<PAGE>
PACHOLDER HIGH YIELD FUND, INC.
--------------------------------------------------------------------------------
Dear Stockholders:
For the second quarter ended June 30, 2000 the Pacholder High Yield Fund, Inc.
(the "Fund") posted a total return of -0.67%, compared to the CS First Boston
Domestic+ High Yield Index(TM) (the "Index") total return of 0.67%,
underperforming the Index by 134 basis points. For the first six months of the
year the Fund has posted a -4.11% total return compared to the Index's return
for the same period of -1.38%. The Fund's relative underperformance for the
quarter and first six months of the year is primarily attributable to the cost
of its leverage. The underlying portfolio (gross of fees and expenses) returned
-1.01%, outperforming the Index for the first six months by 37 basis points.
While the leverage on the Fund has had a negative effect on total return in re-
cent markets, it has enhanced the Fund's returns over the longer term and has
increased the amount of dividends available to the common shareholders.
In the second quarter the high yield market continued to underperform most
other fixed income sectors; however, the market did outperform most equity sec-
tors for the quarter, reversing the trend of the past few quarters. For exam-
ple, the ten-year US Treasury Note returned 1.96% in the second quarter, while
the NASDAQ Composite Index returned -13.23%, the Dow Jones Industrial Average
returned -3.98%, and the S&P 500 returned -3.77%.
Overview of the First Half of 2000
Through the end of July the high yield market has continued the rally that be-
gan in late May. It is our opinion that investors have increased their invest-
ment in high yield bonds to take advantage of the discounted prices, higher
yields, and wider spreads. This higher yield and wider spread market environ-
ment was primarily a result of the Federal Reserve aggressively raising inter-
est rates to minimize the possibility of rising inflation. The Fed has raised
the overnight funds rate by 175 basis points since June 1999. The Fed intensi-
fied its resolve in the first half of 2000 with three separate rate hikes, the
last of which was 50 basis points and occurred in mid-May. Investors' fear of
additional Fed moves adversely impacted most financial markets, including high
yield. The cumulative impact of the Fed tightenings was to turn potential in-
vestors away from high yield because of the uncertainty over the extent of the
Fed's interest rate hikes and their impact on the economy. This trend is evi-
dent when looking at fund flows into high yield mutual funds. The first five
months of 2000 saw a total net outflow of over $4.3 billion. Fund flows re-
versed course in June, when $1.05 billion flowed into high yield funds.
As the Fed raised rates and investors backed away from the market, the impact
could be seen on the average price, yield, and spread over Treasury in the high
yield market. For the first six months of 2000 the average price of the Index
dropped over 5 points, from 87.17 to 81.91; the yield on the Index increased
137 basis points, from 11.93% to 13.30%; and the spread of the Index over the
comparable Treasury increased 165 basis points, from 554 to 719. The high yield
market has not seen overall yields this high since the early 1990's.
As capital began flowing out of the high yield market in 1999 the spread be-
tween larger issues ($500 million and above) and smaller issues ($100 to $200
million) began to increase. This trend has continued into 2000. The spread be-
tween larger and smaller sized issues has increased from 86 basis points at
June 30, 1999 to 227 basis points at June 30, 2000. This trend has negatively
impacted the relative performance of the Fund for the first six months of 2000
because the Fund holds a higher percentage of $100 to $200 million issues than
does the Index.
For the first six months of 2000 performance among the high yield industry sec-
tors generally was negative with a few exceptions, those being Mobile Communi-
cations, Energy, and Technology. The worst performing sectors for the first
half of the year were the Services, Entertainment, Metals, and Transportation
industries. The Fund had strong performance relative to the market in the Fixed
Communications, Media, and Technology sectors while underperforming in the Au-
tomotive, Energy, and Retail segments of the market.
The Fund's portfolio is well diversified, with investments in 141 companies in
30 different industries. Our highest concentration continues to be in the Tele-
communications segment of the market, which accounted for 19.4% of the portfo-
lio. The Fund is not as aggressively positioned as the Index in some of the
more speculative parts of the Telecommunications industry. This negatively in-
fluenced the Fund's relative performance in the first two months of 2000, when
the more speculative credits in the Telecommunications sector offered strong
performance driven by a booming market for Telecom equities. This trend began
to reverse in March, and by the end of May the Fund's more conservative stance
proved advantageous.
Outlook for the Remainder of 2000
Since late May the overall investor sentiment of a "soft landing" for the econ-
omy has resulted in an improvement in investor psychology. A consensus seems to
be emerging that inflation risk is abating, that the Fed is not likely to con-
tinue to aggressively raise interest rates, and that the economy will slow to a
sustainable growth rate. This consensus, combined with the relatively attrac-
tive discount, yield and spread being offered in the high yield market, has re-
sulted in investors coming back into the high yield market. Demand has begun to
broaden its reach into the smaller issues in the high yield market, which is
positive for the Fund.
We believe that our strategy of investing in a diversified portfolio of high
yield bonds, based upon fundamental analysis, should perform well over the next
year. We believe the Fund's performance should remain solid relative to the
high yield market as a whole. Rather than focusing on the anticipated direction
of interest rates, we will continue to monitor the Fund's credit quality to de-
termine how the Fund's investments will perform in various economic cycles.
As always, we appreciate your interest in the Fund and look forward to your
continued support.
Sincerely,
/s/ William J. Morgan
William J. Morgan
President
August 17, 2000
---------------------------------------
Please visit our web site, www.phf-hy.com, for information on the Fund's NAV,
share price, news releases, and SEC filings. We created this site to provide
shareholders quick and easy access to the timeliest information available re-
garding the Fund.
