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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5410
---------------------------------------------
ING Prime Rate Trust
-------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
7337 E. Doubletree Ranch Rd., Scottsdale, AZ 85258
-------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
C T Corporation System, 101 Federal Street, Boston, MA 02110
-------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-800-992-0180
----------------------------
Date of fiscal year end: February 29
--------------------------
Date of reporting period: February 29, 2004
-------------------------
ITEM 1. REPORTS TO STOCKHOLDERS.
The following is a copy of the report transmitted to stockholders pursuant to
Rule 30e-1 under the Act (17 CFR 270.30e-1):
ANNUAL REPORT
ANNUAL REPORT
FEBRUARY 29, 2004
ING PRIME
RATE TRUST
[GRAPHIC]
[ING FUNDS LOGO]
ING PRIME RATE TRUST
ANNUAL REPORT
February 29, 2004
---------
Table of Contents
Portfolio Managers' Report 2
Independent Auditors' Report 7
Statement of Assets and Liabilities 8
Statement of Operations 9
Statements of Changes in Net Assets 10
Statement of Cash Flows 11
Financial Highlights 12
Notes to Financial Statements 13
Portfolio of Investments 20
Shareholder Meeting Information 40
Additional Information 41
Tax Information 43
Trustee and Officer Information 44
ING Prime Rate Trust
PORTFOLIO MANAGERS' REPORT
Dear Shareholders:
ING Prime Rate Trust (the "Trust") is a diversified, closed-end investment
company that seeks to provide investors with as high a level of current income
as is consistent with the preservation of capital. The Trust seeks to achieve
this objective by investing in a professionally managed portfolio comprised
primarily of senior loans.
PORTFOLIO CHARACTERISTICS
AS OF FEBRUARY 29, 2004
Net Assets $ 1,010,325,441
Total Assets $ 1,692,510,327
Assets Invested in
Senior Loans $ 1,632,623,334
Senior Loans Represented 368
Average Amount Outstanding
per Loan $ 4,436,476
Industries Represented 39
Average Loan Amount
per Industry $ 41,862,137
Portfolio Turnover Rate 87%
Weighted Average Days to
Interest Rate Reset 42
Average Loan Final Maturity 54 months
Total Leverage as a Percentage
of Total Assets
(including Preferred Shares) 39.88%
PEFORMANCE SUMMARY
The Trust declared $0.42 of dividends during the fiscal year ended February 29,
2004. Based on the average month-end net asset value ("NAV") per share of $7.17,
this resulted in an annualized distribution rate of 5.95%(1) for the year. The
Trust's total return for the fiscal year, based on NAV, was 15.72%, versus a
total return on the S&P/LSTA Leveraged Loan Index of 9.40% for the same period.
The total market value return (based on full reinvestment of dividends) for the
Trust's common shares during the fiscal year was 28.77%.
MARKET OVERVIEW
The non-investment grade loan market closed out the twelve-month period ended
February 29, 2004 in robust fashion, driven by bullish investor sentiment and
the continuation of several positive trends, both macroeconomic and specific to
credit markets. Although sustained job creation still appears elusive at this
point, revitalization of the U.S. economy has clearly taken hold, as evidenced
by above-consensus gross domestic product numbers during recent quarters, and
stronger than expected corporate earnings across many key industry sectors.
Importantly, an improved economic outlook played a significant role in the
effective re-opening of debt capital markets to a broader spectrum of
non-investment grade borrowers. At the corporate level, although top-line
revenue growth remains difficult to come by during this period of muted pricing
power and intense global competition, in general, corporate executives continue
to do the right things, I.E., lower production costs, improve productivity, and
address liquidity concerns via renewed access to capital. These factors, taken
as a whole, propelled the leveraged loan market to record returns during 2003
with continued momentum into the first quarter of 2004.
2
PORTFOLIO OVERVIEW
Against the backdrop of an increasingly strong loan market, we continued during
the fiscal year to emphasize industries and individual loan positions that we
believe offer value. Cable television and wireless communications finished out
the fiscal year as the Trust's two largest industry sectors, primarily on the
basis of offering attractive returns for the underlying risk. During the fiscal
year, several of the Trust's larger individual holdings from these two sectors
benefited from fundamental credit improvement. Specifically, Charter
Communications Operating, LLC reported several quarters in which it met or
exceeded analyst expectations, and in doing so, the third largest cable
television provider in the U.S. has effectively regained access to much needed
capital in order to address specific balance sheet issues. As a result, the
price of the company's term loans have returned to near-par levels. Charter's
resurgence also directly impacted, in a favorable manner, the loans of Adelphia
Communications and its subsidiaries, the country's fifth largest cable operator.
Although Adelphia continues to work through a very complex Chapter 11 bankruptcy
proceeding, the market value of the company's debt obligations continues to
point to a full recovery to lenders upon exit from bankruptcy. We continue to
monitor this situation closely.
TOP TEN INDUSTRY SECTORS AS OF
FEBRUARY 29, 2004 AS A
PERCENTAGE OF:
TOTAL NET
ASSETS ASSETS
------ ------
Cable Television 11.9% 20.0%
Cellular Communications 9.1% 15.2%
Healthcare, Education and
Childcare 6.5% 11.0%
Printing and Publishing 6.4% 10.7%
Automobile 5.2% 8.7%
Chemicals, Plastics and Rubber 4.5% 7.5%
Beverage, Food and Tobacco 4.2% 7.0%
Containers, Packaging and
Glass 4.0% 6.7%
Radio and TV Broadcasting 3.6% 6.0%
Leisure, Amusement,
Entertainment 3.4% 5.7%
Similarly, Nextel Communications ("Nextel"), the bellwether issuer in the
non-investment grade wireless sector, turned in a succession of very strong
quarters during the period under review and, during the Trust's fourth fiscal
quarter, refinanced it's sizeable credit facility at attractive borrowing rates.
We took this opportunity to reduce the Trust's overall exposure to Nextel. As in
the recent past, Nextel's operational strength and capital markets activity has
provided a catalyst to improved sentiment across the overall wireless sector,
historically one of the Trust's largest.
While we proactively manage the Trust's largest exposures, we continue to
maintain a high level of diversification of the portfolio, across both issuer
and industry lines. As of February 29, 2004, the average individual position
accounted for approximately 0.26% of the Trust's total assets, as compared to
roughly 0.35% as of February 29, 2003. The average amount invested per industry
was also reduced during the fiscal year, to approximately 2.47% of total assets,
from 2.73% at the end of the year-ended February 28, 2003.
TOP TEN SENIOR LOAN ISSUERS
AS OF FEBRUARY 29, 2004
AS A PERCENTAGE OF:
TOTAL NET
ASSETS ASSETS
------ ------
Charter Communications
Operating, LLC 4.0% 6.8%
Nextel Finance Company 3.7% 6.3%
Dex Media West, LLC 1.7% 2.8%
Conseco, Inc. 1.5% 2.5%
Crown Castle Operating
Company 1.3% 2.2%
Wyndham International, Inc. 1.2% 2.1%
General Growth Properties 1.2% 2.0%
Olympus Cable Holdings, LLC 1.2% 2.0%
Paxson Communications
Corporation 1.1% 1.9%
Cincinnati Bell, Inc. 1.1% 1.8%
3
USE OF LEVERAGE
The Trust utilizes financial leverage to seek to increase the yield to the
holders of common shares. As of February 29, 2004, the Trust had $450 million of
"Aaa/AAA(2)" rated cumulative auction rate preferred shares outstanding, and
$225 million of borrowings outstanding under $525 million in available credit
facilities. Total leverage, as a percentage of total assets (including preferred
shares), was 39.88% at year end. The use of leverage for investment purposes
increases both investment opportunity and investment risk.
OUTLOOK
As we move further into 2004, loan investors, when analyzing their options, will
seek to balance the prospects of an improving domestic economy with a
supply/demand picture still heavily in favor of loan issuers. On one hand, the
current environment has distinctly impacted existing loan prices in a favorable
manner. On the other, it has also ushered in a period of unprecedented spread
tightening, and made uncovering value a difficult proposition. While there is
likely little upside left in loan prices at this point, fortunately, absent any
significant external economic or geopolitical shocks, the downside also appears
limited, at least for the foreseeable future. Default levels continue to drift
lower, and a generational low in corporate borrowing rates, combined with
historically strong investor demand for higher-yielding investments, has enabled
many corporations to shore up balance sheets and thereby improve cash flow. Over
the next few months, all eyes will be on the Federal Reserve as it determines
when it is appropriate to increase short-term interest rates. Given the
ultra-short duration of floating rate loans, an upward move in short-term rates
would prove positive for the Trust's distributable yield.
We thank you for your investment in ING Prime Rate Trust.
/s/ Jeffrey A. Bakalar /s/ Daniel A. Norman
---------------------- --------------------
SENIOR VICE PRESIDENT SENIOR VICE PRESIDENT
CO-SENIOR PORTFOLIO MANAGER CO-SENIOR PORTFOLIO MANAGER
AELTUS INVESTMENT MANAGEMENT, INC. AELTUS INVESTMENT MANAGEMENT, INC.
ING Prime Rate Trust
April 4, 2004
(1) The distribution rate is calculated by annualizing dividends declared
during the quarter and dividing the resulting annualized dividend by the
Trust's average month-end net asset value (In the case of NAV) or the
average month-end NYSE Composite closing price (in the case of Market). The
distribution rate is based solely on the actual dividends and
distributions, which are made at the discretion of management. The
distribution rate may or may not include all investment income and
ordinarily will not include capital gains or losses, if any.
(2) Obligations rated Aaa by Moody's Investors Service are judged to be of the
highest quality, with minimal credit risk. An obligator rated `AAA' has
extremely strong capacity to meet its financial commitments. `AAA' is the
highest Issuer Credit Rating assigned by Standard & Poor's.
4
[CHART]
ING Prime Rate Trust ING Prime Rate Trust Credit Suisse First Boston
at Market Value at NAV Leveraged Loan Index
2/28/1994 $ 10,000 $ 10,000 $ 10,000
2/28/1995 $ 12,765 $ 13,010 $ 10,886
2/29/1996 $ 15,215 $ 14,208 $ 11,800
2/28/1997 $ 20,943 $ 18,270 $ 12,708
2/28/1998 $ 23,601 $ 19,733 $ 13,720
2/28/1999 $ 23,702 $ 21,285 $ 14,262
2/29/2000 $ 22,459 $ 22,492 $ 15,153
2/28/2001 $ 24,517 $ 22,535 $ 15,928
2/28/2002 $ 22,261 $ 21,855 $ 16,139
2/28/2003 $ 22,825 $ 21,951 $ 16,598
2/29/2004 $ 29,391 $ 25,401 $ 18,331
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED FEBRUARY 29, 2004
SINCE TRUST SINCE INITIAL
1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION(1)(2) TRADING ON NYSE(3)
------ ------- ------- -------- --------------- ------------------
Based on Net Asset Value (NAV) 15.72% 4.07% 3.59% 5.91% 6.87% --
Based on Market Value 28.77% 6.23% 4.25% 7.08% -- 7.06%
Credit Suisse First Boston
Leveraged Loan Index 10.44% 4.80% 5.15% 6.25% -- 6.85%
S&P/LSTA Leveraged Loan Index(4) 9.40% 4.95% 5.10% -- -- --
ASSUMES RIGHTS WERE EXERCISED AND EXCLUDES SALES CHARGES AND
COMMISSIONS(5),(6),(7)
(1) Inception Date -- May 12, 1988. Since inception return is not applicable
since the Trust did not trade on the NYSE prior to March 9, 1992.
(2) Reflects partial waiver of fees.
(3) Initial Trading on NYSE -- March 9, 1992. Since inception performance for
the index is shown from 03/01/92.
(4) Since inception performance for the index is 5.37% from 1/1/97.
(5) Calculation of total return assumes a hypothetical initial investment at
the net asset value (in the case of NAV) or the NYSE Composite closing
price (in the case of Market) on the last business day before the first day
of the stated period, with all dividends and distributions reinvested at
the actual reinvestment price.
(6) On December 27, 1994, the Trust issued to its shareholders transferable
rights which entitled the holders to subscribe for 17,958,766 shares of the
Trust's common stock at the rate of one share of common stock for each four
rights held. On January 27, 1995, the offering expired and was fully
subscribed. The Trust issued 17,958,766 shares of its common stock to
exercising rights holders at a subscription price of $8.12. Offering costs
of $4,470,955 were charged against the offering proceeds.
(7) On October 18, 1996, the Trust issued to its shareholders non-transferable
rights which entitled the holders to subscribe for 18,122,963 shares of the
Trust's common stock at the rate of one share of common stock for each five
rights held. On November 12, 1996, the offering expired and was fully
subscribed. The Trust issued 18,122,963 shares of its common stock to
exercising rights holders at a subscription price of $9.09. Offering costs
of $6,972,203 were charged against the offering proceeds.
PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO GUARANTEE OF FUTURE
RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE TRUST
WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST. THE TRUST'S PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA
SHOWN. PLEASE LOG ON TO WWW.INGFUNDS.COM OR CALL (800) 992-0180 TO GET
PERFORMANCE TO THE MOST RECENT MONTH END.
SENIOR LOANS ARE SUBJECT TO CREDIT RISKS AND THE POTENTIAL FOR NON-PAYMENT OF
SCHEDULED PRINCIPAL OR INTEREST PAYMENTS, WHICH MAY RESULT IN A REDUCTION OF THE
TRUST'S NAV.
THIS LETTER CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING STATEMENTS." ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING
STATEMENTS."
THE VIEWS EXPRESSED IN THIS LETTER REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
PORTFOLIO MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND
OTHER CONDITIONS.
5
NET ASSET AVERAGE AVERAGE
VALUE ("NAV") MARKET ANNUALIZED ANNUALIZED
PRIME 30-DAY SEC 30-DAY SEC DISTRIBUTION DISTRIBUTION
QUARTER ENDED RATE YIELD(A) YIELD(A) RATE AT NAV(B) RATE AT MARKET(B)
------------- ----- ------------- ---------- -------------- -----------------
February 29, 2004 4.00% 5.56% 5.20% 5.82% 5.35%
November 30, 2003 4.00% 6.51% 6.30% 5.83% 5.68%
August 31, 2003 4.00% 5.82% 5.45% 5.98% 5.72%
May 31, 2003 4.25% 6.93% 6.75% 6.16% 6.07%
(A) Yield is calculated by dividing the Trust's net investment income per share
for the most recent thirty days by the net asset value (in the case of NAV)
or the NYSE Composite closing price (in the case of market) at quarter-end.
Yield calculations do not include any commissions or sales charges, and are
compounded for six months and annualized for a twelve-month period to
derive the Trust's yield consistent with the SEC standardized yield formula
for open-end investment companies.
(B) The distribution rate is calculated by annualizing each monthly dividend,
then averaging the annualized dividends declared for each month during the
quarter and dividing the resulting average annualized dividend amount by
the Trust's average net asset value (in the case of NAV) or the NYSE
Composite closing price (in the case of Market) at the end of the period.
INDEX DESCRIPTIONS
THE S&P/LSTA LEVERAGED LOAN INDEX ("LLI") is an unmanaged total return index
that captures accrued interest, repayments, and market value changes. It
represents a broad cross section of leveraged loans syndicated in the United
States, including dollar-denominated loans to overseas issuers. Standard &
Poor's and the Loan Syndications & Trading Association ("LSTA") conceived the
LLI to establish a performance benchmark for the syndicated leveraged loan
industry. An investor cannot invest directly in an index.
THE CREDIT SUISSE FIRST BOSTON LEVERAGED LOAN INDEX is an unmanaged index of
below-investment-grade loans designed to mirror the investable universe of the
U.S. dollar-denominated leveraged loan market. An investor cannot invest
directly in an index.
6
ING Prime Rate Trust
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees
ING Prime Rate Trust:
We have audited the accompanying statement of assets and liabilities of the ING
Prime Rate Trust (the "Trust"), including the portfolio of investments, as of
February 29, 2004, the related statements of operations and cash flows for the
year then ended, the statement of changes in net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of February 29, 2004, by correspondence with the custodian
and other appropriate audit procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of ING
Prime Rate Trust as of February 29, 2004, the results of its operations and its
cash flows for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
April 19, 2004
Los Angeles, California
7
ING Prime Rate Trust
STATEMENT OF ASSETS AND LIABILITIES as of February 29, 2004
ASSETS:
Investments in securities at value (Cost $1,687,342,912) $ 1,682,172,348
Cash 2,468,084
Receivables:
Interest 7,739,288
Other 93,317
Prepaid expenses 37,290
----------------
Total assets 1,692,510,327
----------------
LIABILITIES:
Notes payable 225,000,000
Deferred arrangement fees on senior loans 4,231,018
Dividends payable - preferred shares 67,279
Payable to affiliates 1,384,418
Accrued trustees' fees 42,202
Other accrued expenses 1,459,969
----------------
Total liabilities 232,184,886
----------------
Preferred shares, $25,000 stated value per share at liquidation
value (18,000 shares outstanding) 450,000,000
----------------
NET ASSETS $ 1,010,325,441
================
Net assets value per common share outstanding (net assets less preferred shares
at liquidation value, divided by 137,638,271 shares of
beneficial interest authorized and outstanding, no par value) $ 7.34
NET ASSETS CONSIST OF:
Paid-in capital $ 1,288,128,474
Undistributed net investment income 9,661,472
Accumulated net realized loss on investments (282,293,941)
Net unrealized depreciation of investments (5,170,564)
----------------
NET ASSETS $ 1,010,325,441
================
See Accompanying Notes to Financial Statement
8
ING Prime Rate Trust
STATEMENT OF OPERATIONS for the Year Ended February 29, 2004
INVESTMENT INCOME:
Interest $ 81,183,842
Arrangement fees earned 3,273,210
Dividends 254,336
Other 3,536,964
----------------
Total investment income 88,248,352
----------------
EXPENSES:
Investment management fees 12,492,726
Administration fees 3,903,976
Transfer agent and registrar fees 547,632
Interest 2,715,456
Shareholder reporting expense 151,524
Custodian fees 695,456
Revolving credit facility fees 97,956
Professional fees 1,003,457
Preferred Shares - Dividend disbursing agent fees 1,186,076
Insurance expense 21,054
Pricing expense 57,479
ICI fees 24,291
Postage expense 219,138
Trustees' fees 73,200
Miscellaneous expense 177,711
----------------
Total expenses 23,367,132
----------------
Net investment income 64,881,220
----------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS:
Net realized loss on investments (45,502,509)
Net change in unrealized appreciation of investments 126,661,233
----------------
Net realized and unrealized gain on investments 81,158,724
----------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
From net investment income (5,199,537)
----------------
Net increase in net assets resulting from operations $ 140,840,407
================
See Accompanying Notes to Financial Statement
9
ING Prime Rate Trust
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
2004 2003
---------------- ----------------
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income $ 64,881,220 $ 69,429,083
Net realized loss on investments (45,502,509) (115,778,026)
Change in unrealized appreciation on
investments 126,661,233 51,893,096
Distributions to preferred shareholders
from net investment income (5,199,537) (7,499,067)
---------------- ----------------
Net increase (decrease) in net assets
resulting from operations 140,840,407 (1,954,914)
---------------- ----------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
Distributions from net investment income (57,649,691) (61,643,423)
---------------- ----------------
Decrease in net assets from distributions
to common shareholders (57,649,691) (61,643,423)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Dividends reinvested for common shares 4,364,604 --
Sales of shares in connection with shelf offering 386,779 --
---------------- ----------------
Net increase from capital share transactions 4,751,383 --
---------------- ----------------
Net increase (decrease) in net assets 87,942,099 (63,598,337)
---------------- ----------------
NET ASSETS:
Beginning of period 922,383,342 985,981,679
---------------- ----------------
End of period (including undistributed
net investment income of $9,661,472
and $11,723,349, respectively) $ 1,010,325,441 $ 922,383,342
================ ================
SUMMARY OF CAPITAL SHARE TRANSACTIONS:
Shares issued in payment of distributions from net
investments income 612,173 --
Shares sold in connection with shelf offering 53,184 --
---------------- ----------------
Net increase in shares outstanding 665,357 --
================ ================
See Accompanying Notes to Financial Statement
10
ING Prime Rate Trust
STATEMENT OF CASH FLOWS for the Year Ended February 29, 2004
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 72,729,269
Dividends received 254,336
Facility fees paid (97,956)
Dividends paid to preferred shareholders (5,178,672)
Arrangement fee received 4,411,661
Other income received 3,524,629
Interest paid (2,715,456)
Other operating expenses paid (19,910,251)
Purchases of securities (1,481,276,175)
Proceeds from sales of securities 1,424,283,285
----------------
Net cash used in operating activities $ (3,975,330)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid in cash to common shareholders (53,285,087)
Proceeds from shelf offerings 386,779
Net issuance of notes payable 58,000,000
----------------
Net cash flows used in financing activities 5,101,692
----------------
Net change in cash 1,126,362
Cash at beginning of year 1,341,722
----------------
Cash at end of year $ 2,468,084
================
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH USED IN OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 140,840,407
----------------
Adjustments to reconcile net increase in net assets resulting from operations to
net cash provided by operating activities:
Change in unrealized depreciation of securities (126,661,233)
Net accretion of discounts on securities (8,093,862)
Realized loss on sale of securities 45,502,509
Purchase of securities (1,481,276,175)
Proceeds on sale of securities 1,424,283,285
Increase in other assets (12,335)
Increase in interest receivable (360,711)
Decrease in prepaid expenses 166,487
Increase in deferred arrangement fees on senior loans 1,138,451
Increase in preferred shareholder dividend payable 20,865
Increase in affiliate payable 151,851
Increase in accrued trustees' fees 12,827
Increase in accrued expenses 312,304
----------------
Total adjustments (144,815,737)
----------------
Net cash used in operating activities $ (3,975,330)
================
NON CASH FINANCING ACTIVITIES
Reinvestment of dividends $ 4,364,604
See Accompanying Notes to Financial Statement
11
ING PRIME RATE TRUST
FINANCIAL HIGHLIGHTS
For a common share outstanding throughout the period
YEARS ENDED FEBRUARY 28 OR FEBRUARY 29,
--------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 6.73 7.20 8.09 8.95 9.24
Income from investment operations:
Net investment income $ 0.46 0.50 0.74 0.88 0.79
Net realized and unrealized gain (loss) on investments $ 0.61 (0.47) (0.89) (0.78) (0.30)
----------- -------- --------- ----------- -----------
Total from investment operations $ 1.07 0.03 (0.15) 0.10 0.49
Distributions to Common Shareholders from net investment income $ (0.42) (0.45) (0.63) (0.86) (0.78)
Distribution to Preferred Shareholders $ (0.04) (0.05) (0.11) (0.06) --
Reduction in net asset value from Preferred Shares offerings $ -- -- -- (0.04) --
----------- -------- --------- ----------- -----------
Net asset value, end of year $ 7.34 6.73 7.20 8.09 8.95
=========== ======== ========= =========== ===========
Closing market price at end of year $ 7.84 6.46 6.77 8.12 8.25
TOTAL INVESTMENT RETURN(1)
Total investment return at closing market price(2) % 28.77 2.53 (9.20) 9.10 (5.88)
Total investment return at net asset value(3) % 15.72 0.44 (3.02) 0.19 5.67
RATIOS/SUPPLEMENTAL DATA
Net assets end of year (000's) $ 1,010,325 922,383 985,982 1,107,432 1,217,339
Preferred Shares-Aggregate amount outstanding (000's) $ 450,000 450,000 450,000 450,000 --
Liquidation and market value per share of Preferred Shares $ 25,000 25,000 25,000 25,000 --
Borrowings at end of year (000's) $ 225,000 167,000 282,000 510,000 484,000
Asset coverage ratios(4) % 250 250 235 215 352
Average borrowings (000's) $ 143,194 190,671 365,126 450,197 524,019
Ratios to average net assets including Preferred Shares(5)
Expenses (before interest and other fees
related to revolving credit facility) % 1.45 1.49 1.57 1.62 --
Expenses % 1.65 1.81 2.54 3.97 --
Net investment income % 4.57 4.97 6.83 9.28 --
Ratios to average net assets plus borrowings
Expenses (before interest and other fees related to
revolving credit facility) % 1.84 1.82 1.66 1.31 1.00(6)
Expenses % 2.09 2.23 2.70 3.21 2.79(6)
Net investment income % 5.82 6.10 7.24 7.50 6.12
Ratios to average net assets
Expenses (before interest and other fees
related to revolving credit facility) % 2.11 2.19 2.25 1.81 1.43(6)
Expenses % 2.40 2.68 3.64 4.45 4.00(6)
Net investment income % 6.68 7.33 9.79 10.39 8.77
Portfolio turnover rate % 87 48 53 46 71
Common shares outstanding at end of period (000's) 137,638 136,973 136,973 136,847 136,036
(1) Total investment return calculations are attributable to common
shareholders.
