N-CSRS 1 a2119196zn-csrs.txt N-CSRS ----------------------------- OMB APPROVAL ----------------------------- OMB Number: 3235-0570 Expires: November 30, 2005 Estimated average burden hours per response....... 5.0 ----------------------------- 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: 811-10223 --------------------------------------------- ING Senior Income Fund ------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) 7337 E. Doubletree Ranch Rd., Scottsdale, AZ 85258 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) The Corporation Trust Company, 1209 Orange Street, Wilmington, DE 19801 ------------------------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-800-992-0180 ---------------------------- Date of fiscal year end: February 28 -------------------------- Date of reporting period: August 31, 2003 ------------------------- 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): SEMI-ANNUAL REPORT SEMI-ANNUAL REPORT AUGUST 31, 2003 ING SENIOR INCOME FUND [GRAPHIC] [ING FUNDS LOGO] ING Senior Income Fund SEMI-ANNUAL REPORT August 31, 2003 Table of Contents Portfolio Managers' Report 2 Statistics 6 Statement of Assets and Liabilities 7 Statement of Operations 9 Statements of Changes in Net Assets 10 Statement of Cash Flows 11 Financial Highlights 12 Notes to Financial Statements 14 Portfolio of Investments 21 Shareholder Meeting Information 33 Trustee and Officer Information 34
ING Senior Income Fund PORTFOLIO MANAGERS' REPORT Dear Shareholders: ING Senior Income Fund (the "Fund") is a diversified, closed-end investment company that seeks to provide investors with a high level of current income. The Fund seeks to achieve this objective by investing in a professionally managed portfolio comprised primarily of senior loans. PERFORMANCE SUMMARY During the six-month period ended August 31, 2003 (the "Reporting Period"), the Fund's Class A and Q shares each distributed total dividends of $0.35, resulting in an average annualized distribution rate of 4.63%(1) and 4.64%(1), respectively. During the same period, the Fund's Class B and C shares each distributed total dividends of $0.31, representing an average annualized distribution rate of 4.13%.(1) The Fund's total return for the Reporting Period, for each of the share classes, excluding sales charges, (high of 4.56% on Class A; low of 4.23% on Class B) ran behind that of the S&P/LSTA Loan Index (gross total return of 4.81%)(2), as the Fund did not fully participate in a fairly broad-based rally in the stressed/distressed (I.E., lesser credit quality) sub-sector of the non-investment grade loan market. As is consistent with our investment philosophy, we continue to be reluctant to significantly increase credit risk in exchange for incremental yield. Since inception the Fund has performed well across the Fund's four share classes (see details on page 4). MARKET/FUND SPECIFIC DEVELOPMENTS The overall tone of the senior loan market improved significantly over the latter portion of the Reporting Period. Against the backdrop of an increasingly healthy macroeconomic picture and improving corporate earnings, the default rate on non-investment grade bank debt continued to decline, as evidenced by a 2.7% twelve-month lagging default rate at the end of August, as compared to 6% at the beginning of 2003. Further, many issuers that were struggling earlier in the year were able to take advantage of more receptive capital markets to improve their balance sheet and liquidity positions. The net effect was a broad-based rally in loan prices and markedly improved investor sentiment. Consistent with our approach since inception, the Fund remains conservatively positioned as to both sector and issuer selection. We remain focused on maintaining sufficient levels of diversification. During the Reporting Period, in which net assets increased approximately 46%, the Fund's average amount outstanding per loan declined modestly, while the number of individual loans increased to 222 from 208. As stated in prior reports, we continue to believe that adequate diversification represents the best line of defense against broad-based credit risk. Overall performance continues to be favorably impacted by three primary factors: 1) ongoing strength within sectors for which we are increasing relative weightings; 2) further improvement in the underlying indicative prices for several of the Fund's larger holdings; and 3) successful credit selection (I.E., the absence of non-performing credits). The Fund's largest sector exposure continues to be Healthcare, Education and Childcare (7.6% of total assets at the end of the Reporting Period, versus 7.3% as of February 28, 2003), followed by Cable Television (7.0%, versus 6.3%) and Cellular Communications (5.7%, up from 4.7% as of February 28, 2003). We increased our exposure to the latter sector based on improving operating trends, renewed access to capital markets, and the stated intention by most issuers within the sector to proactively deal with balance sheet and/or liquidity issues. Led by Nextel Communications (at 3.5% of total assets as of August 31, 2003, the single largest holding in the portfolio), virtually all of the Fund's wireless holdings improved in price during the Reporting Period. We continue to monitor this group closely. The Fund seeks to prudently utilize financial leverage in order to increase the yield to the holders of common shares. As of August 31, 2003, the Fund did not have any borrowings outstanding 2 under a $100.0 million revolving credit facility. While the use of leverage for investment purposes increases both investment