---------------------------------------
DIVIDEND REINVESTMENT PLAN
The Fund's Dividend Reinvestment Plan offers you an automatic way to reinvest
your dividends and capital gains distributions in additional shares of the
Fund. For an enrollment form and detailed information about the Plan, please
contact Firstar Bank, N.A. Corporate Trust Services, 425 Walnut Street, ML
5125, P.O. Box 1118, Cincinnati, OH 45201-1118, and (800) 637-7549.
1
<PAGE>
PACHOLDER HIGH YIELD FUND, INC.
--------------------------------------------------------------------------------
Statement of Net Assets
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
-------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE DEBT SECURITIES -- 92.1%
AUTOMOTIVE -- 4.0%
Anchor Lamina, Inc., Sr Sub Nt, 9.875%, 2/1/08 $ 2,000 $ 900,000 0.5%
Dura Operating Corp., Sr Sub Nt, 9%, 5/1/09 1,600 1,392,000 0.7
Hayes Lemmerz International, Inc., Sr Sub Nt,
9.125%, 7/15/07 1,500 1,342,500 0.7
JL French Automotive Castings, Inc., Sr Sub Nt,
11.5%, 6/1/09 1,000 910,000 0.5
JPS Automotive Products Corp., Sr Nt, 11.125%,
6/15/01 1,350 1,350,000 0.7
Oshkosh Truck Corp., Sr Sub Nt, 8.75%, 3/1/08 1,500 1,395,000 0.8
Safety Components International, Inc.,
Sr Sub Nt, 10.125%, 7/15/07/1/,/4/ 1,000 200,000 0.1
------------ ---
7,489,500 4.0
CABLE -- 2.1%
Charter Communications Holdings LLC, Sr Nt, 10%,
4/1/09 1,000 965,000 0.5
Classic Cable, Inc., Sr Sub Nt, 9.375%, 8/1/09 1,250 1,090,625 0.6
RCN Corp., Sr Nt,
10%, 10/15/07 1,400 1,186,500 0.7
RCN Corp., Sr Disc Nt, 0/9.8%, 2/15/08 1,000 570,000 0.3
------------ ---
3,812,125 2.1
CHEMICALS -- 2.5%
Gentek, Inc., Sr Sub Nt, 11%, 8/1/09 1,000 1,012,500 0.5
Marsulex, Inc., Sr Sub Nt, 9.625%, 7/1/08 1,250 1,162,500 0.6
Philipp Brothers Chemicals, Inc., Sr Sub Nt,
9.875%, 6/1/08 1,750 1,242,500 0.7
Polymer Group, Inc., Sr Sub Nt, 9%, 7/1/07 1,500 1,275,000 0.7
------------ ---
4,692,500 2.5
COMMUNICATIONS: FIXED -- 9.5%
Alaska Communications Systems Holdings, Inc., Sr
Sub Nt, 9.375%, 5/15/09 1,000 922,500 0.5
Convergent Communications, Inc., Sr Nt, 13%,
4/1/08 3,750 2,629,687 1.4
DTI Holdings, Inc., Sr Disc Nt, 0/12.5%, 3/1/08 5,000 2,100,000 1.1
</TABLE>
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Exodus Communications, Inc., Sr Nt 10.75%,
12/15/09 $ 1,500 $ 1,447,500 0.8%
Exodus Communications, Inc., Sr Nt 11.625%,
7/15/10/2/ 500 501,250 0.3
GCI, Inc., Sr Nt,
9.75%, 8/1/07 1,500 1,395,000 0.8
Global Crossing Holdings, Ltd., Sr Nt, 9.125%,
11/15/06 750 718,125 0.4
360 Networks, Inc., Sr Nt, 13%, 7/15/07 1,750 1,765,313 0.9
McLeod USA, Inc., Sr Nt, 8.375%, 3/15/08 1,000 920,000 0.5
Metromedia Fiber Network, Inc., Sr Nt, 10%,
12/15/09 1,000 985,000 0.5
Nextlink Communications, Inc., Sr Nt, 10.5%,
12/1/09 1,250 1,225,000 0.7
Pathnet, Inc., Sr Nt, 12.25%, 4/15/08 1,000 560,000 0.3
PSINet, Inc., Sr Nt,
10.5%, 12/1/06 1,250 1,150,000 0.6
Williams Communications Group, Inc., Sr Nt,
10.875%, 10/1/09 1,250 1,221,875 0.7
------------ ---
17,541,250 9.5
COMMUNICATIONS: MOBILE -- 6.2%
Arch Communications Group, Inc., Sr Nt, 12.75%,
7/1/07 750 573,750 0.3
Arch Communications Group, Inc., Sr Nt, 13.75%,
4/15/08 1,250 1,006,250 0.5
Centennial Cellular, Sr Sub Nt, 10.75%, 12/15/08 2,375 2,306,719 1.3
Crown Castle Int'l Corp., Sr Nt, 0/10.375%,
5/15/11 1,500 916,875 0.5
Crown Castle Int'l Corp., Sr Sub Nt, 9.5%,
8/1/11 1,000 950,000 0.5
Metrocall Inc., Sr Sub Nt, 10.375%, 10/1/07 2,500 1,750,000 0.9
Nextel Communications, Inc., Sr Nt, 9.375%,
11/15/09 1,000 955,000 0.5
Paging Network do Brasil Holding Co. LLC, Sr Nt,
13.5%, 6/6/05 500 30,000 0.0
Price Communications Wireless, Inc., Sr Sec Nt,
9.125%, 12/15/06 1,000 1,010,000 0.6
Rural Cellular Corp., Sr Sub Nt, 9.625%, 5/15/08 2,050 1,988,500 1.1
------------ ---
11,487,094 6.2
</TABLE>
2
<PAGE>
PACHOLDER HIGH YIELD FUND, INC.