(2) Total investment return measures the change in the market value of your
investment assuming reinvestment of dividends and capital gain
distributions, if any, in accordance with the provisions of the dividend
reinvestment plan.
(3) Total investment return at net asset value has been calculated assuming a
purchase at net asset value at the beginning of each period and a sale at
net asset value at the end of each period and assumes reinvestment of
dividends and capital gain distributions in accordance with the provisions
of the dividend reinvestment plan. This calculation differs from total
investment return because it excludes the effects of changes in the market
values of the Trust's shares.
(4) Asset coverage represents the total assets available for settlement of
Preferred Stockholder's interest and notes payables in relation to the
Preferred Shareholder interest and notes payable balance outstanding. The
Preferred Shares were first offered November 2, 2000.
(5) Ratios do not reflect the effect of dividend payments to Preferred
Shareholders; income ratios reflect income earned on assets attributable to
preferred shares.
(6) Calculated on total expenses before impact on earnings credits.
See Accompanying Notes to Financial Statements
12
ING Prime Rate Trust
NOTES TO FINANCIAL STATEMENTS as of February 29, 2004
NOTE 1 -- ORGANIZATION
ING Prime Rate Trust (the "Trust"), a Massachusetts business trust, is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as a diversified, closed-end, investment management company. The Trust
invests in senior loans which are exempt from registration under the Securities
Act of 1933 as amended (the "33 Act"), but contain certain restrictions on
resale and cannot be sold publicly. These loans bear interest (unless otherwise
noted) at rates that float periodically at a margin above the Prime Rate of a
U.S. bank specified in the credit agreement, the London Inter-Bank Offered Rate
("LIBOR"), the certificate of deposit rate, or in some cases another base
lending rate. The following is a summary of the significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. The policies are in conformity with accounting principles generally
accepted in the United States of America.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles in the
United States of America.
A. SENIOR LOAN AND OTHER SECURITY VALUATION. Loans are normally valued at the
mean of the means of one or more bid and asked quotations obtained from a
pricing service or other sources determined by the Board of Trustees to be
independent and believed to be reliable. Loans for which reliable market
value quotations are not readily available may be valued with reference to
another loan or a group of loans for which quotations are more readily
available and whose characteristics are comparable to the loan being
valued. Under this approach, the comparable loan or loans serve as a proxy
for changes in value of the loan being valued. The Trust has engaged an
independent pricing service to provide quotations from dealers in loans and
to calculate values under the proxy procedure described above. As of
February 29, 2004, 96.85% of total investments were valued based on these
procedures. It is expected that most of the loans held by the Trust will be
valued with reference to quotations from the independent pricing service or
with reference to the proxy procedure described above.
Prices from a pricing source may not be available for all loans and ING
Investments, LLC (the "Investment Manager") or Aeltus Investment
Management, Inc. ("ING Aeltus" the "Sub-Adviser"), may believe that the
price for a loan derived from market quotations or the proxy procedure
described above is not reliable or accurate. Among other reasons, this may
be the result of information about a particular loan or borrower known to
the Investment Manager that the Investment Manager believes may not be
known to the pricing service or reflected in a price quote. In this event,
the loan is valued at fair value as determined in good faith under
procedures established by the Trust's Board of Trustees and in accordance
with the provisions of the 1940 Act. Under these procedures, fair value is
determined by the Investment Manager and monitored by the Trust's Board of
Trustees through its Valuation and Proxy Committee. In fair valuing a loan,
consideration is given to several factors, which may include, among others,
the following: (i) the characteristics of and fundamental analytical data
relating to the loan, including the cost, size, current interest rate,
period until the next interest rate reset, maturity and base lending rate
of the loan, the terms and conditions of the loan and any related
agreements, and the position of the loan in the borrower's debt structure;
(ii) the nature, adequacy and value of the collateral, including the
Trust's rights, remedies and interests with respect to the collateral;
(iii) the creditworthiness of the borrower and the cash flow coverage of
outstanding principal and interest, based on an evaluation of its financial
condition, financial statements and information about the borrower's
business, cash flows, capital structure and future prospects; (iv)
information relating to the market for the loan, including price quotations
for, and trading in, the loan and interests in similar loans; (v) the
13
reputation and financial condition of the agent for the loan and any
intermediate participants in the loan; (vi) the borrower's management; and
(vii) the general economic and market conditions affecting the fair value
of the loan. Securities for which the primary market is a national
securities exchange are valued at the last reported sale price. Securities
reported by NASDAQ will be valued at NASDAQ official closing price. Debt
and equity securities traded in the over-the-counter market and listed
securities for which no sale was reported on that date are valued at the
mean between the last reported bid and asked price. Securities other than
senior loans for which reliable quotations are not readily available and
all other assets will be valued at their respective fair values as
determined in good faith by, and under procedures established by, the Board
of Trustees of the Trust. Investments in securities maturing in less than
60 days from the date of acquisition are valued at amortized cost.
B. FEDERAL INCOME TAXES. It is the Trust's policy to comply with subchapter M
of the Internal Revenue Code and related excise tax provisions applicable
to regulated investment companies and to distribute substantially all of
its net investment income and net realized capital gains to its
shareholders. Therefore, no federal income tax provision is required. No
capital gain distributions shall be made until any capital loss
carryforwards have been fully utilized or expire.
C. SECURITY TRANSACTIONS AND REVENUE RECOGNITION. Loans are booked on a
settlement date basis and security transactions are accounted for on trade
date (date the order to buy or sell is executed). Realized gains or losses
are reported on the basis of identified cost of securities sold. Dividend
income is recognized on the ex-dividend date. Interest income is recorded
on an accrual basis at the then-current interest rate of the loan. The
accrual of interest on loans is discontinued when, in the opinion of
management, there is an indication that the borrower may be unable to meet
payments as they become due. Upon such discontinuance, all unpaid accrued
interest is reversed. Cash collections on nonaccrual senior loans are
generally applied as a reduction to the recorded investment of the loan.
Senior loans are returned to accrual status only after all past due amounts
have been received. For all loans acquired prior to March 1, 2001,
arrangement fees received, which represent non-refundable fees associated
with the acquisition of loans are deferred and recognized over the shorter
of 2.5 years or the actual terms of the loan. For all loans, except
revolving credit facilities, acquired subsequent to February 28, 2001, fees
received are treated as discounts and accreted as described in Note 2.H.
Fees associated with revolving credit facilities acquired subsequent to
February 28, 2001 are deferred and recognized over the shorter of four
years or the actual term of the loan.
D. DISTRIBUTIONS TO COMMON SHAREHOLDERS. The Trust declares dividends monthly
for net investment income. Distributions from capital gains, if any, are
declared and paid annually. The Trust may make additional distributions to
comply with the distribution requirements of the Internal Revenue Code. The
character and amounts of income and gains to be distributed are determined
in accordance with federal income tax regulations, which may differ from
accounting principles generally accepted in the United States of America
for investment companies. Dividends paid by the Trust from net investment
income and distributions of net realized short-term capital gains are, for
federal income tax purposes, taxable as ordinary income to shareholders.
The Trust records distributions to its shareholders on the ex-dividend
date.
E. DIVIDEND REINVESTMENTS. Pursuant to the Shareholder Investment Program
(formerly known as the Automatic Dividend Reinvestment Plan), DST Systems,
Inc., the Plan Agent, purchases, from time to time, shares of beneficial
interest of the Trust on the open market to satisfy dividend reinvestments.
Such shares are purchased only when the closing sale or bid price plus
commission is less than the net asset value per share of the stock on the
valuation date. If the
14
market price plus commissions is equal to or exceeds the net asset value,
new shares are issued at the greater of (i) net asset value or (ii) the
market price of the shares during the pricing period, minus a discount of
5%.
F. USE OF ESTIMATES. Management of the Trust has made certain estimates and
assumptions relating to the reporting of assets, liabilities, revenues,
expenses and contingencies to prepare these financial statements in
conformity with generally accepted accounting principles in the United
States of America. Actual results could differ from these estimates.
G. SHARE OFFERINGS. During the year ended February 28, 1999, the Trust began
issuing shares under various shelf registration statements, whereby the net
proceeds received by the Trust from share sales may not be less than the
greater of (i) the NAV per share or (ii) 94% of the average daily market
price over the relevant pricing period.
H. CHANGE IN ACCOUNTING PRINCIPLE. In November 2000 the American Institute of
Certified Public Accountants (the "AICPA") issued a revised version of the
AICPA Audit and Accounting Guide for Investment Companies (the "Guide").
Effective March 1, 2001, the Fund adopted the provisions of the Guide and
began amortizing premiums and accreting discounts on debt securities. Prior
to March 1, 2001, the Trust had not amortized premiums nor accreted
discounts. The cumulative effect of this accounting change had no impact on
net assets of the Trust, but resulted in a $3,653,000 increase in the cost
of securities and a corresponding $3,653,000 increase in net unrealized
depreciation of investments, based on securities held by the Trust on March
1, 2001.
NOTE 3 -- INVESTMENTS
For the year ended February 29, 2004, the cost of purchases and the proceeds
from principal repayment and sales of investments, excluding short-term notes,
totaled $1,411,276,175 and $1,354,283,285, respectively. At February 29, 2004,
the Trust held senior loans valued at $1,632,623,334 representing 97.1% of its
total investments. The market value of these assets is established as set forth
in Note 2.
The senior loans acquired by the Trust may take the form of a direct lending
relationship with the borrower, or an assignment of a lender's interest in a
loan. The lead lender in a typical corporate loan syndicate administers the loan
and monitors collateral. In the event that the lead lender becomes insolvent,
enters FDIC receivership or, if not FDIC insured, enters into bankruptcy, the
Trust may incur certain costs and delays in realizing payment, or may suffer a
loss of principal and/or interest.
Common and preferred shares, and stock purchase warrants held in the portfolio
were acquired in conjunction with loans held by the Trust. Certain of these
stocks and warrants are restricted and may not be publicly sold without
registration under the `33 Act, or without an exemption under the `33 Act. In
some cases, these restrictions expire after a designated period of time after
issuance of the shares or warrant.
15
Dates of acquisition and cost or assigned basis of restricted securities are as
follows:
DATE OF COST OR
ACQUISITION ASSIGNED BASIS
----------- --------------
Acterna, LLC -- Common Shares 12/24/03 $ 1,090,731
Allied Digital Technologies Corporation -- Residual Interest in
Bankruptcy Estate 06/05/02 186,961
AM Cosmetics Corporation -- Liquidation Interest 03/07/03 50
Block Vision Holdings Corporation -- Common Shares 09/30/02 --
Boston Chicken Inc. -- Residual Interest in Boston Chicken Plan Trust 12/26/00 6,728,959
Cedar Chemical -- Liquidation Interest 12/31/02 --
Covenant Care, Inc. -- Warrants 12/22/95 --
Covenant Care, Inc. -- Warrants 01/18/02 --
Decision One Corporation -- Common Shares 06/16/00 --
Electro Mechanical Solutions -- Residual Interest in Bankruptcy Estate 10/02/02 30
Enterprise Profit Solutions -- Liquidation Interest 10/21/02 --
Euro United Corporation -- Residual Interest in Bankruptcy Estate 06/21/02 2,539,432
Exide Technologies -- Warrants 11/30/01 --
Grand Union Company -- Residual Interest in Bankruptcy Estate 07/01/02 3,599
Holmes Products Corporation -- Warrants 10/24/01 --
Humphreys, Inc. -- Residual Interest in Bankruptcy Estate 05/15/02 100
IHDG Realty -- Common Shares 05/02/01 1
Imperial Home Decor Group, Inc. -- Common Shares 05/02/01 1,654,378
Imperial Home Decor Group, Inc. -- Liquidation Interest 01/22/04 --
Insilco Technologies -- Residual Interest in Bankruptcy Estate 05/02/03 21,140
Intera Group, Inc. -- Common Shares 11/29/02 --
IT Group, Inc. -- Residual Interest in Bankruptcy Estate 09/12/03 366,989
Kevco, Inc. -- Residual Interest in Bankruptcy Estate 06/05/02 147,443
Morris Material Handling, Inc. -- Common Shares 10/09/01 3,009,059
MP Holdings, Inc. -- Common Shares 04/16/01 6
Murray's Discount Auto Stores, Inc. -- Interest in Undistributed Escrow Account 08/11/03 510,279
Neoplan USA Corporation -- Common Shares 08/29/03 --
Neoplan USA Corporation -- Series B Preferred Shares 08/29/03 --
Neoplan USA Corporation -- Series C Preferred Shares 08/29/03 428,603
Neoplan USA Corporation -- Series D Preferred Shares 08/29/03 3,524,300
New Piper Aircraft Residual Interest in Litigation Proceeds 07/02/03 --
New World Restaurant Group, Inc. -- Warrants 09/27/01 40
Safelite Glass Corporation -- Common Shares 09/12/00 --
Safelite Realty -- Common Shares 09/12/00 --
Sarcom, Inc. -- Common Shares 12/11/02 --
Sarcom, Inc. -- Preferred Shares 12/11/02 2,782,654
Scientific Games Corporation -- Common Shares 10/30/03 554,457
Soho Publishing -- Common Shares 01/10/02 133
Stellex Aerostructures, Inc. -- Common Shares 10/17/01 275,767
Targus Group, Inc. -- Common Shares 03/11/03 --
Tartan Textile Services, Inc. -- Series D Preferred Shares 07/16/01 2,227,655
Tartan Textile Services, Inc. -- Series E Preferred Shares 07/16/01 2,333,852
Teligent, Inc. -- Common Shares 09/18/02 --
Tembec, Inc. -- Common Shares 01/08/02 1,442,942
Transtar Metals -- Residual Interest in Bankruptcy Estate 01/09/03 80,459
TSR Wireless, LLC -- Residual Interest in Bankruptcy Estate 10/15/02 --
U.S. Aggregates -- Residual Interest in Bankruptcy Estate 04/07/03 --
U.S. Office Products Company -- Residual Interest in Bankruptcy Estate 06/11/02 --
------------
Total restricted securities excluding senior loans (market value of
$29,831,010 was 3.0% of net assets at February 29, 2004) $ 29,910,019
============
16
NOTE 4 -- MANAGEMENT AND ADMINISTRATION AGREEMENTS
The Trust has entered into an Investment Management Agreement with the
Investment Manager, a wholly-owned subsidiary of ING Funds Services, LLC (the
"Administrator"), to provide advisory and management services. The Investment
Management Agreement compensates the Investment Manager with a fee, computed
daily and payable monthly, at an annual rate of 0.80% of the Trust's average
daily net assets (inclusive of preferred stock) plus borrowings ("Managed
Assets").
The Investment Manager entered into a subadvisory agreement with ING Aeltus, a
wholly owned subsidiary of ING Groep N.V. effective August 19, 2003. Subject to
such policies as the Board or the Investment Manager may determine, INGAeltus
manages the Trust's assets in accordance with the Trust's investment objectives,
policies, and limitations.
The Trust has also entered into an Administration Agreement with the
Administrator to provide administrative services and also to furnish facilities.
The Administrator is compensated with a fee, computed daily and payable monthly,
at an annual rate of 0.25% of the Trust's average daily Managed Assets.
NOTE 5 -- TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
At February 29, 2004, the Trust had the following amounts recorded in payable to
affiliates on the accompanying Statement of Assets and Liabilities:
ACCRUED INVESTMENT ACCRUED
MANAGEMENT FEES ADMINISTRATIVE FEES TOTAL
------------------ ------------------- -----
$ 1,054,795 $ 329,623 $ 1,384,418
The Trust has adopted a Retirement Policy covering all independent trustees of
the Trust who will have served as a independent trustee for at least five years
at the time of retirement. Benefits under this plan are based on an annual rate
as defined in the plan agreement.
NOTE 6 -- COMMITMENTS
The Trust has entered into both a $90 million 364-day revolving credit agreement
which matures on August 25, 2004 and a $435 million 364-day revolving
securitization facility which matures on June 13, 2004, collateralized by assets
of the Trust. Borrowing rates under these agreements are based on a fixed spread
over LIBOR, the federal funds rate, or a commercial paper-based rate. Prepaid
arrangement fees for these facilities are amortized over the term of the
agreements. The amount of borrowings outstanding at February 29, 2004, was $225
million. Weighted average interest rate on outstanding borrowings was 1.49%,
excluding fees related to the unused portion of the facilities, and other fees.
The amount of borrowings represented 13.21% of total assets at February 29,
2004. Average borrowings for the year ended February 29, 2004 were $143,193,989
and the average annualized interest rate was 1.42% excluding other fees related
to the unused portion of the facilities, and other fees.
As of February 29, 2004, the Trust had unfunded loan commitments pursuant to the
terms of the following loan agreements:
Amerco, Inc. $ 9,780,000
Apria Healthcare Group, Inc. 2,000,000
Atlantic Broadband Finance, LLC 2,000,000
Block Vision Holdings Corporation 118,771
Cincinnati Bell, Inc. 2,506,646
Davita, Inc. 3,000,000
Federal Mogul Corporation 438,518
Fleming Companies, Inc. 593,579
Georgia-Pacifice Corporation 16,466,667
Green-Valley Ranch Gaming, LLC 1,000,000
Hercules, Inc. 918,992
IESI Corporation 993,125
Insight Health Services Corporation 250,000
J.C. Penney Company, Inc. 10,000,000
Lyondell Chemical Company 9,000,000
Neoplan USA Corporation $ 315,000
Nextel Finance Company 8,799,787
Nutrasweet Acquisition Corporation 472,250
Peabody Energy Corporation 2,500,000
Pinnacle Entertainment 1,213,333
Primedia, Inc. 1,436,807
Rural Cellular Corporation 1,046,863
SBA Senior Finance, Inc. 615,385
Six Flags Theme Parks, Inc. 1,750,000
United Defense Industries, Inc. 3,000,000
United Rentals (North America), Inc. 2,222,222
Western Wireless Corporation 6,500,000
------------
$ 88,937,945
============
17
NOTE 7 -- RIGHTS AND OTHER OFFERINGS
As of February 29, 2004, outstanding share offerings pursuant to shelf
registrations were as follows:
REGISTRATION SHARES SHARES
DATE REGISTERED REMAINING
------------ ---------- ---------
6/19/98 10,000,000 9,730,800
9/15/98 25,000,000 19,114,255
3/04/99 5,000,000 3,241,645
On November 2, 2000, the Trust issued 3,600 shares each of Series M, Series W
and Series F Auction Rate Cumulative Preferred Shares, $.01 Par Value, $25,000
liquidation preference, for a total issuance of $270 million. Also, on November
16, 2000, the Trust issued 3,600 shares of Series T and Series Th Auction Rate
Cumulative Preferred Shares, $.01 Par Value, $25,000, liquidation preference,
for a total issuance of $180 million. Costs associated with the offering of
approximately $5,438,664 were charged against the proceeds received. The Trust
used the net proceeds of the offering to partially pay down the then existing
indebtedness. The Trust may reborrow amounts in the future to increase its use
of leverage which will be consistent with the limitations imposed by the 1940
Act. Preferred Shares pay dividends based on a rate set at auctions, normally
held every 7 days. In most instances dividends are also payable every 7 days, on
the first business day following the end of the rate period.
NOTE 8 -- CUSTODIAL AGREEMENT
State Street Bank and Trust Company ("SSB") serves as the Trust's custodian and
recordkeeper. Custody fees paid to SSB are reduced by earnings credits based on
the cash balances held by SSB for the Trust. There were no earnings credits for
the year ended February 29, 2004.
NOTE 9 -- SUBORDINATED LOANS AND UNSECURED LOANS
The primary risk arising from investing in subordinated loans or in unsecured
loans is the potential loss in the event of default by the issuer of the loans.
The Trust may acquire a subordinated loan only if, at the time of acquisition,
it acquires or holds a Senior Loan from the same borrower. The Trust will
acquire unsecured loans only where the Investment Manager believes, at the time
of acquisition, that the Trust would have the right to payment upon default that
is not subordinate to any other creditor. The Trust may invest up to 5% of its
total assets, measured at the time of investment, in subordinated loans and
unsecured loans. As of February 29, 2004, the Trust held 0.79% of its total
assets in subordinated loans and unsecured loans.
NOTE 10 -- FEDERAL INCOME TAXES
The amount of distributions from net investment income and net realized capital
gains are determined in accordance with federal income tax regulations, which
may differ from accounting principles generally accepted in the United States of
America for investment companies. These book/tax differences may be either
temporary or permanent. Permanent differences are reclassified within the
capital accounts based on their federal tax-basis treatment; temporary
differences are not reclassified. Key differences include the treatment of
short-term capital gains and wash sale deferrals. Distributions in excess of net
investment income and/or net realized capital gains for tax purposes are
reported as distributions of paid-in capital.
