on debt instruments.
NR: This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's does not rate a particular type of obligation as a matter of
policy.
</TABLE>
Plus (+) or Minus (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
A-5
<PAGE>
APPENDIX B
INVESTMENT PERFORMANCE OF THE FUND
Historical Performance
The following chart compares the historical total return investment
performance of the Fund for the 12-month periods indicated relative to the
percentage changes in the Credit Suisse First Boston High Yield Index(TM) (the
"Index") for the same periods (the "Index Returns"). The total return
investment performance of the Fund means the sum of (i) the change in the net
asset value per share of the Fund's Common Stock during the period, (ii) the
value of the cash distributions per share of Common Stock accumulated to the
end of the period, and (iii) the value of capital gains taxes per share paid
or payable on undistributed realized long-term capital gains accumulated to
the end of the period. For this purpose, the value of distributions per share
of realized capital gains, of dividends per share paid from investment income,
and of capital gains taxes paid or payable on undistributed realized long-term
capital gains will be treated as reinvested in shares of the Fund's Common
Stock at the net asset value per share in effect at the close of business on
the record date for the payment of such dividends and distributions and the
date on which provision is made for such taxes, after giving effect to such
dividends, distributions and taxes. The calculation of the Index Returns
reflects cash distributions having an ex-dividend date occurring within the
period made by the companies whose securities comprise the Index. While
neither the Index nor the net asset value per share of the Fund reflects the
reinvestment of dividends and distributions, management of the Fund believes
the Index provides a reasonable comparison for measuring the Fund's
performance. It is important to remember that past performance is no guarantee
of future results.
<TABLE>
<CAPTION>
Total Return (%) for the 12-
Month Period Ended December 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
----- ----- ----- ----- ----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Fund......... (3.19) 15.44 20.40 10.68 0.72 20.27 18.78 36.71 (0.87) 3.72
The Index........ 0.58 12.63 12.42 17.38 (0.97) 18.91 16.66 43.75 (6.38) 0.38
</TABLE>
The Index is an index of high-yield corporate debt securities which at
December 31, 1998, included 1,541 issues with an aggregate par value of $324.2
billion and an aggregate market value of $281.4 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 time of issuance.
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 two-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, 1998, of
the 1,541 issues comprising the Index, 1,347 (85.76% of market value) were
cash paying issues not in default, 163 issues (13.74% of market value) were
zero coupon or deferred interest issues not in default, and 31 issues (0.50%
of market value) were in default. The Index is calculated daily and published
monthly by Credit Suisse First Boston Corporation High Yield Research. Credit
Suisse First Boston Corporation High Yield Research 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.
Morningstar Rating
The Fund has received a four-star rating from Morningstar, Inc., an
independent publisher of financial information and investment company ratings.
The Fund's four-star rating is based upon its performance for the ten-year,
five-year and three-year periods ended December 31, 1998. The Fund received a
five-star rating for the ten-year period ended December 31, 1998, a three-star
rating for the four-year period ended December 31, 1998 and rating of three
stars for the three-year period ended December 31, 1998.
B-1
<PAGE>
Morningstar ratings involve comparisons of funds with similar investment
objectives and represent a proprietary measure of risk-adjusted performance
relative to three-month U.S. Treasury bill returns. A five-star rating is
characterized as "Highest" and is limited to the top 10% of scores in a rating
group; a four-star rating is characterized as "Above Average" and is limited
to the next 22.5% of scores in the rating group; and a three-star rating is
characterized as "Average" and is limited to the middle 35% of scores in the
rating group. The Fund is included among 133 closed-end funds in Morningstar's
"Taxable Bond" category. Morningstar ratings may change every four weeks and
do not take into account brokerage commissions, sales loads or other charges
that may be payable in connection with the purchase of shares. Morningstar
ratings are based on historical performance and are not predictive of future
results.
B-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Pacholder Fund, Inc.
2,375,662 Shares of Common Stock
Issuable Upon Exercise of
Rights To Subscribe for
Such Shares
----------------
PROSPECTUS
----------------
February , 1999
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having
been authorized by the Fund, the Adviser or the Dealer Manager. Neither the
delivery of this Prospectus nor any sale made hereunder shall under any
circumstances, create any implication that there has been no change in the
affairs of the Fund since the date hereof or that the information contained
herein is correct as of any time subsequent to its date. However, if any
material change occurs while this prospectus is required by law to be
delivered, this Prospectus will be amended or supplemented accordingly. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy, any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy in any circumstances in which such offer or
solicitation is unlawful.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART C -- OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements:
(a) Statement of Net Assets at December 31, 1998
(b) Statement of Operations For the Year Ended December 31, 1998
(c) Statements of Changes in Net Assets For the Years Ended December 31,
1998 and 1997
(d) Financial Highlights
(e) Notes to Financial Statements
(f) Independent Auditors' Report
All other financial statements, schedules and historical financial
information are omitted because the conditions requiring their filing do not
exist.
(2) Exhibits:
(a)(i) Articles of Incorporation. Incorporated herein by reference to
Amendment No. 5 to the Registration Statement on Form N-2 (File No.
811-5639) (the "Registration Statement") filed on November 16, 1988.
(ii) Articles of Amendment. Incorporated herein by reference to Amendment
No. 6 to the Registration Statement filed on March 19, 1992.
(iii) Articles Supplementary Creating and Fixing the Rights of Series C
and Series D Cumulative Preferred Stock.*
(b) Amended and Restated By-Laws.*
(c) Not applicable.
(d)(i) Specimen certificate for Common Stock. Incorporated herein by
reference to Amendment No. 3 to the Registration Statement filed on
November 10, 1988.
(ii) Specimen certificate for Series C Cumulative Preferred Stock.
(iii) Specimen certificate for Series D Cumulative Preferred Stock.
<PAGE>
(iv) Subscription Certificate for subscribing for Shares pursuant to the
Offer.
(v) Notice of Guaranteed Delivery for subscribing for Shares pursuant to
the Offer.
(d)(vi) Information agent Agreement between Pacholder Fund, Inc.
and Shareholder Communications Corporation.
(d)(vii) Subscription Agent Agreement between Pacholder Fund, Inc.
and BankBoston, N.A.
(e) Dividend Reinvestment Plan.
(f) Not applicable.
(g) Investment Advisory Agreement dated August 20, 1998.*
(h)(i) Dealer Manager Agreement
(ii) Soliciting Dealer Agreement.
(i) Not applicable.
(j) Custody Agreement dated May 1, 1996.*
(k)(i) Transfer Agency and Service Agreement dated January 1, 1999.*
(ii) Administration Agreement dated June 5, 1996.*
(iii) Accounting Services Agreement is incorporated herein by reference to
Amendment No. 7 to the Registration Statement filed on October 21,
1992.
(l) Opinion and Consent of Piper & Marbury L.L.P.
(m) Not applicable.
(n) Consent of Deloitte & Touche LLP.
(o) Not applicable.
(p) Not applicable.
(q) Not applicable.
_________________
* Previously filed.
Item 25. Marketing Arrangements
See Exhibit (h)(i).
Item 26. Other Expenses of Issuance and Distribution
The expenses in connection with the Offer, all of which are being borne by the
Registrant, are as follows:
<TABLE>
<S> <C>
Registration fee.................................... $9,762
National Association of Securities Dealers,
Inc. fee .......................................... 3,949
American Stock Exchange listing fee................. 17,500
Printing (other than stock certificates)............ 50,000
Accounting fees and expenses........................ 3,500
Legal fees and expenses............................. 65,000
Dealer Manager's expense reimbursement.............. 10,000
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
Information Agent fees and expenses................. 15,000
Subscription Agent fees and expenses................ 30,000
Miscellaneous....................................... 15,289
-------
Total........................................... $220,000
=======
</TABLE>
Item 27. Persons Controlled by or Under Common Control
None.
Item 28. Number of Holders of Securities
Set forth below are the number of record holders as of December 31, 1998,
of each class of securities of the Registrant:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Common Stock, par value $.01 per share................................ 448
Cumulative Preferred Stock, par value $.01 per share.................. 2
</TABLE>
Item 29. Indemnification
Article NINTH, Section 5 of the Registrant's Articles of Incorporation
provides as follows:
"(5) The Corporation shall indemnify (a) its directors to the full
extent provided by the general laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures
provided by such laws; (b) its officers to the same extent it shall
indemnify its directors; and (c) its officers who are not directors to such
further extent as shall be authorized by the Board of Directors and be
consistent with law; provided, however, that nothing herein shall be
construed to protect any director or officer of the Corporation against any
liability to which such director or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office. The
foregoing shall not limit the authority of the Corporation to indemnify
other employees and agents consistent with law."
Officers and directors of the Registrant are covered by an insurance policy
against liabilities and expenses of claims of wrongful acts arising out of their
position with the Registrant, except for matters which involve willful
misfeasance, bad faith, gross negligence or reckless disregard in the
performance of their duties. The insurance policy also insures the Registrant
against the cost of indemnification payments to officers and directors under
certain circumstances.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
described in this Item 29, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such
C-3
<PAGE>
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Item 30. Business and other connections of Investment Adviser.
Pacholder & Company, LLC is engaged primarily in the business of providing
investment advisory services. A description of the members of Pacholder &
Company, LLC and other required information is included in the Form ADV and
schedules thereto of Pacholder & Company, LLC on file with the Securities and
Exchange Commission (File No. 801-55869) and is incorporated herein by
reference.
Item 31. Location of Accounts and Records.
The Registrant maintains the records required by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 inclusive thereunder at
its principal office located at 8044 Montgomery Road, Suite 382, Cincinnati,
Ohio 45236. Certain records, including records relating to the Registrant's
shareholders and certain records relating to the physical possession of the
Registrant's securities, may be maintained at the offices of the Registrant's
custodian, transfer agent, dividend disbursing agent and registrar, Star Bank,
N.A., located at 425 Walnut Street, Cincinnati, Ohio 45201-1118.
Item 32. Management Services
Not applicable.
Item 33. Undertakings.
1. The Registrant undertakes to suspend offering of shares until the
prospectus is amended if (1) subsequent to the effective date of this
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of this Registration Statement or
(2) the net asset value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. The Registrant undertakes:
C-4
<PAGE>
a. to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(2) to reflect in the prospectus any facts or events after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(3) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
b. that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of those securities at that time shall be deemed to be the initial
bona fide offering thereof; and
c. to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
5. The Registrant undertakes that:
a. for the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to 497(h) under the 1933Act shall
be deemed to be part of the Registration Statement as of the time it was
declared effective; and
b. for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
6. Not applicable.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Pre-
Effective Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Cincinnati,
and State of Ohio, on the 23rd day of February, 1999.
PACHOLDER FUND, INC.
By: /s/ William J. Morgan
---------------------
William J. Morgan,
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Pre-
Effective Amendment No. 1 to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William J. Morgan Director, Chairman of the Board February 23, 1999
- --------------------- (principal executive officer), and
William J. Morgan Treasurer (principal financial
and accounting officer)
/s/ Daniel A. Grant Director February 23, 1999
- -----------------------
Daniel A. Grant
/s/ John F. Williamson Director February 23, 1999
- -----------------------
John F. Williamson
/s/ George D. Woodard Director February 23, 1999
- -----------------------
George D. Woodard
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Letter Description
- ------ -----------
<S> <C>
(a)(iii) Articles Supplementary Creating and Fixing the Rights of Series C and
Series D Cumulative Preferred Stock*
(b) Amended and Restated By-Laws*
(d)(ii) Specimen certificate for Series C Cumulative Preferred Stock...................
(iii) Specimen certificate for Series D Cumulative Preferred Stock...................
(iv) Subscription Certificate for subscribing for Shares pursuant to the Offer......
(v) Notice of Guaranteed Delivery for subscribing for Shares.......................
(d)(vi) Information Agent Agreement between Pacholder Fund, Inc.
and Shareholder Communications Corporation.....................................
(d)(vii) Subscription Agent Agreement between Pacholder Fund, Inc.
and BankBoston, N.A............................................................
(e) Dividend Reinvestment Plan.....................................................
(g) Investment Advisory Agreement dated August 20, 1998*
(h)(i) Dealer Manager Agreement.......................................................
(ii) Soliciting Dealer Agreement....................................................
(j) Custody Agreement dated May 1, 1996*
(k)(i) Transfer Agency and Service Agreement dated January 1, 1999*
(ii) Administration Agreement dated June 5, 1996*
(l) Opinion and Consent of Piper & Marbury L.L.P...................................
(n) Consent of Deloitte & Touche LLP...............................................
</TABLE>
- ----------
* Previously filed.
<PAGE>
EXHIBIT (d)(ii)
CERTIFICATE
Certificate Number Number of Shares
Pacholder Fund, Inc.
a Maryland Corporation
Series C Cumulative Preferred Stock
$.01 Par Value
This certifies that __________________ is the registered holder of ________
___________ (______) Series C Shares of Cumulative Preferred Stock, par value
$.01 per share, of Pacholder Fund, Inc., a Maryland corporation (the
"Corporation"), fully paid and non-assessable, transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this Certificate properly endorsed. This Certificate and the
shares represented hereby are issued and shall be subject to all of the
provisions of the Charter and By-Laws of the Corporation, each as from time to
time amended, to all of which the holder by acceptance hereof assents. The
Corporation will furnish to any stockholder on request and without charge a full
statement of the designations, and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption of the stock of each class authorized to be
issued, the differences in the relative rights and preferences between shares of
any series of any authorized preferred or special class to the extent they have
been set, and the authority of the Board of Directors to classify unissued
shares and to set the relative rights and preferences thereof and of any
subsequent series of such preferred or special classes.
Witness the seal of the Corporation and the signatures of the duly
authorized officers of the Corporation.
Dated:
- ----------------------------- ----------------------------
James P. Shanahan, Jr. Anthony L. Longi, Jr.
Secretary President
[SEAL]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND MAY BE OFFERED, SOLD OR
TRANSFERRED ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF SUCH LAWS OR IF AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
<PAGE>
EXHIBIT (d)(iii)
CERTIFICATE
Certificate Number Number of Shares
Pacholder Fund, Inc.
a Maryland Corporation
Series D Cumulative Preferred Stock
$.01 Par Value
This certifies that ______________________________ is the registered
holder of _______________________ (________) Series D Shares of Cumulative
Preferred Stock, par value $.01 per share, of Pacholder Fund, Inc., a Maryland
corporation (the "Corporation"), fully paid and non-assessable, transferable
only on the books of the Corporation by the holder hereof in person or by duly
authorized attorney upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be subject to
all of the provisions of the Charter and By-Laws of the Corporation, each as
from time to time amended, to all of which the holder by acceptance hereof
assents. The Corporation will furnish to any stockholder on request and without
charge a full statement of the designations, and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption of the stock of each
class authorized to be issued, the differences in the relative rights and
preferences between shares of any series of any authorized preferred or special
class to the extent they have been set, and the authority of the Board of
Directors to classify unissued shares and to set the relative rights and
preferences thereof and of any subsequent series of such preferred or special
classes.
Witness the seal of the Corporation and the signatures of the duly
authorized officers of the Corporation.
Dated:
- --------------------------- ----------------------------
James P. Shanahan, Jr. Anthony L. Longi, Jr.
Secretary President
[SEAL]
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAWS AND MAY BE OFFERED, SOLD OR
TRANSFERRED ONLY IF REGISTERED PURSUANT TO THE PROVISIONS OF SUCH LAWS OR IF AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
<PAGE>
Exhibit (d)(iv)
Control No._____________ Maximum Primary Subscription Shares Available______
THE OFFER EXPIRES AT 5:00 P.M., EASTERN TIME, MARCH 18, 1999
PACHOLDER FUND, INC.