opportunity and investment risk, we continue to deploy leverage only when it is in the best interest of the Fund's shareholders. With the improving outlook for senior loans, we expect to begin using leverage again by the fourth calendar quarter of the year. OUTLOOK Coming off the impressive turnaround in the secured loan market that commenced earlier in the year, we expect the balance of 2003 to be marked by relative stability. Clearly, given the rapid price appreciation experienced during the first half of the year, there generally remains minimal upside in existing loan prices. Nonetheless, near-term performance should be underpinned by continued improvement in credit and market conditions generally, and the continuation of a reasonably sanguine attitude on the part of loan investors. Moreover, the prospect of rising short-term rates in response to the now visible recovery in the U.S. economy bodes well for the performance of adjustable rate senior loans. As we move into the last part of 2003, we will continue to adhere to a disciplined investment strategy that seeks to maintain a high degree of diversification while attempting to take advantage of selective market opportunities. We thank you for your investment in ING Senior Income Fund. /s/ Jeffrey A. Bakalar /s/ Daniel A. Norman Jeffrey A. Bakalar 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 Senior Income Fund October 15, 2003 ---------- (1) The distribution rate is calculated by dividing the total distributions declared during the quarter by the Fund's net asset value at the end of the period. 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) Source: As tracked by Standard & Poor's Leveraged Commentary & Portfolio Management Data Group, a leading data provider to the Loan Market. See accompanying index description on page 5. 3
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED AUGUST 31, 2003 ---------------------------------------------- SINCE INCEPTION SINCE INCEPTION OF CLASS A, B AND C OF CLASS Q 1 YEAR 4/2/01 12/15/00 ------ ------------------- --------------- Including Sales Charge:(1) Class A 3.16% 3.57% -- Class B 4.62% 4.33% -- Class C 6.69% 5.13% -- Class Q 8.17% -- 5.59% Excluding Sales Charge: Class A 8.29% 5.69% -- Class B 7.62% 5.11% -- Class C 7.69% 5.13% -- Class Q 8.17% -- 5.59% S&P/LSTA Leveraged Loan Index 8.15% 4.35%(2) 4.93%(2)
The table above illustrates the total return of ING Senior Income Fund against the S&P/LSTA Leveraged Loan Index. The Index has no cash in its portfolio, imposes no sales charges and incurs no operating expenses. An investor cannot invest directly in an index. The Fund's performance is shown both with and without the imposition of sales charges. Total returns reflect the fact that the Investment Manager has waived certain fees and expenses otherwise payable by the Fund, subject to possible later reimbursement during a three-year period. Total returns would have been lower had there been no waiver to the fund. PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NO ASSURANCE OF FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND WILL FLUCTUATE. SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. THIS REPORT CONTAINS STATEMENTS THAT MAY BE "FORWARD-LOOKING" STATEMENTS. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE "FORWARD-LOOKING" STATEMENTS. THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS, ONLY THROUGH THE END OF THE PERIOD AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED ON MARKET AND OTHER CONDITIONS. FUND HOLDINGS ARE SUBJECT TO CHANGE DAILY. (1) Reflects deduction of the maximum Class A sales charge of 4.75%. Class B maximum CDSC is 3% in the first year, declining to 1% in the fifth year and eliminated thereafter. Class C maximum CDSC is 1% for the first year. Class Q has no front-end sales charge or CDSC charges. (2) Source: S&P/Loan Syndication Trading Association. Since Inception performance for the index is shown from March 31, 2001 for Class A, B and C and from December 31, 2000 for Class Q. 4 YIELDS AND DISTRIBUTION RATES AS OF AUGUST 31, 2003
30-DAY SEC AVERAGE ANNUALIZED YIELDS(1) DISTRIBUTION RATES(2) ---------- --------------------- Class A 4.12% 4.63% Class B 3.63% 4.13% Class C 3.61% 4.13% Class Q 4.18% 4.64%
(1) Yield is calculated by dividing the Fund's net investment income per share for the most recent thirty days by the net asset value. 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 Fund's yield consistent with the SEC standardized yield formula for open-end investment companies. If the Investment Manager had not waived certain Fund expenses, the 30-Day SEC yield would have been 4.07% for Class A shares, 3.58% for Class B, 3.57% for Class C shares and 4.13% for Class Q shares. (2) Distribution Rates are calculated by annualizing dividends declared during the period (I.E., divide the monthly dividend amount by the number of days in the month and multiply by the number of days in the fiscal year) and then dividing the resulting annualized dividend by the month-ending NAV. PRINCIPAL RISK FACTOR(S): Loans in the Fund's portfolio will typically be below investment grade credit quality. As a result, investment in the Fund involves the risk that borrowers may default on obligations to pay principal or interest when due and lenders may have difficulty liquidating the collateral securing the loans or enforcing their rights under the terms of the loans, and that the Fund's investment objective may not be realized. INDEX DESCRIPTION The S&P/LSTA LEVERAGED LOAN INDEX ("LLI") is a 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 index is unmanaged. An investor cannot invest directly in an index. 5 STATISTICS as of August 31, 2003 PORTFOLIO CHARACTERISTICS Net Assets $ 404,196,043 Assets Invested in Senior Loans $ 355,513,212 Senior Loans Represented 222 Average Amount Outstanding per Loan $ 1,601,411 Industries Represented 35 Average Loan Amount per Industry $ 10,157,520 Portfolio Turnover Rate 38% Weighted Average Days to Interest Rate Reset 49 days Average Loan Final Maturity 57 months