--------------------------------------------------------------------------------
Statement of Net Assets (continued)
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER MANUFACTURING -- 2.7%
Home Products International, Inc., Sr Sub Nt,
9.625%, 5/15/08 $ 1,500 $ 1,230,000 0.7%
Applica, Inc., Sr Sub Nt, 10%, 7/31/08 1,500 1,470,000 0.8
Drypers Corp., Sr Nt, 10.25%, 6/15/07 1,465 944,925 0.5
JB Williams Holdings Inc., Sr Nt, 12%, 3/1/04 375 360,000 0.2
Scotts Co., Sr Sub Nt, 8.625%, 1/15/09/2/ 1,000 960,000 0.5
------------ ---
4,964,925 2.7
ENERGY -- 3.1%
Coho Energy, Inc., Sr Sub Nt PIK, 15%,
3/31/07/3/ 2,000 2,000,000 1.0
Giant Industries Inc., Sr Sub Nt, 9.75%,
11/15/03 875 850,938 0.5
Giant Industries Inc., Sr Sub Nt, 9%, 9/1/07 1,000 907,500 0.5
Orion Refining Corp., Sr Nt, 10%, 11/15/04/2/ 3,000 2,040,178 1.1
------------ ---
5,798,616 3.1
ENTERTAINMENT -- 2.1%
Bally Total Fitness Holding Corp., Sr Sub Nt,
9.875%, 10/15/07 1,500 1,357,500 0.7
SFX Entertainment, Inc., Sr Sub Nt, 9.125%,
12/1/08 2,500 2,512,500 1.4
------------ ---
3,870,000 2.1
FOOD & BEVERAGE -- 1.6%
Fresh Foods, Inc., Sr Nt, 10.75%, 6/1/06 1,630 1,010,600 0.5
International Home Foods, Co Guar, 10.375%,
11/1/06 1,000 1,070,000 0.6
National Wine & Spirits, Inc., Sr Nt, 10.125%,
1/15/09 1,000 970,000 0.5
------------ ---
3,050,600 1.6
GAMING -- 1.5%
Aladdin Gaming, Sr Disc Nt, 0/13.5%, 3/1/10 2,750 1,601,875 0.8
Pinnacle Entertainment, Sr Sub Nt, 9.5%, 8/1/07 1,250 1,243,750 0.7
------------ ---
2,845,625 1.5
</TABLE>
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
-------------------------------------------------------------------------------
<S> <C> <C> <C>
GENERAL INDUSTRIAL -- 8.3%
Airxcel, Inc., Sr Sub Nt, 11%, 11/15/07 $ 1,500 $ 1,065,000 0.6%
Better Minerals and Aggregates Co., Sr Sub Nt,
13%, 9/15/09 1,250 1,221,875 0.7
Columbus McKinnon Corp., Sr Sub Nt, 8.5%, 4/1/08 1,250 1,075,000 0.6
Communications Instruments, Inc., Sr Sub Nt,
10%, 9/15/04 2,130 1,735,950 0.9
Indesco International, Inc., Sr Sub Nt, 9.75%,
4/15/08 1,750 647,500 0.3
International Knife & Saw, Sr Sub Nt, 11.375%,
11/15/06 2,500 1,300,000 0.7
Jackson Products, Inc., Sr Sub Nt, 9.5%, 4/15/05 2,000 1,800,000 1.0
LLS Corp., Sr Sub Nt, 11.625%, 8/1/09 1,000 945,000 0.5
MMI Products, Inc., Sr Sub Nt, 11.25%, 4/15/07 2,000 1,970,000 1.0
Omega Cabinets, Ltd, Sr Sub Nt, 10.5%, 6/15/07 2,250 2,070,000 1.1
Precision Partners, Inc., Sr Sub Nt, 12%,
3/15/09 1,175 681,500 0.4
Westinghouse Air Brake, Sr Nt, 9.375%, 6/15/05 1,000 965,000 0.5
------------ ---
15,476,825 8.3
HEALTH CARE -- 2.1%
Beverly Enterprises, Inc., Co Guar, 9%, 2/15/06 770 639,100 0.3
Concentra Operating Corp., Sr Sub Nt, 13%,
8/15/09 1,500 1,200,000 0.7
Hanger Orthopedic Group, Inc., Sr Sub Nt,
11.25%, 6/15/09 1,250 1,087,500 0.6
Quorum Health, Sr Sub Nt, 8.75%, 11/1/05 1,000 950,000 0.5
------------ ---
3,876,600 2.1
HOTELS & LODGING -- 1.2%
Prime Hospitality Corp., 1st Mtg, 9.25%, 1/15/06 1,000 985,000 0.5
Prime Hospitality Corp., Sr Sub Nt, 9.75%,
4/1/07 1,375 1,326,875 0.7
------------ ---
2,311,875 1.2
MEDIA -- 9.6%
Ackerly Group, Inc., Sr Sub Nt, 9%, 1/15/09 1,000 917,500 0.5
</TABLE>
3
<PAGE>
PACHOLDER HIGH YIELD FUND, INC.