RIGHTS FOR COMMON STOCK
Subscription Certificate
Pacholder Fund, Inc. (the "Fund") issued to its shareholders of record ("Record
Date Shareholders"), as of the close of business on February 23, 1999 (the
"Record Date"), non-transferable rights ("Rights") entitling the holders thereof
to subscribe for shares ("Shares") of the Fund's common stock, par value $.01
per share (the "Common Stock"), at a rate of one Share for every three Rights
held (1-for-3). The terms and conditions of the rights offer (the "Offer") are
set forth in the Fund's Prospectus dated February ___, 1999 (the "Prospectus")
incorporated herein by reference. The owner of this Subscription Certificate,
or assignee, is entitled to the number of Rights shown on this Subscription
Certificate and is entitled to subscribe for the number of Shares shown on this
Subscription Certificate. Record Date Shareholders issued fewer than three
Rights are entitled to subscribe for one Share pursuant to the Primary
Subscription. Record Date Shareholders who have fully exercised their Rights
pursuant to the Primary Subscription (other than those Rights which cannot be
exercised because they represent the right to subscribe for less than one Share)
are entitled to subscribe for additional Shares pursuant to the Over-
Subscription Privilege, subject to certain limitations and allotment, as
described in the Prospectus. Capitalized terms not defined herein have the
meanings attributed to them in the Prospectus. The Fund will not offer or sell
in connection with the Offer any Shares which are not subscribed for pursuant to
the Primary Subscription or the Over-Subscription Privilege.
SAMPLE CALCULATION
- -------------------------------------------------------------------------------
Primary Subscription Entitlement (1-for-3)
--------------------------------
No. of shares owned on the Record Date 300 (division symbol) 3 = 100 new shares
--- --- ---
(equals no. of Rights issued) (ignore fractions)
- -------------------------------------------------------------------------------
THE RIGHTS ARE NON-TRANSFERABLE
SUBSCRIPTION PRICE
The Subscription Price will be 95% of the net asset value of a share of Common
Stock as of the close of business on the Expiration Date.
<PAGE>
METHOD OF EXERCISE OF RIGHTS
IN ORDER TO EXERCISE YOUR RIGHTS, YOU MUST EITHER (i) COMPLETE AND SIGN THIS
SUBSCRIPTION CERTIFICATE ON THE BACK AND RETURN IT TOGETHER WITH PAYMENT OF THE
SUBSCRIPTION PRICE FOR THE SHARES SUBSCRIBED, OR (ii) PRESENT A PROPERLY
COMPLETED NOTICE OF GUARANTEED DELIVERY, IN EITHER CASE TO THE SUBSCRIPTION
AGENT, STATE STREET BANK AND TRUST COMPANY, BEFORE 5:00 P.M., EASTERN TIME, ON
MARCH 18, 1999 ("THE EXPIRATION DATE").
Full payment of the Subscription Price per Share for all Shares subscribed for
pursuant to both the Primary Subscription and, the Over-Subscription Privilege
must accompany this Subscription Certificate and must be made payable in United
States dollars by money order or check drawn on a bank located in the United
States payable to Pacholder Fund, Inc. Because uncertified personal checks may
take at least five business days to clear, we recommend you pay, or arrange for
payment, by means of certified or cashier's check or money order.
Alternatively, if a Notice of Guaranteed Delivery is used, a properly completed
and executed Subscription Certificate, and full payment, as described in such
notice, must be received by the Subscription Agent no later than the close of
business on the third Business Day (March 23, 1999) after the Expiration Date
(March 18, 1999). For additional information, see the Prospectus.
Certificates for the Shares acquired pursuant to the Primary Subscription will
be mailed promptly after the expiration of the Offer and full payment for the
Shares subscribed for has been received and cleared. Certificates representing
Shares acquired pursuant to the Over-Subscription Privilege will be mailed as
soon as practicable after full payment has been received and cleared and all
allocations have been effected. Any excess payment to be refunded by the Fund
to a shareholder will be mailed by the Subscription Agent to such shareholder as
promptly as possible.
Account #
Control #:
Number of Rights Issued:
CUSIP #: 693742108
(continued on back)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
BY FIRST CLASS MAIL: BY OVERNIGHT COURIER: BY HAND:
EquiServe L.P. EquiServe L.P. Securities Transfer & Reporting
Corporate Actions Dept. Corporate Actions Dept. Services, Inc.
P.O. Box 9573 40 Campanelli Drive c/o EquiServe L.P.
Boston, Massachusetts 02205-8686 Braintree, Massachusetts 02184 100 William Street, Galeria
New York, New York 10038
</TABLE>
Delivery to an address other than one of the addresses listed
above will not constitute valid delivery.
PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY
- --------------------------------------------------------------------------------
SECTION 1: OFFERING INSTRUCTIONS (check the appropriate boxes)
---------------------
IF YOU WISH TO SUBSCRIBE FOR YOUR FULL ENTITLEMENT:
I apply for ALL of my entitlement of new shares pursuant to the Primary
Subscription.______________________x $ = $______
(no. of new shares)
I apply for new shares pursuant to the Over-Subscription
Privilege/*/_______________________x $ = $______
(no. of additional shares)
IF YOU DO NOT WISH TO APPLY FOR YOUR FULL ENTITLEMENT:
I apply for_________________________________________________x $ = $_________
(no. of new shares)
Amount of check enclosed $_____________
SECTION 2: SUBSCRIPTION AUTHORIZATION
--------------------------
I acknowledge that I have received the Prospectus for this Offer and I hereby
irrevocably subscribe for the number of shares indicated above on the terms and
conditions specified in the Prospectus relating to the Primary Subscription and
the Over-Subscription Privilege.
I hereby agree that if I fail to pay in full for the shares for which I have
subscribed, the Fund may exercise any of the remedies set forth for in the
Prospectus.
Signature of subscriber(s)_________________________________________________
_____________________________________________________
_____________________________________________________
Telephone number (including area code) (___)_______________________________
If you wish to have your shares and refund check (if any) delivered to an
address other than that listed on this Subscription Certificate you must have
your signature guaranteed by a member of the New York Stock Exchange or a bank
or trust company. Please provide the delivery address above and note if it is a
permanent change.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECTION 3: DESIGNATION OF BROKER-DEALER
----------------------------
The following broker-dealer is hereby designated as having been instrumental in
the exercise of the Rights hereby exercised:
FIRM:____________________________________________________________________
REPRESENATIVE NAME:______________________________________________________
REPRESENTATIVE NUMBER:___________________________________________________
- -------------------------------------------------------------------------------
- ------------------
/*/ You can only participate in the Over-Subscription Privilege if you have
subscribed for your full entitlement of new shares pursuant to the Primary
Subscription.
ANY QUESTIONS REGARDING THIS SUBSCRIPTION CERTIFICATE AND THE OFFER MAY BE
DIRECTED TO THE INFORMATION AGENT, SHAREHOLDER COMMUNICATIONS CORPORATION,
TOLL FREE AT (800) 733-8481, EXT. 480.
<PAGE>
EXHIBIT (d)(v)
NOTICE OF GUARANTEED DELIVERY
For Shares of Common Stock of
PACHOLDER FUND, INC.
Subscribed for under Primary Subscription
and the Over-Subscription Privilege
As set forth in the Prospectus, this form or one substantially equivalent hereto
may be used as a means of effecting subscription and payment for all shares of
the Fund's common stock (the "Shares") subscribed for under the Primary
Subscription and the Over-Subscription Privilege. Such form may be delivered by
hand or sent by facsimile transmission, overnight courier or first-class mail to
the Subscription Agent.
The Subscription Agent is:
STATE STREET BANK AND TRUST COMPANY
Attention: Corporate Actions Dept.
<TABLE>
<S> <C>
By Mail: By Facsimile:
EquiServe L.P. (781) 575-4817
P.O. Box 9573
Boston, MA 02205-8686 Confirm by telephone to:
(781) 575-4816
By Overnight Courier: By Hand:
EquiServe L.P. Securities Transfer & Reporting
40 Campanelli Drive Services, Inc.
Braintree, MA 02184 EquiServe L.P.
100 William Street, Galeria
New York, NY 10038
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A
FACSIMILE NUMBER, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID
DELIVERY.
The financial institution which completes this form must be a member of the
Securities Transfer Agents Medallion Program, the Stock Exchange Medallion
Program or the New York Stock Exchange Medallion Signature Program, and must
communicate this guarantee and the number of Shares subscribed for in connection
with this guarantee (separately disclosed as to the Primary Subscription and the
Over-Subscription Privilege) to the Subscription Agent. The financial
institution must deliver this Notice of Guaranteed Delivery, guaranteeing
delivery of (a) payment in full of the estimated subscription price for all
subscribed Shares and (b) a properly completed and signed copy of the
Subscription Certificate to the Subscription Agent prior to 5:00 p.m., Eastern
time, on the Expiration Date. The Subscription Certificate and full payment
must then be received by the Subscription Agent by no later than the close of
business on the third Business Day after the Expiration Date. Failure to do so
will result in a forfeiture of the Rights.
GUARANTEE
The undersigned, a member of one of the three Medallion Programs referenced
above, guarantees delivery to the Subscription Agent by no later than 5:00 p.m.,
Eastern time, on the third Business Day after the Expiration Date (March 23,
1999) of (a) a properly completed and executed Subscription Certificate, and (b)
payment of the full estimated Subscription Price for Shares subscribed for on
Primary Subscription and for any additional Shares subscribed for pursuant to
the Over-Subscription Privilege, as subscription for such Shares is indicated
herein or in the Subscription Certificate.
(continued on other side)
<PAGE>
Broker Assigned Control #
------------
PACHOLDER FUND, INC.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Primary Subscription Number of Rights to be Number of Primary Shares Payment to be made in
Exercised requested for which you are connection with Primary
guaranteeing delivery of Shares
Rights and Payment
_________ Rights _________ Shares $__________________
(Rights / by 3)
2. Over-Subscription Number of Over-Subscription Payment to be made in
Shares requested for which connection with
you are guaranteeing payment Over-Subscription Shares
_________ Shares $__________________
3. Totals Total Number of
Rights to be Delivered _________ Rights $__________________
Total Payment
</TABLE>
Method of delivery (circle one)
A. Through DTC
B. Direct to State Street Bank and Trust Company, as Subscription Agent.
Please reference below the registration of the Rights to be delivered.
-------------------------------------
-------------------------------------
--------------------------------------
<PAGE>
PACHOLDER FUND, INC.
RIGHTS OFFERING
BENEFICIAL OWNER CERTIFICATION
The undersigned, a bank, broker or other nominee of Rights to purchase Shares
of common stock of Pacholder Fund, Inc. pursuant to the rights offering (the
"Offer") described and provided for in the Fund's prospectus dated February ___,
1999 (the "Prospectus"), hereby certifies to Pacholder Fund, Inc. and to State
Street Bank and Trust Company, as Subscription Agent for the Offer, that for
each numbered line filled in below the undersigned has purchased, on behalf of
the beneficial owner thereof (which may be the undersigned), the number of
Shares specified on such line pursuant to the Primary Subscription (as defined
in the Prospectus) and such beneficial owner wishes to subscribe for the
purchase of additional Shares pursuant to the Over-Subscription Privilege (as
defined in the Prospectus), in the amount set forth in the third column of such
line:
<TABLE>
<CAPTION>
I II III
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Number of Shares Number of Shares
Purchased Pursuant to Requested Pursuant to
Record Date Shares Primary Subscription Over-Subscription Privilege
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Total = Total = Total =
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
----------------------------------------------------------------------------------------------------
Name of Nominee Holder
By:
----------------------------------------------------------------------------------------------------
Name:
Title:
Dated: , 1999
----------------
Provided the following information if applicable.
-----------------------------------------------------------------------------------------------------
DTC Participant Number
-----------------------------------------------------------------------------------------------------
DTC Basic Subscription Confirmation Number
Contact Number:
-----------------------------------------------------------------------------------------------------
Phone Number:
-----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT (d)(vi)
INFORMATION AGENT AGREEMENT
---------------------------
This document will constitute the agreement between PACHOLDER FUND, INC.
(the "Fund"), with its principal executive offices at 8044 Montgomery Road,
Suite 382, Cincinnati, OH 45236, and SHAREHOLDER COMMUNICATIONS CORPORATION
("SCC"), with its principal executive offices at 17 State Street, New York, NY
10004, relating to a rights offering (the "Offer") of the Fund.
The services to be provided by SCC will be as follows:
(1) INDIVIDUAL HOLDERS OF RECORD AND BENEFICIAL OWNERS
--------------------------------------------------
Target Group. SCC estimates that it may call between 420 to 1,200 of the
------------
approximately 5,700 outstanding beneficial and record shareholders. The
estimate number is subject to adjustment and SCC may actually call more or
fewer shareholders depending on the response to the Offer or at the Fund's
direction.
Telephone Number Lookups. SCC will obtain the needed telephone numbers
------------------------
from various types of telephone directories.
Initial Telephone Calls to Provide Information. SCC will begin telephone
----------------------------------------------
calls to the target group as soon as practicable. Most calls will be made
during 10:00 a.m. to 9:00 p.m. on business days and only during 10:00 a.m.
to 5:00 p.m. on Saturdays. No calls will be received by any shareholder
after 9:00 p.m. on any day, in any time zone, unless specifically
requested by the shareholder. SCC will maintain "800" lines for
shareholders to call with questions about the Offer. The "800" lines will
be staffed Monday through Friday between 9:00 a.m. and 9:00 p.m.
Remails. SCC will coordinate remails of offering materials to the
-------
shareholders who advise SCC that they have discarded or misplaced the
originally mailed materials.
Reminder/Extension Mailing. SCC will help to coordinate any targeted or
--------------------------
broad-based reminder mailing at the request of the Fund. SCC will mail
only materials supplied by the Fund or approved by the Fund in advance in
writing.
Subscription Reports. SCC will rely upon the Subscription Agent for the
--------------------
Offer for accurate and timely information as to participation in the
Offer.
<PAGE>
(2) BANK/BROKER SERVICING
SCC will contact all banks, brokers and other nominee shareholders
("intermediaries") holding stock as shown on appropriate portions of the
shareholder lists to ascertain quantities of offering materials needed for
forwarding to beneficial owners.
SCC will deliver offering materials by messenger to New York City based
intermediaries and by Federal Express or other means to non-New York City
based intermediaries. SCC will also followup by telephone with each
intermediary to ensure receipt of the offering materials and to confirm
timely remailing of materials to the beneficial owners.
SCC will maintain frequent contact with intermediaries to monitor
shareholder response and to ensure that all liaison procedures are
proceeding satisfactorily. In addition, SCC will contact beneficial
holders directly, if possible, and do whatever may be appropriate or
necessary to provide information regarding the Offer to this group.
SCC will, as frequently as practicable, report to the Fund regarding
responses from intermediaries.
(3) PROJECT FEE
In consideration for acting as Information Agent SCC will receive a
project fee of $5,500.
(4) ESTIMATED EXPENSES
SCC will be reimbursed by the Fund for its reasonable out-of-pocket
expenses incurred, provided that SCC submits to the Fund an expense report
itemizing such expenses and providing copies of all supporting bills in
respect of such expenses. If the actual expenses incurred are less than
the portion of the estimated high range expenses paid in advance by the
Fund, the Fund will receive from SCC a check payable in the amount of the
difference at the time that SCC sends its final invoice for the second
half of the project fee.
SCC's expenses are estimated as set forth below and the estimates are
based largely on data provided to SCC by the Fund. In the course of the
Offer the expenses and expense categories may change due to changes in the
Offer schedule or due to events beyond SCC's control, such as delays in
receiving offering material and related items. In the event of significant
change or new expenses not originally contemplated, SCC will notify the
Fund by telephone and/or by letter for approval of such expenses.