TOP TEN INDUSTRY SECTORS AS A PERCENTAGE OF:
NET ASSETS TOTAL ASSETS Healthcare, Education and Childcare 7.7% 7.6% Cable Television 7.0% 7.0% Cellular Communications 5.8% 5.7% Printing and Publishing 5.5% 5.4% Containers, Packaging and Glass 5.1% 5.1% Chemicals, Plastics and Rubber 4.9% 4.9% Beverage, Food and Tobacco 4.7% 4.6% Automotive 4.6% 4.6% Radio and TV Broadcasting 3.5% 3.5% Personal and Non Durable Consumer Products 3.2% 3.1%
TOP TEN SENIOR LOAN ISSUERS AS A PERCENTAGE OF:
NET ASSETS TOTAL ASSETS Nextel Communications(1) 3.6% 3.5% Safelite Glass Corporation 1.1% 1.1% Playtex Products, Inc. 1.0% 1.0% Graphic Packaging International, Inc. 1.0% 1.0% Lamar Media Corporation 1.0% 1.0% Community Health Systems, Inc. 1.0% 1.0% Olympus Cable Holdings, LLC 0.9% 0.9% Pegasus Media & Communications, Inc. 0.9% 0.9% Crown Castle Operating Company 0.8% 0.8% American Media Operations, Inc. 0.8% 0.8%
---------- (1) INCLUDES NEXTEL FINANCE COMPANY AND NEXTEL OPERATIONS, INC. See Accompanying Notes to Financial Statements 6 STATEMENT OF ASSETS AND LIABILITIES as of August 31, 2003 (Unaudited) ASSETS: Investments in securities at value (Cost $358,034,490) $ 359,866,610 Short-term investments at amortized cost 19,900,000 Cash 15,633,920 Receivables: Fund shares sold 9,695,363 Interest 1,665,716 Other 1,224 Reimbursement due from Manager 13,719 Prepaid expenses 42,387 Prepaid arrangement fees on notes payable 296,755 --------------- Total assets 407,115,694 --------------- LIABILITIES: Accrued interest payable 11,375 Deferred arrangement fees 1,421,964 Payable to affiliates 421,192 Income distribution payable 855,537 Other accrued expenses and liabilities 209,583 --------------- Total liabilities 2,919,651 --------------- NET ASSETS $ 404,196,043 =============== NET ASSETS CONSIST OF: Paid-in capital $ 401,966,187 Undistributed net investment income 359,434 Accumulated net realized gain on investments 38,302 Net unrealized appreciation of investments 1,832,120 --------------- NET ASSETS $ 404,196,043 ===============
See Accompanying Notes to Financial Statements 7 CLASS A: Net assets $ 63,160,122 Shares authorized unlimited Par value $ 0.01 Shares outstanding 4,168,883 Net asset value and redemption price per share $ 15.15 Maximum offering price per share (4.75%)(1) $ 15.91 CLASS B: Net assets $ 34,567,072 Shares authorized unlimited Par value $ 0.01 Shares outstanding 2,284,727 Net asset value and redemption price per share(2) $ 15.13 Maximum offering price per share $ 15.13 CLASS C: Net assets $ 112,987,869 Shares authorized unlimited Par value $ 0.01 Shares outstanding 7,463,212 Net asset value and redemption price per share(2) $ 15.14 Maximum offering price per share $ 15.14 CLASS Q: Net assets $ 193,480,980 Shares authorized unlimited Par value $ 0.01 Shares outstanding 12,814,788 Net asset value and redemption price per share $ 15.10 Maximum offering price per share $ 15.10
(1) Maximum offering price is computed at 100/95.25 of net asset value. On purchases of $50,000 or more, the offering price is reduced. (2) Redemption price per share may be reduced for any applicable contingent deferred sales charge. See Accompanying Notes to Financial Statements 8 STATEMENT OF OPERATIONS for the Six Months Ended August 31, 2003 (Unaudited) INVESTMENT INCOME: Interest $ 9,262,245 Arrangement fees earned 293,709 Other 389,214 --------------- Total investment income 9,945,168 --------------- EXPENSES: Investment management fees 1,403,783 Administration fees 175,473 Distribution and service fees: Class A 35,909 Class B 117,219 Class C 223,052 Class Q 265,047 Transfer agent fees: Class A 17,086 Class B 14,284 Class C 35,781 Class Q 131,668 Shareholder reporting expense 35,328 Interest expense 276,765 Custodian fees 59,800 Credit facility fees 46,813 Recordkeeping and pricing expense 6,131 Professional fees 100,096 Trustees' fees 5,520 Registration fees 29,079 Postage expense 11,776 Insurance expense 2,951 Miscellaneous expense 9,831 --------------- Total expenses 3,003,392 --------------- Less: Net waived and reimbursed fees 150,089 --------------- Net expenses 2,853,303 --------------- Net investment income 7,091,865 --------------- REALIZED AND UNREALIZED GAIN FROM INVESTMENTS: Net realized gain on investments 3,148,933 Net change in unrealized appreciation of investments 3,317,298 --------------- Net realized and unrealized gain on investments 6,466,231 --------------- Increase in net assets resulting from operations $ 13,558,096 ===============