--------------------------------------------------------------------------------
Statement of Net Assets (continued)
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Citadel Broadcasting Company, Sr Sub Nt, 10.25%,
7/1/07 1,500 1,516,875 0.8
Garden State Newspapers, Inc., Sr Sub Nt, 8.75%,
10/1/09 $ 800 $ 708,000 0.4%
Granite Broadcasting Corp., Sr Sub Nt, 10.375%,
5/15/05 2,172 2,063,400 1.1
Lamar Advertising Co., Sr Sub Nt, 9.25%,
8/15/07/2/ 1,000 975,000 0.5
Lamar Advertising Co., Sr Sub Nt, 9.625%,
12/1/06/2/ 500 502,500 0.3
Liberty Group Publishing, Inc., Sr Sub Nt,
9.375%, 2/1/08 2,000 1,640,000 0.9
Liberty Group Publishing, Inc., Sr Disc Nt,
0/11.625%, 2/1/09 1,125 624,375 0.3
Perry-Judd, Sr Sub Nt, 10.625%, 12/15/07 2,150 1,806,000 1.0
Phoenix Color Corp., Sr Sub Nt, 10.375%, 2/1/09 2,000 1,800,000 1.0
Radio One, Inc., Sr Sub Nt, 7/12%, 5/15/04 2,220 2,397,600 1.3
Salem Communications, Sr Sub Nt, 9.5%, 10/1/07 1,000 937,500 0.5
Tri-State Outdoor Media, Sr Nt, 11%, 5/15/08 2,000 1,840,000 1.0
------------ ---
17,728,750 9.6
METALS -- 2.2%
Echo Bay Mines Ltd., Jr Sub Debs, 11%, 4/1/27 1,000 597,500 0.3
LTV Corp., Sr Nt,
11.75%, 11/15/09 1,000 840,000 0.5
NS Group, Inc., Sr Nt, 13.5%, 7/15/03 2,500 2,550,000 1.4
------------ ---
3,987,500 2.2
PAPER & PACKAGING -- 6.8%
Ainsworth Lumber Co. Ltd., Sr Nt, 12.5%, 7/15/07 3,000 2,977,500 1.6
Alabama Pine Pulp, Inc., Tranche B Bank Debt ,
0%, 6/30/05 1,108 210,538 0.1
Alabama Pine Pulp, Inc., Tranche C Bank Debt ,
0%, 12/31/08 1,535 291,636 0.1
American Tissue, Inc., Sr Sec Nt, 12.5%, 7/15/06 2,250 2,171,250 1.2
Berry Plastics Corp., Sr Sub Nt, 12.25%, 4/15/04 1,750 1,660,313 0.9
Buckeye Cellulose Corp., Sr Sub Nt, 9.25%,
9/15/08 750 750,000 0.4
</TABLE>
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
------------------------------------------------------------------------------
<S> <C> <C> <C>
Crown Packaging, Ltd., Ser B Sr Nt, 10.75%,
11/1/00 2,250 1,847,812 1.0
Millar Western Forest Products Ltd, Sr Nt,
9.875%, 5/15/08 $ 1,500 $ 1,402,500 0.8%
Portola Packaging Inc., Sr Nt, 10.75%, 10/1/05 1,500 1,215,000 0.7
------------ ---
12,526,549 6.8
REAL ESTATE -- 2.6%
American Builders & Contractors Supply Co.,
Inc., Sr Sub Nt, 10.625%, 5/15/07 1,500 1,233,750 0.7
Associated Materials, Inc., Sr Sub Nt, 9.25%,
3/1/08 1,000 935,000 0.5
DR Horton, Inc., Sr Nt, 10.5%, 4/1/05 1,125 1,132,031 0.6
Fedders North America, Inc., Sr Sub Nt, 9.375%,
8/15/07 1,500 1,408,125 0.8
------------ ---
4,708,906 2.6
RESTAURANTS -- 3.0%
American Restaurant Group, Inc., Sr Nt, 11.5%,
2/15/03 1,500 1,151,250 0.6
Avado Brands, Inc., Sr Nt, 9.75%, 6/1/06 1,500 1,177,500 0.7
Avado Brands, Inc., Sr Sub Nt, 11.75%, 6/15/09 500 253,750 0.1
Domino's, Inc., Sr Sub Nt, 10.375%, 1/15/09 1,750 1,623,125 0.9
FM 1993 A Corp., Sr Nt, 9.75%, 11/1/03 250 250,000 0.1
TPI Enterprises, Sub Deb, 8.25%, 7/15/02 1,955 1,045,925 0.6
------------ ---
5,501,550 3.0
RETAILING -- 3.7%
Quality Stores, Sr Nt, 10.625%, 4/1/07 1,500 1,050,000 0.6
Frank's Nursery & Crafts, Sr Sub Nt, 10.25%,
3/1/08 1,750 647,500 0.3
Group 1 Automotive, Inc., Sr Sub Nt, 10.875%,
3/1/09 1,500 1,335,000 0.7
Guitar Center Mgmt., Sr Nt, 11%, 7/1/06 1,520 1,466,800 0.8
Knoll Inc., Sr Sub Nt, 10.875%, 3/15/06 1,525 1,525,000 0.8
Mattress Discounters Co., Sr Nt w/ warrant,
12.625%, 7/15/07/2/ 1,000 910,000 0.5
------------ ---
6,934,300 3.7
</TABLE>
4
<PAGE>
PACHOLDER HIGH YIELD FUND, INC.