-2-
<PAGE>
<TABLE>
<CAPTION>
Estimated Expenses Low Range High Range
------------------ -------- --------
<S> <C> <C>
Distribution expenses.................................... $ 2,500 $ 3,500
Telephone # look up
2,004 @ $.50............................................. 1,002 1,002
Outgoing telephone 420 to 1,200 @ $3.50.................. 1,470 4,200
Incoming "800" calls
284 to 590 @ $3.50....................................... 997.50 2,065
Miscellaneous, data processing, postage, deliveries
Federal Express and mailgrams............................ 500 750
-------- --------
Total Estimated Expenses............................... $ 6,469 $11,517
======== ========
</TABLE>
(5) PERFORMANCE
-----------
SCC will use its best efforts to achieve the goals of the Fund but SCC is
not guaranteeing a minimum success rate. SCC's project fee as provided for
in Section 3 or expenses as provided for in Section 4 are not contingent on
success or failure of the Offer.
SCC's strategies revolve around a telephone information campaign. The
purpose of the telephone information campaign is to raise the overall
awareness among shareholders of the Offer and help shareholders better
understand the transaction. This in turn may result in higher overall
response.
(6) COMPLIANCE
----------
The Fund will be responsible for its compliance with any regulations
required by the Securities and Exchange Commission or National Association
of Securities Dealers, Inc. or any applicable federal or state agencies.
In rendering the services contemplated by this Agreement, SCC agrees not to
make any representations, oral or written, to any shareholders or
prospective shareholders of the Fund that are not contained in the Fund's
Prospectus, unless previously authorized to do so in writing by the Fund.
(7) PAYMENT
-------
Payment for one half the project fee ($2,750.00) and one half the estimated
high range expenses ($5,758.50) for a total of $8,508.50 will be made at
the signing of this Agreement. The balance, if any, will be paid by the
Fund thirty days after SCC sends its final invoice.
-3-
<PAGE>
(8) MISCELLANEOUS
-------------
SCC will hold in confidence and will not use nor disclose to third parties
information SCC receives from the Fund, or information developed by SCC
based upon such information received by SCC, except for information which
was public at the time of disclosure or becomes part of the public domain
without disclosure by SCC or information which SCC learns from a third
party which does not have an obligation of confidentiality to the Fund.
In the event the project is canceled for an indefinite period of time after
the signing of this Agreement and before the expiration of the Offer, SCC
will be reimbursed by the Fund for any expenses incurred and not less than
100% of the project fee.
The Fund agrees to indemnify, hold harmless, reimburse and defend SCC, and
its officers, agents and employees, against all claims or threatened
claims, costs, expenses, liabilities, obligations, losses or damages
(including reasonable legal fees and expenses) of any nature, incurred by
or imposed upon SCC, or any of its officers, agents or employees, which
results, arises out of or is based upon services rendered to the Fund in
accordance with the provisions of this Agreement, provided that such
services are rendered to the Fund without any negligence, willful
misconduct, bad faith or reckless disregard on the part of SCC, or its
officers, agents and employees.
This Agreement will be governed by and construed in accordance with the
laws of the State of New York. This Agreement sets forth the entire agreement
between SCC and the Fund with respect to the agreement herein and cannot be
modified except in writing by both parties.
IN WITNESS WHEREOF, the parties have signed this Agreement this _____ day
of February 1999.
PACHOLDER FUND, INC. SHAREHOLDER COMMUNICATIONS
CORPORATION
By By
------------------------- -------------------------
James E. Gibson Robert S. Brennan
Senior Vice President Vice President
-4-
<PAGE>
EXHIBIT (d)(vii)
SUBSCRIPTION AGENT AGREEMENT
This Subscription Agent Agreement (the "Agreement") is made as of
February __ 1999, between Pacholder Fund, Inc. (the "Company") and BankBoston,
N.A. as subscription agent (the "Agent"). All terms not defined herein shall
have the meaning given in the prospectus (the "Prospectus") included in the
Registration Statement on Form N-2 (File Nos. 333-70767; 811-5639) filed by the
Company with the Securities and Exchange Commission on January 19, 1999, as
amended by any amendment filed with respect thereto (the "Registration
Statement").
WHEREAS, the Company proposes to make a subscription offer by issuing
certificates or other evidences of subscription rights, in the form designated
by the Company (the "Subscription Certificates"), to shareholders of record (the
"Shareholders") of its Common Stock, par value $.01 per share ("Common
Stock"), as of a record date specified by the Company (the "Record Date"),
pursuant to which each Shareholder will have certain rights (the "Rights") to
subscribe for shares of Common Stock, as described in and upon such terms as are
set forth in the Prospectus, a final copy of which has been or, upon
availability will promptly be, delivered to the Agent; and
WHEREAS, the Company wishes the Agent to perform certain acts on behalf of
the Company, and the Agent is willing to so act, in connection with the
distribution of the Subscription Certificates and the issuance and exercise of
the Rights to subscribe therein set forth, all upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties agree as follows:
1. Appointment. The Company hereby appoints the Agent to act as subscription
-----------
agent in connection with the distribution of Subscription Certificates and the
issuance and exercise of the Rights in accordance with the terms set forth in
this Agreement and the Agent hereby accepts such appointment.
2. Form and Execution of Subscription Certificates.
-----------------------------------------------
(a) Each Subscription Certificate shall be irrevocable and non-
transferable. The Agent shall maintain a register of Subscription Certificates
and the holders of record thereof (each of whom shall be deemed a "Shareholder"
hereunder for purposes of determining the rights of holders of Subscription
Certificates). Each Subscription Certificate shall, subject to the provisions
thereof, entitle the Shareholder in whose name it is recorded to the following:
(1) With respect to Record Date Shareholders only, the right to acquire
during the Subscription Period, as defined in the Prospectus, at the
Subscription Price, as defined in the
<PAGE>
Prospectus, a number of shares of Common Stock equal to one share of Common
Stock for every three Rights (the "Primary Subscription Right"); and
(2) With respect to Record Date Shareholders only, the right to subscribe
for additional shares of Common Stock, subject to the availability of such
shares and to the allotment of such shares as may be available among Record Date
Shareholders who exercise over-subscription rights on the basis specified in the
Prospectus; provided, however, that such Record Date Shareholder has exercised
all Primary Subscription Rights issued to him or her (the "Over-Subscription
Rights").
3. Rights and Issuance of Subscription Certificates.
------------------------------------------------
(a) Each Subscription Certificate shall evidence the Rights of the
Shareholder therein named to purchase Common Stock upon the terms and conditions
therein and herein set forth.
(b) Upon the written advice of the Company, signed by any of its duly
authorized officers, as to the Record Date, the Agent shall, from a list of the
Company Shareholders as of the Record Date to be prepared by the transfer agent
of the Company and delivered to the Agent, prepare and record Subscription
Certificates in the names of the Shareholders, setting forth the number of
Rights to subscribe for the Company's Common Stock calculated on the basis of
one Right for each share of Common Stock recorded on the books in the name of
each such Shareholder as of the Record Date. The number of Rights that are
issued to Record Date Shareholders will be rounded down, by the Agent, to the
nearest number of full Rights as fractional Rights will not be issued. Each
Subscription Certificate shall be dated as of the Record Date and shall be
executed manually or by facsimile signature of a duly authorized officer of the
Subscription Agent. Upon the written advice, signed as aforesaid, as to the
effective date of the Registration Statement, the Agent shall promptly
countersign and deliver the Subscription Certificates, together with a copy of
the Prospectus, instruction letter and any other document as the Company deems
necessary or appropriate, to all Shareholders with record addresses in the
United States (including its territories and possessions and the District of
Columbia). Delivery shall be by first-class mail (without registration or
insurance), except for those Shareholders having a registered address outside
the United States (who will only receive copies of the Prospectus, instruction
letter and other documents as the Company deems necessary or appropriate, if
any), delivery shall be by air mail (without registration or insurance) and by
first-class mail (without registration or insurance) to those Shareholders
having APO or FPO addresses. No Subscription Certificate shall be valid for any
purpose unless so executed.
(c) The Agent will mail a copy of the Prospectus, instruction letter, a
special notice and other documents as the Company deems necessary or
appropriate, if any, but not Subscription Certificates to Record Date
Shareholders whose record addresses are outside the United States (including its
territories and possessions and the District of Columbia) ("Foreign Record Date
Shareholders"). The Rights to which such Subscription Certificates relate will
be
-2-
<PAGE>
held by the Agent for such Foreign Record Date Shareholders' accounts until
instructions are received to exercise the Rights.
4. Exercise.
--------
(a) Record Date Shareholders may acquire shares of Common Stock on Primary
Subscription and pursuant to the Over-Subscription Privilege by delivery to the
Agent as specified in the Prospectus of (i) the Subscription Certificate with
respect thereto, duly executed by such Shareholder in accordance with and as
provided by the terms and conditions of the Subscription Certificate, together
with (ii) the estimated Subscription Price per Share as disclosed in the
Prospectus for each share of Common Stock subscribed for by exercise of such
Rights, in U.S. dollars by money order or check drawn on a bank in the United
States, in each case payable to the order of the Company or the Agent.
(b) Rights may be exercised at any time after the date of issuance of the
Subscription Certificates with respect thereto but no later than 5:00 p.m.
Eastern time, on such date as the Company shall designate to the Agent in
writing (the "Expiration Date"). For the purpose of determining the time of the
exercise of any Rights, delivery of any material to the Agent shall be deemed to
occur when such materials are received at the Shareholder Services Division of
the Agent specified in the Prospectus.
(c) Notwithstanding the provisions of Section 4(a) and 4(b) regarding
delivery of an executed Subscription Certificate to the Agent prior to
5:00 p.m. Eastern time, on the Expiration Date, if prior to such time
the Agent receives a Notice of Guaranteed Delivery by facsimile (telecopy) or
otherwise from a bank, a trust company or a New York Stock Exchange member
guaranteeing delivery of (i) payment of the full Subscription Price for the
shares of Common Stock subscribed for on Primary Subscription and any additional
shares of Common Stock subscribed for pursuant to the Over-Subscription
Privilege, and (ii) a properly completed and executed Subscription Certificate,
then such exercise of Primary Subscription Rights and Over-Subscription Rights
shall be regarded as timely, subject, however, to receipt of the duly executed
Subscription Certificate and full payment for the Common Stock by the Agent
within three Business Days (as defined below) after the Expiration Date (the
"Protect Period") and full payment for their Common Stock within seven
Business Days after the Confirmation Date (as defined in Section 4(d)). For the
purposes of the Prospectus and this Agreement, "Business Day" shall mean any day
on which the American Stock Exchange is open for trading and which is not a
Saturday or Sunday or holiday, or any other day on which banks in New York City
are authorized or obligated by law or executive order to close.
(d) The Company will determine the Subscription Price by taking 95% of the
net asset value per share of Common Stock as of the close of business on the
Expiration Date (the "Pricing Date"). Within eight Business Days following the
Pricing Date (the "Confirm Date") the Agent shall send to each exercising
Shareholder (or, if shares of Common Stock on the Record Date are held by Cede &
Co. or any other depository or nominee, to Cede & Co. or
-3-
<PAGE>
such other depository or nominee) a confirmation showing the number of shares of
Common Stock acquired pursuant to the Primary Subscription, and, if applicable,
the Over-Subscription Privilege, the per share and total purchase price for such
shares, and any additional amount payable to the Company by such Shareholder or
any excess to be refunded by the Company to such Shareholder, along with a
letter explaining the allocation of shares of Common Stock pursuant to the Over-
Subscription Privilege.
(e) Any additional payment required from a Shareholder must be received by
the Agent within seven Business Days after the Confirmation Date and any excess
payment to be refunded by the Company to a Shareholder will be mailed by the
Agent as promptly as practicable. If a Shareholder does not make timely payment
of any additional amounts due in accordance with Section 4(d), the Agent will
consult with the Company in accordance with Section 5 as to the appropriate
action to be taken. The Agent will not issue or deliver certificates for shares
subscribed for until payment in full therefore has been received, including
collection of checks and payment pursuant to Notices of Guaranteed Delivery.
5. Validity of Subscriptions. Irregular subscriptions not otherwise covered by
-------------------------
specific instructions herein shall be submitted to an appropriate officer of the
Company and handled in accordance with his or her instructions. Such
instructions will be documented by the Agent indicating the instructing officer
and the date thereof.
6. Over-Subscription. If, after allocation of shares of Common Stock to Record
-----------------
Date Shareholders, there remain unexercised Rights, then the Agent shall allot
the shares issuable upon exercise of such unexercised Rights (the "Remaining
Shares") to Shareholders who have exercised all the Rights initially issued to
them and who wish to acquire more than the number of shares for which the Rights
issued to them are exercisable. Shares subscribed for pursuant to the Over-
Subscription Privilege will be allocated in the amounts of such over-
subscriptions. If the number of shares for which the Over-Subscription Privilege
has been exercised is greater than the Remaining Shares, the Agent shall
allocate the Remaining Shares to Record Date Shareholders exercising the Over-
Subscription Privilege based on the number of shares of Common Stock owned by
them on the Record Date. The percentage of Remaining Shares each over-
subscribing Record Date Shareholder may acquire will be rounded up or down to
result in delivery of whole shares of Common Stock. The Agent shall advise the
Company immediately upon the completion of the allocation set forth above as to
the total number of shares subscribed and distributable.
7. Delivery of Certificates. The Agent will deliver (i) certificates
------------------------
representing those shares of Common Stock purchased pursuant to exercise of
Primary Subscription Rights as soon as practicable after the corresponding
Rights have been validly exercised and full payment for such shares has been
received and cleared and (ii) certificates representing those shares purchased
pursuant to the exercise of Over-Subscription Rights as soon as practicable
after the Expiration Date and after all allocations have been effected.
-4-
<PAGE>
8. Holding Proceeds of Rights Offering
-----------------------------------
(a) All proceeds received by the Agent from Shareholders in respect of the
exercise of Rights shall be held by the Agent, on behalf of the Company, in a
segregated interest-bearing account (the "Account"). All interest on funds held
in the Account shall accrue to the benefit of the Company pending disbursement
in the manner described in paragraph (b) below and in Section 4(e) above.
(b) The Agent shall deliver all proceeds received in the respect of Rights
to the Company's custodian bank as instructed by an appropriate officer of the
Company, but in no event later than seven Business Days after the Confirmation
Date. Proceeds held in respect of Excess Payments shall belong to the Company.
The Company agrees to deposit sufficient funds in the Account to make any Excess
Payments to be refunded to Shareholders as provided in Section4(e) above.
9. Reports.
-------
(a) Daily, during the period commencing on February __, 1999, until
termination of the Subscription Period, the Agent will report by telephone or
telecopier (by 2:00 p.m., Eastern time), confirmed by letter, to an officer of
the Company, data regarding Rights exercised, the total number of shares of
Common Stock subscribed for, and payments received therefor, bringing forward
the figures from the previous day's report in each case so as to show the
cumulative totals and any such other information as may be mutually determined
by the Company and the Agent.
10. Loss or Mutilation. If any Subscription Certificate is lost, stolen,
------------------
mutilated or destroyed, the Agent may, on such terms which will indemnify and
protect the Company as the Agent may in its discretion impose (which shall, in
the case of a mutilated Subscription Certificate include the surrender and
cancellation thereof), issue a new Subscription Certificate of like denomination
in substitution for the Subscription Certificate so lost, stolen, mutilated or
destroyed.
11. Compensation for Services. The Company agrees to pay to the Agent
-------------------------
compensation for its services as such in accordance with its Fee Schedule to act
as Agent, dated February __, 1999 and set forth hereto as Exhibit A. The Company
further agrees that it will reimburse the Agent for its reasonable out-of-pocket
expenses incurred in the performance of its duties as such.