See Accompanying Notes to Financial Statements 9 STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS YEAR ENDED ENDED AUGUST 31, FEBRUARY 28, 2003 2003 --------------- --------------- (UNAUDITED) INCREASE IN NET ASSETS FROM OPERATIONS: Net investment income $ 7,091,865 $ 12,420,155 Net realized gain (loss) on investments 3,148,933 (1,013,477) Net change in unrealized appreciation (depreciation) of investments 3,317,298 (920,901) --------------- --------------- Net increase in net assets resulting from operations 13,558,096 10,485,777 --------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income Class A (639,982) (343,871) Class B (478,528) (655,286) Class C (1,192,722) (1,183,573) Class Q (4,941,029) (10,232,636) --------------- --------------- Total distributions (7,252,261) (12,415,366) --------------- --------------- CAPITAL SHARE TRANSACTIONS: Net proceeds from sale of shares 175,468,711 46,900,491 Dividends reinvested 4,245,296 11,601,350 --------------- --------------- 179,714,007 58,501,841 Cost of shares repurchased (58,566,089) (29,437,098) --------------- --------------- Net increase in net assets resulting from capital share transactions 121,147,918 29,064,743 --------------- --------------- Net increase in net assets 127,453,753 27,135,154 --------------- --------------- NET ASSETS: Beginning of period 276,742,290 249,607,136 --------------- --------------- End of period $ 404,196,043 $ 276,742,290 =============== =============== Undistributed net investment income at end of period $ 359,434 $ 519,830 =============== ===============
See Accompanying Notes to Financial Statements 10 STATEMENT OF CASH FLOWS for the Six Months Ended August 31, 2003 (Unaudited) INCREASE (DECREASE) IN CASH CASH FLOWS FROM OPERATING ACTIVITIES: Interest received $ 7,968,029 Facility fees paid 40,772 Arrangement fee received 1,037,830 Other income received 387,990 Interest paid (337,342) Other operating expenses paid (1,507,710) Purchases of portfolio securities (861,594,689) Proceeds from disposition of portfolio securities 809,093,184 ------------- Net cash used for operating activities (44,911,936) ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions paid to common shareholders (3,006,965) Proceeds from capital shares sold 166,673,322 Disbursements for capital shares repurchased (58,566,089) Net repayment of notes payable (47,000,000) ------------- Net cash flows provided by financing activities 58,100,268 ------------- Net increase in cash 13,188,332 Cash at beginning of period 2,445,588 ------------- Cash at end of period $ 15,633,920 ============= RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH USED FOR OPERATING ACTIVITIES: Net increase in net assets resulting from operations $ 13,558,096 ------------- Adjustments to reconcile net increase in net assets resulting from operations to net cash used for operating activities: Change in unrealized depreciation on investments (3,317,298) Net accretion/amortization of discounts on investments (1,162,726) Realized gain on sale of investments (3,148,933) Purchases of investments (861,594,689) Proceeds on sale of investments 809,093,184 Increase in interest receivable (131,490) Increase in other assets (1,224) Decrease in prepaid arrangement fees on notes payable 40,772 Increase in prepaid expenses (21,568) Increase in deferred arrangement fees 744,121 Decrease in accrued interest payable (60,577) Decrease in reimbursement due from Manager 33,630 Increase in payable to affiliate 128,486 Decrease in accrued trustees' fees (312) Increase in other accrued expenses and liabilities 928,592 ------------- Total adjustments (58,470,032) ------------- Net cash used for operating activities $ (44,911,936) ============= NON CASH FINANCING ACTIVITIES Receivable for shares sold $ 9,695,363 Reinvestment of dividends $ 4,245,296
See Accompanying Notes to Financial Statements 11 ING SENIOR INCOME FUND FINANCIAL HIGHLIGHTS
CLASS A --------------------------------- SIX MONTHS YEAR PERIOD ENDED ENDED ENDED AUG. 31, FEB. 28, FEB. 28, 2003 2003 2002(1) -------------------------------------------------------------------------------------------------------- (UNAUDITED) PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 14.83 14.92 15.00 Income from investment operations: Net investment income $ 0.32 0.69 0.81 Net realized and unrealized gain (loss) on investments $ 0.35 (0.09) (0.09) Total income from investment operations $ 0.67 0.60 0.72 Less distributions from: Net investment income $ 0.35 0.69 0.80 Net asset value, end of period $ 15.15 14.83 14.92 TOTAL RETURN(2) % 4.56 4.15 4.92 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 63,160 11,106 2,411 Average borrowings (000's)(5) $ 27,109 17,655 19,797 RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) % 1.42 1.42 1.47 Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 1.57 1.63 1.73 Net investment income(3)(4) % 4.40 4.88 5.58 RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) % 1.48 1.57 1.82 Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 1.64 1.78 2.07 Net investment income(3)(4) % 4.34 4.73 5.26 Portfolio turnover rate % 38 60 65 Shares outstanding at end of period (000's) 4,169 749 162 CLASS B --------------------------------- SIX MONTHS YEAR PERIOD ENDED ENDED ENDED AUG. 31, FEB. 28, FEB. 28, 2003 2003 2002(1) -------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period 14.82 14.92 15.00 Income from investment operations: Net investment income 0.28 0.62 0.75 Net realized and unrealized gain (loss) on investments 0.34 (0.10) (0.10) Total income from investment operations 0.62 0.52 0.65 Less distributions from: Net investment income 0.31 0.62 0.73 Net asset value, end of period 15.13 14.82 14.92 TOTAL RETURN(2) 4.23 3.57 4.45 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) 34,567 17,648 12,776 Average borrowings (000's)(5) 27,109 17,655 19,797 RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) 1.92 1.91 1.96 Expenses (with interest and other fees related to revolving credit facility)(3)(4) 2.11 2.09 2.23 Net investment income(3)(4) 3.97 4.12 5.19 RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) 2.25 2.31 2.29 Expenses (with interest and other fees related to revolving credit facility)(3)(4) 2.44 2.49 2.54 Net investment income(3)(4) 3.65 3.72 4.89 Portfolio turnover rate 38 60 65 Shares outstanding at end of period (000's) 2,285 1,191 856