The following permanent tax differences have been reclassified as of February
29, 2004:
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED
PAID-IN INCOME ON GAINS
CAPITAL INVESTMENTS (LOSSES)
------------- -------------- ------------
$ (4,571,118) $ (4,093,869) $ 8,664,987
18
The tax composition of dividends and distributions to shareholders for years
ended February 29, 2004 and February 28, 2003 were as follows:
YEAR ENDED FEBRUARY 29, 2004 YEAR ENDED FEBRUARY 28, 2003
---------------------------- ----------------------------
ORDINARY INCOME ORDINARY INCOME
--------------- ---------------
$ 62,849,228 $ 69,142,490
The tax-basis components of distributable earnings and the expiration dates of
the capital loss carryforwards which may be used to offset future realized
capital gains for federal income tax purposes as of February 29, 2004 were:
UNREALIZED POST-OCTOBER CAPITAL
UNDISTRIBUTED APPRECIATION/ CAPITAL LOSSES LOSS EXPIRATION
ORDINARY INCOME (DEPRECIATION) DEFERRED CARRYFORWARDS DATES
--------------- -------------- -------------- --------------- ----------
$ 8,429,077 $ (6,655,665) $ (15,388,435) $ (264,120,731) 2006-2012
NOTE 11 -- SUBSEQUENT EVENTS
Subsequent to February 29, 2004, the Trust paid to Common Shareholders the
following dividends from net investment income:
PER SHARE AMOUNT DECLARATION DATE RECORD DATE PAYABLE DATE
---------------- ---------------- ----------- ------------
$ 0.034 2/27/04 3/10/04 3/22/04
Subsequent to February 29, 2004, the Trust paid to Preferred Shareholders the
following dividends from net investment income:
TOTAL
PREFERRED PER SHARE AUCTION RECORD PAYABLE
SHARES AMOUNT DATES DATES DATES
--------- --------- ----- ----- -----
Series M $ 30.23 03/01/04 to 04/05/04 03/08/04 to 04/12/04 03/09/04 to 04/13/04
Series T $ 30.67 03/02/04 to 04/06/04 03/09/04 to 04/13/04 03/10/04 to 04/14/04
Series W $ 30.05 03/03/04 to 04/07/04 03/10/04 to 04/14/04 03/11/04 to 04/15/04
Series Th $ 30.84 03/04/04 to 04/08/04 03/11/04 to 04/15/04 03/12/04 to 04/16/04
Series F $ 30.67 03/05/04 to 04/09/04 03/12/04 to 04/16/04 03/15/04 to 04/19/04
19
ING Prime Rate Trust
PORTFOLIO OF INVESTMENTS as of February 29, 2004
SENIOR LOANS*: 161.6%
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE: 2.3%
ALLIANT TECHSYSTEMS, INC. Ba2 BB-
$ 2,270,970 Term Loan, maturing April 20, 2009 $ 2,296,341
PIEDMONT AVIATION SERVICES NR NR
4,680,432 Term Loan, maturing July 23, 2006 4,633,627
4,680,432 Term Loan, maturing July 23, 2007 4,633,628
TITAN CORPORATION Ba3 BB-
2,955,000 Term Loan, maturing June 30, 2009 2,955,000
TRANSDIGM, INC. B1 B+
1,995,000 Term Loan, maturing July 22, 2010 2,020,352
UNITED DEFENSE INDUSTRIES, INC. Ba2 BB
6,224,849 Term Loan, maturing August 13, 2009 6,265,977
---------------
22,804,925
---------------
AUTOMOBILE: 8.7%
AFTERMARKET TECHNOLOGY CORPORATION Ba3 BB-
961,067 Term Loan, maturing February 08, 2008 964,156
1,321,517 Term Loan, maturing February 08, 2008 1,318,213
COLLINS & AIKMAN PRODUCTS B1 B+
1,298,246 Term Loan, maturing December 31, 2005 1,298,246
701,754 Term Loan, maturing December 31, 2005 701,754
DURA OPERATING CORPORATION Ba3 BB
3,152,000 Term Loan, maturing December 31, 2008 3,178,102
(2) FEDERAL-MOGUL CORPORATION Ca NR
8,502,361 Revolver, maturing February 24, 2004 7,699,951
4,059,121 Term Loan, maturing February 24, 2004 3,678,579
6,500,000 Term Loan, maturing February 24, 2005 5,896,039
GOODYEAR TIRE & RUBBER COMPANY
5,500,000 Term Loan, maturing March 31, 2006 B1 BB+ 5,548,125
3,500,000 Term Loan, maturing March 31, 2006 B2 B+ 3,483,596
HLI OPERATING COMPANY, INC. Ba3 BB-
4,797,222 Term Loan, maturing June 03, 2009 4,896,165
KEYSTONE AUTOMOTIVE INDUSTRIES, INC. B1 B+
1,500,000 Term Loan, maturing October 30, 2009 1,522,500
METALDYNE COMPANY, LLC B2 BB-
4,401,703 Term Loan, maturing December 31, 2009 4,446,821
PLASTECH, INC. Ba3 BB-
2,000,000 Term Loan, maturing February 12, 2010 2,034,376
POLYPORE, INC. Ba3 BB-
5,403,750 Term Loan, maturing December 31, 2007 5,455,534
SAFELITE GLASS CORPORATION B3 B+
6,729,690 Term Loan, maturing September 30, 2007 6,662,393
10,823,607 Term Loan, maturing September 30, 2007 10,661,250
TENNECO AUTOMOTIVE, INC. B1 B
930,000 Term Loan, maturing December 12, 2010 947,438
2,070,000 Term Loan, maturing December 12, 2010 2,107,949
See Accompanying Notes to Financial Statements
20
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
AUTOMOBILE (CONTINUED)
TRW AUTOMOTIVE ACQUISITIONS CORPORATION Ba2 BB+
$ 1,600,000 Term Loan, maturing February 28, 2009 $ 1,616,125
9,913,043 Term Loan, maturing February 28, 2011 10,098,031
UNITED COMPONENTS, INC. B1 BB-
3,465,000 Term Loan, maturing June 30, 2010 3,512,644
---------------
87,727,987
---------------
BANKING: 0.1%
OUTSOURCING SOLUTIONS, INC. NR NR
15,342 Revolver, maturing December 09, 2008 15,342
1,426,801 Term Loan, maturing December 09, 2008 1,426,801
---------------
1,442,143
---------------
BEVERAGE, FOOD AND TOBACCO: 7.0%
B & G FOODS, INC. B1 B+
1,496,250 Term Loan, maturing August 31, 2009 1,511,836
BIRDS EYE FOODS, INC. Ba3 B+
6,584,900 Term Loan, maturing June 30, 2008 6,656,926
COMMONWEALTH BRANDS, INC. Ba3 BB-
6,366,048 Term Loan, maturing August 28, 2007 6,437,666
CONSTELLATION BRANDS, INC. Ba1 BB
3,750,000 Term Loan, maturing November 30, 2008 3,803,573
CP KELCO APS B3 B
2,755,539 Term Loan, maturing March 31, 2008 2,776,778
902,835 Term Loan, maturing September 30, 2008 909,794
DEAN FOODS COMPANY Ba1 BB+
4,625,000 Term Loan, maturing July 15, 2007 4,658,416
11,562,601 Term Loan, maturing July 15, 2008 11,750,494
DEL MONTE CORPORATION Ba3 BB-
4,347,804 Term Loan, maturing December 20, 2010 4,419,817
DR. PEPPER BOTTLING COMPANY OF TEXAS B1 BB-
3,945,205 Term Loan, maturing December 19, 2010 4,006,849
DS WATERS ENTERPRISES, L.P. B1 B+
3,500,000 Term Loan, maturing November 07, 2009 3,555,234
(2) FLEMING COMPANIES, INC. B3 D
614,171 Revolver, maturing June 18, 2007 610,589
1,397,393 Term Loan, maturing June 18, 2008 1,392,152
INTERSTATE BRANDS CORPORATION Ba2 B+
2,485,000 Term Loan, maturing July 19, 2007 2,486,165
936,470 Term Loan, maturing July 19, 2007 940,216
MAFCO WORLDWIDE CORPORATION B1 B
1,537,876 Term Loan, maturing March 31, 2006 1,522,497
MICHAEL FOODS, INC. B1 B+
3,990,000 Term Loan, maturing November 21, 2010 4,057,954
NATIONAL DAIRY HOLDINGS, L.P. B1 BB+
2,456,250 Term Loan, maturing April 30, 2009 2,462,902
See Accompanying Notes to Financial Statements
21
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
BEVERAGE, FOOD AND TOBACCO (CONTINUED)
NUTRASWEET ACQUISITION CORPORATION Ba3 NR
$ 285,684 Term Loan, maturing May 24, 2005 $ 272,828
207,979 Term Loan, maturing June 30, 2006 208,498
2,884,615 Term Loan, maturing May 25, 2009 2,857,572
SOUTHERN WINE & SPIRITS OF AMERICA, INC. Ba3 BB+
2,967,563 Term Loan, maturing July 02, 2008 3,002,185
---------------
70,300,941
---------------
BUILDINGS AND REAL ESTATE: 3.7%
(2) AMERCO, INC. NR NR
2,220,000 Debtor In Possession Term Loan,
maturing August 13, 2004 2,208,900
ASSOCIATED MATERIALS, INC. Ba3 B+
1,473,684 Term Loan, maturing August 02, 2010 1,492,105
ATRIUM COMPANIES, INC. B1 B+
3,000,000 Term Loan, maturing December 10, 2008 3,041,324
BUILDING MATERIALS HOLDING CORPORATION Ba2 BB-
1,990,000 Term Loan, maturing August 21, 2010 1,997,463
GENERAL GROWTH PROPERTIES Ba1 BBB-
6,000,000 Term Loan, maturing April 16, 2006 6,000,000
14,000,000 Term Loan, maturing April 16, 2006 14,000,000
MACERICH PARTNERSHIP, L.P. Ba2 NR
4,723,200 Term Loan, maturing July 26, 2005 4,746,816
ST. MARYS CEMENT, INC. B1 BB-
3,000,000 Term Loan, maturing December 04, 2009 3,033,750
WERNER HOLDINGS COMPANY, INC. B1 B
958,333 Term Loan, maturing June 11, 2009 926,589
---------------
37,446,947
---------------
CABLE TELEVISION: 20.0%
(2) ADELPHIA COMMUNICATIONS CORPORATION NR BBB
2,933,371 Debtor In Possession Term Loan,
maturing June 25, 2004 2,960,871
BRESNAN COMMUNICATIONS, LLC B1 BB-
5,000,000 Term Loan, maturing December 31, 2007 5,049,375
CC VI OPERATING COMPANY, LLC B2 CCC+
9,574,441 Term Loan, maturing November 12, 2008 9,300,373
CC VIII OPERATING, LLC B2 B-
4,410,000 Term Loan, maturing February 02, 2008 4,349,363
CEBRIDGE CONNECTIONS, INC. NR NR
4,500,000 Term Loan, maturing February 04, 2009 4,500,000
1,500,000 Term Loan, maturing February 23, 2009 1,500,000
(2) CENTURY CABLE HOLDINGS, LLC Caa1 NR
1,230,000 Revolver, maturing March 31, 2009 1,146,975
16,500,000 Term Loan, maturing June 30, 2009 15,822,807
5,000,000 Term Loan, maturing December 31, 2009 4,748,440
See Accompanying Notes to Financial Statements
22
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
CABLE TELEVISION (CONTINUED)
CHARTER COMMUNICATIONS OPERATING, LLC B2 B
$ 4,000,000 Term Loan, maturing September 18, 2007 $ 3,874,584
49,928,474 Term Loan, maturing March 18, 2008 48,687,201
16,231,098 Term Loan, maturing September 18, 2008 15,809,544
FALCON CABLE COMMUNICATIONS, LLC B2 BB
2,256,127 Term Loan, maturing June 29, 2007 2,191,263
1,277,415 Term Loan, maturing December 31, 2007 1,244,416
2,411,488 Term Loan, maturing November 01, 2008 2,342,158
(2) FRONTIERVISION OPERATING PARTNERS, L.P. B2 NR
2,593,939 Revolver, maturing October 31, 2005 2,590,306
2,000,000 Term Loan, maturing September 30, 2005 1,989,166
2,400,000 Term Loan, maturing March 31, 2006 2,386,999
(2) HILTON HEAD COMMUNICATIONS, L.P. Caa1 NR
7,000,000 Revolver, maturing September 30, 2007 6,728,750
6,500,000 Term Loan, maturing March 31, 2008 6,272,500
INSIGHT MIDWEST HOLDINGS, LLC Ba3 BB+
1,000,000 Term Loan, maturing June 30, 2009 995,625
14,500,000 Term Loan, maturing December 31, 2009 14,598,687
2,000,000 Term Loan, maturing December 31, 2009 2,013,612
MCC IOWA MEDIACOM BROADBAND, LLC Ba3 BB+
4,000,000 Term Loan, maturing March 31, 2010 3,978,752
16,500,000 Term Loan, maturing September 30, 2010 16,643,237
(2) OLYMPUS CABLE HOLDINGS, LLC B2 NR
2,000,000 Term Loan, maturing June 30, 2010 1,893,750
19,250,000 Term Loan, maturing September 30, 2010 18,341,650
---------------
201,960,404
---------------
CELLULAR COMMUNICATIONS: 15.2%
AIRGATE PCS, INC. B3 CC
868,303 Term Loan, maturing June 06, 2007 864,685
12,016,375 Term Loan, maturing September 30, 2008 11,966,303
CENTENNIAL CELLULAR OPERATING COMPANY B2 B-
7,000,000 Term Loan, maturing February 09, 2011 7,038,647
DOBSON CELLULAR SYSTEMS, INC. Ba3 B-
6,982,500 Term Loan, maturing March 31, 2010 7,049,832
HORIZON PERSONAL COMMUNICATIONS, INC. NR D
7,623,870 Term Loan, maturing September 26, 2008 7,198,926
5,943,511 Term Loan, maturing March 31, 2009 5,596,845
(3) INDEPENDENT WIRELESS ONE CORPORATION Caa1 NR
10,000,000 Term Loan, maturing June 20, 2008 8,300,000
MICROCELL TELECOMMUNICATIONS, INC. NR CCC+
8,340,151 Term Loan, maturing December 31, 2008 8,314,088
NEXTEL FINANCE COMPANY Ba2 BB
777,734 Revolver, maturing December 31, 2007 772,484
35,595,437 Term Loan, maturing December 31, 2007 35,391,512
27,000,000 Term Loan, maturing December 15, 2010 27,275,076
See Accompanying Notes to Financial Statements
23
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
CELLULAR COMMUNICATIONS (CONTINUED)
RURAL CELLULAR CORPORATION B2 B-
$ 8,745,974 Term Loan, maturing April 03, 2008 $ 8,735,042
3,459,377 Term Loan, maturing October 03, 2008 3,485,322
3,459,377 Term Loan, maturing April 03, 2009 3,485,322
US UNWIRED, INC. B2 CCC-
3,203,566 Term Loan, maturing September 30, 2007 3,099,450
3,254,637 Term Loan, maturing March 31, 2008 3,148,861
WESTERN WIRELESS CORPORATION B2 B-
500,000 Revolver, maturing March 31, 2008 486,750
4,825,000 Term Loan, maturing March 31, 2008 4,816,455
2,291,667 Term Loan, maturing March 31, 2008 2,282,596
4,135,439 Term Loan, maturing September 30, 2008 4,158,700
---------------
153,466,896
---------------
CHEMICALS, PLASTICS AND RUBBER: 7.5%
ACADIA ELASTOMERS CORPORATION NR NR
8,430,657 Term Loan, maturing March 31, 2004 8,009,124
FMC CORPORATION Ba1 BBB-
3,960,000 Term Loan, maturing October 21, 2007 4,010,490
GEO SPECIALTY CHEMICALS, INC. Caa1 CC
1,740,101 Term Loan, maturing December 31, 2007 1,548,690
HERCULES, INC. Ba1 BB
4,950,000 Term Loan, maturing May 15, 2007 4,990,219
HUNTSMAN INTERNATIONAL, LLC B1 B
5,624,593 Term Loan, maturing June 30, 2007 5,679,669
5,624,593 Term Loan, maturing June 30, 2008 5,684,354
HUNTSMAN, LLC B2 B
7,372,482 Term Loan, maturing March 31, 2007 7,183,562
5,565,110 Term Loan, maturing March 31, 2007 5,417,869
JOHNSONDIVERSEY, INC. Ba3 BB-
3,230,300 Term Loan, maturing November 03, 2009 3,269,558
KRATON POLYMERS B1 BB-
3,000,000 Term Loan, maturing December 23, 2010 3,053,751
NALCO COMPANY B1 BB-
15,000,000 Term Loan, maturing November 04, 2010 15,168,750
NOVEON, INC. B1 BB-
7,901,655 Term Loan, maturing December 31, 2009 7,990,548
ROCKWOOD SPECIALTIES GROUP, INC. B1 B+
3,980,000 Term Loan, maturing July 23, 2010 4,012,338
---------------
76,018,922
---------------
CONTAINERS, PACKAGING AND GLASS: 6.7%
BERRY PLASTICS CORPORATION B1 B+
1,000,000 Term Loan, maturing July 22, 2010 1,002,500
2,957,588 Term Loan, maturing August 31, 2010 2,988,089
CONSTAR INTERNATIONAL, INC. B2 BB-
2,463,763 Term Loan, maturing November 20, 2009 2,491,095
See Accompanying Notes to Financial Statements
24
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
CONTAINERS, PACKAGING AND GLASS (CONTINUED)
CROWN CORK & SEAL COMPANY, INC. Ba3 BB-
$ 3,325,000 Term Loan, maturing September 15, 2008 $ 3,377,299
GRAPHIC PACKAGING INTERNATIONAL, INC. B1 B+
14,925,000 Term Loan, maturing August 09, 2010 15,164,428
GREIF BROS. CORPORATION Ba3 BB
2,255,000 Term Loan, maturing August 23, 2009 2,272,194
IMPAXX, INC. NR NR
3,947,883 Term Loan, maturing April 30, 2005 3,513,616
JEFFERSON SMURFIT CORPORATION Ba3 B+
1,647,273 Term Loan, maturing March 31, 2007 1,662,510
KERR GROUP, INC. B1 BB-
2,449,128 Term Loan, maturing August 13, 2010 2,469,536
(2) LINCOLN PULP & EASTERN FINE NR NR
61,520 (3) Term Loan, maturing December 31, 2001 12,919
13,849,995 (3) Term Loan, maturing August 31, 2004 2,908,499
OWENS-ILLINOIS GROUP, INC. B1 BB-
12,000,000 Term Loan, maturing April 01, 2008 12,103,753
SILGAN HOLDINGS, INC. Ba3 BB
5,929,950 Term Loan, maturing November 30, 2008 6,029,093
SMURFIT-STONE CONTAINER CANADA, INC. Ba3 B+
1,574,111 Term Loan, maturing June 30, 2009 1,588,868
STONE CONTAINER CORPORATION Ba3 B+
9,290,454 Term Loan, maturing June 30, 2009 9,414,324
TEKNI-PLEX, INC. B1 B+
254,372 Term Loan, maturing June 21, 2008 255,909
---------------
67,254,632
---------------
DATA AND INTERNET SERVICES: 0.1%
MCLEODUSA, INC. Caa2 NR
1,322,765 Term Loan, maturing May 30, 2008 1,080,258
---------------
1,080,258
---------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING: 4.6%
BARJAN PRODUCTS, LLC NR NR
4,813,875 (3) Term Loan, maturing May 31, 2006 1,684,856
BRAND SERVICES, INC. B1 B+
1,000,000 Term Loan, maturing October 16, 2008 1,008,750
3,806,541 Term Loan, maturing October 16, 2009 3,830,332
DRESSER, INC. Ba3 BB-
5,021,747 Term Loan, maturing April 10, 2009 5,079,286
FLOWSERVE CORPORATION Ba3 BB-
1,252,498 Term Loan, maturing June 30, 2006 1,257,978
3,840,150 Term Loan, maturing June 30, 2009 3,881,293
MUELLER GROUP, INC. B1 B+
5,910,000 Term Loan, maturing May 31, 2008 5,952,015
NORCROSS SAFETY PRODUCTS, LLC B1 B+
952,163 Term Loan, maturing March 20, 2009 961,090
See Accompanying Notes to Financial Statements
25
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
DIVERSIFIED/CONGLOMERATE MANUFACTURING (CONTINUED)
ROPER INDUSTRIES, INC. Ba2 BB+
$ 3,350,000 Term Loan, maturing December 29, 2008 $ 3,393,969
SENSUS METERING SYSTEMS, INC. B2 B+
260,870 Term Loan, maturing December 17, 2010 263,152
1,739,130 Term Loan, maturing December 17, 2010 1,754,348
SPX CORPORATION Ba2 BBB-
11,502,237 Term Loan, maturing September 30, 2009 11,593,898
UNITED PET GROUP NR NR
5,704,187 Term Loan, maturing March 31, 2006 5,718,447
---------------
46,379,414
---------------
DIVERSIFIED/CONGLOMERATE SERVICE: 0.6%
IRON MOUNTAIN, INC. B1 BB
1,600,000 Term Loan, maturing February 15, 2008 1,616,000
US INVESTIGATIONS SERVICES, LLC B1 BB-
4,364,155 Term Loan, maturing December 31, 2008 4,361,428
---------------
5,977,428
---------------
DIVERSIFIED/NATURAL RESOURCES, METALS AND MINERAL: 0.4%
GEORGIA-PACIFIC CORPORATION Ba2 BB+
2,533,333 Revolver, maturing November 03, 2005 2,519,281
1,250,000 Term Loan, maturing November 03, 2005 1,252,735
---------------
3,772,016
---------------