12. Instructions and Indemnification. The Agent undertakes the duties and
--------------------------------
obligations imposed by this Agreement upon the following terms and conditions:
(a) The Agent shall be entitled to rely upon any instructions or directions
furnished to it by an appropriate officer of the Company, whether in conformity
with the provisions of this Agreement or constituting a modification hereof or a
supplement hereto. Without limiting the generality of the foregoing or any
other provision of this Agreement, the Agent, in connection with its duties
hereunder, shall not be under any duty or obligation to inquire into the
validity or
-5-
<PAGE>
invalidity or authority or lack thereof of any instruction or direction from an
officer of the Company which conforms to the applicable requirements of this
Agreement and which the Agent reasonably believes to be genuine and shall not be
liable for any delays, errors or loss of data occurring by reason of
circumstances beyond the Agent's control.
(b) The Company will indemnify the Agent and its nominees against, and hold
it harmless from, all liability and expense which may arise out of or in
connection with the services described in this Agreement or the instructions or
directions furnished to the Agent relating to this Agreement by an appropriate
officer of the Company, except for any liability or expense which shall arise
out of the gross negligence, bad faith or willful misconduct of the Agent or
such nominees.
13. Changes in Subscription Certificate. The Agent may, without the consent or
-----------------------------------
concurrence of the Shareholders in whose names Subscription Certificates are
registered, by supplemental agreement or otherwise, concur with the Company in
making any changes or corrections in a Subscription Certificate that it shall
have been advised by counsel (who may be counsel for the Company) is appropriate
to cure any ambiguity or to correct any defective or inconsistent provision or
clerical omission or mistake or manifest error therein or herein contained, and
which shall not be inconsistent with the provision of the Subscription
Certificate, except insofar as any such change may confer additional rights upon
the Shareholders.
14. Assignment, Delegation.
----------------------
(a) Neither this Agreement nor any rights or obligations hereunder may be
assigned or delegated by either party without the written consent of the other
party.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns. Nothing in this
Agreement is intended or shall be construed to confer upon any other person any
right, remedy or claim or to impose upon any other person any duty, liability or
obligation.
(c) The Agent may, without further consent on the part of the Company, (i)
subcontract for the performance hereof with Boston EquiServe Limited Partnership
or (ii) subcontract with other subcontractors for systems, processing, and
telephone and mailing services as may be required from time to time; provided,
however, that the Agent shall be as fully responsible to the Company for the
acts and omissions of any subcontractor as it is for its own acts and omissions.
15. Governing Law. The validity, interpretation and performance of this
-------------
Agreement shall be governed by the law of the Commonwealth of Massachusetts.
16. Third Party Beneficiaries. This Agreement does not constitute an agreement
-------------------------
for a partnership or joint venture between the Agent and the Company. Neither
party shall make any
-6-
<PAGE>
commitments with third parties that are binding on the other party without the
other party's prior written consent.
17. Force Majeure. In the event either party is unable to perform its
-------------
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other cause reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes. Performance under this Agreement shall resume when
the affected party or parties are able to perform substantially that party's
duties.
18. Consequential Damages. Neither party to this Agreement shall be liable to
---------------------
the other party for any consequential, indirect, special or incidental damages
under any provisions of this Agreement or for any consequential, indirect,
special or incidental damages arising out of any act or failure to act
hereunder even if that party has been advised of or has foreseen the possibility
of such damages.
19. Severability. If any provision of this Agreement shall be held invalid,
------------
unlawful, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired.
20. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
21. Captions. The captions and descriptive headings herein are for the
--------
convenience of the parties only. They do not in any way modify, amplify, alter
or give full notice of the provisions hereof.
22. Facsimile Signatures. Any facsimile signature of any party hereto shall
--------------------
constitute a legal, valid and binding execution hereof by such party.
23. Confidentiality. The Agent and the Company agree that all books, records,
---------------
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement including the fees for services set forth in the attached schedule
shall remain confidential, and shall not be voluntarily disclosed to any other
person, except as may be required by law.
24. Term. This Agreement shall remain in effect until terminated on April __,
----
1999 (the "Termination Date") or, prior to the Termination Date, upon 30 days'
written notice by either party to the other. Upon termination of the Agreement,
the Agent shall retain all canceled Certificates and related documentation as
required by applicable law.
-7-
<PAGE>
25. Merger of Agreement. This Agreement constitutes the entire agreement
-------------------
between the parties hereto and supersedes any prior agreement with respect to
the subject matter hereof whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, hereunto duly authorized, as of the day
and year first above written.
BANKBOSTON, N.A. PACHOLDER FUND, INC.
- ------------------------------ --------------------------------
Signature Signature
- ------------------------------ --------------------------------
Title Title
-8-
<PAGE>
BANKBOSTON, N.A.
FEE SCHEDULE
to serve
PACHOLDER FUND, INC.
as
SUBSCRIPTION AGENT
This Fee Schedule sets forth the fees for the services to be performed under the
Subscription Agent Agreement between BankBoston, N.A. and Pacholder Fund, Inc.
February __, 1999.
A. FEES FOR SERVICES
For the services set forth in the Subscription Agent Agreement February __,
1999, Pacholder Fund, Inc. will be charged as follows:
<TABLE>
<CAPTION>
<S> <C>
$ 7,500.00 Project Management Fee*
$ 2.00 Per Subscription Certificate issued and mailed
$ 9.00 Per subscription processed registered and beneficial
$ 12.50 Per defective Subscription Certificate received and processed
$ 15.00 Per Notice of Guaranteed Delivery received
$ 1.75 Per refund check issued and mailed
$ 4.50 Per invoice mailed
$ 2.25 Subsequent cash management
$ 2.00 Per broker split certificate issued
$ 15.00 Per withdrawal of Subscription Certificate, if applicable
$ 1,000.00 New York window fee upon expiration
$ 3,000.00 Per offer extension
</TABLE>
*Excludes out-of-pocket expenses as described in Section B, "Items Not Covered"
B. ITEMS NOT COVERED
. Services not specified in the Subscription Agent Agreement February __,
1999, including any services associated with new duties, legislation or
regulatory fiat which become effective after the date of the Subscription
Agent Agreement (these will be provided on an appraisal basis)
-9-
<PAGE>
. All out-of-pocket expenses such as telephone line charges, overprinting,
certificates, checks, postage, stationery, wire transfers, and excess
material disposal (these will be billed as incurred)
. Reasonable legal review fees if referred to outside counsel; provided
that BankBoston, N.A. shall notify Pacholder Fund, Inc. in writing of its
intention to use outside counsel
. Overtime charges assessed in the event of late delivery of material for
mailings unless the target mail date is rescheduled
C. LIMITATIONS
. Schedule based upon document review and information known at this time
about the transaction
. Significant changes made in the terms or requirements of this transaction
could require modifications to this Schedule
. Schedule based upon approximately ______ shareholders of record
. Material to be mailed to shareholders must be received no less than five
(5) Business Days prior to the start of the mailing project
D. PAYMENT FOR SERVICES
It is agreed that an invoice for the Project Management Fee will be rendered
and payable on the effective date of the transaction. An invoice for any
out-of-pockets and per item fees realized will be rendered and payable on a
monthly basis, except for postage expenses in excess of $5,000. Funds for
such mailing expenses must be received one (1) Business Day prior to the
scheduled mailing date.
In witness whereof, the parties hereto have caused this Fee Schedule to be
executed by their respective officers, hereunto duly agreed and authorized,
as of the effective date of this Fee Schedule.
BANKBOSTON, N.A. PACHOLDER FUND, INC.
By: By:
--------------------------- ---------------------------
John J. Regan
Title: Vice President Title:
------------------------ ------------------------
Date: Date:
------------------------- -------------------------
-10-
<PAGE>
EXHIBIT (e)
Pacholder Fund, Inc.
Dividend Reinvestment Plan
The Pacholder Fund, Inc. (the "Fund") Dividend Reinvestment Plan (the
"Plan") offers you a convenient way to invest your income dividends and capital
gains distributions in additional shares of the Fund's common stock thereby
increasing your holding of the Fund's shares.
The Plan is designed to allow all common shareholders an opportunity to
participate. Some of the Plan features are:
1. Dividend reinvestment automatically increases the number of shares you
own.
2. Dividends and distributions are paid in additional shares at the lower
of net asset value or market price, as described herein.
3. Shares purchased through the Plan are recorded in your account
providing protection against theft or destruction of share
certificates.
4. You may terminate your Plan account at any time.
HOW DO I ENROLL IN THE PLAN?
To participate in the Plan, please complete the attached Authorization Form
and return it in the envelope provided.
To start the Plan with a specific dividend, please forward the Form to Star
Bank, N.A. (the Plan Administrator) prior to the record date for that dividend.
HOW DOES THE PLAN WORK?
When a dividend is declared, non-participants in the Plan will receive
cash. Plan participants will receive the equivalent in shares of the Fund
valued at the lower of market price or net asset value as described below.
(i) If the shares are trading at net asset value or at a premium
above net asset value on the payment date, the Fund will issue
new shares at the greater of net asset value or 95% of the
current market price.
(ii) If the shares are trading at a discount from net asset value on
the payment date, Star Bank, N.A. will receive the dividend or
distribution in cash and apply it to the purchase of the Fund's
shares in the open market, on the American Stock Exchange or
elsewhere, for the participants' accounts. If before Star Bank,
N.A. has completed its purchases, the market price exceeds the
net asset value per share, the average purchase price per share
paid by Star Bank, N.A. may exceed the net asset value of the
Fund's shares, resulting in the acquisition of fewer shares than
if the dividend or distribution has been paid in shares issued
by the Fund. If the purchases have not been made prior to 30
days after the payment date, Star Bank, N.A. may receive the
uninvested portion in newly-issued shares.
WILL THE ENTIRE AMOUNT OF MY DISTRIBUTION BE REINVESTED?
As a Plan participant, the entire amount of your distribution will be
reinvested. For any balance that is insufficient to purchase a whole share, the
amount will be credited to your account in fractional shares.
WILL STOCK CERTIFICATES BE ISSUED FOR TRANSACTIONS IN THE PLAN?
A participant will be issued a stock certificate for full shares upon request to
Star Bank, N.A.
IS THERE ANY CHARGE TO PARTICIPATE IN THE PLAN?
There is no charge to participants for reinvesting dividends or
distributions. Star Bank, N.A.'s fee for handling the reinvestment of dividends
and distributions will be paid by the Fund. There will be no brokerage charge
to shareholders for shares issued directly by the Fund as a result of dividends
or distributions payable either in stock or cash. Each participant, however,
will pay pro rata share of brokerage commissions incurred with respect to Star
Bank, N.A.'s open-market-purchases in connection with the reinvestment of
dividends or distributions.
<PAGE>
HOW CAN I DISCONTINUE MY PARTICIPATION IN THE PLAN?
A shareholder may terminate his/her account under the Plan by notifying
Star Bank, N.A. in writing. Upon termination, you can either receive a
certificate for the number of full shares held in the Plan and a check for
fractional shares or have shares sold by Star Bank, N.A. and the proceeds sent
to you, less brokerage commissions and a $2.50 service fee.
WHERE CAN I DIRECT MY QUESTIONS AND CORRESPONDENCE?
Questions and correspondence concerning the Plan should be directed to:
Star Bank, N.A.
425 Walnut Street
6th Floor
Corporate Trust Services
Cincinnati, Ohio 45202
1-800-727-1919 ext. 5578
TERMS AND CONDITIONS
1. You, Star Bank, N.A. will act as agent for me, and will open an account
for me under the Dividend Reinvestment Plan in the same name as my present
shares are registered, and put the Plan into effect for me as of the first
record date for a dividend or capital gains distribution after you receive
the Authorization Form duly executed by me.
2. Whenever Pacholder Fund, Inc. (the "Fund") declares a distribution from the
capital gains or an income dividend payable either in cash or in shares of
Common Stock, par value $.01 per share ("Shares"), of the Fund and the
market price per share on the valuation date equals or exceeds the net
asset value per Share, I hereby elect to take such dividend or distribution
entirely in Shares, and you shall automatically receive such Shares,
including fractions, for my account. The number of additional Shares to be
credited to my account shall be determined by dividing the equivalent
dollar amount of the distribution or dividend payable to me by the net
asset value per Share of Fund's on the valuation date; provided, that, if
the premium over the current market price per Share exceeds 5% of the net
asset value per Share, the Shares will be issued at 95% of the market
price. The valuation date will be the payment date for such distribution or
dividend.
3. Whenever the Fund declares a distribution from capital gains or an income
dividend payable either in cash or in Shares and the net asset value per
Share exceeds the market price per Share on the valuation date, I hereby
elect to take such dividend in cash and you shall apply the amount of such
dividend or distribution payable to me (less pro rata share brokerage
commissions incurred with respect to open-market purchases in connection
with the reinvestment of such dividend or distribution) to the purchases on
the open-market of Shares for my account. Such purchases will be made on or
shortly after the payable date for such dividend or distribution, and in no
event more than 30 days after such date except where temporary curtailment
or suspension of purchase is necessary to comply with applicable provisions
of federal securities law. If you are unable to invest the full amount of
the dividend or distribution in open-market purchases because the market
discount has shifted to market premium or otherwise, you are authorized to
receive the uninvested portion of the dividend in newly-issued Shares.
4. For all purposes of the Plan: (a) the market price of the Fund's Shares
on a particular date shall be the last sale price on the American Stock
Exchange on the date, or if there is no sale on such Exchange on that date,
then the mean between the closing bid and asked quotations for such Shares
on such Exchange on such date, and (b) net asset value per share of the
Fund's Shares on a particular date shall be as determined by or on behalf
of the Fund.
5. Open-market purchases provided for above may be made on any securities
exchange where the Fund's Shares are traded, in the over-the-counter market
or in negotiated transactions and may be on such terms as to price,
delivery and otherwise as you shall determine. It is understood that, in
-2-
<PAGE>
<PAGE>
any event, you shall have no liability in connection with any inability to
purchase Shares within 30 days after the payable date for a dividend or
distribution as herein provided, or with the timing of any purchase
effected. You shall have no responsibility as to the value of Shares of the
Fund acquired for my account. For the purposes of purchases in the open-
market, you may aggregate my purchases with those of other shareholders of
the Fund for whom you similarly act as Agent, and the average price
(including brokerage commissions) of all Shares purchased by you as Agent
shall be the price per Share allocable to me in connection therewith.
6. You may hold my Shares acquired pursuant to my authorization, together
with the Shares of other shareholders of the Fund acquired pursuant to
similar authorizations, in noncertification form in your name or that of
your nominee. You will forward to me any proxy solicitation material and
will vote any Shares so held for me only in accordance with the proxy
returned by me to the Fund. Upon my written request, you will deliver to
me, without charge, a certificate or certificates for the full Shares.
7. You will confirm to me each acquisition made for my account as soon as
practicable but not less than 60 days after the date thereof. Although I
may from time to time have an undivided fractional interest (computed to
four decimal points) in a Share of the Fund, no certificates for a
fractional Share shall be issued. However, dividends and distributions on
fractional Shares will be credited to my account. In the event of
termination of my account under the Plan, you will adjust for any such
undivided fractional interest in cash at the market value of the Fund's
Shares at the time of termination less the pro rata expense of any sale
required to make such adjustment.
8. Any stock dividends or split Shares distributed by the Fund on Shares held
by you for me will be credited to my account. In the event that the Fund
makes available to its shareholders rights to purchase additional Shares or
other securities, the Shares held for me under the Plan will be added to
other Shares held by me in calculating the number of rights to be issued to
me.
9. Your service fee for administering the Plan will be paid by the Fund. I
will be charged a pro rata share of brokerage commissions on all open-
market purchases.