CLASS C -------------------------------------------------- SIX MONTHS YEAR PERIOD ENDED ENDED ENDED AUG. 31, FEB. 28, FEB. 28, 2003 2003 2002(1) --------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 14.82 14.92 15.00 Income from investment operations: Net investment income $ 0.28 0.62 0.75 Net realized and unrealized gain (loss) on investments $ 0.35 (0.10) (0.10) Total income from investment operations $ 0.63 0.52 0.65 Less distributions from: Net investment income $ 0.31 0.62 0.73 Net asset value, end of period $ 15.14 14.82 14.92 TOTAL RETURN(2) % 4.30 3.57 4.45 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 112,988 32,647 19,391 Average borrowings (000's)(5) $ 27,109 17,655 19,797 RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) % 1.92 1.91 1.96 Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 2.09 2.09 2.23 Net investment income(3)(4) % 3.93 4.19 5.20 RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) % 1.99 2.06 2.29 Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 2.16 2.24 2.54 Net investment income(3)(4) % 3.87 4.04 4.89 Portfolio turnover rate % 38 60 65 Shares outstanding at end of period (000's) 7,463 2,202 1,300
(1) Classes A, B and C commenced offering of shares on April 2, 2001. (2) Total returns are not annualized for periods of less than one year. (3) Annualized for periods less than one year. (4) The investment manager has agreed to limit expenses excluding interest, taxes, brokerage and extraordinary expenses. (5) Based on the active days of borrowing. See Accompanying Notes to Financial Statements 12
CLASS Q(5) ------------------------------------------------------ SIX MONTHS YEAR YEAR PERIOD ENDED ENDED ENDED ENDED AUG. 31, FEB. 28, FEB. 28, FEB. 28, 2003 2003 2002 2001(1) ------------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 14.79 14.89 15.30 15.02 Income from investment operations: Net investment income $ 0.35 0.69 0.81 0.14 Net realized and unrealized gain (loss) on investments $ 0.31 (0.10) (0.32) 0.14 Total income from investment operations $ 0.66 0.59 0.49 0.28 Less distributions from: Net investment income $ 0.35 0.69 0.90 -- Net asset value, end of period $ 15.10 14.79 14.89 15.30 TOTAL RETURN(2) % 4.50 4.09 3.73 1.80 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 193,481 215,341 215,029 94,096 Average borrowings (000's)(6) $ 27,109 17,655 19,797 -- RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) % 1.43 1.41 1.43 -- Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 1.65 1.59 1.63 1.85 Net investment income(3)(4) % 4.53 4.69 5.94 7.00 RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) % 1.51 1.56 1.70 -- Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 1.73 1.74 1.90 1.85 Net investment income(3)(4) % 4.45 4.54 5.67 7.00 Portfolio turnover rate % 38 60 65 11 Shares outstanding at end of period (000's) 12,815 14,559 14,439 6,152
(1) Class Q commenced operations on December 15, 2000. (2) Total returns are not annualized for periods of less than one year. (3) Annualized for periods less than one year. (4) The investment manager has agreed to limit expenses excluding interest, taxes, brokerage and extraordinary expenses. (5) Effective March 30, 2001, the Management of the Fund effectuated a reverse stock split of 0.6656 of a Share for one Share. Prior period amounts have been restated to reflect the reverse stock split. (6) Based on the active days of borrowing. See Accompanying Notes to Financial Statements 13 ING Senior Income Fund NOTES TO FINANCIAL STATEMENTS as of August 31, 2003 (Unaudited) NOTE 1 -- ORGANIZATION ING Senior Income Fund (the "Fund"), a Delaware business trust, is registered under the Investment Company Act of 1940 as amended, (the "1940 Act"), as a continuously-offered, diversified, closed-end, investment management company. During the period December 15, 2000 through March 30, 2001, the Fund issued 19,933,953 Class Q shares to Lion Connecticut Holdings, Inc., the indirect parent company of the Fund's manager, ING Investments, LLC (the "Investment Manager") in exchange for $200,000,000. Effective April 2, 2001, the Fund commenced the offering of Class A, Class B, Class C and Class Q shares to the public. Class A shares are subject to a sales charge of up to 4.75%. Class A shares purchased in excess of $1,000,000 are subject to an Early Withdrawal Charge ("EWC") of up to 1% over the two-year period after purchase. Class A shares are available upon conversion of Class B shares eight years after purchase or through an exchange of Class A shares of certain ING Funds. Class B common shares are subject to an EWC of up to 3.0% over the five-year period after purchase and Class C common shares are subject to an EWC of 1% during the first year after purchase. The separate classes of shares differ principally in the distribution fees and shareholder servicing fees. All shareholders bear the common expenses of the Fund and earn income from all portfolios pro rata on the average daily net assets of each class, without distinction between share classes. Dividends for each class are based on income and expenses allocable to each class. Realized gains are allocated to each class pro rata based on the net assets of each class on the date of distribution. No class has preferential dividend rights. Differences in the per share dividend rates generally result from the relative weighting of pro rata income and realized gains allocations and from differences in separate class expenses, including distribution fees and shareholder servicing fees. The Fund invests at least 80% of its assets 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 London Inter-Bank Offered Rate ("LIBOR") and other short-term rates. 