--------------------------------------------------------------------------------
Statement of Net Assets (continued)
June 30, 2000 (Unaudited)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Par of Net
Description (000) Value Assets
-------------------------------------------------------------------------------
<S> <C> <C> <C>
SERVICES -- 10.9%
American Eco Corp., Sr Nt, 9.625%, 5/15/08 $ 2,000 $ 60,000 0.0%
Coinmach Corp., Ser D Sr Nt, 11.75%, 11/15/05 1,750 1,680,000 0.9
Coyne International Enterprises Corp., Sr Sub
Nt, 11.25%, 6/1/08 2,500 2,081,250 1.1
Kaiser Group International, Inc., Sr Sub Nt 13%,
12/31/03/1/,/4/ 1,500 716,250 0.4
King Pharmaceutical, Inc., Sr Sub Nt, 10.75%,
2/15/09 1,750 1,802,500 1.0
Norcal Waste Systems, Sr Nt, 13.5%, 11/15/05 1,500 1,560,000 0.8
Oglebay Norton Co., Sr Sub Nt, 10%, 2/1/09 1,625 1,478,750 0.8
Iron Mountain, Inc., Sr Nt. 8.125%, 5/15/08 1,000 880,000 0.5
Iron Mountain, Inc., Sr Sub Nt, 11.125%, 7/15/06 1,375 1,419,688 0.8
Rose Hills Co., Sr Sub Nt, 9.5%, 11/15/04 1,750 1,137,500 0.6
Travelcenters of America, Sr Sub Nt, 10.25%,
4/1/07 2,000 2,017,500 1.1
Twin Laboratories, Inc., Sr Sub Nt, 10.25%,
5/15/06 650 646,750 0.3
Volume Services America, Inc., Sr Sub Nt,
11.25%, 3/1/09 1,750 1,592,500 0.9
Wesco Distribution, Inc., Sr Sub Nt, 9.125%,
6/1/08 2,500 2,287,500 1.2
Williams Scotsman, Inc., Sr Nt, 9.875%, 6/1/07 1,000 910,000 0.5
------------ ----
20,270,188 10.9
SUPERMARKETS & DRUG STORES -- 0.3%
Penn Traffic, Co., Sr Nt, 11%, 6/29/09 659 507,430 0.3
------------ ----
TECHNOLOGY -- 4.1%
Advanced Micro Devices, Inc., Sr Nt, 11%, 8/1/03 1,500 1,548,750 0.8
Elgar Holdings, Inc., Sr Nt, 9.875%, 2/1/08 1,000 550,000 0.3
Fisher Scientific International, Inc., Sr Sub
Nt, 9%, 2/1/08 1,275 1,166,625 0.7
Fisher Scientific International, Inc., Sr Sub Nt
add on, 9%, 2/1/08 225 205,875 0.1
</TABLE>
<TABLE>
<CAPTION>
Percent
Shares/Par of Net
Description (000) Value Assets
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Flextronics International Ltd, Sr Sub Nt,
8.75%, 10/15/07 $ 2,000 $ 1,890,000 1.0%
Viasystems, Inc., Sr Sub Nt, 9.75%, 6/1/07 2,500 2,162,500 1.2
------------ ----
7,523,750 4.1
TRANSPORTATION -- 2.0%
Atlantic Coast Airlines, Tranche C Pass-Thru
Cert, 8.75%, 1/1/07/2/ 1,288 1,277,235 0.7
Moran Transportation Co., Bank Debt, 10.031%,
12/31/05 2,463 2,437,875 1.3
------------ ----
3,715,110 2.0
Total Corporate Debt Securities
(amortized cost $193,203,600) 170,621,568 92.1
------------ ----
EQUITY INVESTMENTS -- 2.0%
Aladdin Gaming/Capital Corp., Warrants,
3/1/10/1/,/3/ 27,500 0 0.0
Arch Communications Group, Inc., Common
Stock/1/ 10,000 61,250 0.0
Arch Communications Group, Inc., Warrants,
9/1/01/1/ 23,483 22,015 0.0
Classic Communications, Inc., Common Stock/1/ 5,250 46,922 0.0
Convergent Communications, Inc., Common
Stock/1/ 10,800 86,400 0.1
DTI Holdings, Inc., Warrants, 3/1/08/1/,/3/ 25,000 0 0.0
Glasstech, Inc., Warrants, 6/30/04/1/,/3/ 1,000 0 0.0
Gulf States Steel, Warrants, 4/15/03/1/,/3/ 500 0 0.0
Harvard Industries, Inc., Common Stock/1/ 191,199 645,296 0.4
McLeod USA, Inc., Common Stock/1/ 6,414 132,289 0.1
Nextlink Communications, Inc., Pfd, 13.5% PIK,
6/1/10 1,298 1,280,155 0.7
Optel, Inc., Class C Common Stock/1/,/3/ 750 0 0.0
Orion Refining Corp. Class A Conv Pfd Stock/1/ 97 7,081 0.0
Orion Refining Corp. Class C Conv Pfd Stock/1/ 1,522 65,446 0.0
Paging Network do Brasil Holding Co. LLC,
Warrants/1/,/3/ 500 0 0.0
Pathnet, Inc., Warrants, 4/15/08/1/,/2/ 1,000 10,000 0.0
Phonetel Technologies, Inc., Common Stock/1/ 286,900 116,553 0.1
Rural Cellular Corp., Pfd, 11.375% PIK,
5/15/10 1,262 1,186,280 0.6
</TABLE>
5
<PAGE>
PACHOLDER HIGH YIELD FUND, INC.
-------------------------------------------------------------------------------
Statement of Net Assets (concluded)
June 30, 2000 (Unaudited)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent
Shares/Par of Net
Description (000) Value Assets
------------------------------------------------------------------------------
<S> <C> <C> <C>
Sabreliner Corp., Warrants, 4/15/03/1/,/3/ $ 500 $ 0 0.0%
San Jacinto Holdings, Common Stock/1/,/3/ 2,246 0 0.0
US Leather, Inc., Common Stock/1/,/3/ 93,269 0 0.0
------------ ---
Total Equity Investments
(cost $7,735,332) 3,659,687 2.0
SECURITIES LENDING PROGRAM ASSETS -- 9.6%
Lehman Brothers Holdings, Inc. 7.225%, dated
6/30/00, matures 7/3/00 (at amortized cost) 7,858 7,857,552 4.2
Salomon Brothers Corp. 7.325%, dated 6/30/00,
matures 7/3/00 (at amortized cost) 10,000 10,000,000 5.4
------------ ---
Total Securities Lending Program Assets 17,857,552 9.6
COMMERCIAL PAPER -- 2.2%
Broadway Capital Corp., 6.95%, 7/7/00 750 749,131 0.4
Grand Funding Corp., 6.58%, 7/5/00 600 599,559 0.3
Southern Company, 6.59%, 7/5/00 600 599,560 0.4
Stellar Funding Group, 6.63%, 7/5/00 600 599,558 0.3
Stellar Funding Group, 6.85%, 7/7/00 750 749,144 0.4
Victory Receivables Corp., 6.90%, 7/7/00 750 749,138 0.4
------------ ---
Total Commercial Paper
(at amortized cost) 4,046,090 2.2
</TABLE>
<TABLE>
<CAPTION>
Percent
of Net
Description Value Assets
----------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL INVESTMENTS
(amortized cost $222,842,574) $196,184,897 105.9%
Payable Upon Return of Securities Loaned (17,857,552) (9.6)
Other Assets in Excess of Liabilities 6,938,608 3.7
------------ -----
Net Assets 185,265,953 100.0
Less: Outstanding Preferred Stock (70,000,000)
------------
Net Assets Applicable to 9,504,994 Shares of
Common Stock Outstanding $115,265,953
============
Net Asset Value Per Common Share
($115,265,953 / 9,504,994) $ 12.13
============
</TABLE>
-------------------------------------------------------------------------------
/1/Non-income producing security.