10. I may terminate my account under the Plan by notifying you in writing.
Such termination will be effective immediately if my notice is received by
you not less than ten days prior to any dividend or distribution record
date; otherwise, such termination will be effective on the first trading
day after the payment date for such dividend or distribution with respect
to any subsequent dividend or distribution. The Plan may be terminated by
you or the Fund upon notice in writing mailed to me at least 90 days prior
to any record date for the payment of any dividend or distribution by the
Fund. Upon any termination you will cause a certificate or certificates for
the full Shares held for me under the Plan and cash adjustment for any
fraction to be delivered to me without charge. If I elect by notice to you
in writing in advance of such termination to have you sell part or all of
my Shares and remit the proceeds to me, you are authorized to deduct a
$2.50 fee plus brokerage commission for this transaction from the proceeds.
11. These terms and conditions may be amended or supplemented by you or the
Fund at any time or times but, except when necessary or appropriate to
comply with applicable law or the rules or policies of the Securities and
Exchange Commission or any other regulatory authority, only by mailing to
me appropriate written notice at least 90 days prior to the effective date
thereof. The amendment or supplement shall be deemed to be accepted by me
unless, prior to the effective date thereof, you receive written notice of
termination of my account under the Plan. Any such amendment may include an
appointment by you in your place and stead of a successor agent under these
terms and conditions, with full power and authority to perform all or any
of the acts to be performed by you, as agent, under these terms and
conditions. Upon such appointment of any successor agent for the purpose of
receiving dividends and distributions, the Fund will be authorized to pay
to such successor agent, for my account, all dividends and distributions
payable on Shares of the Fund held in my name or under the Plan for
retention or application by such successor agent as provided in these terms
and conditions.
-3-
<PAGE>
12. You shall at all times act in good faith and agree to use your best efforts
within reasonable limits to insure the accuracy of all services performed
under this agreement and to comply with applicable law, but assume no
responsibility and shall not be liable for loss or damage due to errors
unless such error is caused by your negligence, bad faith or willful
misconduct or that of your employees.
13. These terms and conditions shall be governed by the laws of the State of
Ohio.
-4-
<PAGE>
AUTHORIZATION FORM
I elect to participate in the Pacholder Fund, Inc. Dividend Reinvestment Plan
and to have my income dividends and capital gains distributions reinvested as
provided for by the Plan.
Name:________________________ Social Security Number:_______________
Please Print
Address:_____________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Signature(s):______________________ Date:_______________________
__________________________________________________________________
Note: If shares are held in more than one name, all must sign.
-5-
<PAGE>
EXHIBIT (h)(i)
PACHOLDER FUND, INC.
2,375,662 Shares of Common Stock Issuable Upon Exercise
of Non-Transferable Rights to Subscribe for
Such Shares of Common Stock
DEALER MANAGER AGREEMENT
------------------------
February __, 1999
Winton Associates, Inc.
8044 Montgomery Road, Suite 382
Cincinnati, Ohio 45236
Dear Sirs:
Pacholder Fund, Inc., a Maryland corporation (the "Fund"), is a closed-end,
diversified management investment company registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). The Fund
proposes to issue to holders of its common stock, par value $.01 per share (the
"Common Stock"), of record as of the close of business on February 23, 1999
("Record Date Shareholders") rights (the "Rights") to subscribe for an aggregate
of 2,375,662 shares (the "Shares") of Common Stock.
The Fund appoints Winton Associates, Inc. (the "Dealer Manager") as
exclusive dealer manager in connection with the offer of the Shares contemplated
by the proposed issuance of the Rights (the "Offer"), and the Dealer Manager
accepts such appointment. The Dealer Manager represents and warrants that it is
a broker-dealer registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Pacholder & Company, LLC, an affiliate of the Dealer
Manager (the "Adviser"), manages the investments of the Fund pursuant to an
Investment Advisory Agreement with the Fund, dated August 20, 1998 (the
"Advisory Agreement"). Pacholder Associates, Inc. ("Pacholder Associates") is
the majority member of the Adviser.
In connection with the Offer, each Record Date Shareholder will be issued
one Right for each full share of Common Stock held on February 23, 1999 (the
"Record Date"). No fractional Rights will be issued. The Rights will entitle
shareholders to acquire at the subscription price per Share described in the
Prospectus (as hereinafter defined) one Share for each three Rights held. The
period of subscription (the "Subscription Period") will commence on February __,
1999 and end at 5:00 p.m., Eastern time, on March __, 1999, unless extended by
the Fund (the "Expiration Date"). Any Record Date Shareholder who fully
exercises all Rights held by him will be entitled to subscribe for Shares that
were not otherwise subscribed for by others during the Subscription Period (the
"Over-Subscription Privilege"). Additional terms and conditions of the Offer are
set out in the registration statement with respect to the Rights and Shares
filed by the Fund with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), and the
Investment Company Act and the rules and regulations (the "Rules and
Regulations") of the Commission thereunder.
<PAGE>
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the Fund, the
Adviser and the Dealer Manager hereby agree as follows:
1. Representations and Warranties of the Fund and the Adviser.
(a) The Fund represents and warrants as follows:
(i) The registration statement on Form N-2 (Nos. 333-70767; 811-5639) with
respect to the Rights and Shares has been carefully prepared by the Fund in
conformity with the requirements of the Securities Act and the Investment
Company Act and the Rules and Regulations. Copies of such registration
statement, including any amendments thereto, the preliminary prospectuses
(meeting the requirements of Rule 430A under the Securities Act) contained
therein and the exhibits, financial statements and schedules, as finally
amended and revised, have heretofore been delivered by the Fund to the
Dealer Manager. Such registration statement, herein referred to as the
"Registration Statement," which shall be deemed to include all information
omitted therefrom in reliance upon Rule 430A under the Securities Act and
contained in the Prospectus referred to below, has been declared effective
by the Commission under the Securities Act and no post-effective amendment
to the Registration Statement has been filed as of the date of this
Agreement. The form of prospectus first filed by the Fund with the
Commission pursuant to its Rule 497(b) or (h) and Rule 430A is herein
referred to as the "Prospectus." Each preliminary prospectus included in
the Registration Statement prior to the time it becomes effective is
hereinafter referred to as a "Preliminary Prospectus."
(ii) The Fund has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland, with
corporate power and authority to own its properties and conduct its
business as described in the Registration Statement; and the Fund is duly
qualified to transact business in all jurisdictions in which the conduct of
its business requires such qualification.
(iii) The Fund's authorized capitalization is as set forth in the
Prospectus; the outstanding shares of Common Stock have been duly
authorized and validly issued and are fully paid and non-assessable; the
Shares have been duly authorized and when issued, delivered and paid for as
described in the Registration Statement, will be validly issued, fully paid
and non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof.
(iv) The Rights and Shares conform to the statements concerning them in the
Registration Statement.
(v) The Commission has not issued an order preventing or suspending the use
of any Preliminary Prospectus or the Prospectus relating to the Offer nor
instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and in
all respects conforms or will conform, as the case may be, to the
2
<PAGE>
requirements of, the Securities Act, the Investment Company Act and the
Rules and Regulations. Neither the Registration Statement nor any amendment
thereto, and neither the Prospectus, nor any supplement thereto, contains
or will contain any untrue statement of a material fact or omits or will
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that the Fund makes no
representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Fund by or on behalf of the Dealer Manager, specifically
for use in the preparation thereof.
(vi) The Fund has not, directly or indirectly, (A) taken any action
designed to cause or to result in, or that constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Fund to facilitate the sale or resale of
the Shares, or (B) since the filing of the Registration Statement (1) sold,
bid for, purchased, or paid anyone any compensation for soliciting
purchases of, the Shares or (2) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Fund, except as contemplated by this Agreement or the Fund's dividend
reinvestment plan or as disclosed in writing to the Dealer Manager.
(vii) The financial statements of the Fund, together with the related notes
and schedules set forth in the Registration Statement, present fairly the
financial position of the Fund at the indicated dates. Such financial
statements have been prepared in accordance with generally accepted
principles of accounting.
(viii) There is no action or proceeding pending or, to the knowledge of the
Fund, threatened against the Fund before any court or administrative agency
which might result in any material adverse change in the business,
condition or prospects of the Fund.
(ix) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not
been any material change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Fund or the earnings, business affairs, management or
business prospects of the Fund, whether or not occurring in the ordinary
course of business, and there has not been any material transaction entered
into by the Fund, other than transactions in the ordinary course of
business and changes and transactions contemplated by the Registration
Statement, as it may be amended or supplemented. The Fund has no material
contingent obligations which are not disclosed in the Registration
Statement, as it may be amended or supplemented.
(x) The Fund is not in default under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by
which it or any of its properties is bound and which default is of material
significance in respect of the business or financial condition of the Fund.
The consummation of the transactions herein contemplated and the
fulfillment of the terms hereof will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of
3
<PAGE>
trust or other agreement or instrument to which the Fund is a party, the
charter or bylaws of the Fund or any order, rule or regulation applicable
to the Fund of any court or of any regulatory body or administrative agency
or other governmental body having jurisdiction.
(xi) Each approval, consent, order, authorization, designation, declaration
or filing by or with any regulatory, administrative or other governmental
body necessary in connection with the execution and delivery by the Fund
of, and the consummation of the transactions contemplated by, this
Agreement and the Fund Agreements (as hereinafter defined) (except such
additional steps as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or may be necessary to qualify the
Rights and Shares for public offering by the Fund under state securities or
"Blue Sky" laws) has been obtained or made and is in full force and effect.
(xii) The Fund holds all material licenses, certificates and permits from
governmental authorities which are necessary to the conduct of its
business.
(xiii) Deloitte & Touche LLP, who have certified the financial statements
of the Fund filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Securities
Act and the Rules and Regulations.
(xiv) The Fund is registered with the Commission pursuant to Section 8 of
the Investment Company Act as a closed-end, diversified management
investment company, and no order of suspension or revocation of such
registration has been issued or proceedings therefor initiated or
threatened by the Commission.
(xv) The Advisory Agreement, the Administration Agreement dated as of June
5, 1996, between the Fund and Kenwood Administrative Management, Limited
Partnership (the "Administration Agreement"); the Accounting Services
Agreement dated as of May 20, 1991, as amended, between the Fund and
Pacholder Associates, Inc. (the "Accounting Services Agreement"); the
Custody Agreement dated as of May 1, 1996, between the Fund and Star Bank,
N. A. (the "Custodian Agreement"); the Transfer Agency and Service
Agreement dated as of January 1, 1999, between the Fund and Star Bank, N.
A. (the "Transfer Agency Agreement"); the Subscription Rights Agency
Agreement dated as of February __, 1999, between the Fund and BankBoston,
N.A. (the "Subscription Agent Agreement") and the Information Agent
Agreement dated as of February __, 1999, between the Fund and Shareholder
Communications Corporation (the "Information Agent Agreement")
(collectively, the "Fund Agreements") have been duly authorized, executed
and delivered on behalf of the Fund, are valid and binding obligations of
the Fund enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other laws affecting the rights of creditors generally and
such principles of equity as a court having jurisdiction may apply, and are
in all respects in full compliance with all applicable provisions of the
Exchange Act, the Investment Company Act and the Investment Advisers Act of
1940, as amended (the "Advisers Act").
4
<PAGE>
(xvi) The Common Stock has been duly listed on the American Stock Exchange,
Inc. and the Shares have been approved for listing, subject to official
notice of issuance.
(b) Pacholder Associates represents and warrants as follows:
(i) The Adviser has been duly organized and is validly existing as a
limited liability company in good standing under the laws of the State of
Ohio, with power and authority to own its properties and conduct its
business as described in the Prospectus; and the Adviser is duly qualified
to transact business in all jurisdictions in which the conduct of its
business requires such qualification.
(ii) The Commission has not issued an order preventing or suspending the
use of any Preliminary Prospectus or the Prospectus relating to the Offer
nor instituted proceedings for that purpose. The Registration Statement
contains, and the Prospectus and any amendments or supplements thereto will
contain, all statements which are required to be stated therein by, and in
all respects conforms or will conform, as the case may be, to the
requirements of, the Securities Act, the Investment Company Act and the
Rules and Regulations. Nothing has come to the attention of Pacholder
Associates that causes Pacholder Associates to believe that the
Registration Statement or any amendment thereto, and the Prospectus or any
supplement thereto, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided,
however, that Pacholder Associates makes no representations or warranties
as to information contained in or omitted from the Registration Statement
or the Prospectus, or any such amendment or supplement, in reliance upon,
and in conformity with, written information furnished to the Fund by or on
behalf of the Dealer Manager specifically for use in the preparation
thereof; provided further, however, that with respect solely to information
contained in or omitted from the Registration Statement or the Prospectus,
or any such amendment or supplement, in reliance upon, and in conformity
with, written information furnished to the Fund by or on behalf of the
Adviser, specifically for use in the preparation thereof, Pacholder
Associates represents and warrants that such information does not contain
any untrue statement of a material fact and does not omit or will not omit
to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(iii) Neither the Adviser nor Pacholder Associates has, directly or
indirectly, (A) taken any action designed to cause or to result in, or that
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Fund to
facilitate the sale or resale of the Shares, or (B) since the filing of the
Registration Statement (1) sold, bid for, purchased, or paid anyone any
compensation for soliciting purchases of, the Shares or (2) paid or agreed
to pay to any person any compensation for soliciting another to purchase
any other securities of the Fund, except as contemplated by this Agreement
or the Fund's dividend reinvestment plan or as disclosed in writing to the
Dealer Manager.
5
<PAGE>
(iv) There is no action or proceeding pending or, to the knowledge of
Pacholder Associates, threatened against the Adviser before any court or
administrative agency which might result in any material adverse change in
the business, condition or prospects of the Adviser.
(v) Since the respective dates as of which information is given in the
Registration Statement, as it may be amended or supplemented, there has not
been any material change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Adviser or the earnings, business affairs, management or
business prospects of the Adviser, whether or not occurring in the ordinary
course of business, and there has not been any material transaction entered
into by the Adviser, other than transactions in the ordinary course of
business and changes and transactions contemplated by the Registration
Statement, as it may be amended or supplemented.
(vi) The Adviser is not in default under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by
which it or any of its properties is bound and which default is of material
significance in respect of the business or financial condition of the
Adviser. The consummation of the transactions herein contemplated and the
fulfillment of the terms hereof will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust or other agreement or instrument to
which the Adviser is a party, the limited liability company agreement of
the Adviser or any order, rule or regulation applicable to the Adviser of
any court or of any regulatory body or administrative agency or other
governmental body having jurisdiction.
(vii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery
by Pacholder Associates of, and the consummation of the transactions
contemplated by, this Agreement and the Advisory Agreement (except such
additional steps as may be required by the NASD or may be necessary to
qualify the Rights and Shares for public offering by the Fund under state
securities or "Blue Sky" laws) has been obtained or made and is in full
force and effect.
(viii) The Adviser holds all material licenses, certificates and permits
from governmental authorities which are necessary to the conduct of its
business.
(ix) The Adviser is duly registered with the Commission under the Advisers
Act as an investment adviser, and there does not exist any proceeding or
any facts or circumstances the existence of which could lead to any
proceeding which would adversely affect the registration or good standing
of the Adviser with the Commission. The Adviser is not prohibited from
performing its obligations under the Advisory Agreement.
(x) The Advisory Agreement had been duly authorized, executed and delivered
on behalf of the Adviser, is a valid and binding obligation of the Adviser
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization,
6
<PAGE>
moratorium, fraudulent conveyance and other laws affecting the rights of
creditors generally and such principles of equity as a court having
jurisdiction may apply, and is in all respects in full compliance with all
applicable provisions of the Investment Company Act and the Advisers Act.