ECOLOGICAL: 1.2%
ALLIED WASTE NORTH AMERICA, INC. Ba3 BB
3,597,321 Term Loan, maturing January 15, 2010 3,658,774
2,000,000 Term Loan, maturing January 15, 2010 2,035,416
GREAT LAKES DREDGE & DOCK CORPORATION B1 B+
2,000,000 Term Loan, maturing December 22, 2010 2,020,000
IESI CORPORATION B1 B+
256,875 Revolver, maturing September 30, 2008 253,985
997,500 Term Loan, maturing September 30, 2010 1,011,216
WASTE CONNECTIONS, INC. Ba2 BB+
3,000,000 Term Loan, maturing October 22, 2010 3,015,939
---------------
11,995,330
---------------
ELECTRONICS: 1.7%
ACTERNA, LLC NR NR
667,575 Term Loan, maturing October 14, 2008 667,575
ANTEON CORPORATION Ba3 BB
1,000,000 Term Loan, maturing December 31, 2010 1,011,458
DECISION ONE CORPORATION B3 CCC
1,755,295 Term Loan, maturing April 18, 2005 1,281,365
8,851,846 Term Loan, maturing April 18, 2005 6,461,848
KNOWLES ELECTRONICS, INC. B3 CCC+
2,121,197 Term Loan, maturing June 29, 2007 2,124,733
SARCOM, INC. NR NR
978,578 Term Loan, maturing June 30, 2007 479,503
See Accompanying Notes to Financial Statements
26
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
ELECTRONICS (CONTINUED)
TRANSACTION NETWORK SERVICES, INC. Ba3 BB-
$ 5,366,172 Term Loan, maturing April 03, 2007 $ 5,366,172
---------------
17,392,654
---------------
FARMING AND AGRICULTURE: 0.8%
AGCO CORPORATION Ba1 BB+
5,000,000 Term Loan, maturing March 31, 2006 5,062,500
SCOTTS COMPANY Ba1 BB
3,000,000 Term Loan, maturing September 30, 2010 3,042,858
---------------
8,105,358
---------------
FINANCE: 0.5%
RENT-A-CENTER, INC. Ba2 BB
4,975,000 Term Loan, maturing May 28, 2009 5,039,675
---------------
5,039,675
---------------
GAMING: 4.1%
(2) ALADDIN GAMING, LLC Caa1 NR
3,869,336 (3) Term Loan, maturing August 26, 2006 3,501,749
10,377,506 (3) Term Loan, maturing February 26, 2008 9,391,643
ALLIANCE GAMING CORPORATION B1 BB-
8,000,000 Term Loan, maturing September 04, 2009 8,092,504
AMERISTAR CASINOS, INC. Ba3 BB-
2,899,327 Term Loan, maturing December 20, 2006 2,916,996
ARGOSY GAMING COMPANY Ba2 BB
4,387,500 Term Loan, maturing July 31, 2008 4,420,406
BOYD GAMING CORPORATION Ba1 BB+
985,000 Term Loan, maturing June 24, 2008 990,171
GREEN VALLEY RANCH GAMING, LLC B1 B+
2,000,000 Term Loan, maturing December 22, 2010 2,030,000
ISLE OF CAPRI CASINOS, INC. Ba2 BB-
2,563,281 Term Loan, maturing April 26, 2008 2,593,948
PENN NATIONAL GAMING B1 BB-
2,334,574 Term Loan, maturing September 01, 2007 2,359,671
PINNACLE ENTERTAINMENT B1 B+
2,286,667 Term Loan, maturing December 17, 2009 2,314,774
UNITED AUBURN INDIAN COMMUNITY Ba3 BB+
3,181,467 Term Loan, maturing January 24, 2009 3,197,375
---------------
41,809,237
---------------
GROCERY: 0.3%
GIANT EAGLE, INC. Ba2 BB+
1,914,667 Term Loan, maturing August 02, 2009 1,934,412
1,044,572 Term Loan, maturing August 06, 2009 1,054,365
---------------
2,988,777
---------------
HEALTHCARE, EDUCATION AND CHILDCARE: 11.0%
ALARIS MEDICAL SYSTEMS, INC. Ba3 BB
2,127,857 Term Loan, maturing June 30, 2009 2,153,657
See Accompanying Notes to Financial Statements
27
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
HEALTHCARE, EDUCATION AND CHILDCARE (CONTINUED)
ALLIANCE IMAGING, INC. B1 B+
$ 780,534 Term Loan, maturing November 02, 2006 $ 767,851
2,612,436 Term Loan, maturing June 10, 2008 2,600,192
APRIA HEALTHCARE GROUP, INC. Ba1 BBB-
3,000,000 Term Loan, maturing July 20, 2006 3,006,564
4,887,500 Term Loan, maturing July 20, 2008 4,927,108
CAREMARK RX, INC. Baa3 BBB-
2,451,325 Term Loan, maturing March 31, 2006 2,467,565
COMMUNITY HEALTH SYSTEMS, INC. Ba3 BB-
14,822,425 Term Loan, maturing July 16, 2010 15,089,228
1,995,000 Term Loan, maturing January 16, 2011 2,015,574
DAVITA, INC. Ba3 BB
4,375,000 Term Loan, maturing March 31, 2007 4,432,811
8,951,515 Term Loan, maturing March 31, 2009 9,069,801
DJ ORTHOPEDICS, LLC B1 B+
1,000,000 Term Loan, maturing May 15, 2009 1,011,875
EMPI CORPORATION B1 B+
1,500,000 Term Loan, maturing November 24, 2009 1,518,750
EXPRESS SCRIPTS, INC. Ba1 BBB
3,000,000 Term Loan, maturing February 13, 2010 3,022,500
FISHER SCIENTIFIC INTERNATIONAL, INC. Ba3 BB+
6,320,911 Term Loan, maturing March 31, 2010 6,364,368
FRESENIUS MEDICAL CARE HOLDINGS, INC. Ba1 BB+
4,975,000 Term Loan, maturing February 21, 2010 5,041,854
HCA, INC. Ba1 BBB-
7,714,286 Term Loan, maturing April 30, 2006 7,715,088
IASIS HEALTHCARE CORPORATION B1 B+
1,840,000 Term Loan, maturing February 09, 2009 1,859,263
INSIGHT HEALTH SERVICES CORPORATION B1 B+
50,000 Term Loan, maturing October 07, 2008 50,063
866,667 Term Loan, maturing October 07, 2008 867,750
5,302,827 Term Loan, maturing October 17, 2008 5,335,970
KINETIC CONCEPTS, INC. B1 BB-
4,975,000 Term Loan, maturing August 11, 2010 5,049,625
MAGELLAN HEALTH SERVICES, INC. B1 B+
1,666,667 Term Loan, maturing August 15, 2008 1,697,917
1,333,333 Term Loan, maturing August 15, 2008 1,358,333
MEDCO HEALTH Ba1 BBB
2,992,500 Term Loan, maturing June 30, 2010 2,998,111
OXFORD HEALTH PLANS, INC. Ba2 BB+
3,473,750 Term Loan, maturing April 25, 2009 3,494,377
PACIFICARE HEALTH SYSTEMS, INC. Ba3 BB+
995,000 Term Loan, maturing June 03, 2008 1,006,609
SOLA INTERNATIONAL, INC. Ba3 BB-
2,000,000 Term Loan, maturing December 11, 2009 2,030,000
See Accompanying Notes to Financial Statements
28
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
HEALTHCARE, EDUCATION AND CHILDCARE (CONTINUED)
SYBRON DENTAL MANAGEMENT, INC. Ba3 BB-
$ 730,158 Term Loan, maturing June 06, 2009 $ 735,543
TRIAD HOSPITALS, INC. Ba3 BB
1,496,414 Term Loan, maturing September 30, 2008 1,518,396
VANGUARD HEALTH SYSTEMS, INC. Ba3 B+
5,445,000 Term Loan, maturing January 03, 2010 5,499,450
VICAR OPERATING, INC. B1 B+
5,926,760 Term Loan, maturing June 30, 2009 6,004,549
---------------
110,710,742
---------------
HOME AND OFFICE FURNISHING, HOUSEWARES: 1.9%
GLOBAL IMAGING SYSTEMS, INC. Ba3 BB-
1,492,500 Term Loan, maturing June 25, 2009 1,514,888
HOLMES PRODUCTS CORPORATION B2 B
1,308,703 Term Loan, maturing February 05, 2007 1,311,157
IDENTITY GROUP, INC. NR NR
4,525,000 Term Loan, maturing May 11, 2007 2,850,750
SEALY MATTRESS COMPANY B1 B+
1,136,956 Term Loan, maturing December 15, 2004 1,142,286
1,521,057 Term Loan, maturing December 15, 2005 1,528,188
1,944,748 Term Loan, maturing December 15, 2006 1,953,865
SIMMONS COMPANY B2 B+
8,500,000 Term Loan, maturing December 19, 2011 8,610,678
---------------
18,911,812
---------------
INSURANCE: 2.5%
CONSECO, INC. Caa1 B-
3,846,154 Term Loan, maturing September 10, 2009 3,870,192
15,384,615 Term Loan, maturing September 10, 2009 15,480,769
4,615,385 Term Loan, maturing September 10, 2010 4,644,231
1,153,846 Term Loan, maturing September 10, 2010 1,161,058
---------------
25,156,250
---------------
LEISURE, AMUSEMENT AND ENTERTAINMENT: 5.7%
FITNESS HOLDINGS WORLDWIDE, INC. B1 B
4,000,000 Term Loan, maturing July 01, 2009 4,052,500
LODGENET ENTERTAINMENT CORPORATION B1 B+
4,931,994 Term Loan, maturing June 30, 2006 4,971,297
LOEWS CINEPLEX ENTERTAINMENT CORPORATION NR NR
6,400,898 Term Loan, maturing February 29, 2008 6,420,901
NEW JERSEY BASKETBALL, LLC NR NR
9,000,000 Term Loan, maturing July 16, 2004 9,033,750
PURE FISHING NR NR
2,925,000 Term Loan, maturing December 31, 2009 2,937,797
REGAL CINEMAS, INC. Ba2 BB-
4,883,145 Term Loan, maturing June 30, 2009 4,950,796
SIX FLAGS THEME PARKS, INC. Ba2 B+
900,000 Revolver, maturing June 30, 2008 873,000
See Accompanying Notes to Financial Statements
29
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
LEISURE, AMUSEMENT AND ENTERTAINMENT (CONTINUED)
$ 11,000,000 Term Loan, maturing June 30, 2009 $ 11,144,374
VIVENDI UNIVERSAL ENTERTAINMENT, LLP Ba2 BB+
7,000,000 Term Loan, maturing June 30, 2008 7,055,783
XANTERRA PARKS & RESORTS, LLC NR NR
3,252,713 Term Loan, maturing September 30, 2004 3,248,648
3,252,713 Term Loan, maturing September 30, 2005 3,248,648
---------------
57,937,494
---------------
LODGING: 2.6%
EXTENDED STAY AMERICA, INC. Ba3 BB-
5,114,441 Term Loan, maturing January 15, 2008 5,184,764
WYNDHAM INTERNATIONAL, INC. NR NR
5,571,490 Term Loan, maturing April 01, 2006 5,493,389
15,825,527 Term Loan, maturing June 30, 2006 15,446,839
---------------
26,124,992
---------------
MACHINERY: 3.3%
ALLIANCE LAUNDRY HOLDINGS, LLC B1 B
3,312,484 Term Loan, maturing August 02, 2007 3,327,665
ANTHONY CRANE RENTAL, L.P. Caa2 CC
13,794,927 Term Loan, maturing July 20, 2006 9,794,398
MORRIS MATERIAL HANDLING, INC. NR NR
249,574 Term Loan, maturing September 28, 2004 237,095
NATIONAL WATERWORKS, INC. B1 BB-
2,938,776 Term Loan, maturing November 22, 2009 2,977,958
REXNORD CORPORATION B1 B+
6,436,111 Term Loan, maturing November 25, 2009 6,486,396
UNITED RENTALS (NORTH AMERICA), INC. Ba3 BB
6,111,111 Term Loan, maturing February 17, 2011 6,111,111
1,666,667 Term Loan, maturing August 31, 2011 1,666,667
VUTEK, INC. B1 NR
550,493 Term Loan, maturing July 31, 2005 533,978
1,655,241 Term Loan, maturing July 31, 2007 1,605,584
664,499 Term Loan, maturing December 30, 2007 655,607
---------------
33,396,459
---------------
MINING, STEEL, IRON AND NON-PRECIOUS METALS: 0.9%
PEABODY ENERGY CORPORATION Ba1 BB+
8,932,500 Term Loan, maturing March 21, 2010 9,020,896
---------------
9,020,896
---------------
OIL AND GAS: 1.6%
CITGO PETROLEUM CORPORATION Ba2 BB+
2,500,000 Term Loan, maturing February 27, 2006 2,600,000
PACIFIC ENERGY GROUP, LLC Ba2 BBB-
4,000,000 Term Loan, maturing July 26, 2009 4,026,252
W-H ENERGY SERVICES, INC. B2 B+
3,482,500 Term Loan, maturing April 16, 2007 3,517,325
3,403,812 Term Loan, maturing April 16, 2007 3,437,850
See Accompanying Notes to Financial Statements
30
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
OIL AND GAS (CONTINUED)
WILLIAMS PRODUCTION RMT COMPANY B2 BB
$ 2,487,500 Term Loan, maturing May 30, 2007 $ 2,509,266
---------------
16,090,693
---------------
OTHER BROADCASTING AND ENTERTAINMENT: 3.5%
DIRECTV HOLDINGS, LLC Ba2 BB
8,500,000 Term Loan, maturing March 06, 2010 8,599,875
LIBERTY MEDIA CORPORATION Baa3 BBB-
15,000,000 Floating Rate Note, maturing
September 17, 2006 15,197,565
PEGASUS MEDIA & COMMUNICATIONS, INC.
1,651,507 Term Loan, maturing April 30, 2005 NR NR 1,623,981
1,982,500 Term Loan, maturing July 31, 2006 B3 B- 2,033,714
RAINBOW MEDIA GROUP Ba2 BB+
7,979,986 Term Loan, maturing March 31, 2009 8,081,164
---------------
35,536,299
---------------
OTHER TELECOMMUNICATIONS: 4.1%
CINCINNATI BELL, INC. B1 B+
134,765 Revolver, maturing November 09, 2004 133,704
17,955,000 Term Loan, maturing June 30, 2008 18,210,858
GCI HOLDINGS, INC. Ba3 BB+
2,087,144 Term Loan, maturing October 31, 2007 2,110,625
INTERA GROUP, INC. NR NR
2,662,827 (3) Term Loan, maturing December 31, 2005 1,224,900
909,384 (3) Term Loan, maturing December 31, 2005 --
1,741,297 (3) Term Loan, maturing December 31, 2005 --
QWEST COMMUNICATIONS INTERNATIONAL, INC. B3 CCC+
15,000,000 Floating Rate Note, maturing
February 15, 2009 14,175,000
TIME WARNER TELECOM HOLDINGS B1 B
6,000,000 Floating Rate Note, maturing
February 15, 2011 5,955,000
---------------
41,810,087
---------------
PERSONAL AND NON DURABLE CONSUMER PRODUCTS: 3.1%
ARMKEL, LLC Ba3 BB-
1,432,212 Term Loan, maturing March 28, 2009 1,448,581
BUHRMANN U.S., INC. Ba3 BB-
3,000,000 Term Loan, maturing December 31, 2010 3,043,593
CHURCH & DWIGHT COMPANY, INC. Ba2 BB
1,376,550 Term Loan, maturing September 30, 2007 1,394,617
JARDEN CORPORATION Ba3 B+
1,995,000 Term Loan, maturing April 24, 2008 2,014,535
JOSTENS, INC. Ba3 B+
4,264,991 Term Loan, maturing July 29, 2010 4,311,373
NORWOOD PROMOTIONAL PRODUCTS, INC. NR NR
12,207,514 Term Loan, maturing February 01, 2005 12,207,514
8,358,425 (3) Term Loan, maturing February 01, 2005 3,719,499
See Accompanying Notes to Financial Statements
31
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
PERSONAL AND NON DURABLE CONSUMER PRODUCTS (CONTINUED)
$ 1,998,167 (3) Term Loan, maturing February 01, 2005 $ --
RAYOVAC CORPORATION B1 B+
3,607,729 Term Loan, maturing September 30, 2009 3,635,537
---------------
31,775,249
---------------
PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 2.8%
AFC ENTERPRISES, INC. B1 B
1,531,938 Term Loan, maturing May 23, 2009 1,536,343
ALDERWOODS GROUP, INC. B1 BB-
2,203,741 Term Loan, maturing September 29, 2008 2,236,110
COINMACH CORPORATION B1 BB-
4,900,000 Term Loan, maturing July 25, 2009 4,953,287
DOMINO'S, INC. B1 B+
6,093,590 Term Loan, maturing June 25, 2010 6,191,087
GATE GOURMET, LLC B1 BB
990,000 Term Loan, maturing December 31, 2008 977,625
1,034,811 Term Loan, maturing December 31, 2009 1,029,637
JACK IN THE BOX, INC. Ba2 BB
4,000,000 Term Loan, maturing January 09, 2010 4,062,500
OTIS SPUNKMEYER, INC. B1 B+
6,596,622 Term Loan, maturing February 20, 2009 6,646,097
WEIGHT WATCHERS INTERNATIONAL, INC. Ba1 BB
902,162 Term Loan, maturing March 31, 2010 910,620
---------------
28,543,306
---------------
PRINTING AND PUBLISHING: 10.7%
ADAMS OUTDOOR ADVERTISING, L.P. B1 B+
1,760,500 Term Loan, maturing February 08, 2008 1,771,503
AMERICAN MEDIA OPERATIONS, INC. Ba3 B+
3,959,288 Term Loan, maturing April 01, 2007 4,005,809
AMERICAN REPROGRAPHICS COMPANY
2,500,000 Term Loan, maturing June 18, 2009 B1 BB 2,537,500
1,000,000 Term Loan, maturing December 18, 2009 B3 B 1,015,000
CANWEST MEDIA, INC. Ba3 B+
9,948,718 Term Loan, maturing May 15, 2009 10,056,492
DEX MEDIA EAST, LLC B1 BB-
4,518,407 Term Loan, maturing November 08, 2008 4,570,179
4,364,120 Term Loan, maturing May 08, 2009 4,419,579
DEX MEDIA WEST, LLC B1 BB-
1,887,037 Term Loan, maturing September 09, 2009 1,910,821
26,418,519 Term Loan, maturing March 09, 2010 26,817,545
LAMAR MEDIA CORPORATION Ba2 BB-
2,000,000 Term Loan, maturing June 30, 2009 2,001,666
12,370,370 Term Loan, maturing June 30, 2010 12,532,732
MEDIANEWS GROUP, INC. Ba3 BB
2,500,000 Term Loan, maturing December 30, 2010 2,531,250
See Accompanying Notes to Financial Statements
32
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
PRINTING AND PUBLISHING (CONTINUED)
PRIMEDIA, INC. B3 B
$ 456,763 Revolver, maturing June 30, 2008 $ 436,494
8,494,401 Term Loan, maturing June 30, 2009 8,410,519
R.H. DONNELLEY, INC. Ba3 BB
7,920,691 Term Loan, maturing June 30, 2010 8,035,042
READER'S DIGEST ASSOCIATIONS, INC. Ba1 BB
1,727,882 Term Loan, maturing May 21, 2007 1,735,082
7,816,950 Term Loan, maturing May 20, 2008 7,879,853
TRANSWESTERN PUBLISHING COMPANY B2 B
4,000,000 Term Loan, maturing February 25, 2012 4,000,000
ZIFF DAVIS MEDIA, INC. B3 CCC
3,597,607 Term Loan, maturing March 31, 2007 3,560,131
---------------
108,227,197
---------------
RADIO AND TV BROADCASTING: 6.0%
BLOCK COMMUNICATIONS, INC. Ba2 BB-
2,812,216 Term Loan, maturing November 15, 2009 2,838,581
CUMULUS MEDIA, INC. Ba3 B+
2,977,500 Term Loan, maturing March 28, 2010 3,022,163
EMMIS OPERATING COMPANY Ba2 B+
10,955,447 Term Loan, maturing August 31, 2009 11,103,038
FISHER BROADCASTING, INC. Ba3 B+
1,305,690 Term Loan, maturing February 28, 2010 1,308,954
GRAY TELEVISION, INC. Ba2 B+
4,000,000 Term Loan, maturing December 31, 2010 4,045,500
LIN TELEVISION CORPORATION Ba2 BB
2,062,857 Term Loan, maturing December 31, 2007 2,085,881
MISSION BROADCASTING, INC. Ba3 B+
2,333,333 Term Loan, maturing December 31, 2010 2,356,667
NEXSTAR BROADCASTING Ba3 B+
916,667 Term Loan, maturing December 31, 2010 925,833
PAXSON COMMUNICATIONS CORPORATION B1 B+
19,000,000 Floating Rate Note, maturing
January 15, 2010 18,905,000
SINCLAIR BROADCAST GROUP, INC. Ba2 BB
2,765,400 Term Loan, maturing December 31, 2009 2,797,993
4,609,000 Term Loan, maturing December 31, 2009 4,663,322
SPANISH BROADCASTING SYSTEMS B1 B+
2,000,000 Term Loan, maturing October 30, 2009 2,026,250
SUSQUEHANNA MEDIA COMPANY Ba1 BB-
2,456,250 Term Loan, maturing June 30, 2008 2,480,812
TELEVICENTRO OF PUERTO RICO, LLC Ba2 BB
1,857,143 Term Loan, maturing December 31, 2007 1,877,870
---------------
60,437,864
---------------
RETAIL: 3.4%
ADVANCE STORES COMPANY, INC. Ba3 BB
6,696,465 Term Loan, maturing November 30, 2007 6,778,082
See Accompanying Notes to Financial Statements
33
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
RETAIL (CONTINUED)
ALIMENTATION COUCHE-TARD, INC. Ba2 BB
$ 2,000,000 Term Loan, maturing December 17, 2010 $ 2,016,250
CH OPERATING, LLC B2 B+
1,663,339 Term Loan, maturing June 21, 2007 1,663,339
CSK AUTO, INC. Ba3 B+
1,500,000 Term Loan, maturing June 19, 2009 1,508,907
ORIENTAL TRADING COMPANY, INC.