/2/Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. These securities
amounted to $5,698,663 or 3.1% of net assets.
/3/Board valued security. These securities amounted to $2,000,000 or 1.1% of
net assets.
/4/Securities in default.
-------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
6
<PAGE>
PACHOLDER HIGH YIELD FUND, INC.
--------------------------------------------------------------------------------
Statement of Operations
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
--------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest, dividends, and other................................... $ 11,179,540
EXPENSES:
Investment advisory fee (Note 5)................................. 764,957
Administrative fee (Note 5)...................................... 95,619
Printing, postage and other...................................... 89,969
Custodian, transfer agent and accounting fees (Note 5)........... 37,465
Legal fees....................................................... 26,894
Directors' fees.................................................. 29,676
Audit fee........................................................ 17,336
Insurance........................................................ 9,853
------------
Total Expenses.................................................. 1,071,769
------------
Net Investment Income........................................... 10,107,771
NET REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS:
Net realized gain/(loss) on investments.......................... (2,501,181)
Net unrealized appreciation/(depreciation) on investments........ (10,686,558)
------------
Net realized and unrealized gain/(loss) on investments........... (13,187,739)
------------
Net increase/(decrease) in net assets resulting from operations.. (3,079,968)
DISTRIBUTIONS TO PREFERRED STOCKHOLDERS........................... (2,422,050)
------------
NET INCREASE/(DECREASE) IN NET ASSETS APPLICABLE TO COMMON
STOCKHOLDERS RESULTING FROM OPERATIONS AND DISTRIBUTIONS TO
PREFERRED STOCKHOLDERS........................................... $ (5,502,018)
============
</TABLE>
--------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
June 30, Ended
2000 December 31,
(Unaudited) 1999
---------------------------------------------------------------------------------
<S> <C> <C>
INCREASE/(DECREASE) IN NET ASSETS:
Operations:
Net investment income.............................. $ 10,107,771 $ 19,757,687
Net realized gain/(loss) on investments............ (2,501,181) (5,237,176)
Net unrealized appreciation/(depreciation) on
investments....................................... (10,686,558) (8,236,109)
------------ ------------
Net increase/(decrease) in net assets resulting from
operations......................................... (3,079,968) 6,284,402
------------ ------------
DISTRIBUTIONS TO STOCKHOLDERS FROM:
Preferred dividends of $0.69 and $1.39 per share,
respectively...................................... (2,422,050) (4,527,560)
Common dividends:
Net investment income of $0.84 and $1.68 per
share, respectively.............................. (7,984,195) (14,951,468)
------------ ------------
Total decrease in net assets from distributions to
stockholders....................................... (10,406,245) (19,479,028)
------------ ------------
FUND SHARE TRANSACTIONS
(NOTES 2 AND 3):
Net proceeds/(cost) from issuance/(exchange) or
restructuring of preferred stock.................. -- 20,898,401
Value of 0 and 28,314 shares issued in reinvestment
of dividends, respectively........................ -- 69,990
Net proceeds from 2,375,662 shares of common stock
issued in rights offering after deducting
$1,180,982 of offering expenses................... -- 33,788,763
------------ ------------
Total increase in net assets derived from fund share
transactions....................................... 0 54,757,154
------------ ------------
Total net increase/(decrease) in net assets......... (13,486,213) 41,562,528
NET ASSETS:
Beginning of period................................ 198,752,166 157,189,638
------------ ------------
End of Period...................................... $185,265,953 $198,752,166
============ ============
</TABLE>
--------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
7
<PAGE>
PACHOLDER HIGH YIELD FUND, INC.
-------------------------------------------------------------------------------
Financial Highlights
(Contained below is per share operating performance data for a share of common
stock outstanding, total return performance, ratios to average net assets and
other supplemental data. This information has been derived from information
provided in the financial statements and market price data for the Fund's
shares.)