2. Agreement to Act as Dealer Manager.
----------------------------------
(a) On the basis of the representations and warranties, and subject to the
terms and conditions, set forth in this Agreement:
(i) The Dealer Manager agrees to engage and organize a group of securities
brokers and dealers ("Soliciting Dealers") who will enter into an agreement
with the Fund in the form attached hereto as Exhibit A (the "Soliciting
Dealer Agreement") and solicit, in accordance with the Securities Act, the
Exchange Act and the Investment Company Act, and their customary practice,
the exercise of the Rights, subject to the terms and conditions of this
Agreement, the Subscription Agent Agreement and the procedures described in
the Registration Statement.
(ii) The Fund agrees to furnish, or cause to be furnished, to the Dealer
Manager, lists, or copies of such lists, showing the names and addresses
of, and number of shares of Common Stock held by, Record Date Shareholders
as of the Record Date; and the Dealer Manager agrees to use such
information only in connection with the Offer, and not to furnish the
information to any other person, except for securities brokers and dealers
that the Dealer Manager has requested to solicit exercises of Rights.
(iii) The Fund will advise or cause the subscription agent for the Offer to
advise the Dealer Manager and each Soliciting Dealer from day to day during
the Subscription Period, and promptly after the Expiration Date, as to the
names and addresses of all Record Date Shareholders exercising Rights, the
total number of Rights exercised by each Record Date Shareholder during the
immediately preceding day, indicating the total number of Rights verified
to be in proper form for exercise, rejected for exercise and being
processed and, for each Soliciting Dealer, the number of Rights exercised
on subscription forms designating such Soliciting Dealer as the broker-
dealer with respect to such exercise, and as to such other information as
the Dealer Manager may reasonably request; and will notify the Dealer
Manager and each Soliciting Dealer, not later than 5:00 p.m., Eastern time,
on the first business day following the Expiration Date, of the total
number of Rights exercised and Shares related thereto, the total number of
Rights verified to be in proper form for exercise, rejected for exercise
and being processed and, for each Soliciting Dealer, the number of Rights
exercised on subscription forms designating such Soliciting Dealer as the
broker-dealer with respect to such exercise, and as to such other
information as the Dealer Manager may reasonably request.
(iv) In addition to the services described in paragraph (a) (i) of this
Section 2, the Dealer Manager agrees to provide financial and marketing
advisory services to the Fund in connection with the Offer. No advisory
fee, other than the fees provided for in Section 3 of this Agreement and
the reimbursement of the Dealer Manager's out-of-pocket
7
<PAGE>
expenses as described in Section 5 of this Agreement, shall be payable by
the Fund to the Dealer Manager in connection with the financial and
marketing advisory services provided by the Dealer Manager pursuant to this
paragraph (a)(iv).
(b) The Fund and the Dealer Manager agree that the Dealer Manager is an
independent contractor with respect to solicitation of the exercise of Rights
contemplated by this Agreement and the performance of the financial and
marketing advisory services to the Fund contemplated by this Agreement; and the
Dealer Manager represents and warrants that it is not a partner or agent of any
other securities broker, dealer or other person soliciting the exercise of
Rights contemplated by this Agreement, or of the Fund or any of its affiliates.
(c) In rendering the services contemplated by this Agreement, the Dealer
Manager shall not be subject to any liability to the Fund or the Adviser, or any
of their affiliates, for any act or omission on the part of any securities
broker or dealer (other than the Dealer Manager) or any other person, and the
Dealer Manager shall not have any liability (whether direct or indirect, in
contract or tort or otherwise) for or in connection with the performance of its
obligations under this Agreement, except for any such liability for losses,
claims, damages or liabilities incurred that are finally judicially determined
to have resulted primarily from the bad faith or gross negligence of the Dealer
Manager.
3. Dealer Manager and Soliciting Dealer Fees.
-----------------------------------------
(a) In full payment for the financial and marketing advisory services and
other services provided and to be provided hereunder by the Dealer Manager, the
Fund agrees to pay to the Dealer Manager a fee equal to the amount computed by
multiplying (i) 0.009 (0.90%) by (ii) the aggregate number of Shares purchased
in the Offer by (iii) the subscription price per Share described in the
Prospectus (the "Subscription Price").
(b) The Fund agrees to pay each Soliciting Dealer, as provided in the
Soliciting Dealer Agreement, a fee equal to the amount computed by multiplying
(i) 0.020 (2.0%) by (ii) the Subscription Price by (iii) (A) the aggregate
number of Shares purchased pursuant to subscription forms on which the
Soliciting Dealer is designated by name as having solicited the exercise of such
Rights plus (B) Shares purchased pursuant to the Offer through the Soliciting
Dealer by beneficial owners of the Fund's Common Stock on whose behalf the
Soliciting Dealer acts as nominee, either directly or through The Depository
Trust Company ("DTC") or any other applicable depository, as listed in the
Appendix to the Soliciting Dealer Agreement. In no event shall the number in
(iii)(B) above exceed, as applicable, the number of Shares reported as purchased
by beneficial owners through the Soliciting Dealer by DTC, or any other
applicable depository, or the number of Shares the Soliciting Dealer is entitled
to purchase as a Record Date Shareholder (excluding in either case Shares held
for its own account). If more than one Soliciting Dealer is identified as having
solicited the exercise of identical Rights, the fee described above shall be
shared equally by all such Soliciting Dealers.
(c) Payment to the Dealer Manager by the Fund shall be in the form of a
wire transfer of same day funds to an account or accounts identified by the
Dealer Manager. Such payment shall be made concurrently with the issuance of the
Shares on the date on which the Offer is
8
<PAGE>
consummated (the "Closing Date"). Payment to a Soliciting Dealer shall be made
by the Fund directly to such Soliciting Dealer by wire transfer of same day
funds to an account or accounts identified by such Soliciting Dealer. Such
payments shall be made on the Closing Date. The Fund shall be under no liability
for any payment made to any Soliciting Dealer which payment is made in
accordance with instructions received from the Dealer Manager.
4. Covenants of the Fund and Pacholder Associates.
----------------------------------------------
(a) The Fund covenants and agrees with the Dealer Manager that:
(i) The Fund will (A) prepare and timely file with the Commission under
Rule 497(b) and (h) of the Rules and Regulations a Prospectus containing
any information previously omitted at the time of the effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and
Regulations and (B) will not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Dealer Manager shall
not previously have been advised and furnished with a copy or to which the
Dealer Manager shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations.
(ii) The Fund will advise the Dealer Manager promptly of any request of the
Commission for amendment of the Registration Statement or for supplement to
the Prospectus or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or any order under
Section 8(e) of the Investment Company Act or of the institution of any
proceedings for those purposes, and the Fund will use its best efforts to
prevent the issuance of any orders preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if
issued.
(iii) The Fund will deliver to, upon the order of, the Dealer Manager
during the period when delivery of a prospectus is required under the
Securities Act, as many copies of the Prospectus in final form, or as
thereafter amended or supplemented, as the Dealer Manager may reasonably
request. The Fund will deliver to the Dealer Manager at or before the date
hereof, one signed copy of the Registration Statement and all amendments
thereto, including all exhibits filed therewith, and will deliver to the
Dealer Manager such number of copies of the Registration Statement, but
without exhibits, and of all amendments thereto, as the Dealer Manager may
reasonably request.
(iv) If, during the period in which a prospectus is required by law to be
delivered by the Fund or a Soliciting Dealer, any event shall occur as a
result of which, in the judgment of the Fund or in the opinion of counsel
for the Dealer Manager, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered, not
misleading, or if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Fund promptly will prepare and file
with the Commission an appropriate amendment or supplement to the
Prospectus so that the Prospectus as so
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<PAGE>
amended or supplemented will not, in light of the circumstances when it is
so delivered, be misleading, or so that the Prospectus will comply with
such law.
(v) The Fund will cooperate with the Dealer Manager in endeavoring to
qualify the Shares for sale under the securities laws of such jurisdictions
as the Dealer Manager may reasonably have designated in writing and will
make such applications, file such documents, and furnish such information
as may be reasonably required for that purpose; provided, however, that the
Fund shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any jurisdiction where it is not
now so qualified or required to file such a consent. The Fund will, from
time to time, prepare and file such statements, reports and other documents
as are or may be required to continue such qualifications in effect during
the Subscription Period.
(vi) The Fund will not, directly or indirectly, take any action designed to
cause or to result in, or that has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of
any security of the Fund to facilitate the issuance of the Rights or the
sale or resale of the Shares, except as contemplated by this Agreement or
the Fund's dividend reinvestment plan or as disclosed in writing to the
Dealer Manager.
(vii) The Fund will make generally available to its security holders, as
soon as it is practicable to do so, but in any event not later than 60 days
after the close of the period covered thereby, an earnings statement
covering a period of at least twelve consecutive months beginning after the
effective date of the Registration Statement, which earnings statement
shall satisfy the requirements of Section 1l(a) of the Securities Act and
Rule 158 thereunder.
(b) Pacholder Associates covenants and agrees with the Dealer Manager that
neither Pacholder Associates nor the Adviser will, directly or indirectly, take
any action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of any security of the Fund to facilitate the issuance of the Rights
or the sale or resale of the Shares, except as contemplated by this Agreement or
the Fund's dividend reinvestment plan or as disclosed in writing to the Dealer
Manager.
5. Costs and Expenses.
------------------
(a) The Fund will pay all costs, expenses and fees incident to the
performance of its obligations under this Agreement, including, without
limiting the generality of the foregoing, the following: accounting fees of
the Fund; the fees and disbursements of counsel for the Fund; the cost of
printing and delivering to, as requested by, the Dealer Manager copies of
the Registration Statement and the Prospectus, and any supplements or
amendments thereto, this Agreement, the Soliciting Dealer Agreement, any
sales literature distributed to Soliciting Dealers or shareholders,
certificates for the Shares and subscription forms relating to the exercise
of Rights; the filing fees of the Commission; the filing fees and expenses
incident to securing any required review by the NASD of the terms of the
sale of the Shares; the listing fee of the American Stock Exchange, Inc.;
the expenses, including the fees and disbursements of counsel, incurred in
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<PAGE>
connection with the qualification of the Rights and the Shares under state
securities or "Blue Sky" laws and preparation of the Blue Sky Survey; and
the fees and expenses incurred pursuant to the Subscription Agent Agreement
and the Information Agent Agreement.
(b) In addition to any fees that may be payable to the Dealer Manager under
this Agreement, the Fund agrees to reimburse the Dealer Manager upon request
made from time to time for its reasonable expenses incurred in connection with
its activities under this Agreement in an amount up to $50,000.
(c) If this Agreement is cancelled by the Dealer Manager in accordance with
the provisions of Section 6 or is terminated by the Dealer Manager in accordance
with the provisions of Section 10(a)(iii), the Fund agrees to reimburse the
Dealer Manager for all of its reasonable out-of-pocket expenses incurred in
connection with its performance hereunder. In the event the transactions
contemplated hereunder are not consummated, the Fund agrees to pay all of the
costs and expenses set forth in paragraphs (a) and (b) of this Section 5 which
the Fund would have paid if such transactions had been consummated.
6. Conditions of Obligations of the Dealer Manager. The obligations of the
-----------------------------------------------
Dealer Manager hereunder are subject to the accuracy of the representations and
warranties of the Fund and Pacholder Associates contained herein, to the
performance by the Fund and Pacholder Associates of their respective obligations
hereunder, and to the following further conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Fund or the Adviser, shall be
contemplated by the Commission.
(b) The Dealer Manager shall have received on the date on which the Offer
commences (the "Commencement Date") the opinion of Piper & Marbury L.L.P.,
counsel for the Fund, dated the Commencement Date, addressed to the Dealer
Manager to the effect that:
(i) the Fund is a corporation duly incorporated and validly existing in
good standing under the laws of the State of Maryland, and has the
corporate power to own its properties and conduct its business as described
in the Prospectus; and the Fund is qualified to transact business in all
jurisdictions in which the conduct of its business requires such
qualification, or in which failure to qualify would have a material adverse
effect upon the business of the Fund;
(ii) the Fund has authorized and outstanding capital stock as set forth in
the Prospectus; the outstanding shares of Common Stock and the Rights have
been duly authorized and the outstanding shares of Common Stock have been
validly issued and are fully paid and non-assessable; the Rights and the
Shares conform to the descriptions thereof contained in the Prospectus; the
certificates for the Shares are in due and proper form; the Shares,
including the Shares to be issued pursuant to the Over-Subscription
Privilege, have been duly authorized and will be validly issued, fully paid
and non-assessable when issued and paid for as contemplated by the terms of
the Offer; and no
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<PAGE>
preemptive rights of stockholders exist with respect to any of the Rights
or the Shares or the issue and sale thereof;
(iii) the Registration Statement has become effective under the Securities
Act and, to the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened under the
Securities Act;
(iv) the Registration Statement and the Prospectus, and any amendments or
supplements thereto (other than the financial statements, schedules and
other financial information included therein, as to which such counsel need
express no opinion), comply as to form in all material respects with the
requirements of the Securities Act or the Investment Company Act, as
applicable, and the applicable rules and regulations thereunder;
(v) the statements under the captions "The Fund," "Investment Policies and
Limitations," "Dividends and Distributions," "Federal Taxation" and
"Description of Capital Stock" in the Prospectus to the extent that they
constitute matters of law or legal descriptions, are accurate, and fairly
and correctly present the information called for with respect to such
matters;
(vi) such counsel does not know of any contracts or documents required to
be filed as exhibits to the Registration Statement or described in the
Registration Statement or the Prospectus which are not so filed or
described as required, and such contracts and documents as are summarized
in the Registration Statement or the Prospectus are fairly summarized in
all material respects;
(vii) such counsel knows of no material legal proceedings pending or
threatened against the Fund;
(viii) this Agreement has been duly authorized, executed and delivered by
the Fund;
(ix) the execution and delivery of this Agreement and the consummation of
the transactions herein contemplated do not and will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a
default under, the charter or bylaws of the Fund, or any agreement or
instrument known to such counsel to which the Fund is a party or by which
the Fund may be bound;
(x) no approval, consent, order, authorization, designation, declaration or
filing by or with any regulatory, administrative or other governmental body
is necessary in connection with the execution and delivery of this
Agreement and the consummation by the Fund of the transactions herein
contemplated (other than as may be required by the NASD or as required by
state securities or "Blue Sky" laws as to which such counsel need express
no opinion) except such as have been obtained or made, specifying the same;
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<PAGE>
(xi) the Fund Agreements have each been duly authorized and approved by the
Fund and comply with all applicable provisions of the Investment Company
Act and the Advisers Act, and the Fund Agreements have each been duly
executed and delivered by the Fund and constitute the valid and binding
agreements of the Fund enforceable in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other laws affecting the rights of
creditors generally and such principles of equity as a court having
jurisdiction may apply;
(xii) the execution and delivery of the Fund Agreements and fulfillment of
the terms thereof will not result in a breach or violation of the terms and
provisions of, or constitute a default under, any agreement or instrument
known to such counsel to which the Fund is a party or of which its property
is the subject nor will such action result in any violation of the terms
and provisions of the charter or bylaws of the Fund or any statute or any
order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Fund or any of its properties; and
(xiii) the Fund is registered with the Commission under the Investment
Company Act as a closed-end, diversified management investment company, and
all required action has been taken by the Fund under the Securities Act,
the Investment Company Act and the Exchange Act to make the public offering
and consummate the sale of the Shares as contemplated by the Offer; and the
provisions of the charter and bylaws of the Fund comply as to form in all
material respects with the requirements of the Investment Company Act.
In rendering such opinion, Piper & Marbury L.L.P. may rely upon
certificates of officers of the Fund and of public officials as to matters of
fact, and may rely as to matters governed by the laws of states other than
Maryland or Federal laws on local counsel in such jurisdictions, provided that
in each case Piper & Marbury L.L.P. shall state that they believe that they and
the Dealer Manager are justified in relying on such other counsel.