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 Fund has engaged an independent pricing service to provide quotations from dealers in loans and to calculate values under the proxy procedure described above. It is expected that most of the loans held by the Fund will be valued with reference to quotations from the independent pricing service or with reference to the proxy procedure described above. As of August 31, 2003, 97.8% of total long-term investments were valued based on these procedures. Prices from a pricing service may not be available for all loans and the Investment Manager 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 14 procedures established by the Fund'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 Fund's Board of Trustees through its Valuation 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 Fund'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 and the market environment and investor attitudes towards the loan and interests in similar loans; (v) the 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 other than senior loans for which reliable market value quotations are not readily available and all other assets will be valued at their respective fair values as determined in good faith by, or under procedures established by, the Board of Trustees of the Fund. Investments in securities maturing in less than 60 days from the date of acquisition are valued at amortized cost. Short-term investments are carried at amortized cost. B. FEDERAL INCOME TAXES. It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to "regulated investment companies" and to distribute all of its taxable income to its shareholders. Therefore, no provision for Federal income taxes is required. In addition, by distributing during each calendar year substantially all of its net investment income, if any, the Fund intends not to be subject to any federal excise tax. C. SECURITY TRANSACTIONS AND REVENUE RECOGNITION. Loans are booked on a settlement 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 delivered. Interest income is recorded on an accrual basis at the then-current loan rate. 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 non-accrual 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 and the borrower has demonstrated sustained performance. Premium amortization and discount accretion are determined by the effective yield method over the shorter of four years or the actual term of the loan. Arrangement fees on revolving credit facilities, which represent non-refundable fees associated with the acquisition of loans, are deferred and recognized using the effective yield method over the shorter of four years or the actual term of the loan. No such fees are recognized on loans which have been placed on non-accrual status. Arrangement fees associated with all other loans, except revolving credit facilities, are treated as discounts and are accreted as described above. D. DISTRIBUTIONS TO SHAREHOLDERS. The Fund records distributions to its shareholders on the ex-dividend date. The Fund declares and goes ex-dividend daily and pays dividends monthly for net investment income. Distributions from capital gains, if any, are declared on an annual basis. 15 E. USE OF ESTIMATES. Management of the Fund 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 accounting principles generally accepted in the United States of America. Actual results could differ from these estimates. NOTE 3 -- INVESTMENTS For the six months ended August 31, 2003, the cost of purchases and the proceeds from principal repayment and sales of investments, excluding short-term investments, totaled $164,358,528 and $129,108,184 respectively. At August 31, 2003, the Fund held senior loans valued at $355,513,212 representing 98.8% of its total investments (excluding short-term investments). The market value of these assets is established as set forth in Note 1. The senior loans acquired by the Fund 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 Fund may incur certain costs and delays in realizing payment, or may suffer a loss of principal and/or interest. Warrants and shares of common stock held in the portfolio were acquired in conjunction with senior loans held by the Fund. Certain of these shares 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 the issuance of the stock. The Fund values portfolio securities by using the market value of the securities when reliable market value quotations for the securities are readily available. When reliable market value quotations are not readily available, the Fund determines, in good faith, the fair value of the securities in accordance with the Fund's fair valuation procedures as established by the Board of Trustees. Dates of acquisition and cost or assigned basis of restricted securities are as follows:
DATE OF COST OR ACQUISITION ASSIGNED BASIS ----------- -------------- Decision One Corporation -- Common Shares 09/27/01 $ -- Murray's Discount Auto Stores, Inc. -- Escrow 08/11/03 155,087 Neoplan -- Common Shares 08/29/03 -- Neoplan -- Preferred B Shares 08/29/03 -- Neoplan -- Preferred C Shares 08/29/03 40,207 Neoplan -- Preferred D Shares 08/29/03 330,600 New World Restaurant Group, Inc. -- Warrants 02/20/02 20 Safelite Glass Corporation -- Common Shares 06/21/01 -- Safelite Realty -- Common Shares 06/21/01 -- Targus -- Warrants 03/11/03 -- -------------- Total restricted securities excluding senior loans (market value of $1,549,510 was 0.38% of net assets at August 31, 2003) $ 525,914 ==============