2,974,684 Term Loan, maturing August 06, 2010 B1 B+ 2,993,275
1,000,000 Term Loan, maturing January 08, 2011 B2 B- 1,024,583
THE PANTRY, INC. B1 B+
4,216,760 Term Loan, maturing March 31, 2007 4,269,469
860,527 Term Loan, maturing March 31, 2007 871,284
PETCO ANIMAL SUPPLIES, INC. Ba3 BB-
2,546,589 Term Loan, maturing October 26, 2008 2,578,421
RITE AID CORPORATION Ba3 BB
8,000,000 Term Loan, maturing April 30, 2008 8,175,001
TRAVELCENTERS OF AMERICA, INC. Ba3 BB
2,364,420 Term Loan, maturing November 14, 2008 2,392,989
---------------
34,271,600
---------------
SATELLITE: 1.3%
ECHOSTAR DBS CORPORATION Ba3 BB-
12,000,000 Floating Rate Note, maturing
October 01, 2008 12,480,000
PANAMSAT CORPORATION Ba2 BB
538,462 Term Loan, maturing September 30, 2010 547,212
---------------
13,027,212
---------------
TELECOMMUNICATIONS EQUIPMENT: 5.1%
AMERICAN TOWER, L.P. B1 B
9,344,641 Term Loan, maturing June 30, 2007 9,399,541
1,068,870 Term Loan, maturing December 31, 2007 1,082,009
CROWN CASTLE OPERATING COMPANY B1 B-
4,066,258 Term Loan, maturing September 15, 2007 4,098,788
17,391,412 Term Loan, maturing September 30, 2010 17,734,405
SBA SENIOR FINANCE, INC. B2 CCC+
3,384,615 Term Loan, maturing October 31, 2008 3,417,050
SPECTRASITE COMMUNICATIONS, INC. B1 B+
10,272,606 Term Loan, maturing December 31, 2007 10,405,595
4,900,948 Term Loan, maturing December 31, 2007 4,931,069
TRIPOINT GLOBAL COMMUNICATIONS, INC. NR NR
1,727,709 Term Loan, maturing May 31, 2006 1,667,239
---------------
52,735,696
---------------
See Accompanying Notes to Financial Statements
34
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
TEXTILES AND LEATHER: 1.8%
(2) GALEY & LORD, INC. Caa2 NR
$ 3,569,551 Term Loan, maturing April 02, 2005 $ 1,534,907
2,550,007 Term Loan, maturing April 01, 2006 1,096,503
MALDEN MILLS INDUSTRIES, INC. NR NR
2,573,615 Term Loan, maturing October 01, 2008 2,573,615
735,319 (3) Term Loan, maturing October 01, 2008 121,328
(2) POLYMER GROUP, INC. NR NR
4,822,495 Term Loan, maturing December 31, 2006 4,868,068
TARGUS GROUP, INC. NR NR
6,029,193 Term Loan, maturing August 31, 2006 5,968,901
WILLIAM CARTER COMPANY Ba3 BB
1,641,036 Term Loan, maturing September 08, 2008 1,658,131
---------------
17,821,453
---------------
TRANSPORTATION: 2.5%
(2) AMERICAN COMMERCIAL LINES, LLC
1,760,000 Debtor In Possession Term Loan,
maturing July 31, 2004 Ba3 NR 1,755,600
1,258,356 Term Loan, maturing June 30, 2006 Caa1 D 1,126,229
1,804,934 Term Loan, maturing June 30, 2007 Caa1 D 1,615,416
BAKER TANKS, INC. B1 B+
1,000,000 Term Loan, maturing January 30, 2011 1,007,813
CSX/HORIZON LINES, LLC Ba3 BB-
1,569,048 Term Loan, maturing February 27, 2009 1,584,002
GEMINI LEASING, INC. NR NR
2,001,852 Term Loan, maturing December 31, 2011 1,601,482
NEOPLAN USA CORPORATION NR NR
1,935,000 Revolver, maturing June 30, 2006 1,935,000
5,414,900 Term Loan, maturing June 30, 2006 5,414,900
PACER INTERNATIONAL, INC. B1 BB-
2,482,353 Term Loan, maturing June 10, 2010 2,509,504
TEREX CORPORATION B1 BB-
1,411,524 Term Loan, maturing July 03, 2009 1,414,760
1,960,075 Term Loan, maturing December 31, 2009 1,963,751
YELLOW ROADWAY CORPORATION Baa3 BBB
1,363,636 Term Loan, maturing June 11, 2008 1,374,716
1,636,364 Term Loan, maturing June 11, 2008 1,649,659
---------------
24,952,832
---------------
UTILITIES: 2.3%
CALPINE CONSTRUCTION FINANCE COMPANY, L.P. NR B+
1,990,000 Term Loan, maturing February 26, 2009 2,133,031
CALPINE CORPORATION B2 B
4,970,013 Term Loan, maturing July 16, 2007 4,743,255
9,452,500 Term Loan, maturing July 16, 2007 9,594,287
See Accompanying Notes to Financial Statements
35
BANK LOAN
RATINGS+
(UNAUDITED)
PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE
----------------------------------------------------------------------------------------------------
UTILITIES (CONTINUED)
CENTERPOINT ENERGY, INC. Ba1 BBB-
$ 3,490,541 Term Loan, maturing October 07, 2006 $ 3,579,260
NRG ENERGY, INC. B1 BB-
930,208 Term Loan, maturing June 23, 2010 958,260
520,833 Term Loan, maturing June 23, 2010 536,540
PIKE ELECTRIC, INC. Ba3 BB-
1,611,765 Term Loan, maturing April 18, 2010 1,626,624
---------------
23,171,257
---------------
TOTAL SENIOR LOANS
(COST $1,639,838,989) $ 1,632,623,334
---------------
OTHER CORPORATE DEBT: 1.3%
PRINCIPAL AMOUNT BORROWER / TRANCHE DESCRIPTION VALUE
----------------------------------------------------------------------------------------------------
DATA AND INTERNET SERVICES: 0.1%
ARCH WIRELESS HOLDINGS, INC. Ca NR
573,999 Subordinated Note, maturing May 15, 2009 573,999
---------------
573,999
---------------
FINANCE: 0.7%
VALUE ASSET MANAGEMENT, INC. B3 B
7,794,118 Senior Subordinated Bridge Note, maturing
August 31, 2005 7,599,265
---------------
7,599,265
---------------
HEALTHCARE, EDUCATION AND CHILDCARE: 0.0%
BLOCK VISION HOLDINGS CORPORATION NR NR
13,365 Junior Term Loan, maturing July 30, 2007 --
---------------
--
---------------
HOME AND OFFICE FURNISHING, HOUSEWARES: 0.0%
MP HOLDINGS, INC. NR NR
45,229 Subordinated Note, maturing
March 14, 2007 42,967
---------------
42,967
---------------
PERSONAL AND NON DURABLE CONSUMER PRODUCTS: 0.4%
PAINT SUNDRY BRANDS CORPORATION B1 B
4,000,000 Term Loan, maturing July 28, 2010 4,050,000
---------------
4,050,000
---------------
TEXTILES AND LEATHER: 0.1%
TARTAN TEXTILE SERVICES, INC. NR NR
1,332,583 Subordinated Note, maturing
April 01, 2011 1,332,583
---------------
1,332,583
---------------
TOTAL OTHER CORPORATE DEBT
(COST $13,118,751) 13,598,814
---------------
See Accompanying Notes to Financial Statements
36
SECURITY DESCRIPTION VALUE
----------------------------------------------------------------------------------------------------
EQUITIES AND OTHER ASSETS: 3.6%
(@), (R) Acterna, LLC (85,722 Common Shares) $ 1,090,731
Acterna, Inc. (Contingent Right) --
(1), (@), (R) Allied Digital Technologies Corporation
(Residual Interest in Bankruptcy Estate) 186,961
(@), (R) AM Cosmetics Corporation (Liquidation Interest) 50
(@), (R) Block Vision Holdings Corporation (571 Common Shares) --
(2), (@), (R) Boston Chicken, Inc. (Residual Interest in Boston
Chicken Plan Trust) 6,728,959
(@), (R) Cedar Chemical (Liquidation Interest) --
(@), (R) Covenant Care, Inc. (Warrants for 19,000 Common Shares,
Expires January 13, 2005) --
(@), (R) Covenant Care, Inc. (Warrants for 26,901 Common Shares,
Expires March 31, 2013) --
(@), (R) Decision One Corporation (350,059 Common Shares) --
(2), (@), (R) Electro Mechanical Solutions (Residual Interest in
Bankruptcy Estate) 2,193
(@), (R) Enginen Realty (857 Common Shares) --
(@), (R) Enterprise Profit Solutions (Liquidation Interest) --
(4), (@), (R) Euro United Corporation (Residual Interest in Bankruptcy Estate) 2,539,432
(2), (@), (R) Exide Technologies (Warrants for 16,501 Common Shares,
Expires March 16, 2006) 165
(@) Gate Gourmet (Warrants for 1,083 Common Shares, Expires
December 19, 2012) --
(@) Gemini Leasing (143,079 Common Shares) --
(@) Genesis Healthcare Corporation (20,303 Common Shares) 553,243
(2), (@), (R) Grand Union Company (Residual Interest in Bankruptcy Estate) 76,172
(@) Hayes Lemmerz (73,835 Common Shares) 1,166,593
(@) Hayes Lemmerz (246 Preferred Shares) 3,887
(@), (R) Holmes Products Corporation (Warrants for 13,849 Common
Shares, Expires May 7, 2006) --
(@) HQ Global (1,523 Common Shares) --
HQ Global (2,462 Preferred Shares) 2,009,925
(2), (@), (R) Humphreys, Inc. (Residual Interest in Bankruptcy Estate) --
(@), (R) IHDG Realty (300,141 Common Shares) 1
(@), (R) Imperial Home Decor Group, Inc. (300,141 Common Shares) 1
(@), (R) Imperial Home Decor Group, Inc. (Liquidation Interest) --
(2), (@), (R) Insilco Technologies (Residual Interest in Bankruptcy Estate) 43,482
(@), (R) Intera Group, Inc. (864 Common Shares) --
(2), (@), (R) IT Group, Inc. (Residual Interest in Bankruptcy Estate) 366,989
(2), (@), (R) Kevco, Inc. (Residual Interest in Bankruptcy Estate) 147,443
Malden Mills Industries, Inc. (436,865 Common Shares) --
Malden Mills Industries, Inc. (1,427,661 Preferred Shares) --
(@), (R) Morris Material Handling, Inc. (481,373 Common Shares) 1,184,178
(@), (R) MP Holdings, Inc. (590 Common Shares) 6
(@), (R) Murray's Discount Auto Stores, Inc. (Escrow) 510,279
See Accompanying Notes to Financial Statements
37
SECURITY DESCRIPTION VALUE
----------------------------------------------------------------------------------------------------
(@) NeighborCare (60,473 Common Shares) $ 1,569,276
(@), (R) Neoplan USA Corporation (17,348 Common Shares) --
(@), (R) Neoplan USA Corporation (1,814 Series B Preferred Shares) --
(@), (R) Neoplan USA Corporation (1,084 Series C Preferred Shares) 428,603
(@), (R) Neoplan USA Corporation (3,524 Series D Preferred Shares) 3,524,300
(@), (R) New Piper Aircraft (Residual Interest in Litigation Proceeds) --
(@), (R) New World Restaurant Group, Inc. (Warrants for 4,489
Common Shares, Expires June 15, 2006) 61,589
(@) Outsourcing Solutions (31,049 Common Shares) 816,266
(@), (R) Safelite Glass Corporation (660,808 Common Shares) 8,306,357
(@), (R) Safelite Realty (44,605 Common Shares) 245,328
(@), (R) Sarcom, Inc. (462,984 Common Shares) --
(@), (R) Sarcom, Inc. (4,015 Preferred Shares) --
(@), (R) Scientific Games Corporation (48,930 Non-Voting
Common Shares) 827,406
(@), (R) Soho Publishing (17,582 Common Shares) 176
(@), (R) Stellex Aerostructures, Inc. (11,130 Common Shares) --
(@), (R) Targus Group, Inc. (Warrants for 66,824
Common Shares, Expires December 6, 2012) --
(@), (R) Tartan Textile Services, Inc. (23,449 Shares of Series D
Preferred Stock) 2,344,900
(@), (R) Tartan Textile Services, Inc. (36,775 Shares of Series E
Preferred Stock) --
(@), (R) Teligent, Inc. (50 Common Shares) --
(@), (R) Tembec, Inc. (167,239 Common Shares) 1,215,309
(1), (@), (R) Transtar Metals (Residual Interest in Bankruptcy Estate) --
(1), (@), (R) TSR Wireless, LLC (Residual Interest in Bankruptcy Estate) --
(2), (@), (R) U.S. Aggregates (Residual Interest in Bankruptcy Estate) --
(2), (@), (R) U.S. Office Products Company (Residual Interest in
Bankruptcy Estate) --
---------------
TOTAL FOR EQUITY AND OTHER ASSETS
(COST $34,385,172 ) 35,950,200
---------------
TOTAL INVESTMENTS
(COST $1,687,342,912) 166.5% 1,682,172,348
PREFERRED SHARES AND LIABILITIES IN EXCESS OF
CASH AND OTHER ASSETS, NET (66.5) (671,846,907)
----- -------------
NET ASSETS 100.0% $ 1,010,325,441
===== ===============
See Accompanying Notes to Financial Statements
38
----------
(@) Non-income producing security.
(R) Restricted security.
* Senior loans, while exempt from registration under the Security Act of
1933, as amended contain certain restrictions on resale and cannot be sold
publicly. These senior loans bear interest (unless otherwise noted) at
rates that float periodically at a margin above the London Inter-Bank
Offered Rate ("LIBOR") and other short-term rates.
NR Not Rated
+ Bank Loans rated below Baa3 by Moody's Investor Services, Inc. or BBB- by
Standard & Poor's Group are considered to be below investment grade.
(1) The borrower filed for protection under Chapter 7 of the U.S. Federal
bankruptcy code.
(2) The borrower filed for protection under Chapter 11 of the U.S. Federal
bankruptcy code.
(3) Loan is on non-accrual basis.
(4) The borrower filed for protection under the Canadian Bankruptcy and
Insolvency Act.
(5) For federal income tax purposes, the cost of investment is $1,688,828,013
and net unrealized depreciation consists of the following:
Gross Unrealized Appreciation $ 25,888,723
Gross Unrealized Depreciation (32,544,388)
---------------
Net Unrealized Depreciation $ (6,655,665)
===============
See Accompanying Notes to Financial Statements
39
ING Prime Rate Trust
SHAREHOLDER MEETING INFORMATION (Unaudited)
A special meeting of shareholders of the ING Prime Rate Trust was held August
19, 2003, at the offices of ING Funds, 7337 East Doubletree Ranch Road,
Scottsdale, AZ 85258.
A brief description of each matter voted upon as well as the results are
outlined below:
MATTERS:
ING PRIME RATE TRUST, COMMON SHARES
1. To elect nine members of the Board of Trustees to represent the interests of
the holders of the Common Shares of the Trust until the election and
qualification of their successors.
ING PRIME RATE TRUST, PREFERRED SHARES
2. To elect two members of the Board of Trustees to represent the interests of
the holders of Auction Rate Cumulative Preferred Shares -- Series M, T, W,
TH, and F of the Trust -- until the election and qualification of their
successors.
ING PRIME RATE TRUST
3. To ratify selection of KPMG LLP as the current independent auditor of the
Trust.
4. To approve a Sub-Advisory Agreement between ING Investments, LLC and Aeltus
Investment Management, Inc., with no change in the advisor, the portfolio
managers, or the overall management fee paid by the Trust.
5. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) or postponement(s) thereof.
RESULTS:
SHARES VOTED SHARES BROKER TOTAL SHARES
PROPOSAL SHARES VOTED FOR AGAINST OR WITHHELD ABSTAINED NON-VOTE VOTED
-------------------- ---------------- ------------------- --------- -------- ------------
Common Paul S. Doherty 114,685,160 2,423,071 -- -- 117,108,231
Shares J. Michael Earley 114,782,052 2,326,179 -- -- 117,108,231
Trustees R. Barbara Gitenstein 114,708,163 2,400,068 -- -- 117,108,231
Thomas J. McInerney 114,686,460 2,421,771 -- -- 117,108,231
David W.C. Putnam 114,770,313 2,337,918 -- -- 117,108,231
Blaine E. Rieke 114,692,561 2,415,670 -- -- 117,108,231
John G. Turner 114,800,060 2,308,171 -- -- 117,108,231
Roger B. Vincent 114,776,458 2,331,773 -- -- 117,108,231
Richard A. Wedemeyer 114,695,507 2,412,724 -- -- 117,108,231
Preferred Shares Walter H. May 17,595 62 -- -- 17,657
Trustees Jock Patton 17,580 77 -- -- 17,657
KPMG LLP 3 114,713,065 1,205,046 1,207,777 -- 117,125,888
Sub-Advisory
Agreement 4 113,175,355 2,221,470 1,729,063 -- 117,125,888
Such other
business 5 111,634,959 2,906,152 2,584,777 -- 117,125,888
40
ADDITIONAL INFORMATION (Unaudited)
SHAREHOLDER INVESTMENT PROGRAM
The Trust offers a Shareholder Investment Program (the "Program," formerly known
as the Dividend Reinvestment and Cash Purchase Plan) which allows holders of the
Trust's common shares a simple way to reinvest dividends and capital gains
distributions, if any, in additional common shares of the Trust. The Program
also offers holders of the Trust's common shares the ability to make optional
cash investments in any amount from $100 to $25,000 on a monthly basis. Amounts
in excess of $25,000 require prior approval of the Trust. DST Systems, Inc., the
Trust's Transfer Agent, is the administrator for the Program.
For dividend reinvestment purposes, DST Systems, Inc. will purchase shares of
the Trust on the open market when the market price plus estimated commissions is
less than the net asset value on the valuation date. The Trust may issue new
shares when the market price plus estimated commissions is equal to or exceeds
the net asset value on the valuation date. New shares may be issued at the
greater of (i) net asset value or (ii) the market price of the shares during the
pricing period, minus a discount of 5%.
For optional cash investments, shares will be purchased on the open market by
the DST Systems, Inc. when the market price plus estimated commissions is less
than the net asset value on the valuation date. New shares may be issued by the
Trust when the market price plus estimated commissions is equal to or exceeds
the net asset value on the valuation date.
There is no charge to participate in the Program. Participants may elect to
discontinue participation in the Program at any time. Participants will share,
on a pro-rata basis, in the fees or expenses of any shares acquired in the open
market.
Participation in the Program is not automatic. If you would like to receive more
information about the Program or if you desire to participate, please contact
your broker or our Shareholder Services Department at (800) 992-0180.
KEY FINANCIAL DATES -- CALENDAR 2004 DIVIDENDS:
DECLARATION DATE EX-DIVIDEND DATE PAYABLE DATE
---------------- ---------------- ------------
January 30 February 6 February 24
February 27 March 8 March 22
March 31 April 7 April 22
April 30 May 6 May 24
May 28 June 8 June 22
June 30 July 8 July 22
July 30 August 6 August 23
August 31 September 8 September 22
September 30 October 7 October 22
October 29 November 8 November 22
November 30 December 8 December 22
December 20 December 29 January 12
RECORD DATE WILL BE TWO BUSINESS DAYS AFTER EACH EX-DIVIDEND DATE.
THESE DATES ARE SUBJECT TO CHANGE.
STOCK DATA
The Trust's shares are traded on the New York Stock Exchange (Symbol: PPR).
Effective March 1, 2002, the Trust's name changed to ING Prime Rate Trust and
its CUSIP number changed to 44977W106. The Trust's NAV and market price are
published daily under the "Closed-End Funds"
41
feature in Barron's, The New York Times, The Wall Street Journal and many other
regional and national publications.
REPURCHASE OF SECURITIES BY CLOSED-END COMPANIES
In accordance with Section 23(c) of the 1940 Act, and Rule 23c-1 under the 1940
Act the Trust may from time to time purchase shares of beneficial interest of
the Trust in the open market, in privately negotiated transactions and/or
purchase shares to correct erroneous transactions.
NUMBER OF SHAREHOLDERS
The approximate number of record holders of Common Stock as of February 29, 2004
was 7,586 which does not include approximately 50,100 beneficial owners of
shares held in the name of brokers of other nominees.
42
TAX INFORMATION (Unaudited)
The Trust is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise within 60 days of the Trust's fiscal year end (February 29,
2004) as to the federal tax status of distributions received by the Trust's
shareholders. Accordingly, the Trust is hereby advising you that the following
dividends were paid to Common Shareholders during the fiscal year ended February
29, 2004:
PER SHARE
TYPE OF DIVIDEND AMOUNT EX-DIVIDEND DATE PAYABLE DATE
---------------- --------- ---------------- ------------
ORDINARY INCOME $ 0.0330 03/06/03 03/24/03
$ 0.0355 04/08/03 04/23/03
$ 0.0345 05/08/03 05/22/03
$ 0.0355 06/06/03 06/23/03
$ 0.0345 07/08/03 07/22/03
$ 0.0360 08/07/03 08/22/03
$ 0.0350 09/08/03 09/22/03
$ 0.0340 10/08/03 10/22/03
$ 0.0350 11/06/03 11/24/03
$ 0.0350 12/08/03 12/22/03
$ 0.0360 12/29/03 01/13/04
$ 0.0360 02/06/04 02/24/04
--------
TOTAL $ 0.4200
========
The Trust is hereby advising you that the following dividends were paid to
Preferred Shareholders during the fiscal year ended February 29, 2004:
TOTAL
PREFERRED TYPE OF PER SHARE AUCTION RECORD PAYABLE
SHARES DIVIDEND AMOUNT DATES DATES DATES
------------ ---------------- ---------- ----------------- ----------------- ----------------
Series M Ordinary Income $ 285.34 3/5/03 to 2/25/04 3/12/03 to 3/3/04 3/13/03 to 3/4/04
Series T Ordinary Income $ 286.39 3/6/03 to 2/26/04 3/13/03 to 3/4/04 3/14/03 to 3/5/04
Series W Ordinary Income $ 288.95 3/3/03 to 2/23/04 3/10/03 to 3/1/04 3/11/03 to 3/2/04
Series Th Ordinary Income $ 288.22 3/4/03 to 2/24/04 3/11/03 to 3/2/04 3/12/03 to 3/3/04
Series F Ordinary Income $ 285.10 3/7/03 to 2/27/04 3/14/03 to 3/5/04 3/17/03 to 3/8/04
Of the ordinary distributions made during the fiscal year ended February 29,
2004, 0.35% qualifies for the dividends received deduction to corporate
shareholders.
For the fiscal year ended February 29, 2004, 0.35% of ordinary dividends paid by
the Trust are designated as qualifying dividend income subject to reduced income
tax rates for individuals.
The above figures may differ from those cited elsewhere in this report due to
differences in the calculation of income and gains under accounting principles
generally accepted in the United States of America (book) and Internal Revenue
Service (tax) purposes.
Shareholders are strongly advised to consult their own tax advisers with respect
to the tax consequences of their investments in the Trust. In January 2004,
shareholders, excluding corporate shareholders, received an IRS 1099-DIV
regarding the federal tax status of the dividends and distributions received by
them in calendar year 2003.
43
ING Prime Rate Trust
TRUSTEE AND OFFICER INFORMATION (Unaudited)
The business and affairs of the Trust are managed under the direction of the
Trust's Board of Trustees. A trustee who is not an interested person of the
Trust, as defined in the 1940 Act, is an independent trustee ("Non-Interested
Trustee"). The Trustees of the Trust are listed below. The Trust's statement of
Additional Information includes additional information about the trustees of the
Registrant and is available, without charge, upon request at 1-800-992-0180.
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
------- ----------------- -------------- --------------- ------- -------
NON-INTERESTED TRUSTEES:
Paul S. Doherty(2) Trustee November President and 122 None
7337 E. Doubletree Ranch Rd. 1999 - present Partner, Doherty,
Scottsdale, Arizona 85258 Wallace, Pillsbury
Born: 1934 and Murphy, P.C.,
Attorneys (1996 -
Present); and
Trustee of each of
the funds managed by
Northstar Investment
Management
Corporation (1993 -
1999).
J. Michael Earley(3) Trustee February President and Chief 122 None
7337 E. Doubletree Ranch Rd. 2002 - present Executive Officer,
Scottsdale, Arizona 85258 Bankers Trust
Born: 1945 Company, N.A. (1992
- Present).
R. Barbara Gitenstein(2) Trustee February President, College 122 None
7337 E. Doubletree Ranch Rd. 2002 - present of New Jersey (1999
Scottsdale, Arizona 85258 - Present).
Born: 1948
Walter H. May(2) Trustee November Retired. Formerly, 122 Best Prep Charity
7337 E. Doubletree Ranch Rd. 1999 - present Managing Director (1991 - Present).
Scottsdale, Arizona 85258 and Director of
Born: 1936 Marketing, Piper
Jaffray, Inc.;
Trustee of each of
the funds managed by
Northstar Investment
Management
Corporation (1996 -
1999).
Jock Patton(2) Trustee August Private Investor 122 Director, Hypercom,
7337 E. Doubletree Ranch Rd. 1995 - present (June 1997 - Inc. (January 1999
Scottsdale, Arizona 85258 Present). Formerly - Present); JDA
Born: 1945 Director and Chief Software Group, Inc.
Executive Officer, (January 1999 -
Rainbow Multimedia Present).
Group, Inc. (January
1999 - December
2001).
44
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
------- ----------------- -------------- --------------- ------- -------
David W.C. Putnam(3) Trustee November President and 122 Anchor International
7337 E. Doubletree Ranch Rd. 1999 - present Director, F.L. Bond (December 2000
Scottsdale, Arizona 85258 Putnam Securities - Present);
Born: 1939 Company, Inc. and Progressive Capital
its affiliates; Accumulation Trust
President, Secretary (August 1998 -
and Trustee, The Present); Principled
Principled Equity Equity Market Fund
Market Fund. (November 1996 -
Formerly, Trustee, Present), Mercy
Trust Realty Corp.; Endowment Foundation
Anchor Investment (1995 - Present);
Trust; Bow Ridge Director, F.L.
Mining Company and Putnam Investment
each of the F.L. Management Company
Putnam funds managed (December 2001
by Northstar -Present); Asian
Investment American Bank and
Foundation Trust Company (June
Management 1992 - Present); and
Corporation (1994 - Notre Dame Health
1999). Care Center (1991 -
Present) F.L. Putnam
Securities Company,
Inc. (June 1978
-Present); and an
Honorary Trustee,
Mercy Hospital (1973
- Present).
Blaine E. Rieke Trustee February General Partner, 122 Morgan Chase Trust
7337 E. Doubletree Ranch Rd. 2001 - present Huntington Partners Co. (January 1998 -
Scottsdale, Arizona 85258 (January 1997 - present).
Born: 1933 present). Chairman
of the Board and
Trustee of each of
the funds managed by
ING Investment
Management Co. LLC
(November 1998 -
February 2001).
Roger B. Vincent Trustee February President, 122 Director, AmeriGas
7337 E. Doubletree Ranch Rd. 2002 - present Springwell Propane, Inc. (1998
Scottsdale, Arizona 85258 Corporation (1989 - - present).
Born: 1945 present). Formerly,
Director, Tatham
Offshore, Inc. (1996
- 2000).
Richard A. Wedemeyer(2)(3) Trustee February Retired. Formerly 122 Touchstone
7337 E. Doubletree Ranch Rd. 2001 - present Vice President - Consulting Group
Scottsdale, Arizona 85258 Finance and (1997 - present).
Born: 1936 Administration,
Channel Corporation
(June 1996 - April
2002). Formerly,
Trustee, First
Choice Funds (1997 -
2001); and Trustee
of each of the funds
managed by ING
Investment
Management Co. LLC
(1998 - 2001).
45
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
POSITION(S) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY
AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE
------- ----------------- -------------- --------------- ------- -------
INTERESTED TRUSTEES:
Thomas J. McInerney(4) Trustee February Chief Executive 175 Director,
7337 E. Doubletree Ranch Rd. 2001 - present Officer, ING U.S. Hemisphere, Inc.
Scottsdale, Arizona 85258 Financial Services (May 2003 -
Born: 1956 (September 2001 to present). Director,
present); General Equitable Life
Manager and Chief Insurance Co.,
Executive Officer, Golden American Life
ING U.S. Worksite Insurance Co., Life
Financial Services Insurance Company of
(December 2000 to Georgia, Midwestern
present); Member, United Life
ING Americas Insurance Co.,
Executive Committee ReliaStar Life
(2001 to present); Insurance Co.,
President, Chief Security Life of
Executive Officer Denver, Security
and Director of Connecticut Life
Northern Life Insurance Co.,
Insurance Company Southland Life
(2001 to present), Insurance Co., USG
ING Aeltus Holding Annuity and Life
Company, Inc. (2000 Company, and United
to present), ING Life and Annuity
Retail Holding Insurance Co. Inc
Company (1998 to (March 2001 -
present). Formerly, present); Member of
ING Life Insurance the Board, National
and Annuity Company Commission on
(1997 to November Retirement Policy,
2002), ING Competitiveness and
Retirement Holdings, Technology of
Inc. (1997 to March Connecticut,
2003); General Connecticut Business
Manager and Chief and Industry
Executive Officer, Association,
ING Worksite Bushnell;
Division (December Connecticut Forum;
2000 to October Metro Hartford
2001), President, Chamber of Commerce;
ING-SCI, Inc. and Chairman,
(August 1997 to Concerned Citizens
December 2000); for Effective
President, Aetna Government.
Financial Services
(August 1997 to
December 2000); and
has held a variety
of line and
corporate staff
positions since
1978.