In addition to the foregoing opinion, such counsel shall also advise the
Dealer Manager that, while they have not themselves checked the accuracy and
completeness of or otherwise verified, and are not passing upon and assume no
responsibility for the accuracy or completeness of, the statements contained in
the Registration Statement and the Prospectus, except to the limited extent
stated in paragraphs (ii) and (v) above, in the course of their review and
discussion of the contents of the Registration Statement and the Prospectus with
certain officers of the Fund and its independent accountants and others, no
facts have come to their attention which would cause them to believe that the
Registration Statement, at the time it became effective, or the Prospectus, at
the time it was filed with the Commission pursuant to Rule 497(b) and (h) of the
Rules and Regulations, or the Registration Statement and the Prospectus, at the
time they were first provided to the Dealer Manager, contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (except that
such counsel need express no view as to financial statements, schedules and
other financial information included therein or excluded therefrom).
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<PAGE>
(c) The Dealer Manager shall have received on the Commencement Date the
opinion of James P. Shanahan, Jr., Executive Vice president and General Counsel
of Pacholder Associates, dated the Commencement Date, addressed to the Dealer
Manager to the effect that:
(i) the Adviser is a limited liability company duly organized and validly
existing in good standing under the laws of the State of Ohio and has the
power to own its properties and conduct its business as described in the
Prospectus; and the Adviser is qualified to transact business in all
jurisdictions in which the conduct of its business requires such
qualification, or in which the failure to qualify would have a material
adverse effect upon its business;
(ii) such counsel knows of no material legal proceedings pending or
threatened against the Adviser; such counsel knows of no material legal
proceedings pending or threatened against any affiliate of the Adviser
which are required to be disclosed in the Prospectus;
(iii) this Agreement has been duly authorized, executed and delivered by
the Adviser;
(iv) the Adviser is registered with the Commission as an investment adviser
under the Advisers Act and is not prohibited by the Advisers Act or the
Investment Company Act, or the rules and regulations under such acts, from
acting as investment adviser to the Fund as contemplated by the Advisory
Agreement;
(v) the Advisory Agreement has been duly authorized, executed and delivered
on behalf of the Adviser and constitutes a valid and binding agreement of
the Adviser enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance
and other laws affecting the rights of creditors generally and such
principles of equity as a court having jurisdiction may apply; and
(vi) the execution and delivery by the Adviser of this Agreement or the
Advisory Agreement and the performance by the Adviser of its obligations
thereunder or hereunder will not result in a breach or violation of the
terms and provisions of, or constitute a default under, any agreement or
instrument known to such counsel to which the Adviser is a party or of
which its property is the subject nor will such action result in any
violation of the provisions of the limited liability company agreement of
the Adviser or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Adviser or any of
its properties.
In rendering such opinion, Mr. Shanahan may rely upon certificates of
officers of Pacholder Associates and of public officials as to matters of fact,
and may rely as to matters governed by the laws of states other than Ohio or
Federal laws on local counsel in such jurisdictions, provided that in each case
he shall state that he believes that he and the Dealer Manager are justified in
relying on such other counsel.
14
<PAGE>
(d) The Dealer Manager shall have received from James P. Shanahan, Jr.,
Executive Vice President and General Counsel of the Dealer Manager, an opinion
dated the Commencement Date with respect to the organization and existence of
the Fund, the validity of the Rights and Shares and other matters as the Dealer
Manager may reasonably request. In rendering such opinion, Mr. Shanahan may rely
as to all matters governed by the laws of the State of Maryland on the opinion
of Piper & Marbury L.L.P. delivered to the Dealer Manager on the Commencement
Date. In addition, such opinion shall also include a statement to the effect
that nothing has come to the attention of such counsel which leads him to
believe that the Registration Statement or the Prospectus contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
(except that such counsel need express no view as to financial statements,
schedules and other financial information included therein or excluded
therefrom). With respect to such statement, Mr. Shanahan may state that his
belief is based upon the procedures set forth therein, but is without
independent check and verification.
(e) The Dealer Manager shall have received at or prior to the Commencement
Date from Piper & Marbury L.L.P. a memorandum or summary, in form and substance
satisfactory to the Dealer Manager, with respect to the qualification for
offering and sale by the Fund of the Rights and Shares under the state
securities or "Blue Sky'' laws of such jurisdictions as the Dealer Manager may
reasonably have designated to the Fund.
(f) The Dealer Manager shall have received on the Commencement Date a
signed letter from Deloitte & Touche LLP, dated the Commencement Date, in form
and substance satisfactory to the Dealer Manager, to the effect that:
(i) they are independent accountants with respect to the Fund under Rule
101 of the AICPA's Code of Professional Conduct, and its interpretations
and rulings within the meaning of the Securities Act and the Rules and
Regulations;
(ii) they have performed specified procedures, not constituting an audit,
including a reading of the latest available interim financial statements of
the Fund, a reading of the minute books of the Fund, inquiries of officials
of the Fund responsible for financial accounting matters and such other
inquiries and procedures as may be specified in such letter, and on the
basis of such inquiries and procedures nothing came to their attention that
caused them to believe that at the date of the latest available financial
statements read by such accountants, or at a subsequent specified date not
more than five business days prior to the Commencement Date, there was any
change in the capital stock or net assets of the Fund as compared with
amounts shown on the audited financial statements included in the
Prospectus except as set forth in the letter.
(g) The Dealer Manager shall have received on the Commencement Date a
certificate or certificates of an executive officer of the Fund and an executive
officer Pacholder Associates to the effect that, as of the Commencement Date,
each of them severally represents as follows:
(i) The Registration Statement has become effective under the Securities
Act, and no order suspending the effectiveness of the Registration
Statement or under Section 8(e) of
15
<PAGE>
the Investment Company Act has been issued, and no proceedings for such
purpose have been taken or are, to his knowledge, contemplated by the
Commission.
(ii) He does not know of any litigation instituted or threatened against
the Fund or the Adviser of a character required to be disclosed in the
Registration Statement which is not so disclosed; he does not know of any
material contract required to be filed as an exhibit to the Registration
Statement which is not so filed; and the representations and warranties of
the Fund and the Adviser contained in Section 1 hereof are true and correct
as of the Commencement Date.
(iii) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the
Registration Statement, the statements contained in the Registration
Statement and the Prospectus were true and correct, and such Registration
Statement and Prospectus did not omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading and, in his opinion, since the effective date of the
Registration Statement, no event has occurred which should have been set
forth in a supplement to or an amendment of the Prospectus which has not
been so set forth in such supplement or amendment.
(h) The Fund and Pacholder Associates shall have furnished to the Dealer
Manager such further certificates and documents confirming the representations
and warranties contained herein and related matters as the Dealer Manager may
reasonably have requested.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Dealer Manager and to James P. Shanahan, Jr.,
Executive Vice President and General Counsel of the Dealer Manager.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Dealer Manager and its counsel, this Agreement and all
obligations of the Dealer Manager hereunder may be cancelled by the Dealer
Manager by notifying the Fund of such cancellation in writing or by telegram at
or prior to the Commencement Date.
In such event, the Fund, Pacholder Associates and the Dealer Manager shall
not be under any obligation to each other (except to the extent provided in
Sections 5 and 8 hereof).
7. Conditions of the Obligations of the Fund.
-----------------------------------------
The obligations of the Fund under this Agreement are subject to the condition
that at the Closing Date no stop order suspending the effectiveness of the
Registration Statement or order under Section 8(e) of the Investment Company Act
shall have been issued and in effect or proceedings therefor initiated or
threatened.
16
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8. Indemnification.
---------------
(a) The Fund and Pacholder Associates, jointly and severally, agree to
indemnify and hold harmless the Dealer Manager and each person, if any, who
controls the Dealer Manager within the meaning of the Securities Act against any
losses, claims, damages or liabilities to which the Dealer Manager or such
controlling person may become subject under the Securities Act, or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (x) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, (y) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading or (z) the Fund or the Adviser not complying
with the Securities Act, the Exchange Act, the Investment Company Act, the
Advisers Act, or other applicable United States securities laws and regulations;
and will reimburse the Dealer Manager and each such controlling person for any
legal or other expenses reasonably incurred by the Dealer Manager or such
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding; provided, however, that the Fund
and Pacholder Associates will not be liable in any case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an untrue
statement, or alleged untrue statement, or omission or alleged omission, made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Fund by or through the Dealer Manager specifically
for use in the preparation thereof. This indemnity agreement will be in addition
to any liability which the Fund or Pacholder Associates may otherwise have.
(b) The Dealer Manager will indemnify and hold harmless the Fund, each of
its directors, each of its officers who have signed the Registration Statement,
the Adviser and each person, if any, who controls the Fund or the Adviser within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities to which the Fund, the Adviser or any such director, officer or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made; and will reimburse any legal or
other expenses reasonably incurred by the Fund, the Adviser or any such
director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability action or proceeding;
provided, however, that the Dealer Manager will be liable in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Fund by the Dealer Manager specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which the Dealer Manager may otherwise have.
17
<PAGE>
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to this Section 8, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing. No indemnification provided for in Section 8(a) or (b) shall
be available to any party who shall fail to give notice as provided in this
Section 8(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was prejudiced by the
failure to give such notice, but the failure to give such notice shall not
relieve the indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of the provisions of Section 8(a) or (b). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred the fees and expenses of the counsel retained by the indemnified
party in the event (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named parties
to any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by the Dealer Manager in the case of parties indemnified pursuant to
Section 8(a) and by the Fund and the Adviser in the case of parties indemnified
pursuant to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(d) In no case shall the indemnification provided for in this Section 8 be
available to protect any person against any liability to which such person would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its or his duties, or by reason of its or his
reckless disregard of its or his obligations and duties under this Agreement.
(e) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under Section 8(a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Fund and the Adviser on the one hand and
the Dealer Manager on the other from
18
<PAGE>
the Offer. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party failed
to give the notice required under Section 8(c) above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Fund and the Adviser on the one hand and the
Dealer Manager on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Fund and the Adviser on
the one hand and the Dealer Manager on the other hand shall be deemed to be in
the same proportion as the total net proceeds from the Offer (before deducting
expenses) received by the Fund and the Adviser bear to the fee received by the
Dealer Manager pursuant to Section 3(a) hereof. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Fund or the Adviser on
the one hand or the Dealer Manager on the other and the parties relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Fund, Pacholder Associates and the Dealer Manager agree that it would
not be just and equitable if contributions pursuant to this paragraph (e) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above to this
paragraph (e). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) referred to above in this paragraph (e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this paragraph (e), (i) the Dealer Manager
shall not be required to contribute any amount in excess of the fee received
pursuant to Section 3(a) hereof and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(f) In any proceeding relating to the Registration Statement, the
Prospectus, or any supplement or amendment thereto, each party against whom
contribution may be sought under this Section 8 hereby consents to the
jurisdiction of any court having jurisdiction over any other contributing party,
agrees that process issuing from such court may be served upon him or it by any
other contributing party and consents to the service of such process and agrees
that any other contributing party may join him or it as an additional defendant
in any such proceeding in which such other contributing party is a party.
(g) The Fund and Pacholder Associates agree to indemnify each Soliciting
Dealer and its controlling persons to the same extent and subject to the same
conditions and to the same agreements, including with respect to contribution,
provided for in paragraphs (a), (b), (c), (d) and (e) of this Section 8.
9. Notices. All communications hereunder shall be in writing and, except
-------
as otherwise provided herein, shall be mailed, delivered or telegraphed and
confirmed as follows: if
19
<PAGE>
to the Dealer Manager, to Winton Associates, Inc., 8044 Montgomery Road, Suite
382, Cincinnati, Ohio 45236; if to the Fund or Pacholder Associates, to
Pacholder Fund, Inc. or Pacholder Associates, Inc., as applicable, 8044
Montgomery Road, Suite 382, Cincinnati, Ohio 45236.
10. Termination.
-----------
(a) This Agreement shall be subject to termination in the absolute
discretion of the Dealer Manager, by notice given to the Fund prior to the
Expiration Date, if prior to such time (i) financial, political, economic,
currency or banking conditions in the United States shall have undergone any
material change the effect of which on the financial markets makes it, in the
Dealer Manager's reasonable judgment, impracticable to proceed with the Offer,
(ii) there has occurred any outbreak or material escalation of hostilities or
other calamity or crisis the effect of which on the financial markets of the
United States is such as to make it, in the Dealer Manager's reasonable
judgment, impracticable to proceed with the Offer, (iii) trading in the shares
of Common Stock shall have been suspended by the Commission or the American
Stock Exchange, Inc., (iv) trading in securities generally on the New York Stock
Exchange, Inc. or the American Stock Exchange, Inc. shall have been suspended or
limited or minimum prices that, as of the date hereof, do not already exist,
shall have been established on such exchanges or (v) a banking moratorium shall
have been declared either by Federal or New York State authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 5.
11. Successors. This Agreement has been and is made solely for the benefit
----------
of the Dealer Manager, the Fund and the Adviser and their respective successors,
executors, administrators, heirs and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Shares merely because of such purchase.
12. Survival of Representations, Warranties and Agreements. The respective
------------------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Fund or its officers, of Pacholder Associates or its officers and of the Dealer
Manager set forth in or made pursuant to this Agreement shall remain in full
force and effect, regardless of any (a) cancellation or termination of this
Agreement, (b) any investigation made by or on behalf of Dealer Manager, the
Fund or Pacholder Associates or any of the officers, directors or controlling
persons referred to in Section 8 hereof, and (c) delivery of and payment for the
Shares pursuant to the Offer.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Ohio.
20
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
it will become a binding agreement among the Fund, the Adviser and the Dealer
Manager in accordance with its terms.
Very truly yours,
PACHOLDER FUND, INC.
By:
-----------------------------
Name:
Title:
PACHOLDER ASSOCIATES, INC.
By:
-----------------------------
Name:
Title:
Confirmed and Accepted,
as of the date first above written:
WINTON ASSOCIATES, INC.
as Dealer Manager
By:
-----------------------------
James P. Shanahan, Jr.
Executive Vice President and
General Counsel
21
<PAGE>
EXHIBIT (h)(ii)
PACHOLDER FUND, INC.
Rights Offering for Shares of Common Stock
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN TIME,
ON MARCH __, 1999, UNLESS EXTENDED
To Securities Dealers and Brokers:
Pacholder Fund, Inc. (the "Fund") is issuing to holders of its common
stock, par value $.01 per share (the "Common Stock"), of record ("Record Date
Shareholders") as of the close of business on February 23, 1999 (the "Record
Date"), non-transferable rights ("Rights") to subscribe for an aggregate of
2,375,749 shares (the "Shares") of Common Stock of the Fund upon the terms and
subject to the conditions set forth in the Fund's prospectus (the "Prospectus")
dated February ___, 1999 (the "Offer"). Each Record Date Shareholder is being
issued one Right for each full share of Common Stock owned on the Record Date.
No Rights will be issued for fractional shares. The Rights entitle the Record
Date Shareholders, during the Subscription Period (as hereinafter defined), to
acquire at the Subscription Price (as hereinafter defined) one Share for each
three Rights held (the "Primary Subscription"). The subscription price per Share
(the "Subscription Price") will be equal to 95% of the net asset value of a
share of the Fund's Common Stock on the Expiration Date (as hereinafter
defined). The subscription period for the Offer (the "Subscription Period")
commences on February __, 1999 and ends at 5:00 p.m., Eastern time, on the
Expiration Date. (With respect to the Offer, the term "Expiration Date" means
5:00 p.m., Eastern time, on March ___, 1999, unless and until the Fund shall, in
its sole discretion, have extended the period for which the Offer is open, in
which event the term "Expiration Date" with respect to the Offer will mean the
latest time and date on which the Offer, as so extended by the Fund, will
expire.) Any shareholder who fully exercises all Rights held by him (other than
those Rights that cannot be exercised because they represent the right to
acquire less than one Share) is entitled to subscribe for additional Shares (the
"Over-Subscription Privilege"). Shares acquired pursuant to the Over-
Subscription Privilege are subject to allotment, which is more fully discussed
in the Prospectus. Capitalized terms used herein and not otherwise defined have
the meanings ascribed to them in the Prospectus.