<TABLE>
------------------------------------------------------------------------------------------------
<CAPTION>
For the Six
Months Ended
June 30, Year Ended December 31,
2000 -------------------------------------------------------
(Unaudited) 1999 1998 1997 1996 1995
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE:
Net asset value,
beginning of period.... $13.55 $15.19 $17.40 $17.44 $16.02 $16.86
--------- --------- --------- --------- --------- ---------
Net investment income... 1.06 2.18 2.30 2.22 2.16 2.19
Net realized and
unrealized gain/(loss)
on investments......... (1.39) (1.34) (2.32) 0.83 1.42 (0.06)
--------- --------- --------- --------- --------- ---------
Net increase in net
asset value resulting
from operations........ (0.33) 0.84 (0.02) 3.05 3.58 2.13
--------- --------- --------- --------- --------- ---------
Distributions to
Stockholders from:
Preferred dividends..... (0.25) (0.51) (0.49) (0.49) (0.46) (0.29)
Common:
Net investment income
and short-term gains.. (0.84) (1.68) (1.70) (1.72) (1.70) (1.90)
Net realized long-term
gains................. -- -- -- (0.16) -- --
--------- --------- --------- --------- --------- ---------
Total distributions to
preferred and common
stockholders........... (1.09) (2.19) (2.19) (2.37) (2.16) (2.19)
--------- --------- --------- --------- --------- ---------
Capital Change Resulting
from the Issuance of
Fund Shares:
Common Shares........... -- (0.29) -- (0.69) -- (0.67)
Preferred Shares........ -- -- -- (0.03) -- (0.11)
--------- --------- --------- --------- --------- ---------
-- (0.29) -- (0.72) -- (0.78)
--------- --------- --------- --------- --------- ---------
Net asset value, end of
period................. $12.13 $13.55 $15.19 $17.40 $17.44 $16.02
========= ========= ========= ========= ========= =========
Market value per share,
end of period.......... $12.38 $11.63 $16.38 $18.19 $17.88 $17.38
========= ========= ========= ========= ========= =========
TOTAL INVESTMENT RETURN:
Based on market value
per common share/1/ ... 12.73% (19.91%) (0.16%) 13.23% 14.37% 16.04%
Based on net asset value
per common share/2/ ... (4.11%) 2.56% (3.19%) 15.44% 20.40% 10.68%
RATIOS TO AVERAGE NET
ASSETS/3/:
Expenses............... 1.13% 1.14% 0.83% 1.47% 1.80% 0.86%
Net investment income.. 10.87% 10.08% 9.72% 8.92% 9.21% 10.45%
SUPPLEMENTAL DATA:
Net assets at end of
period, net of
preferred stock (000).. $115,266 $128,752 $108,190 $123,442 $87,054 $79,596
Average net assets
during period, net of
preferred stock (000).. $120,973 $130,836 $119,223 $118,893 $83,074 $79,614
Portfolio turnover
rate................... 18% 37% 88% 116% 76% 83%
Number of preferred
shares outstanding at
end of period.......... 3,500,000 3,500,000 2,450,000 2,450,000 1,650,000 1,650,000
Asset coverage per share
of preferred stock
outstanding at end of
period................. $53 $57 $64 $70 $73 $66
Liquidation and average
market value per share
of preferred stock..... $20 $20 $20 $20 $20 $20
------------------------------------------------------------------------------------------------
</TABLE>
/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.
/1/ Total investment return excludes the effects of commissions.
See accompanying Notes to Financial Statements.
8
<PAGE>
PACHOLDER HIGH YIELD FUND, INC.
-------------------------------------------------------------------------------
Notes to Financial Statements
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES -- Pacholder High Yield Fund, Inc. (the
"Fund") is a closed-end, diversified management investment company regis-
tered under the Investment Company Act of 1940. The Fund seeks a high level
of total return through current income and capital appreciation by invest-
ing primarily in high yield, lower rated fixed-income securities of domes-
tic companies. The Fund was incorporated under the laws of the State of
Maryland in August, 1988.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- Portfolio securities are priced at the bid side of
the market by an independent pricing service or broker confirmation. Re-
stricted securities, portfolio securities not priced by the independent
pricing service and other assets are valued at fair value as determined
under procedures established by the Board of Directors. At June 30, 2000,
there was board valued securities of $2,000,000 , or less than 1.1% of net
assets as of such date. Short-term obligations with remaining maturities
of 60 days or less at the date of purchase are valued at amortized cost.
B. FEDERAL TAXES -- It is the Fund's policy to make sufficient distributions
to shareholders of net investment income and net realized capital gains to
comply with the requirements of the Internal Revenue Code applicable to
regulated investment companies. The Fund has complied with the Internal
Revenue Code's requirements applicable to investment companies. Provisions
of $42,953 and $32,828 for federal excise tax were required at December
31, 1999 and 1998, respectively, because the Fund distributed less than
98% of net investment income.
The Fund intends to continue to qualify as a regulated investment company by
complying with the appropriate provisions of the Internal Revenue Code of
1986, as amended.
C. SECURITIES TRANSACTIONS -- Securities transactions are accounted for on
the date the securities are purchased or sold (trade date). Realized gains
and losses on securities transactions are determined on an identified cost
basis. Interest income is recorded on an accrual basis. The Fund amortizes
discounts or premiums on purchases of portfolio securities on the same ba-
sis for both financial reporting and tax purposes. The Fund has elected to
defer the accretion of market discount until disposition of the security.
D. SECURITY LENDING -- The Fund lends its securities to approved brokers to
earn additional income and receives cash as collateral to secure the
loans. Collateral is maintained at not less than 102% of the value of
loaned securities. Although the risk of lending is mitigated by the col-
lateral, the Fund could experience a delay in recovering its securities
and a possible loss of income or value if the borrower fails to return
them.
E. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and ex-
penses are accrued at least weekly. Dividends to stockholders are paid
from net investment income monthly, and distributions of net realized cap-
ital gains, if any, are paid at least annually. Dividends to preferred
stockholders are accrued at least weekly and are paid quarterly from net
investment income.
F. WHEN, AS AND IF ISSUED SECURITIES -- The Fund may engage in "when-issued"
or "delayed delivery" transactions. The Fund records when-issued securi-
ties on the trade date and maintains security positions such that suffi-
cient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market weekly and begin earning interest on the settlement
date. No "when-issued" or "delayed delivery" purchase commitments were in-
cluded in the portfolio of investments as of June 30, 2000.
G. ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make esti-
mates and assumptions that affect the reported amounts of assets and lia-
bilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and ex-
penses during the reporting period. Actual results could differ from those
estimates.
2. COMMON STOCK -- At June 30, 2000, there were 46,500,000 shares of common
stock with a $.01 par value authorized and 9,504,994 shares outstanding.
3. PREFERRED STOCK -- At June 30, 2000, accrued preferred dividends were
$1,211,025.