John G. Turner(5) Trustee September Chairman, Hillcrest 122 Director, Hormel
7337 E. Doubletree Ranch Rd. 2000 - present Capital Partners Foods Corporation
Scottsdale, Arizona 85258 (May 2002 - (March 2000 -
Born: 1939 Present); President, present); Shopko
Turner Investment Stores, Inc. (August
Company (January 1999 - present); and
2002 - Present). Mr. M.A. Mortenson
Turner was formerly Company (March 2002
Vice Chairman of ING - present).
Americas (2000 -
2002); Chairman and
Chief Executive
Officer of ReliaStar
Financial Corp.
(1) Trustees serve until their successors are duly elected and qualified,
subject to the Board's retirement policy.
(2) Valuation and Proxy Voting Committee (formerly the Valuation Committee)
member.
(3) Audit Committee member.
(4) Mr. McInerney is an "interested person," as defined by the 1940 Act,
because of an affiliation with ING Groep N.V., the parent corporation of
the Investment Manager, ING Investments, LLC and the Distributor, ING
Funds Distributor, LLC.
(5) Mr. Turner is an "interested person," as defined by the 1940 Act,
because of his affiliation with ING Groep N.V., the parent corporation
of the Investment Manager, ING Investments, LLC and Distributor, ING
Funds Distributor, LLC.
46
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE
AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
------- -------------- -------------- ---------------
OFFICERS:
James M. Hennessy President and Chief February 2001 - Present President and Chief Executive Officer,
7337 E. Doubletree Ranch Rd. Executive Officer ING Investments, LLC(2) and certain of
Scottsdale, Arizona 85258 its affiliates (December 2001 -
Born: 1949 Chief Operating Officer July 2000 - Present Present). Formerly, Senior Executive
Vice President and Chief Operating
Officer, ING Investments, LLC(2) and
certain of its affiliates (June 2000 -
December 2000); Executive Vice
President, ING Investments, LLC(2) and
certain of its affiliates (April 1998
- June 2000); and Senior Vice
President, ING Investments, LLC(2) and
certain of its affiliates (April 1995
- April 1998).
Michael J. Roland Executive Vice President February 2002 - Present Executive Vice President, Chief
7337 E. Doubletree Ranch Rd. and Assistant Secretary Financial Officer and Treasurer, ING
Scottsdale, Arizona 85258 Investments, LLC(2) and certain of its
Born: 1958 Chief Financial Officer August 1998 - Present affiliates (December 2001 - Present).
Formerly, Senior Vice President, ING
Investments, LLC(2) and certain of its
affiliates (June 1998 - December
2001).
Stanley D. Vyner Executive Vice President August 2003 - Present Executive Vice President, ING
7337 E. Doubletree Ranch Rd. Investments, LLC(2) and certain of its
Scottsdale, Arizona 85258 affiliates (July 2000 - Present); and
Born: 1950 Chief Investment Officer of the
International Portfolios, ING
Investments, LLC(2) (July 1996 -
Present). Formerly, President and
Chief Executive Officer, ING
Investments, LLC(2) (August 1996 -
August 2000).
Robert S. Naka Senior Vice President November 1999 - Present Senior Vice President and Assistant
7337 E. Doubletree Ranch Rd. Secretary, ING Investments, LLC(2) and
Scottsdale, Arizona 85258 Assistant Secretary July 1996 - Present certain of its affiliates (October 2001
Born: 1963 - Present). Formerly, Vice President
and Assistant Secretary, ING Funds
Services, LLC(3) (February 1997 -
August 1999).
Daniel A. Norman Senior Vice President April 1995 - Present Senior Vice President and Co-Senior
7337 E. Doubletree Ranch Rd. Portfolio Manager, ING Investments,
Scottsdale, Arizona 85258 Treasurer June 1997 - Present LLC(2) and certain of its affiliates
Born: 1957 (November 1999 - Present). Formerly,
Senior Vice President and Portfolio
Manager, ING Investments, LLC(2) and
certain of its affiliates (April 1995
- November 1999).
Jeffrey A. Bakalar Senior Vice President November 1999 - Present Senior Vice President and Co-Senior
7337 E. Doubletree Ranch Rd. Portfolio Manager, ING Investments,
Scottsdale, Arizona 85258 LLC(2) (November 1999 - Present).
Born: 1959 Formerly, Vice President and Portfolio
Manager, ING Investments, LLC(2)
(February 1998 - November 1999).
Elliot Rosen Senior Vice President May 2002 - Present Senior Vice President, ING
7337 E. Doubletree Ranch Rd. Investments, LLC(2) (February 1999 -
Scottsdale, Arizona 85258 Present).
Born: 1953
William H. Rivoir III Senior Vice President February 2001 - Present Vice President of ING Investment
7337 E. Doubletree Ranch Rd. and Assistant Secretary Management Co. (January 2004 -
Scottsdale, Arizona 85258 Present). Formerly, Counsel, ING USFS
Born: 1951 Law Department (January 2003 -
December 2003); and Senior Vice
President, ING Investments, LLC(2) and
certain of its affiliates (June 1998 -
December 2002).
Curtis F. Lee Senior Vice President February 2001 - Present Senior Vice President and Chief Credit
7337 E. Doubletree Ranch Rd. and Chief Credit Officer Officer of Senior Loans, ING
Scottsdale, Arizona 85258 Investments, LLC(2) (August 1999 -
Born: 1955 Present).
47
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE
AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
------- -------------- -------------- ---------------
Kimberly A. Anderson Senior Vice President November 2003 - Present Senior Vice President, ING
7337 E. Doubletree Ranch Rd. Investments, LLC(2) and certain of its
Scottsdale, Arizona 85258 affiliates (October 2003 - Present).
Born: 1964 Formerly, Vice President, ING
Investments, LLC(2) and certain of its
affiliates (October 2001 - October
2003); Secretary, ING Investments,
LLC(2) and certain of its affiliates
(October 2001 - August 2003); Assistant
Vice President, ING Funds Services,
LLC(3) (November 1999 - January 2001);
and has held various other positions
with ING Funds Services, LLC(3) for more
than the last five years.
Robyn L. Ichilov Vice President November 1997 - Present Vice President, ING Funds Services,
7337 E. Doubletree Ranch Rd. LLC(3) (October 2001 - Present) and
Scottsdale, Arizona 85258 ING Investments, LLC(2) (August 1997 -
Born: 1967 Present).
J. David Greenwald Vice President August 2003 - Present Vice President of Mutual Fund
7337 E. Doubletree Ranch Rd. Compliance, ING Funds Services, LLC(3)
Scottsdale, Arizona 85258 (May 2003 - Present). Formerly,
Born: 1957 Assistant Treasurer and Director of
Mutual Fund Compliance and Operations,
American Skandia, a Prudential Financial
Company (October 1996 - May 2003).
Lauren D. Bensinger Vice President August 2003 - Present Vice President and Chief Compliance
7337 E. Doubletree Ranch Rd. Officer, ING Funds Distributor, LLC(4)
Scottsdale, Arizona 85258 (July 1995 - Present); Vice President
Born: 1954 (February 1996 - Present) and Chief
Compliance Officer (October 2001 -
Present), ING Investments, LLC(2).
Huey P. Falgout Secretary August 2003 - Present Chief Counsel, ING U.S. Financial
7337 E. Doubletree Ranch Rd. Services (November 2003 - Present).
Scottsdale, Arizona 85258 Formerly, Counsel, ING U.S. Financial
Born: 1963 Services (November 2002 - November
2003); Associate General Counsel, AIG
American General (January 1999 -
November 2002).
Todd Modic Vice President August 2003 - Present Vice President of Financial Reporting -
7337 E. Doubletree Ranch Rd. Fund Accounting of ING Fund Services,
Scottsdale, Arizona 85258 LLC(3) (September 2002 - Present).
Born: 1967 Formerly, Director of Financial
Reporting, ING Investments, LLC(2)
(March 2001 - September 2002); Director
of Financial Reporting, Axient
Communications, Inc. (May 2000 - January
2001); and Director of Finance,
Rural/Metro Corporation (March 1995 -
May 2000).
Theresa Kelety Assistant Secretary August 2003 - Present Counsel, ING U.S. Financial Services
7337 E. Doubletree Ranch Rd. (April 2003 - Present). Formerly, Senior
Scottsdale, Arizona 85258 Associate with Shearman & Sterling
Born: 1963 (February 2000 - April 2003); and
Associate with Sutherland Asbill &
Brennan (1996 - February 2000).
Susan P. Kinens Assistant Vice President February 2003 - Present Assistant Vice President and Assistant
7337 E. Doubletree Ranch Rd. and Assistant Secretary Secretary, ING Funds Services, LLC(3)
Scottsdale, Arizona 85258 (December 2002 - Present); and has
Born: 1976 held various other positions with ING
Funds Services, LLC(3) for over the last
five years.
48
PRINCIPAL
TERM OF OFFICE OCCUPATION(S)
NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE
AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS
------- -------------- -------------- ---------------
Maria M. Anderson Assistant Vice President August 2001 - Present Assistant Vice President, ING Funds
7337 E. Doubletree Ranch Rd. Services, LLC(3) (October 2001 -
Scottsdale, Arizona 85258 Present). Formerly, Manager of Fund
Born: 1958 Accounting and Fund Compliance,
ING Investments, LLC(2) (September
1999 - November 2001).
----------
(1) The officers hold office until the next annual meeting of the Trustees and
until their successors have been elected and qualified.
(2) ING Investments, LLC was previously named ING Pilgrim Investments, LLC. ING
Pilgrim Investments, LLC is the sucessor in interest to ING Pilgrim
Investments, Inc., which was previously known as Pilgrim Investments, Inc.
and before that was known as Pilgrim America Investments, Inc.
(3) ING Funds Services, LLC was previously named ING Pilgrim Group, LLC. ING
Pilgrim Group, LLC is the sucessor in interest to ING Pilgrim Group, Inc.,
which was previously known as Pilgrim Group, Inc. and before that was known
as Pilgrim America Group, Inc.
(4) ING Funds Distributor, LLC is the sucessor in interest to ING Funds
Distributor, Inc., which was previously known as ING Pilgrim Securities,
Inc., and before that was known as Pilgrim Securities, Inc., and before
that was known as Pilgrim America Securities, Inc.
49
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INVESTMENT MANAGER
ING Investments, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
ADMINISTRATOR
ING Fund Services, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-992-0180
INSTITUTIONAL INVESTORS AND ANALYSTS
Call ING Prime Rate Trust
1-800-336-3436, Extension 2217
DISTRIBUTOR
ING Funds Distributor, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
1-800-334-3444
TRANSFER AGENT
DST Systems, Inc.
P.O. Box 219368
Kansas City, Missouri 64141-9368
CUSTODIAN
State Street Bank and Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105
LEGAL COUNSEL
Dechert LLP
1775 I Street, N.W.
Washington, D.C. 20006
INDEPENDENT AUDITORS
KPMG LLP
355 S. Grand Avenue, Suite 2000
Los Angeles, CA 90071-1568
WRITTEN REQUESTS
Please mail all account inquiries and other comments to:
ING Prime Rate Trust Account
c/o ING Fund Services, LLC
7337 E. Doubletree Ranch Road
Scottsdale, Arizona 85258-2034
TOLL-FREE SHAREHOLDER INFORMATION
Call us from 9:00 a.m. to 7:00 p.m. Eastern time on any business day for account
or other information, at 1-800-992-0180
A prospectus containing more complete information regarding the Trust,
including charges and expenses, may be obtained by callling ING Funds
Distributor Customer Service Desk at 1-800-992-0180. Please read the
prospectus carefully before you invest or send money. The Trust's proxy
voting record will be available without charge on or about August 31, 2004 on
the Trust's website at www.ingfunds.com and on the SEC's website at
www.sec.gov.
[ING FUNDS LOGO] PRAR-PRT (0204-042904)
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, Registrant had adopted a
code of ethics, as defined in Item 2 of Form N-CSR, that applies to the
Registrant's principal executive officer and principal financial officer. There
were no amendments to the Code during the period covered by the report. The
Registrant did not grant any waivers, including implicit waivers, from any
provisions of the Code during the period covered by this report. The code of
ethics is filed herewith pursuant to Item 10(a)(1), Exhibit 99.CODE ETH.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that David Putnam is an audit committee
financial expert, as defined in Item 3 of Form N-CSR. Mr. Putnam is
"independent" for purposes of Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) AUDIT FEES: The aggregate fees billed for each of the last two fiscal
years for professional services rendered by KPMG LLP ("KPMG"), the
principal accountant for the audit of the registrant's annual
financial statements, for services that are normally provided by the
accountant in connection with statutory and regulatory filings or
engagements for those fiscal years were $72,207 for year ended
February 29, 2004 and $108,100 for year ended February 28, 2003.
(b) AUDIT-RELATED FEES: The aggregate fees billed in each of the last two
fiscal years for assurance and related services by KPMG that are
reasonably related to the performance of the audit of the registrant's
financial statements and are not reported under paragraph (a) of this
Item were $28,100 for year ended February 29, 2004 and $33,500 for
year ended February 28, 2003.
(c) TAX FEES: The aggregate fees billed in each of the last two fiscal
years for professional services rendered by KPMG for tax compliance,
tax advice, and tax planning were $4,000 in the year ended February
29, 2004 and $12,898 in the year ended February 28, 2003. Such
services included review of excise distribution calculations (if
applicable), preparation of the Funds' federal, state and excise tax
returns, tax services related to mergers and routine consulting.
(d) ALL OTHER FEES: The aggregate fees billed in each of the last two
fiscal years for products and services provided by KPMG, other than
the services reported in paragraphs (a) through (c) of this Item were
$2,500 in the year ended February 29, 2004 and $5,000 in the year
ended February 28, 2003.
(e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
MODEL AUDIT AND NON-AUDIT SERVICES
PRE-APPROVAL POLICY
I. STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 (the "Act"), the Audit Committee of
the Board of Directors or Trustees (the "Committee") of the ING Funds (each
a "Fund," collectively, the "Funds") set out under Paragraph I on EXHIBIT A
to this Audit and Non-Audit Services Pre-Approval Policy ("Policy") is
responsible for the oversight of the work of the Funds' independent
auditors. As part of its responsibilities, the Committee must pre-approve
the audit and non-audit services performed by the auditors in order to
assure that the provision of these services does not impair the auditors'
independence from the Funds. The Committee has adopted, and the Board has
ratified, this Policy, which sets out the procedures and conditions under
which the services of the independent auditors may be pre-approved.
Under Securities and Exchange Commission ("SEC") rules promulgated in
accordance with the Act, the Funds' may establish two different approaches
to pre-approving audit and non-audit services. The Committee may approve
services without consideration of specific case-by-case services ("general
pre-approval") or it may pre-approve specific services ("specific
pre-approval"). The Committee believes that the combination of these
approaches contemplated in this Policy results in an effective and
efficient method for pre-approving audit and non-audit services to be
performed by the Funds' independent auditors. Under this Policy, services
that are not of a type that may receive general pre-approval require
specific pre-approval by the Committee. Any proposed services that exceed
pre-approved cost levels or budgeted amounts will also require the
Committee's specific pre-approval.
For both types of approval, the Committee considers whether the subject
services are consistent with the SEC's rules on auditor independence and
that such services are compatible with maintaining the auditors
independence. The Committee also considers whether a particular audit firm
is in the best position to provide effective and efficient services to the
Funds. Reasons that the auditors are in the best position include the
auditors' familiarity with the Funds' business, personnel, culture,
accounting systems, risk profile, and other factors, and whether the
services will enhance the Funds' ability to manage and control risk or
improve audit quality. Such factors will be considered as a whole, with no
one factor being determinative.
The appendices attached to this Policy describe the audit, audit-related,
tax-related, and other services that have the Committee's general
pre-approval. For any service that has been approved through general
pre-approval, the general pre-approval will remain in place for a period 12
months from the date of pre-approval, unless the Committee determines that
a different period is appropriate. The Committee will annually review and
pre-approve the services that may be provided by the independent auditors
without specific pre-approval. The Committee will revise the list of
services subject to general pre-approval as appropriate. This Policy does
not serve as a delegation to Fund management of the Committee's duty to
pre-approve services performed by the Funds' independent auditors.
II. AUDIT SERVICES
The annual audit services engagement terms and fees are subject to the
Committee's specific pre-approval. Audit services are those services that
are normally provided by auditors in connection with statutory and
regulatory filings or engagements or those that generally only independent
auditors can reasonably provide. They include the Funds' annual financial
statement audit and procedures that the independent auditors must perform
in order to form an opinion on the Funds' financial statements (E.G.,
information systems and procedural reviews and testing). The Committee will
monitor the audit services engagement and approve any changes in terms,
conditions or fees deemed by the Committee to be necessary or appropriate.
The Committee may grant general pre-approval to other audit services, such
as statutory audits and services associated with SEC registration
statements, periodic reports and other documents filed with the SEC or
issued in connection with securities offerings.
The Committee has pre-approved the audit services listed on Appendix A. The
Committee must specifically approve all audit services not listed on
Appendix A.
III. AUDIT-RELATED SERVICES
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or the review of the
Funds' financial statements or are traditionally performed by the
independent auditors. The Committee believes that the provision of
audit-related services will not impair the independent auditors'
independence, and therefore may grant pre-approval to audit-related
services. Audit-related services include accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"audit services;" assistance with
understanding and implementing new accounting and financial reporting
guidance from rulemaking authorities; agreed-upon or expanded audit
procedures relating to accounting and/or billing records required to
respond to or comply with financial, accounting or regulatory reporting
matters; and assistance with internal control reporting requirements under
Form N-SAR or Form N-CSR.
The Committee has pre-approved the audit-related services listed on
Appendix B. The Committee must specifically approve all audit-related
services not listed on Appendix B.
IV. TAX SERVICES
The Committee believes the independent auditors can provide tax services to
the Funds, including tax compliance, tax planning, and tax advice, without
compromising the auditors' independence. Therefore, the Committee may grant
general pre-approval with respect to tax services historically provided by
the Funds' independent auditors that do not, in the Committee's view,
impair auditor independence and that are consistent with the SEC's rules on
auditor independence.
The Committee will not grant pre-approval if the independent auditors
initially recommends a transaction the sole business purpose of which is
tax avoidance and the tax treatment of which may not be supported in the
Internal Revenue Code and related regulations. The Committee may consult
outside counsel to determine that tax planning and reporting positions are
consistent with this Policy.
The Committee has pre-approved the tax-related services listed on Appendix
C. The Committee must specifically approve all tax-related services not
listed on Appendix C.
V. OTHER SERVICES
The Committee believes it may grant approval of non-audit services that are
permissible services for independent auditors to a Fund. The Committee has
determined to grant general pre-approval to other services that it believes
are routine and recurring, do not impair auditor independence, and are
consistent with SEC rules on auditor independence.
The Committee has pre-approved the non-audit services listed on Appendix D.
The Committee must specifically approve all non-audit services not listed
on Appendix D.
A list of the SEC's prohibited non-audit services is attached to this
Policy as Appendix E. The SEC's rules and relevant guidance should be
consulted to determine the precise definitions of these impermissible
services and the applicability of exceptions to certain of the SEC's
prohibitions.
VI. PRE-APPROVAL OF FEE LEVELS AND BUDGETED AMOUNTS
The Committee will annually establish pre-approval fee levels or budgeted
amounts for audit, audit-related, tax and non-audit services to be provided
to the Funds by the independent auditors. Any proposed services exceeding
these levels or amounts require the Committee's specific pre-approval. The
Committee considers fees for audit and non-audit services when deciding
whether to pre-approve services. The Committee may determine, for a
pre-approval period of 12 months, the appropriate ratio between the total
amount of fees for the Fund's audit, audit-related, and tax services
(including fees for services provided to Fund affiliates that are subject
to pre-approval), and the total amount of fees for certain permissible
non-audit services for the Fund classified as other services (including any
such services provided to Fund affiliates that are subject to
pre-approval).
VII. PROCEDURES
Requests or applications for services to be provided by the independent
auditors will be submitted to management. If management determines that the
services do not fall within those services generally pre-approved by the
Committee and set out in the appendices to these procedures, management
will submit the services to the Committee or its delagee.
Any such submission will include a detailed description of the services to
be rendered. Notwithstanding this paragraph, the Committee will, on an
annual basis, receive from the independent auditors a list of services
provided by the auditors during the prior 12-month period.
VIII. DELEGATION
The Committee may delegate pre-approval authority to one or more of the
Committee's members. Any member or members to whom such pre-approval
authority is delegated must report any pre-approval decisions, including
any pre-approved services, to the Committee at its next scheduled meeting.
The Committee will identify any member to whom pre-approval authority is
delegated in writing. The member will retain such authority for a period of
12 months from the date of pre-approval unless the Committee determines
that a different period is appropriate. The period of delegated authority
may be terminated by the Committee or at the option of the member.
IX. ADDITIONAL REQUIREMENTS
The Committee will take any measures the Committee deems necessary or
appropriate to oversee the work of the independent auditors and to assure
the auditors' independence from the Funds. This may include reviewing a
formal written statement from the independent auditors delineating all
relationships between the auditors and the Funds, consistent with
Independence Standards Board No. 1, and discussing with the auditors their
methods and procedures for ensuring independence.
Appendix A
Pre-Approved Audit Services for the Pre-Approval Period June 1, 2003
through May 31, 2004
Service
THE FUND(S) FEE RANGE
---------------------------------------------------------------------------------------------------
Statutory audits or financial audits (including tax services /X/ As presented to
associated with non-audit services) Audit Committee
Services associated with SEC registration statements, periodic /X/ Not to exceed
reports and other documents filed with the SEC or other $8,500 per filing
documents issued in connection with securities offerings
(E.G., consents), and assistance in responding to SEC comment
letters.
Consultations by Fund management with respect to accounting or /X/ Not to exceed
disclosure treatment of transactions or events and/or the $8,000 during
actual or potential effect of final or proposed rules, the Pre-Approval
standards or interpretations by the SEC, Financial Accounting Period
Standards Board, or other regulatory or standard setting
bodies.
Appendix B
Pre-Approved Audit-Related Services for the Pre-Approval Period June 1,
2003 through May 31, 2004
Service
THE FUND(S) FUND AFFILIATES FEE RANGE
---------------------------------------------------------------------------------------------------
Services related to Fund mergers /X/ /X/ Not to exceed
$10,000 per merger
Consultations by Fund management with /X/ Not to exceed
respect to accounting or disclosure $5,000 per
treatment of transactions or events and/or occurrence during
the actual or potential effect of final or the Pre-Approval
proposed rules, standards or interpretations Period
by the SEC, Financial Accounting Standards
Board, or other regulatory or standard
setting bodies. [NOTE: Under SEC rules
some consultations may be "audit" services
and others may be "audit-related" services.]
