The frames in Pan & Zoom follow the aspect ratio of the project, so I suspect your source photo has a different ratio to that of the project. If you crop the photo to the same ratio as the project then you should be able to drag the initial frame to cover the whole photo.
If you also have Photoshop Elements (PSE) you can make this job easier by starting with a new file set to the appropriate video frame size setting and then pasting your images into it. You can then use the move / resize features of PSE to precisely set how your starting frame should look.
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