For the duration of the Offer, the Fund has agreed to pay Soliciting
Dealer Fees to any qualified broker or dealer executing a Soliciting Dealer
Agreement who solicits the exercise of Rights in connection with the Offer and
who complies with the procedures described below (a "Soliciting Dealer"). Upon
timely delivery to State Street Bank and Trust Company, the Fund's Subscription
Agent for the Offer, of payment for Shares purchased pursuant to the exercise of
Rights and of properly completed and executed documentation as set forth in this
Soliciting
<PAGE>
Dealer Agreement, a Soliciting Dealer will be entitled to receive a Soliciting
Dealer Fee equal to an amount computed by multiplying (i) 0.02 (2.0%) by (ii)
the Subscription Price by (iii)(A) the aggregate number of Shares purchased
pursuant to subscription forms on which the Soliciting Dealer is designated by
name as having solicited the exercise of such Rights plus (B) Shares purchased
pursuant to the Offer through the Soliciting Dealer by beneficial owners of the
Fund's Common Stock on whose behalf the Soliciting Dealer acts as nominee,
either directly or through The Depository Trust Company ("DTC") or any other
applicable depository, as listed in the Appendix to this Soliciting Dealer
Agreement. In no event shall the number in (iii)(B) above exceed, as applicable,
the number of Shares reported as purchased by beneficial shareholders through
the Soliciting Dealer by DTC, or any other applicable depository, or the number
of Shares the Soliciting Dealer is entitled to purchase as a record shareholder
(excluding in either case shares held for its own account). If more than one
Soliciting Dealer is identified as having solicited the exercise of identical
Rights, the fee described above shall be shared equally by all such Soliciting
Dealers.
A qualified broker or dealer is a broker or dealer which is registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is qualified to act as a dealer in each jurisdiction in which
it solicits the exercise of Rights and is a member of a registered national
securities exchange in the United States or the National Association of
Securities Dealers, Inc. ("NASD"), or is a foreign broker or dealer not eligible
for membership which agrees to conform to the Conduct Rules of the NASD,
including Rules 2730, 2740, 2420 and 2750 thereof, in making solicitations in
the United States to the same extent as if it were a member thereof.
The Fund hereby agrees to pay the Soliciting Dealer Fee payable to the
undersigned Soliciting Dealer and to indemnify such Soliciting Dealer against
all losses, claims, damages and liabilities to which such Soliciting Dealer may
become subject as a result of (a) any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus, as amended or
supplemented from time to time, or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (b) any actions taken or omitted to be taken in
connection with the performance by such Soliciting Dealer of its service as a
Soliciting Dealer pursuant hereto, except to the extent any such loss, claim,
damage or liability results from the negligence, willful misconduct or bad faith
of such Soliciting Dealer in performing its services as a Soliciting Dealer or
as a result of any breach by such Soliciting Dealer of its obligations herein.
Solicitation and other activities by Soliciting Dealers may be undertaken only
in accordance with the applicable rules and regulations of the Securities and
Exchange Commission (the "SEC") and the NASD, and only in those states and other
jurisdictions where such solicitations and other activities may lawfully be
undertaken and in accordance with the laws thereof. Soliciting Dealers
recognize that persons associated with the Soliciting Dealers who are licensed
only to engage in activities in connection with investment company securities
and variable contract products may not solicit the exercise of Rights in
connection with the Offer. Soliciting Dealers represent and agree that persons
associated with the Soliciting Dealers that are duly qualified with a national
securities exchange or the NASD will solicit the exercise of Rights in
connection with the Offer. Compensation will not be paid for solicitations in
any state or other jurisdiction in which, in the opinion of counsel to the Fund
2
<PAGE>
or the Dealer Manager, such compensation may not lawfully be paid. No
Soliciting Dealer shall be paid Soliciting Dealer Fees with respect to Shares
purchased pursuant to an exercise of Rights for its own account or for the
account of any affiliate of the Soliciting Dealer. No Soliciting Dealer or any
other person is authorized by the Fund or the Dealer Manager to give any
information or make any representations in connection with the Offer other than
those contained in the Prospectus and other authorized solicitation material
furnished by the Fund through the Dealer Manager. No Soliciting Dealer is
authorized to act as agent of the Fund or the Dealer Manager in any connection
or transaction. In addition, nothing herein contained shall constitute the
Soliciting Dealers partners with the Dealer Manager or with one another, or
agents of the Dealer Manager or of the Fund, or create any association between
such parties, or shall render the Dealer Manager or the Fund liable for the
obligations of any Soliciting Dealer. The Dealer Manager shall be under no
liability to make any payment to any Soliciting Dealer, and shall be subject to
no other liabilities to any Soliciting Dealer, and no obligations of any sort
shall be implied.
In order for a Soliciting Dealer to receive Soliciting Dealer Fees, the
Subscription Agent must have received from such Soliciting Dealer, no later than
5:00 p.m., Eastern time, on the Expiration Date, a properly completed and duly
executed Soliciting Dealer Agreement (or a facsimile thereof), and, as
applicable, (i) properly completed and duly executed Subscription Certificates
with respect to Shares purchased pursuant to the exercise of Rights, on which
the Soliciting Dealer is designated by name as having solicited the exercise of
such Rights, and full payment for such Shares; or (ii) a Notice of Guaranteed
Delivery guaranteeing delivery to the Subscription Agent by close of business on
the third Business Day after the Expiration Date, of properly completed and duly
executed Subscription Certificates with respect to Shares purchased pursuant to
the exercise of Rights, on which the Soliciting Dealer is designated by name as
having solicited the exercise of such Rights, and full payment for such Shares.
In the case of a Notice of Guaranteed Delivery, Soliciting Dealer Fees will only
be paid after payment and delivery in accordance with such Notice of Guaranteed
Delivery have been effected.
All questions as to the form and validity (including time of receipt) of
this Soliciting Dealer Agreement and eligibility for Soliciting Dealer Fees
hereunder or otherwise will be determined by the Fund, in its sole discretion,
which determination shall be final and binding. Unless waived, any
irregularities in connection with a Soliciting Dealer Agreement or delivery
thereof must be cured within such time as the Fund shall determine. None of the
Fund, the Dealer Manager, the Subscription Agent, the Information Agent for the
Offer (Shareholder Communications Corporation) or any other person will be under
any duty to give notification of any defects or irregularities in any Soliciting
Dealer Agreement or incur any liability for failure to give such notification.
The execution of this Soliciting Dealer Agreement and the acceptance of
Soliciting Dealer Fees from the Fund by a Soliciting Dealer shall constitute a
representation by such Soliciting Dealer to the Fund that: (i) it has received
and reviewed the Prospectus; (ii) in soliciting the purchase of Shares pursuant
to the exercise of the Rights, it has complied with the requirements of the
Securities Act of 1933, as amended, the Exchange Act, the applicable rules and
regulations thereunder, any applicable securities laws of any state or
jurisdiction where such
3
<PAGE>
solicitations may lawfully be made, and the applicable rules and regulations of
any self-regulatory organization or registered national securities exchange;
(iii) in soliciting the purchase of Shares pursuant to the exercise of the
Rights, it has not published, circulated or used any soliciting materials other
than the Prospectus and any other authorized solicitation material furnished by
the Fund through the Dealer Manager; (iv) it has not purported to act as agent
of the Fund or the Dealer Manager in any connection or transaction relating to
the Offer; (v) the information contained in this Soliciting Dealer Agreement is,
to its best knowledge, true and complete; (vi) it is not affiliated with the
Fund; (vii) it will not accept Soliciting Dealer Fees paid by the Fund pursuant
to the terms hereof with respect to Shares purchased by the Soliciting Dealer
pursuant to an exercise of Rights for its own account; (viii) it will not remit,
directly or indirectly, any part of Soliciting Dealer Fees paid by the Fund
pursuant to the terms hereof to any beneficial owner of Shares purchased
pursuant to the Offer; and (ix) it has agreed to the amount of the Soliciting
Dealer Fees and the terms and conditions set forth herein with respect to
receiving such Soliciting Dealer Fees. By executing and returning a Soliciting
Dealer Agreement and accepting Soliciting Dealer Fees, a Soliciting Dealer will
be deemed to have agreed to indemnify the Fund against losses, claims, damages
and liabilities to which the Fund may become subject as a result of the breach
of such Soliciting Dealer's representations made herein and described above.
In addition to representation (ii) above, each Soliciting Dealer represents
to the Fund and the Dealer Manager that it has not engaged, and agrees that it
will not engage in any activity in respect of the Rights or the Shares in
violation of the Exchange Act, including Regulation M thereunder. A Soliciting
Dealer's acceptance of Soliciting Dealer Fees will constitute a representation
that it is eligible to receive such Soliciting Dealer Fees and that it has
complied with the preceding sentence and its other agreements hereunder.
Soliciting Dealer Fees due to eligible Soliciting Dealers will be paid
promptly after consummation of the Offer. No Soliciting Dealer Fees will be
payable to Soliciting Dealers with respect to Shares purchased after the
expiration of the Offer.
This Soliciting Dealer Agreement will be governed by the laws of the State
of Ohio, without reference to the choice of law principles thereof.
Please list in the Appendix attached hereto and forming part of this
Soliciting Dealer Agreement the number of Shares purchased pursuant to the
exercise of Rights by each beneficial owner whose purchases pursuant to the
exercise of Rights you, as a Soliciting Dealer, have solicited. All amounts
beneficially owned by a beneficial owner, whether in one account or several, and
in however many capacities, must be aggregated for purposes of completing the
table in the Appendix hereto. Any questions as to what constitutes beneficial
ownership should be directed to the Fund. The number of shares not listed in the
Appendix for reasons of inadequate space should be listed in a separate schedule
attached to, and forming part of, this Soliciting Dealer Agreement.
Please execute this Soliciting Dealer Agreement below, accepting the terms
and conditions hereof and confirming that you are (i) registered as a broker-
dealer under the Exchange Act, (ii) qualified to act as a dealer in each
jurisdiction in which you have solicited the
4
<PAGE>
exercise of Rights and (iii) a member firm of a registered national securities
exchange or of the NASD, or a foreign broker or dealer not eligible for
membership who has conformed to the Conduct Rules of the NASD, including Rules
2730, 2740, 2420 and 2750 thereof, in making solicitations of the type being
undertaken pursuant to the Offer in the United States to the same extent as if
you were a member thereof; and certifying that you have solicited the purchase
of the Shares pursuant to exercise of the Rights, all as described above, in
accordance with the terms and conditions set forth in this Soliciting Dealer
Agreement.
Very truly yours,
PACHOLDER FUND, INC.
By:
----------------------------
William J. Morgan
Chairman of the Board
ACCEPTED AND CONFIRMED
-------------------------------
Printed Firm Name
-------------------------------
Address
-------------------------------
Authorized Signature
-------------------------------
Area Code and Telephone Number
- ----------------------------- ----------------------------------------
Name and Title DTC Participation Number (if applicable)
Dated:
-----------------------
5
<PAGE>
Payment of Soliciting Dealer Fees shall
be wired to the following account:
Account Number:
Name of Bank or other
Recipient Institution:
Additional Account
Information:
__________________________
All Soliciting Dealer Agreements should be returned to State Street Bank
and Trust Company by facsimile at (___) ____-_____. Facsimile transmissions
may be confirmed by calling (___) ____-_____.
All questions concerning Soliciting Dealer Agreements should be directed to
Shareholder Communications Corporation, toll free at (800) 733-8481, ext. ___,
or call collect (212) 805-7000.
6
<PAGE>
APPENDIX TO SOLICITING DEALER AGREEMENT
TO BE COMPLETED BY THE SOLICITING DEALER
- --------------------------------------------------------------------------------
Beneficial Owners Number of Shares Purchased
- --------------------------------------------------------------------------------
Beneficial Owner No. 1
- --------------------------------------------------------------------------------
Beneficial Owner No. 2
- --------------------------------------------------------------------------------
Beneficial Owner No. 3
- --------------------------------------------------------------------------------
Beneficial Owner No. 4
- --------------------------------------------------------------------------------
Beneficial Owner No. 5
- --------------------------------------------------------------------------------
Beneficial Owner No. 6
- --------------------------------------------------------------------------------
Beneficial Owner No. 7
- --------------------------------------------------------------------------------
Beneficial Owner No. 8
- --------------------------------------------------------------------------------
Beneficial Owner No. 9
- --------------------------------------------------------------------------------
Beneficial Owner No. 10
- --------------------------------------------------------------------------------
Beneficial Owner No. 11
- --------------------------------------------------------------------------------
Beneficial Owner No. 12
- --------------------------------------------------------------------------------
Beneficial Owner No. 13
- --------------------------------------------------------------------------------
Beneficial Owner No. 14
- --------------------------------------------------------------------------------
Beneficial Owner No. 15
- --------------------------------------------------------------------------------
Beneficial Owner No. 16
- --------------------------------------------------------------------------------
Beneficial Owner No. 17
- --------------------------------------------------------------------------------
Beneficial Owner No. 18
- --------------------------------------------------------------------------------
Beneficial Owner No. 19
- --------------------------------------------------------------------------------
Beneficial Owner No. 20
- --------------------------------------------------------------------------------
Beneficial Owner No. 21
- --------------------------------------------------------------------------------
Beneficial Owner No. 22
- --------------------------------------------------------------------------------
Beneficial Owner No. 23
- --------------------------------------------------------------------------------
Beneficial Owner No. 24
- --------------------------------------------------------------------------------
Beneficial Owner No. 25
- --------------------------------------------------------------------------------
TOTAL:
- --------------------------------------------------------------------------------
7
<PAGE>
EXHIBIT (l)
[LETTERHEAD OF PIPER & MARBURY APPEARS HERE]
February 17, 1999
Pacholder Fund, Inc.
8044 Montgomery Road, Suite 382
Cincinnati, OH 45236
Re: Registration Statement on Form N-2
----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Pacholder Fund, Inc., a Maryland corporation
(the "Company"), in connection with the filing with the Securities and Exchange
Commission of a registration statement on Form N-2 (File Nos. 333-70767;
811-5639), as amended (the "Registration Statement"), registering 2,375,662
shares of Common Stock, par value $.01 per share (the "Shares"), of the Company
issuable upon the exercise of non-transferable rights (the "Rights") to
subscribe therefor and the Rights under the Securities Act of 1933, as amended.
In our capacity as counsel to the Company, we have examined the charter and
bylaws of the Company, the Registration Statement, the corporate action taken by
the Company that provides for the issuance of the Rights and Shares, and such
other documents and matters as we have deemed necessary and appropriate to
render the opinions set forth in this letter. In reaching the opinions set forth
below, we have assumed all documents submitted to us as originals are authentic,
all documents submitted to us as certified or photostatic copies conform to the
original documents, all signatures on all documents submitted to us for
examination are genuine, and all public records reviewed are accurate and
complete.
Based upon and subject to the foregoing, we are of the opinion that the
Rights and Shares have been duly authorized for issuance and, when issued and
paid for as described in the Registration Statement, the Shares will be validly
issued, fully paid and non-assessable.
<PAGE>
EXHIBIT 99(n)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement (No. 333-70767) of Pacholder Fund, Inc. on Form N-2 under
the Securities Act of 1933 and the Investment Company Act of 1940 (Amendment No.
16; File No. 811-5639) of our report dated February 5, 1999, appearing in the
Annual Report of Pacholder Fund, Inc. for the year ended December 31, 1998, and
to the reference to us under the captions "Financial Highlights" and "Experts"
in the prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
Dayton, Ohio
February 16, 1999