Review of the Funds' semi-annual financial /X/ Not to exceed
statements $5,000 for each set
of financial
statements
Reports to regulatory or government agencies /X/ Up to $5,000 per
related to the annual engagement occurrence during
the Pre-Approval
Period
Regulatory compliance assistance /X/ /X/ Not to exceed
$5,000 per quarter
Training courses /X/ Not to exceed
$2,000 per course
For Prime Rate Trust, agreed upon procedures /X/ Not to exceed
for quarterly reports to rating agencies $9,000 per quarter
Appendix C
Pre-Approved Tax Services for the Pre-Approval Period June 1, 2003 through
May 31, 2004
Service
FUND
THE FUND(S) AFFILIATES FEE RANGE
---------------------------------------------------------------------------------------------------
Preparation of federal and state income tax /X/ Not to exceed
returns and federal excise tax returns for $6,000 per Fund
the Funds including assistance and review during the
with excise tax distributions. Pre-Approval
Period
Review of IRC Sections 851(b) and 817(h) /X/ Not to exceed
diversification testing on a real-time basis $2,000 per Fund
during the
Pre-Approval
Period
Review of year-end reporting for 1099's /X/ Not to exceed
$800 per Fund
during the
Pre-Approval
Period
Tax assistance and advice regarding statutory, /X/ /X/ Not to exceed
regulatory or administrative developments $5,000 for the
Funds or for the
Funds' investment
adviser during
the Pre-Approval
Period
International tax services (e.g., Taiwan and /X/ Not to exceed
India) $5,000 per Fund
during the
Pre-Approval
Period
Tax training courses /X/ Not to exceed
$2,000 per course
during the
Pre-Approval
Period
Service
FUND
THE FUND(S) AFFILIATES FEE RANGE
---------------------------------------------------------------------------------------------------
Tax services associated with Fund mergers /X/ Not to exceed
$8,000 per merger
during the
Pre-Approval
Period
Tax services related to the preparation of /X/ Not to exceed
annual PFIC statements and annual Form 5471 $18,000 during
(Controlled Foreign Corporation) for the Pre-Approval
structured finance vehicles Period
Tax services related to CLOs and CBOs /X/ Not to exceed
$15,000 per
quarter
Appendix D
Pre-Approved Other Services for the Pre-Approval Period June 1, 2003
through May 31, 2004
Service
THE FUND(S) FUND AFFILIATES FEE RANGE
---------------------------------------------------------------------------------------------------
Agreed-upon procedures for Class B share /X/ Not to exceed
12b-1 programs $25,000 during
the
Pre-Approval
Period
AIMR assistance, and/or verification of /X/ Not to exceed
composites $25,000 during
the
Pre-Approval
Period
Security counts performed pursuant to Rule /X/ Not to exceed
17f-2 of the 1940 Act (I.E., counts for $5,000 per Fund
Funds holding securities with affiliated during the
sub-custodians) Pre-Approval
Period
Appendix E
Prohibited Non-Audit Services
Dated: 200X
- Bookkeeping or other services related to the accounting records or
financial statements of the Funds
- Financial information systems design and implementation
- Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
- Actuarial services
- Internal audit outsourcing services
- Management functions
- Human resources
- Broker-dealer, investment adviser, or investment banking services
- Legal services
- Expert services unrelated to the audit
- Any other service that the Public Company Accounting Oversight Board
determines, by regulation, is impermissible
(e) (2) PERCENTAGE OF SERVICES REFERRED TO IN 4(b) - (4)(d) THAT WERE APPROVED
BY THE AUDIT COMMITTEE
100% of the services were approved by the audit committee.
(f) PERCENTAGE OF HOURS EXPENDED ATTRIBUTABLE TO WORK PERFORMED BY OTHER
THAN FULL TIME EMPLOYEES OF KPMG IF GREATER THAN 50%.
Not applicable.
(g) NON-AUDIT FEES: The non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser, and any entity controlling,
controlled by, or under common control with the adviser that provides
ongoing services to the registrant for each of the last two fiscal
years of the registrant were $340,873 for year ended February 29, 2004
and $370,768 for fiscal year ended February 28, 2003.
(h) PRINCIPAL ACCOUNTANTS INDEPENDENCE: The Registrant's Audit committee
has considered whether the provision of non-audit services that were
rendered to the registrant's
investment adviser and any entity controlling, controlled by, or under
common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to Rule
2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining KPMG's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
a. The registrant has a separately-designated standing audit committee.
The members are J. Michael Earley, David W.C. Putnam, Blaine E. Rieke,
Roger B. Vincent, Richard A. Wedemeyer.
b. Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
ING FUNDS
PROXY VOTING PROCEDURES AND GUIDELINES
Effective as of July 10, 2003
As amended August 21, 2003 and November 11, 2003
I. INTRODUCTION
The following are the Proxy Voting Procedures and Guidelines (the "Procedures
and Guidelines") of the ING Funds set forth on Exhibit 1 attached hereto and
each portfolio or series thereof (each a "Fund" and collectively, the "Funds").
The purpose of these Procedures and Guidelines is to set forth the process by
which each Fund will vote proxies related to the assets in its investment
portfolio (the "portfolio securities"). The Procedures and Guidelines have been
approved by each of the Funds' Board of Trustees/Directors(1) (each a "Board"
and collectively, the "Boards"), including a majority of the independent
Trustees/Directors(2) of the Board. These Procedures and Guidelines may be
amended only by the Board. The Board shall review these Procedures and
Guidelines at its discretion, and make any revisions thereto as deemed
appropriate by the Board.
II. VALUATION AND PROXY VOTING COMMITTEE
The Boards hereby delegate to the Valuation and Proxy Voting Committee of each
Board (each a "Committee" and collectively, the "Committees") the authority and
responsibility to oversee the implementation of these Procedures and Guidelines,
and where applicable, to make determinations
----------
(1) Reference in these Procedures to one or more Funds shall, as applicable,
mean those Funds that are under the jurisdiction of the particular Board or
Valuation and Proxy Voting Committee at issue. No provision in these Procedures
is intended to impose any duty upon the particular Board or Valuation and Proxy
Voting Committee with respect to any other Fund.
(2) The independent Trustees/Directors are those Board members who are not
"interested persons" within the meaning of Section 2(a)(19) the Investment
Company Act of 1940.
on behalf of the Board with respect to the voting of proxies on behalf of each
Fund. Furthermore, the Boards hereby delegate to each Committee the authority to
review and approve material changes to proxy voting procedures of any Fund's
investment adviser (the "Adviser"). The Proxy Voting Procedures of the Adviser
are attached hereto as Exhibit 2. Any determination regarding the voting of
proxies of each Fund that is made by a Committee, or any member thereof, as
permitted herein, shall be deemed to be a good faith determination regarding the
voting of proxies by the full Board. Each Committee may rely on the Adviser
through the Agent, Proxy Coordinator and/or Proxy Group (as such terms are
defined below and in the Adviser's proxy voting procedures) to deal in the first
instance with the application of these Procedures and Guidelines. Each Committee
shall conduct itself in accordance with its charter.
III. DELEGATION OF VOTING RESPONSIBILITY
The Board hereby delegates to the Adviser to each Fund the authority and
responsibility to vote all proxies with respect to all portfolio securities of
each Fund in accordance with then current proxy voting procedures and guidelines
that have been approved by the Board. The Board may revoke such delegation with
respect to any proxy or proposal, and assume the responsibility of voting any
Fund proxy or proxies as it deems appropriate. Non-material amendments to the
Procedures and Guidelines may be approved for immediate implementation by the
President or Chief Financial Officer of a Fund, subject to ratification at the
next regularly scheduled meeting of the Valuation and Proxy Voting Committee.
When a Fund participates in the lending of its securities and the securities are
on loan at record date, proxies related to such securities will not be forwarded
to the Adviser by the Fund's custodian and therefore will not be voted.
When a Fund is a feeder in a master/feeder structure, proxies for the portfolio
securities of the master fund will be voted pursuant to the master fund's proxy
voting policies and procedures.
IV. APPROVAL AND REVIEW OF PROCEDURES
Each Fund's Adviser has adopted proxy voting procedures in connection with the
voting of portfolio securities for the Funds as attached hereto in Exhibit 2.
The Board hereby approves such procedures. All material changes to such
procedures must be approved by the Board or the Valuation and Proxy Voting
Committee prior to implementation; however, the President or Chief Financial
Officer of a Fund may make such non-material changes as they deem appropriate,
subject to ratification by the Board or the Valuation and Proxy Voting Committee
at its next regularly scheduled meeting.
V. VOTING PROCEDURES AND GUIDELINES
The Guidelines which are set forth in Exhibit 3 hereto specify the manner in
which the Funds generally will vote with respect to the proposals discussed
therein.
ROUTINE MATTERS
The Agent shall be instructed to submit a vote in accordance with the
Guidelines where such Guidelines provide a clear "For", "Against" or
"Abstain" on a proposal. However, the Agent shall be directed to refer
proxy proposals to the Proxy Coordinator for instructions as
if it were a matter requiring case-by-case consideration under
circumstances where the application of the Guidelines is unclear, they
appear to involve unusual or controversial issues, or an Investment
Professional recommends a vote contrary to the Guidelines.
B. Matters Requiring Case-by-Case Consideration
The Agent shall be directed to refer proxy proposals accompanied by
its written analysis and voting recommendation to the Proxy
Coordinator where the Guidelines have noted a "case-by-case"
consideration.
Upon receipt of a referral from the Agent, the Proxy Coordinator may
solicit additional research from the Agent, Investment
Professional(s), as well as from any other source or service.
The Proxy Coordinator will forward the Agent's analysis and
recommendation and/or any research obtained from the Investment
Professional(s), the Agent or any other source to the Proxy Group. The
Proxy Group may consult with the Agent and/or Investment
Professional(s), as it deems necessary.
1. Votes in Accordance with Agent Recommendation
In the event the Proxy Group recommends a vote in accordance with
the Agent's recommendation, the Proxy Group will instruct the
Agent, through the Proxy Coordinator, to vote in accordance with
the Agent's recommendation.
2. Non-Votes
The Proxy Group may recommend that a Fund refrain from voting
under the following circumstances: (1) if the economic effect on
shareholders' interests or the value of the portfolio holding is
indeterminable or insignificant or (2) if the cost of voting a
proxy outweighs the benefits, E.G., certain international
proxies. In such instances, the Proxy Group may instruct the
Agent, through the Proxy Coordinator, not to vote such proxy.
3. Votes Contrary to Procedures and Guidelines, or Agent
Recommendation, where applicable, or Where No Recommendation
is Provided by Agent.
If the Proxy Group recommends that a Fund vote contrary to the
Procedures and Guidelines, or the recommendation of the Agent,
where applicable, or if the Agent has made no recommendation and
the Procedures and Guidelines are silent, the Proxy Coordinator
will then request that each member of the Proxy Group and each
Investment Professional participating in the voting process
provide a Conflicts Report (as such term is defined for purposes
of the Adviser's proxy voting procedures).
If Counsel determines that a conflict of interest appears to
exist with respect to any member of the Proxy Group or the
relevant Investment Professional(s), the Proxy Coordinator will
then call a meeting of the Valuation and Proxy Voting Committee
and forward to such committee all information relevant to their
review, including the
following materials or a summary thereof: the applicable
Procedures and Guidelines, the recommendation of the Agent where
applicable, the recommendation of the Investment Professional(s),
where applicable, any resources used by the Proxy Group in
arriving at its recommendation, the Conflicts Report and any
other written materials establishing whether a conflict of
interest exists, and findings of Counsel (as such term is defined
for purposes of the Adviser's proxy voting procedures).
If Counsel determines that there does not appear to be a conflict
of interest with respect to any member of the Proxy Group or the
relevant Investment Professional(s), the Proxy Coordinator will
instruct the Agent to vote the proxy as recommended by the Proxy
Group.
4. Referrals to a Fund's Valuation and Proxy Voting Committee
A Fund's Valuation and Proxy Voting Committee may consider all
recommendations, analysis, research and Conflicts Reports
provided to it by the Agent, Proxy Group and/or Investment
Professional(s), and any other written materials used to
establish whether a conflict of interest exists, in determining
how to vote the proxies referred to the Committee. The Committee
will instruct the Agent through the Proxy Coordinator how to vote
such referred proposals.
The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to a Fund's Valuation and Proxy
Voting Committee, all applicable recommendations, analysis,
research and Conflicts Reports.
VI. CONFLICTS OF INTEREST
In all cases in which a vote has not been clearly determined in advance by the
Procedures and Guidelines or for which the Proxy Group recommends a vote
contrary to the Procedures and Guidelines, or contrary to the recommendation of
the Agent, or where the Procedures and Guidelines are silent and the Agent has
made no recommendation, and Counsel has determined that a conflict of interest
appears to exist with respect to any member of the Proxy Group or any Investment
Professional participating in the voting process, the proposal shall be referred
to the Fund's Valuation and Proxy Voting Committee for determination so that the
Adviser shall have no opportunity to vote a Fund's proxy in a situation in which
it may be deemed to have a conflict of interest.
VII. REPORTING AND RECORD RETENTION
Beginning in August 2004, on an annual basis, each Fund will post its proxy
voting record or a link thereto for the prior one-year period ending on June
30th on the ING Funds website. The proxy voting record posted for any Fund that
is a feeder in a master/feeder structure will be that of the master fund. The
proxy voting record for each Fund will also be available in the EDGAR database
on the SEC's website.
EXHIBIT 1
TO THE
ING FUNDS
PROXY VOTING PROCEDURES
ING EQUITY TRUST
ING FUNDS TRUST
ING INVESTMENT FUNDS, INC.
ING INVESTORS TRUST
ING MAYFLOWER TRUST
ING MUTUAL FUNDS
ING PRIME RATE TRUST
ING SENIOR INCOME FUND
ING VARIABLE INSURANCE TRUST
ING VARIABLE PRODUCTS TRUST
ING VP EMERGING MARKETS FUND, INC.
ING VP NATURAL RESOURCES TRUST
USLICO SERIES FUND
Effective as of July 10, 2003
EXHIBIT 2
TO THE
ING FUNDS
PROXY VOTING PROCEDURES
ING INVESTMENTS, LLC,
DIRECTED SERVICES, INC.
AND
ING LIFE INSURANCE AND ANNUITY COMPANY
PROXY VOTING PROCEDURES
Effective as of July 10, 2003, as amended
I. INTRODUCTION
ING Investments, LLC, Directed Services, Inc. and ING Life Insurance and Annuity
Company (each an "Adviser" and collectively, the "Advisers") are the
investment advisers for the registered investment companies and each
series or portfolio thereof (each a "Fund" and collectively, the
"Funds") comprising the ING family of funds. As such, the Advisers
have been delegated the authority to vote proxies with respect to
securities for the Funds over which they have day-to-day portfolio
management responsibility.
The Advisers will abide by the proxy voting guidelines adopted by a Fund's
respective Board of Directors or Trustees (each a "Board" and
collectively, the "Boards") with regard to the voting of proxies
unless otherwise provided in the proxy voting procedures adopted by a
Fund's Board.
In voting proxies, the Advisers are guided by general fiduciary principles. Each
must act prudently, solely in the interest of the beneficial owners of the Funds
it manages. The Advisers will not subordinate the interest of beneficial owners
to unrelated objectives. Each Adviser will vote proxies in the manner that it
believes will do the most to maximize shareholder value.
The following are the Proxy Voting Procedures of ING Investments, LLC, Directed
Services, Inc. and ING Life Insurance and Annuity Company with respect to the
voting of proxies on behalf of their client Funds as approved by the respective
Board of each Fund.
Unless otherwise noted, proxies will be voted in all instances.
II. ROLES AND RESPONSIBILITIES
A. Proxy Coordinator
The Proxy Coordinator identified in Appendix 1 will assist in the
coordination of the voting of each Fund's proxies in accordance with
the ING Funds Proxy Voting Procedures and Guidelines ("Procedures and
Guidelines"). The Proxy Coordinator is authorized to direct
the Agent to vote a Fund's proxy in accordance with the Procedures and
Guidelines unless the Proxy Coordinator receives a recommendation from
an Investment Professional (as described below) to vote contrary to
the Procedures and Guidelines. In such event, the Proxy Coordinator
will call a meeting of the Proxy Group.
B. Agent
An independent proxy voting service (the "Agent"), as approved by the
Board of each Fund, shall be engaged to assist in the voting of Fund
proxies through the provision of vote analysis, implementation,
recordkeeping and disclosure services. The Agent is responsible for
coordinating with the Funds' custodians to ensure that all proxy
materials received by the custodians relating to the portfolio
securities are processed in a timely fashion. To the extent
applicable, the Agent is required to vote and/or refer all proxies in
accordance with these Procedures. The Agent will retain a record of
all proxy votes handled by the Agent. Such record must reflect all the
information required to be disclosed in a Fund's Form N-PX pursuant to
Rule 30b1-4 under the Investment Company Act. In addition, the Agent
is responsible for maintaining copies of all proxy statements received
by issuers and to promptly provide such materials to the Adviser upon
request.
The Agent shall be instructed to vote all proxies in accordance with
the ING Funds' Guidelines, except as otherwise instructed through the
Proxy Coordinator by the Adviser's Proxy Group, or a Fund's Valuation
and Proxy Voting Committee.
The Agent shall be instructed to obtain all proxies from the Funds'
custodians and to review each proxy proposal against the Guidelines.
The Agent also shall be requested to call the Proxy Coordinator's
attention to specific proxy proposals that although governed by the
Guidelines appear to involve unusual or controversial issues.
C. Proxy Group
The Adviser shall establish a Proxy Group (the "Proxy Group") which
shall assist in the review of the Agent's recommendations when a proxy
voting issue is referred to the Group through the Proxy Coordinator.
The members of the Proxy Group, which may include employees of the
Advisers' affiliates, are identified in Appendix 1, as may be amended
from time at the Advisers' discretion.
A minimum of four (4) members of the Proxy Group (or three (3) if one
member of the quorum is either the Fund's Chief Investment Risk
Officer or Chief Financial Officer) shall constitute a quorum for
purposes of taking action at any meeting of the Group. The vote of a
simple majority of the members present and voting shall determine any
matter submitted to a vote. The Proxy Group may meet in person or by
telephone. The Proxy Group also may take action via electronic mail in
lieu of a meeting, provided that each Group member has received a copy
of any relevant electronic mail transmissions circulated by each other
participating Group member prior to voting and provided that the Proxy
Coordinator follows the directions of a majority of a quorum (as
defined above) responding via electronic mail. For all votes taken in
person or by telephone or teleconference, the vote shall be taken
outside the presence of any person other than the members of the Proxy
Group.
A meeting of the Proxy Group will be held whenever the Proxy
Coordinator receives a recommendation from an Investment Professional
to vote a Fund's proxy contrary to the Procedures and Guidelines, or
the recommendation of the Agent, where applicable, or if the Agent has
made no recommendation with respect to a vote on a proposal.
For each proposal referred to the Proxy Group, it will review (1) the
Procedures and Guidelines, (2) the recommendation of the Agent, if
any, (3) the recommendation of the Investment Professional(s) and (4)
any other resources that the Proxy Group deems appropriate to aid in a
determination of a recommendation.
If the Proxy Group recommends that a Fund vote in accordance with the
Procedures and Guidelines, or the recommendation of the Agent, where
applicable, it shall instruct the Proxy Coordinator to so advise the
Agent.
If the Proxy Group recommends that a Fund vote contrary to the
Procedures and Guidelines, or the recommendation of the Agent, where
applicable, it shall follow the procedures for such voting as
established by a Fund's Board.
D. Investment Professionals
The Funds' Advisers, sub-advisers and/or portfolio managers (referred
to herein as "Investment Professionals") may be asked to submit a
recommendation to the Proxy Group regarding the voting of proxies
related to the portfolio securities over which they have day-to-day
portfolio management responsibility. The Investment Professionals may
accompany their recommendation with any other research materials that
they deem appropriate.
III. VOTING PROCEDURES
A. In all cases, the Adviser shall follow the voting procedures as
set forth in the Procedures and Guidelines of the Fund on whose
behalf the Adviser is exercising delegated authority to vote.
ROUTINE MATTERS
The Agent shall be instructed to submit a vote in accordance with the
Guidelines where such Guidelines provide a clear "For", "Against" or
"Abstain" on a proposal. However, the Agent shall be directed to refer
proxy proposals to the Proxy Coordinator for instructions as if it
were a matter requiring case-by-case consideration under circumstances
where the application of the Guidelines is unclear.
C. Matters Requiring Case-by-Case Consideration
The Agent shall be directed to refer proxy proposals accompanied by
its written analysis and voting recommendation to the Proxy
Coordinator where the Guidelines have noted a "case-by-case"
consideration.
Upon receipt of a referral from the Agent, the Proxy Coordinator may
solicit additional research from the Agent, Investment
Professional(s), as well as from any other source or service.
The Proxy Coordinator will forward the Agent's analysis and
recommendation and/or any research obtained from the Investment
Professional(s), the Agent or any other source to the Proxy Group. The
Proxy Group may consult with the Agent and/or Investment
Professional(s), as it deems necessary.
1. Votes in Accordance with Agent Recommendation
In the event the Proxy Group recommends a vote in accordance with
the Agent's recommendation, the Proxy Group will instruct the
Agent, through the Proxy Coordinator, to vote in accordance with
the Agent's recommendation.
2. Non-Votes
The Proxy Group may recommend that a Fund refrain from voting
under the following circumstances: (1) if the economic effect on
shareholders' interests or the value of the portfolio holding is
indeterminable or insignificant or (2) if the cost of voting a
proxy outweighs the benefits, E.G., certain international
proxies. In such instances, the Proxy Group may instruct the
Agent, through the Proxy Coordinator, not to vote such proxy.
3. Votes Contrary to Procedures and Guidelines, or Agent
Recommendation, where applicable, or Where No Recommendation
is Provided by Agent.
If the Proxy Group recommends that a Fund vote contrary to the
Procedures and Guidelines, or the recommendation of the Agent,
where applicable, or if the Agent has made no recommendation and
the Procedures and Guidelines are silent, the Proxy Coordinator
will then implement the procedures for handling such votes as
adopted by the Fund's Board.
4. The Proxy Coordinator will maintain a record of all proxy
questions that have been referred to a Fund's Valuation and
Proxy Voting Committee, all applicable recommendations,
analysis, research and Conflicts Reports.
IV. CONFLICTS OF INTEREST
In connection with their participation in the voting process for portfolio
securities, each member of the Proxy Group and each Investment Professional
participating in the voting process must act solely in the best interests of the
beneficial owners of the applicable Fund. The members of the Proxy Group may not
subordinate the interests of the Fund's beneficial owners to unrelated
objectives.
For all matters for which the Proxy Group recommends a vote contrary to
Procedures and Guidelines, or the recommendation of the Agent, where applicable,
or where the Agent has made no recommendation and the Procedures and Guidelines
are silent, the Proxy Coordinator will implement the procedures for handling
such votes as adopted by the Fund's Board, including completion of such
Conflicts Reports as may be required under the Fund's procedures. Completed
Conflicts Reports shall be provided to the Proxy Coordinator within two (2)
business days. Such Conflicts Report should describe any known conflicts of
either a business or personal nature, and
set forth any contacts with respect to the referral item with non-investment
personnel in its organization or with outside parties (except for routine
communications from proxy solicitors). The Conflicts Report should also include
written confirmation that any recommendation from an Investment Professional
provided under circumstances where a conflict of interest exists was made solely
on the investment merits and without regard to any other consideration.
The Proxy Coordinator shall forward all Conflicts Reports to a member of the
mutual funds practice group of ING US Legal Services ("Counsel") for review.
Counsel shall review each report and provide the Proxy Coordinator with a brief
statement regarding whether or not a material conflict of interest is present.
Matters as to which a conflict of interest is deemed to be present shall be
handled as provided in the Fund's Procedures and Guidelines.
V. REPORTING AND RECORD RETENTION
The Adviser shall maintain the records required by Rule 204-2(c)(2), as may be
amended from time to time, including the following: (1) A copy of each proxy
statement received regarding a Fund's portfolio securities. Such proxy
statements received from issuers are available either in the SEC's EDGAR
database or are kept by the Agent and are available upon request. (2) A record
of each vote cast on behalf of a Fund. (3) A copy of any document created by the
Adviser that was material to making a decision how to vote a proxy, or that
memorializes the basis for that decision. (4) A copy of written requests for
Fund proxy voting information and any written response thereto or to any oral
request for information on how the Adviser voted proxies on behalf of a Fund.
All proxy voting materials and supporting documentation will be retained for a
minimum of six (6) years.