On March 26, 1999 the Fund issued 1,050,000 shares ($21,000,000 liquidation
preference) of Series E 6.46% Preferred Stock due March 2, 2002 at an offer-
ing price of $20 per share. The Series E Preferred Stock has substantially
identical terms and conditions to the Series C and D Preferred Stocks, with
the exception of an additional dividend coverage test. The offering expenses
of the preferred stock were $101,599, which were recorded as a reduction of
paid-in capital for common stockholders. These expenses included $52,500 paid
to Winton Associates, Inc. for financial and advisory services, including
advis-
9
<PAGE>
PACHOLDER HIGH YIELD FUND, INC.
-------------------------------------------------------------------------------
Notes to Financial Statements (Continued)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
ing the Fund regarding the structure of the preferred stock offering and the
materials utilized therewith, and coordinating the arrangements of the pre-
ferred stock offering.
On December 14, 1998, the Fund issued Series C 7.15% Preferred Stock
($33,000,000 liquidation preference) and Series D 7.05% Preferred Stock
($16,000,000 liquidation preference) in exchange for all of the Fund's Series
A Preferred Stock and Series B Preferred Stock. The Series C and D shares
have substantially identical terms and conditions to the Series A and B
shares, with the exception of a less restrictive asset coverage test. The ex-
penses related to the transaction were $30,388, which were recorded as a re-
duction of paid-in capital for common stockholders.
4. PURCHASES AND SALES OF SECURITIES -- Purchases and sales of securities (ex-
cluding commercial paper) for the six months ended June 30, 2000 aggregated
$32,599,558 and $37,452,350, respectively.
At June 30, 2000, the federal income tax basis of securities was
$208,696,427; unrealized depreciation aggregated $24,400,443, of which
$2,804,387 related to appreciated securities and $27,204,830 related to de-
preciated securities.
At June 30, 2000, the Fund had available a capital loss carryforward of
$5,459,207, which begin to expire in 2006, to offset any future net capital
gains.
5. TRANSACTIONS WITH INVESTMENT ADVISOR, ADMINISTRATOR AND ACCOUNTING SERVICES
AGENT -- The Fund has an investment advisory agreement with Pacholder &
Company, LLC (the "Advisor") pursuant to which the Advisor serves as the
Fund's investment advisor. The Fund pays the Advisor an advisory fee that
varies based on the total return investment performance of the Fund for the
prior twelve-month period relative to the percentage change in the CS First
Boston Domestic + High Yield Index.(TM) The fee, which is accrued at least
weekly and paid quarterly, ranges from a maximum of 1.40% to a minimum of
0.40% (on an annualized basis) of the average weekly net assets of the
Fund. For the six months ended June 30, 2000, the Fund's total return was
(4.11)%. For the same period, the total return of the CS First Boston Do-
mestic + High Yield Index(TM) was (1.38)%. For the period ended June 30,
2000, the advisory fee is calculated based on 0.80% of average weekly net
assets of the Fund. Certain officers and directors of the Fund are also
members of the Executive Committee of the Advisor. At June 30, 2000, ac-
crued advisory fees were $570,113.
The Fund has an administrative services agreement with Kenwood Administrative
Management, Inc. ("KAM") (an affiliate of the Advisor) pursuant to which KAM
provides certain administrative services to the Fund. Under the agreement,
KAM receives from the Fund a fee, accrued at least weekly and paid monthly,
at the annual rate of 0.10% of the average weekly net assets of the Fund. At
June 30, 2000, accrued administrative fees were $10,290.
The Fund has an agreement with Pacholder Associates, Inc. (an affiliate of
the Advisor) to provide portfolio accounting and pricing services to the
Fund. Under the agreement, Pacholder Associates, Inc. receives from the Fund
a fee, accrued at least weekly and paid monthly, at the annual rate of 0.025%
of the first $100 million of the Fund's average weekly net assets and 0.015%
of such assets in excess of $100 million. At June 30, 2000, accrued account-
ing fees were $6,787.
6. NET ASSETS CONSIST OF:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Common Stock ($.01 par value)..................... $ 95,050 $ 95,050
Preferred Stock................................... 70,000,000 70,000,000
Paid-in capital................................... 151,053,152 150,903,682
Undistributed net investment income............... (4,466,157) 1,473,263
Accumulated net realized gain/(loss) on
investments...................................... (4,758,415) (7,750,506)
Unrealized appreciation/(depreciation) on
investments...................................... (26,657,677) (15,969,323)
------------ ------------
$185,265,953 $198,752,166
============ ============
</TABLE>
10
<PAGE>
--------------------------------------------------------------------------------
Pacholder High Yield Fund, Inc.
Semi-Annual Report
June 30, 2000
--------------------------------------------------------------------------------
PACHOLDER HIGH YIELD FUND, INC.
Directors and Officers
William J. Morgan John F. Williamson
Chairman and President Director
James P. Shanahan, Jr. Daniel A. Grant
Secretary Director
James E. Gibson George D. Woodard
Treasurer Director
Investment Objective
A closed-end fund seeking a high level of total return
through current income and capital appreciation by
investing primarily in high yield, lower rated fixed-income
securities of domestic companies.
Investment Advisor
Pacholder & Company, LLC
Administrator
Kenwood Administrative Management, Inc.
Custodian and Transfer Agent
Firstar Bank, N.A.
Legal Counsel
Kirkpatrick & Lockhart LLP
Independent Auditors
Deloitte & Touche LLP
Executive Offices
Pacholder High Yield Fund, Inc.
8044 Montgomery Road
Suite 480
Cincinnati, OH 45236
(513) 985-3200
Web Site
www.phf-hy.com
This report is sent to the
shareholders of Pacholder High
Yield Fund, Inc. for their infor-
mation. It is not a prospectus,
offering circular, or other rep-
resentation intended for use in
connection with the purchase or
sale of shares of the Fund or any
securities mentioned in this re-
port.
--------------------------------------------------------------------------------