APPENDIX 1
TO THE
ADVISERS' PROXY VOTING PROCEDURES
PROXY GROUP FOR REGISTERED INVESTMENT COMPANY CLIENTS OF ING INVESTMENTS, LLC,
DIRECTED SERVICES, INC. AND ING LIFE INSURANCE AND ANNUITY COMPANY:
NAME TITLE OR AFFILIATION
Stanley D. Vyner Chief Investment Risk Officer and Executive Vice
President of ING Investments, LLC
Karla J. Bos Acting Proxy Coordinator
Maria Anderson Assistant Vice President - Manager Fund Compliance
of ING Funds Services, LLC
Michael J. Roland Executive Vice President and Chief Financial Officer
of ING Investments, LLC
Todd Modic Vice President of Financial Reporting - Fund
Accounting of ING Funds Services, LLC
Theresa K. Kelety, Esq. Counsel, ING Americas US Legal Services
Effective as of April 21, 2004
EXHIBIT 3
TO THE
ING FUNDS PROXY VOTING PROCEDURES
PROXY VOTING GUIDELINES OF THE ING FUNDS
Effective as of July 10, 2003
As amended August 21, 2003 and November 11, 2003
I. INTRODUCTION
The following is a statement of the proxy voting Guidelines that have been
adopted by the respective Boards of Directors or Trustees of each Fund.
Proxies must be voted in the best interest of the Fund. The Guidelines summarize
the Funds' positions on various issues of concern to investors, and give a
general indication of how Fund portfolio securities will be voted on proposals
dealing with particular issues. The Guidelines are not exhaustive and do not
include all potential voting issues.
The Advisers, in exercising their delegated authority, will abide by the
Guidelines as outlined below with regard to the voting of proxies except as
otherwise provided in the Procedures. In voting proxies, the Advisers are guided
by general fiduciary principles. Each must act prudently, solely in the interest
of the beneficial owners of the Funds it manages. The Advisers will not
subordinate the interest of beneficial owners to unrelated objectives. Each
Adviser will vote proxies in the manner that it believes will do the most to
maximize shareholder value.
II. GUIDELINES
The following Guidelines are grouped according to the types of proposals
generally presented to shareholders of U.S. issuers: Board of
Directors, Proxy Contests, Auditors, Proxy Contest Defenses, Tender
Offer Defenses, Miscellaneous Governance Provisions, Capital
Structure, Executive and Director Compensation, State of
Incorporation, Mergers and Corporate Restructurings, Mutual Fund
Proxies and Social and Environmental Issues. An additional section
addresses proposals most frequently found in Global Proxies.
In all cases where "case-by-case" consideration is noted, it shall be the policy
of the Funds to vote in accordance with the recommendation provided by
the Funds' Agent, Institutional Shareholder Services, Inc. Such policy
may be overridden in any case pursuant to the procedures outlined
herein.
1. THE BOARD OF DIRECTORS
VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS
Votes on director nominees should be made on a CASE-BY-CASE basis.
SEPARATING CHAIRMAN AND CEO
Vote on a CASE-BY-CASE basis shareholder proposals requiring that the positions
of chairman and CEO be held separately.
PROPOSALS SEEKING A MAJORITY OF INDEPENDENT DIRECTORS
Evaluate on a CASE-BY-CASE basis shareholder proposals asking that a majority of
directors be independent. Vote FOR shareholder proposals asking that board
audit, compensation, and/or nominating committees be composed exclusively of
independent directors.
STOCK OWNERSHIP REQUIREMENTS
Generally, vote AGAINST shareholder proposals requiring directors to own a
minimum amount of company stock in order to qualify as a director or to remain
on the board.
TERM OF OFFICE
Generally, vote AGAINST shareholder proposals to limit the tenure of outside
directors.
AGE LIMITS
Generally, vote AGAINST shareholder proposals to impose a mandatory retirement
age for outside directors.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION
Proposals on director and officer indemnification and liability protection
should be evaluated on a CASE-BY-CASE basis, using Delaware law as the standard.
Vote AGAINST proposals to limit or eliminate entirely directors' and officers'
liability for monetary damages for violating the duty of care. Vote AGAINST
indemnification proposals that would expand coverage beyond just legal expenses
to acts, such as negligence, that are more serious violations of fiduciary
obligation than mere carelessness. Vote FOR only those proposals providing such
expanded coverage in cases when a director's or officer's legal defense was
unsuccessful if:
(1) The director was found to have acted in good faith and in a manner
that he reasonably believed was in the best interests of the company,
and
(2) Only if the director's legal expenses would be covered.
2. PROXY CONTESTS
VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS
Votes in a contested election of directors must be evaluated on a CASE-BY-CASE
basis.
REIMBURSE PROXY SOLICITATION EXPENSES
Voting to reimburse proxy solicitation expenses should be analyzed on a
CASE-BY-CASE basis.
3. AUDITORS
RATIFYING AUDITORS
Generally, vote FOR proposals to ratify auditors.
NON-AUDIT SERVICES
Consider on a CASE-BY-CASE basis proposals to approve auditors when total
non-audit fees exceed the total of audit fees, audit-related fees and
permissible tax fees.
AUDITOR INDEPENDENCE
Generally, vote AGAINST shareholder proposals asking companies to prohibit their
auditors from engaging in non-audit services (or capping the level of non-audit
services).
AUDIT FIRM ROTATION (SHAREHOLDER PROPOSALS):
Generally, vote AGAINST shareholder proposals asking for mandatory audit firm
rotation.
4. PROXY CONTEST DEFENSES
BOARD STRUCTURE: STAGGERED VS. ANNUAL ELECTIONS
Generally, vote AGAINST proposals to classify the board.
Generally, vote FOR proposals to repeal classified boards and to elect all
directors annually.
SHAREHOLDER ABILITY TO REMOVE DIRECTORS
Generally, vote AGAINST proposals that provide that directors may be removed
only for cause.
Generally, vote FOR proposals to restore shareholder ability to remove directors
with or without cause.
Generally, vote AGAINST proposals that provide that only continuing directors
may elect replacements to fill board vacancies.
Generally, vote FOR proposals that permit shareholders to elect directors to
fill board vacancies.
CUMULATIVE VOTING
Generally, vote AGAINST proposals to eliminate cumulative voting.
Vote proposals to restore or permit cumulative voting on a CASE-BY-CASE basis
relative to the company's other governance provisions.
SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS
Generally, vote AGAINST proposals to restrict or prohibit shareholder ability to
call special meetings.
Generally, vote FOR proposals that remove restrictions on the right of
shareholders to act independently of management.
SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT
Generally, vote AGAINST proposals to restrict or prohibit shareholder ability to
take action by written consent.
Generally, vote FOR proposals to allow or make easier shareholder action by
written consent.
SHAREHOLDER ABILITY TO ALTER THE SIZE OF THE BOARD
Review on a CASE-BY-CASE basis proposals that seek to fix the size of the board.
Review on a CASE-BY-CASE basis proposals that give management the ability to
alter the size of the board without shareholder approval.
5. TENDER OFFER DEFENSES
POISON PILLS
Generally, vote FOR shareholder proposals that ask a company to submit its
poison pill for shareholder ratification.
Review on a CASE-BY-CASE basis shareholder proposals to redeem a company's
poison pill.
Review on a CASE-BY-CASE basis management proposals to ratify a poison pill.
FAIR PRICE PROVISIONS
Vote proposals to adopt fair price provisions on a CASE-BY-CASE basis.
Generally, vote AGAINST fair price provisions with shareholder vote requirements
greater than a majority of disinterested shares.
GREENMAIL
Generally, vote FOR proposals to adopt antigreenmail charter of bylaw amendments
or otherwise restrict a company's ability to make greenmail payments.
Review on a CASE-BY-CASE basis antigreenmail proposals when they are bundled
with other charter or bylaw amendments.
PALE GREENMAIL
Review on a CASE-BY-CASE basis restructuring plans that involve the payment of
pale greenmail.
UNEQUAL VOTING RIGHTS
Generally, vote AGAINST dual-class exchange offers.
Generally, vote AGAINST dual-class recapitalizations.
SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO AMEND THE CHARTER OR BYLAWS
Generally, vote AGAINST management proposals to require a supermajority
shareholder vote to approve charter and bylaw amendments. Generally, vote FOR
shareholder proposals to lower supermajority shareholder vote requirements for
charter and bylaw amendments.
SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO APPROVE MERGERS
Generally, vote AGAINST management proposals to require a supermajority
shareholder vote to approve mergers and other significant business combinations.
Generally, vote FOR shareholder proposals to lower supermajority shareholder
vote requirements for mergers and other significant business combinations.
WHITE SQUIRE PLACEMENTS
Generally, vote FOR shareholder proposals to require approval of blank check
preferred stock issues for other than general corporate purposes.
6. MISCELLANEOUS GOVERNANCE PROVISIONS
CONFIDENTIAL VOTING
Generally, vote FOR shareholder proposals that request companies to adopt
confidential voting, use independent tabulators, and use independent inspectors
of election as long as the proposals include clauses for proxy contests as
follows:
- In the case of a contested election, management should be permitted to
request that the dissident group honor its confidential voting policy.
- If the dissidents agree, the policy remains in place.
- If the dissidents do not agree, the confidential voting policy is
waived.
Generally, vote FOR management proposals to adopt confidential voting.
EQUAL ACCESS
Generally, vote FOR shareholder proposals that would allow significant company
shareholders (defined as those holding more than $5 million in securities of the
company in question) equal access to management's proxy material in order to
evaluate and propose voting recommendations
on proxy proposals and director nominees, and in order to nominate their own
candidates to the board.
BUNDLED PROPOSALS
Review on a CASE-BY-CASE basis bundled or "conditioned" proxy proposals.
SHAREHOLDER ADVISORY COMMITTEES
Review on a CASE-BY-CASE basis proposals to establish a shareholder advisory
committee.
7. CAPITAL STRUCTURE
COMMON STOCK AUTHORIZATION
Review proposals to increase the number of shares of common stock authorized for
issue on a CASE-BY-CASE basis.
Generally, vote AGAINST proposals to increase the number of authorized shares of
the class of stock that has superior voting rights in companies that have
dual-class capitalization structures.
STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
Generally, vote FOR management proposals to increase common share authorization
for a stock split, provided that the increase in authorized shares would not
result in an excessive number of shares available for issuance given a company's
industry and performance in terms of shareholder returns.
REVERSE STOCK SPLITS
Consider on a CASE-BY-CASE basis management proposals to implement a reverse
stock split.
PREFERRED STOCK
Generally, vote AGAINST proposals authorizing the creation of new classes of
preferred stock with unspecified voting, conversion, dividend distribution, and
other rights ("blank check" preferred stock).
Generally, vote FOR proposals to create blank check preferred stock in cases
when the company expressly states that the stock will not be used as a takeover
defense.
Generally, vote FOR proposals to authorize preferred stock in cases where the
company specifies the voting, dividend, conversion, and other rights of such
stock and the terms of the preferred stock appear reasonable.
Vote CASE-BY-CASE on proposals to increase the number of blank check preferred
shares after analyzing the number of preferred shares available for issue given
a company's industry and performance in terms of shareholder returns.
SHAREHOLDER PROPOSALS REGARDING BLANK CHECK PREFERRED STOCK
Generally, vote FOR shareholder proposals to have blank check preferred stock
placements, other than those shares issued for the purpose of raising capital or
making acquisitions in the normal course of business, submitted for shareholder
ratification.
ADJUSTMENTS TO PAR VALUE OF COMMON STOCK
Generally, vote FOR management proposals to reduce the par value of common
stock.
PREEMPTIVE RIGHTS
Review on a CASE-BY-CASE basis shareholder proposals that seek preemptive
rights. In evaluating proposals on preemptive rights, consider the size of a
company and the characteristics of its shareholder base.
DEBT RESTRUCTURINGS
Review on a CASE-BY-CASE basis proposals to increase common and/or preferred
shares and to issue shares as part of a debt restructuring plan.
SHARE REPURCHASE PROGRAMS
Generally, vote FOR management proposals to institute open-market share
repurchase plans in which all shareholders may participate on equal terms.
TRACKING STOCK
Votes on the creation of tracking stock are determined on a CASE-BY-CASE basis.
8. EXECUTIVE AND DIRECTOR COMPENSATION
Votes with respect to compensation plans should be determined on a CASE-BY-CASE
basis.
MANAGEMENT PROPOSALS SEEKING APPROVAL TO REPRICE OPTIONS
Generally, vote AGAINST management proposals seeking approval to reprice
options.
DIRECTOR COMPENSATION
Votes on stock-based plans for directors are made on a CASE-BY-CASE basis.
EMPLOYEE STOCK PURCHASE PLANS
Votes on employee stock purchase plans should be made on a CASE-BY-CASE basis.
OBRA-RELATED COMPENSATION PROPOSALS:
AMENDMENTS THAT PLACE A CAP ON ANNUAL GRANTS OR AMEND ADMINISTRATIVE
FEATURES Generally, vote FOR plans that simply amend shareholder-approved
plans to include administrative features or place a cap on the annual
grants any one participant may receive to comply with the provisions of
Section 162(m) of OBRA.
AMENDMENTS TO ADD PERFORMANCE-BASED GOALS
Generally, vote FOR amendments to add performance goals to existing
compensation plans to comply with the provisions of Section 162(m) of OBRA.
AMENDMENTS TO INCREASE SHARES AND RETAIN TAX DEDUCTIONS UNDER OBRA
Votes on amendments to existing plans to increase shares reserved and to
qualify the plan for favorable tax treatment under the provisions of
Section 162(m) should be evaluated on a CASE-BY-CASE basis.
APPROVAL OF CASH OR CASH-AND-STOCK BONUS PLANS
Generally, vote FOR cash or cash-and-stock bonus plans to exempt the
compensation from taxes under the provisions of Section 162(m) of OBRA.
SHAREHOLDER PROPOSALS TO LIMIT EXECUTIVE AND DIRECTOR PAY
Generally, vote FOR shareholder proposals that seek additional disclosure of
executive and director pay information.
Review on a CASE-BY-CASE basis all other shareholder proposals that seek to
limit executive and director pay.
GOLDEN AND TIN PARACHUTES
Generally, vote FOR shareholder proposals to have golden and tin parachutes
submitted for shareholder ratification.
Review on a CASE-BY-CASE basis all proposals to ratify or cancel golden or tin
parachutes.
EMPLOYEE STOCK OWNERSHIP PLANS (ESOPs)
Generally, vote FOR proposals that request shareholder approval in order to
implement an ESOP or to increase authorized shares for existing ESOPs, except in
cases when the number of shares allocated to the ESOP is "excessive" (i.e.,
generally greater than five percent of outstanding shares).
401(k) EMPLOYEE BENEFIT PLANS
Generally, vote FOR proposals to implement a 401(k) savings plan for employees.
EXPENSING OF STOCK OPTIONS
Consider shareholder proposals to expense stock options on a CASE-BY-CASE basis.
9. STATE OF INCORPORATION
VOTING ON STATE TAKEOVER STATUTES
Review on a CASE-BY-CASE basis proposals to opt in or out of state takeover
statutes (including control share acquisition statutes, control share cash-out
statutes, freezeout provisions, fair price provisions, stakeholder laws, poison
pill endorsements, severance pay and labor contract provisions, antigreenmail
provisions, and disgorgement provisions).
VOTING ON REINCORPORATION PROPOSALS
Proposals to change a company's state of incorporation should be examined on a
CASE-BY-CASE basis.
10. MERGERS AND CORPORATE RESTRUCTURINGS
MERGERS AND ACQUISITIONS
Votes on mergers and acquisitions should be considered on a CASE-BY-CASE basis.
CORPORATE RESTRUCTURING
Votes on corporate restructuring proposals, including minority squeezeouts,
leveraged buyouts, spinoffs, liquidations, and asset sales should be considered
on a CASE-BY-CASE basis.
SPINOFFS
Votes on spinoffs should be considered on a CASE-BY-CASE basis.
ASSET SALES
Votes on asset sales should be made on a CASE-BY-CASE basis.
LIQUIDATIONS
Votes on liquidations should be made on a CASE-BY-CASE basis.
ADJOURNMENT
Generally, vote FOR proposals to adjourn a meeting to provide additional time
for vote solicitation when the primary proposal is also voted FOR.
APPRAISAL RIGHTS
Generally, vote FOR proposals to restore, or provide shareholders with, rights
of appraisal.
CHANGING CORPORATE NAME
Generally, vote FOR changing the corporate name.
11. MUTUAL FUND PROXIES
ELECTION OF DIRECTORS
Vote the election of directors on a CASE-BY-CASE basis.
CONVERTING CLOSED-END FUND TO OPEN-END FUND
Vote conversion proposals on a CASE-BY-CASE basis.
PROXY CONTESTS
Vote proxy contests on a CASE-BY-CASE basis.
INVESTMENT ADVISORY AGREEMENTS
Vote the investment advisory agreements on a CASE-BY-CASE basis.
APPROVING NEW CLASSES OR SERIES OF SHARES
Generally, vote FOR the establishment of new classes or series of shares.
PREFERRED STOCK PROPOSALS
Vote the authorization for or increase in preferred shares on a CASE-BY-CASE
basis.
1940 ACT POLICIES
Vote these proposals on a CASE-BY-CASE basis.
CHANGING A FUNDAMENTAL RESTRICTION TO A NONFUNDAMENTAL RESTRICTION
Vote these proposals on a CASE-BY-CASE basis.
CHANGE FUNDAMENTAL INVESTMENT OBJECTIVE TO NONFUNDAMENTAL
Generally, vote AGAINST proposals to change a fund's fundamental investment
objective to nonfundamental.
NAME RULE PROPOSALS
Vote these proposals on a CASE-BY-CASE basis.
DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION
Vote these proposals on a CASE-BY-CASE basis.
CHANGES TO THE CHARTER DOCUMENT
Vote changes to the charter document on a CASE-BY-CASE basis.
CHANGING THE DOMICILE OF A FUND
Vote reincorporations on a CASE-BY-CASE basis.
CHANGE IN FUND'S SUBCLASSIFICATION
Vote these proposals on a CASE-BY-CASE basis.
AUTHORIZING THE BOARD TO HIRE AND TERMINATE SUBADVISORS WITHOUT SHAREHOLDER
APPROVAL
Generally, vote FOR these proposals.
DISTRIBUTION AGREEMENTS
Vote these proposals on a CASE-BY-CASE basis.
MASTER-FEEDER STRUCTURE
Generally, vote FOR the establishment of a master-feeder structure.
CHANGES TO THE CHARTER DOCUMENT
Vote changes to the charter document on a CASE-BY-CASE basis.
MERGERS
Vote merger proposals on a CASE-BY-CASE basis.
ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT
Generally, vote AGAINST shareholder proposals for the establishment of a
director ownership requirement.
REIMBURSE SHAREHOLDER FOR EXPENSES INCURRED
Voting to reimburse proxy solicitation expenses should be analyzed on a
CASE-BY-CASE basis.
TERMINATE THE INVESTMENT ADVISOR
Vote to terminate the investment advisor on a CASE-BY-CASE basis.
12. SOCIAL AND ENVIRONMENTAL ISSUES
These issues cover a wide range of topics, including consumer and public safety,
environment and energy, general corporate issues, labor standards and human
rights, military business, and workplace diversity.
In general, vote CASE-BY-CASE. While a wide variety of factors goes into each
analysis, the overall principal guiding all vote recommendations focuses on how
the proposal will enhance the economic value of the company.
13. GLOBAL PROXIES
While a number of the foregoing Guidelines may be applied to both U.S. and
global proxies, the following provide for the differing regulatory and legal
requirements, market practices and political and economic systems existing in
various global markets.
ROUTINE MANAGEMENT PROPOSALS
Generally, vote FOR the following and other similar routine management
proposals:
- the opening of the shareholder meeting
- that the meeting has been convened under local regulatory requirements
- the presence of quorum
- the agenda for the shareholder meeting
- the election of the chair of the meeting
- the appointment of shareholders to co-sign the minutes of the meeting
- regulatory filings (E.G., to effect approved share issuances)
- the designation of inspector or shareholder representative(s) of
minutes of meeting
- the designation of two shareholders to approve and sign minutes of
meeting
- the allowance of questions
- the publication of minutes
- the closing of the shareholder meeting
DISCHARGE OF MANAGEMENT/SUPERVISORY BOARD MEMBERS
Generally, vote FOR management proposals seeking the discharge of management and
supervisory board members, unless there is concern about the past actions of the
company's auditors or directors or legal action is being taken against the board
by other shareholders.
DIRECTOR REMUNERATION
CONSIDER DIRECTOR COMPENSATION PLANS ON A CASE-BY-CASE BASIS. GENERALLY, VOTE
FOR PROPOSALS TO APPROVE THE REMUNERATION OF DIRECTORS AS LONG AS THE AMOUNT IS
NOT EXCESSIVE AND THERE IS NO EVIDENCE OF ABUSE.
APPROVAL OF FINANCIAL STATEMENTS AND DIRECTOR AND AUDITOR REPORTS
Generally, vote FOR management proposals seeking approval of financial accounts
and reports, unless there is concern about the company's financial accounts and
reporting.
REMUNERATION OF AUDITORS
Generally, vote FOR proposals to authorize the board to determine the
remuneration of auditors, unless there is evidence of excessive compensation
relative to the size and nature of the company.
INDEMNIFICATION OF AUDITORS
Generally, vote AGAINST proposals to indemnify auditors.
ALLOCATION OF INCOME AND DIVIDENDS
Generally, vote FOR management proposals concerning allocation of income and the
distribution of dividends, unless the amount of the distribution is consistently
and unusually small or large.
STOCK (SCRIP) DIVIDEND ALTERNATIVES
Generally, vote FOR most stock (scrip) dividend proposals, but vote AGAINST
proposals that do not allow for a cash option unless management demonstrates
that the cash option is harmful to shareholder value.
DEBT ISSUANCE REQUESTS
When evaluating a debt issuance request, the issuing company's present financial
situation is examined. The main factor for analysis is the company's current
debt-to-equity ratio, or gearing level. A high gearing level may incline markets
and financial analysts to downgrade the company's bond rating, increasing its
investment risk factor in the process. A gearing level up to 100 percent is
considered acceptable.
Generally, vote FOR debt issuances for companies when the gearing level is
between zero and 100 percent. Review on a CASE-BY-CASE basis proposals where the
issuance of debt will result in the gearing level being greater than 100
percent, comparing any such proposed debt issuance to industry and market
standards.
FINANCING PLANS
Generally, vote FOR the adoption of financing plans if they are in the best
economic interests of shareholders.
RELATED PARTY TRANSACTIONS
Consider related party transactions on a CASE-BY-CASE basis. Generally, vote FOR
approval of such transactions unless the agreement requests a strategic move
outside the company's charter or contains unfavorable terms.
CAPITALIZATION OF RESERVES
Generally, vote FOR proposals to capitalize the company's reserves for bonus
issues of shares or to increase the par value of shares.
ARTICLE AMENDMENTS
Review on a CASE-BY-CASE basis all proposals seeking amendments to the articles
of association.
Generally, vote FOR an article amendment if:
- it is editorial in nature;
- shareholder rights are protected;
- there is negligible or positive impact on shareholder value;
- management provides adequate reasons for the amendments; and
- the company is required to do so by law (if applicable).
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable
ITEM 10. CONTROLS AND PROCEDURES.
(a) Based on our evaluation conducted within 90 days of the filing date,
hereof, the design and operation of the registrant's disclosure
controls and procedures are effective to ensure that material
information relating to the registrant is made known to the certifying
officers by others within the appropriate entities, particularly
during the period in which Forms N-CSR are being prepared, and the
registrant's disclosure controls and procedures allow timely
preparation and review of the information for the registrant's Form
N-CSR and the officer certifications of such Form N-CSR.
(b) There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
ITEM 11. EXHIBITS.
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached
hereto as EX-99.CODE ETH.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule
30a-2 under the Act (17 CFR 270.30a-2) is attached hereto as
EX-99.CERT.
(b) The officer certifications required by Section 906 of the
Sarbanes-Oxley Act of 2002 are attached hereto as EX-99.906CERT
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): ING Prime Rate Trust
By /s/ James M. Hennessy
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James M. Hennessy
President and Chief Executive Officer
Date May 5, 2004
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James M. Hennessy
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James M. Hennessy
President and Chief Executive Officer
Date May 5, 2004
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By /s/ Michael J. Roland
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Michael J. Roland
Executive Vice President and Chief Financial Officer
Date May 5, 2004
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