NOTE 4 -- MANAGEMENT AND ADMINISTRATION AGREEMENT The Fund has entered into an Investment Management Agreement with the Investment Manager 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 Fund's average daily gross asset value, minus the sum of the Fund's accrued liabilities (other than liabilities for the principal amount of any borrowings incurred, commercial paper or notes issued by the Fund) ("Managed Assets"). Effective August 1, 2003, the 16 Fund is sub-advised by Aeltus Investment Management, Inc. ("ING Aeltus"). Under the Sub-Advisory Agreement, ING Aeltus is responsible for managing the assets of the Fund in accordance with its investment objective and policies, subject to oversight by the Investment Manager. Both ING Aeltus and the Investment Manager are indirect wholly owned subsidiaries of ING Groep N.V. and affiliates of each other. The Fund has also entered into an Administration Agreement with ING Funds Services, LLC (the "Administrator") to provide administrative services. The Administrator is compensated with a fee, computed daily and payable monthly, at an annual rate of 0.10% of the Fund's Managed Assets. NOTE 5 -- DISTRIBUTION AND SERVICE FEES Each share class of the Fund has adopted a Plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plans"), whereby ING Funds Distributor, LLC (the "Distributor") is reimbursed or compensated (depending on the class of shares) by the Fund for expenses incurred in the distribution of the Fund's shares ("Distribution Fees"). Pursuant to the 12b-1 Plans, the Distributor is entitled to a payment each month for actual expenses incurred in the distribution and promotion of the Fund's shares, including expenses incurred in printing prospectuses and reports used for sales purposes, expenses incurred in preparing and printing sales literature and other such distribution related expenses, including any distribution or Shareholder Servicing Fees ("Service Fees") paid to securities dealers who executed a distribution agreement with the Distributor. Under the 12b-1 plans, each class of shares of the Fund pays the Distributor a combined Distribution and Service Fee based on average daily net assets at the following annual rates:
CLASS A CLASS B CLASS C CLASS Q ------- ------- ------- ------- 0.25% 1.00% 0.75% 0.25%
During the six months ended August 31, 2003, the Distributor waived 0.25% of the Service Fee on Class B only. NOTE 6 -- EXPENSE LIMITATIONS The Investment Manager has voluntarily agreed to limit expenses, excluding interest, taxes, brokerage commissions, leverage expenses, other investment-related costs and extraordinary expenses, to the following: Class A -- 0.90% of Managed Assets plus 0.45% of average daily net assets Class B -- 0.90% of Managed Assets plus 1.20% of average daily net assets Class C -- 0.90% of Managed Assets plus 0.95% of average daily net assets Class Q -- 0.90% of Managed Assets plus 0.45% of average daily net assets As of August 31, 2003, the three-year cumulative amount of reimbursed fees that are subject to possible recoupment by the Manager is $1,120,126. NOTE 7 -- COMMITMENTS The Fund has entered into a five-year revolving credit agreement, collateralized by assets of the Fund, to borrow up to $100 million maturing June 13, 2006. Borrowing rates under this agreement are based on a commercial paper pass through rate plus 0.40% on the funded portion. A commitment fee of 0.10% is charged on the unused portion of the facility. There was no amount of borrowings outstanding at August 31, 2003. Average borrowings for the six months ended August 31, 2003 was $27,108,696 and the average annualized cost of borrowings was 2.37%. 17 NOTE 8 -- SENIOR LOAN COMMITMENTS At August 31, 2003, the Fund had unfunded loan commitments pursuant to the terms of the following loan agreements: Amerco, Inc. $ 2,943,508 Centennial Cellular Operating Company 1,000,000 Cincinnati Bell, Inc. 977,392 Citadel Broadcasting Company 1,500,000 Fleming Companies, Inc. 962,221 Hercules, Inc. 1,000,000 Lyondell Chemical Company $ 1,000,000 Neoplan USA Corp. 192,962 Nextel Finance Company 1,832,793 Park Place Entertainment Corporation 990,394 Six Flags Theme Parks, Inc. 1,000,000 United Defense Industries, Inc. 2,000,000 -------------- $ 15,399,270 ==============
NOTE 9 -- TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES At August 31, 2003, the Fund had the following amounts recorded in payable to affiliates on the accompanying Statement of Assets and Liabilities (see Notes 3 and 4):
ACCRUED INVESTMENT ACCRUED ACCRUED DISTRIBUTION MANAGEMENT FEES ADMINISTRATIVE FEES AND SERVICE FEES TOTAL ------------------ ------------------- -------------------- --------- $ 255,168 $ 31,896 $ 134,128 $ 421,192
At August 31, 2003, ING Life Insurance and Annuity Company and Equitable Life Insurance Company of Iowa, wholly-owned indirect subsidiaries of ING Groep N.V., owned 10.6% and 31.2%, respectively, of the Fund. Investment activities of this shareholder could have a material impact on the Fund. The Fund has adopted a Retirement Policy covering all independent trustees of the Fund who will have served as an 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, as amended. NOTE 10 -- CUSTODIAL AGREEMENT State Street Bank and Trust Company ("SSB") serves as the Fund's custodian and recordkeeper. Custody fees paid to SSB may be reduced by earnings credits based on the cash balances held by SSB for the Fund. There were no earning credits for the six months ended August 31, 2003. NOTE 11 -- 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 Fund may invest up to 10% of its total assets, measured at the time of investment, in subordinated loans and up to 10% of its total assets, measured at the time of investment, in unsecured loans. As of August 31, 2003, the Fund held 1.3% of its total assets in subordinated loans and unsecured loans. 18 NOTE 12 -- CAPITAL SHARES Transactions in capital shares and dollars were as follows:
CLASS A SHARES CLASS B ------------------------------ ------------------------------ SIX MONTHS YEAR SIX MONTHS YEAR ENDED ENDED ENDED ENDED AUGUST 31, FEBRUARY 28, AUGUST 31, FEBRUARY 28, 2003 2003 2003 2003 ------------- ------------- ------------- ------------- NUMBER OF SHARES Shares sold 3,549,081 697,541 1,178,958 529,384(1) Dividends reinvested 29,861 18,011 17,206 22,777 Shares redeemed (158,859) (128,377) (102,310) (217,666)(1) ------------- ------------- ------------- ------------- Net increase in shares outstanding 3,420,083 587,175 1,093,854 334,495 ============= ============= ============= ============= DOLLAR AMOUNT ($) Shares sold $ 53,568,328 $ 10,303,765 $ 17,770,466 $ 7,862,602(2) Dividends reinvested 450,784 265,212 258,980 336,436 Shares redeemed (2,392,563) (1,890,380) (1,536,266) (3,212,215)(2) ------------- ------------- ------------- ------------- Net increase $ 51,626,549 $ 8,678,597 $ 16,493,180 $ 4,986,823 ============= ============= ============= =============
CLASS C CLASS Q ------------------------------ ------------------------------ SIX MONTHS YEAR SIX MONTHS YEAR ENDED ENDED ENDED ENDED AUGUST 31, FEBRUARY 28, AUGUST 31, FEBRUARY 28, 2003 2003 2003 2003 ------------- ------------- ------------- ------------- NUMBER OF SHARES Shares sold 5,553,985 1,548,667 1,349,182 374,311 Dividends reinvested 60,428 63,192 175,987 682,409 Shares redeemed (353,456) (709,214) (3,269,406) (936,355) ------------- ------------- ------------- ------------- Net increase (decrease) in shares outstanding 5,260,957 902,645 (1,744,237) 120,365 ============= ============= ============= ============= DOLLAR AMOUNT ($) Shares sold $ 83,782,896 $ 22,961,598 $ 20,347,021 $ 5,582,887 Dividends reinvested 910,982 932,572 2,624,550 10,067,130 Shares redeemed (5,314,558) (10,428,994) (49,322,702) (13,715,870) ------------- ------------- ------------- ------------- Net increase (decrease) $ 79,379,320 $ 13,465,176 $ (26,351,131) $ 1,934,147 ============= ============= ============= =============
(1) Excludes 12,712 shares rescinded. (2) Excludes $189,639 for shares rescinded. NOTE 13 -- FEDERAL INCOME TAXES Dividends paid by the Fund 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 tax composition of dividends and distributions to shareholders for six months ended August 31, 2003 and year ended February 28, 2003 were as follows:
ORDINARY LONG-TERM TAX RETURN INCOME CAPITAL GAINS OF CAPITAL -------------- ------------- ---------- August 31, 2003 $ 7,252,261 $ -- $ -- February 28, 2003 12,415,366 -- --
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 generally accepted accounting principles. These "book/tax" differences are either considered temporary or permanent in nature. Key differences are the treatment of short-term capital gains, foreign currency transactions, organization costs and other temporary differences. To the extent that these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences do not require reclassifications. To the extent distributions exceed net investment income and/or net realized capital gains for tax purposes, they are reported as distributions of paid-in capital. 19 Capital loss carryforwards, which may be used to offset future realized capital gains for federal income tax purposes were as follows at February 28, 2003:
AMOUNT EXPIRATION DATES ------------ ---------------- $ 2,454,651 2010-2011
NOTE 14 -- SUBSEQUENT EVENTS DIVIDENDS DECLARED Subsequent to August 31, 2003, the Fund declared the following dividends:
PER SHARE AMOUNT TYPE DECLARATION DATE RECORD DATE PAYABLE DATE ---------------- ---- ---------------- ----------- ------------- $ 0.05025(A) NII Daily Daily 9/30/03 $ 0.04405(B) NII Daily Daily 9/30/03
NII -- Net Investment Income (A) For Class A and Q shares. (B) For Class B and C shares. RESCISSION OFFER Certain of the Fund's Class A shares sold during the period of June 30, 2003 to July 16, 2003 ("Rescission Period") were not registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended. During the Rescission Period, up to 454,994 shares were sold without registration. On October 10, 2003, the Fund filed a Registration Statement on Form N-2 offering to repurchase the unregistered Class A shares sold during the Rescission Period ("Rescission Offer"). The Investment Manager has agreed to pay the costs of the Rescission Offer (I.E., legal and accounting expenses and printing and mailing expenses) and any net loss to the Fund resulting from the Rescission Offer. 20 PORTFOLIO OF INVESTMENTS as of August 31, 2003 (Unaudited) SENIOR LOANS*: 88.0%
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE ------------------------------------------------------------------------------------------------------------- AEROSPACE AND DEFENSE: 1.9% ALLIANT TECHSYSTEMS, INC. Ba2 BB- $ 2,282,527 Term Loan, maturing April 20, 2009 $ 2,293,368 DRS TECHNOLOGIES, INC. Ba3 BB- 982,526 Term Loan, maturing September 30, 2008 991,122 TITAN CORPORATION Ba3 BB- 1,980,000 Term Loan, maturing June 30, 2009 1,985,981 UNITED DEFENSE INDUSTRIES, INC. Ba3 BB 2,502,128 Term Loan, maturing August 13, 2009 2,511,288 ------------- 7,781,759 ------------- AUTOMOTIVE: 4.6% AFTERMARKET TECHNOLOGY CORPORATION Ba2 BB- 560,720 Term Loan, maturing February 08, 2008 559,317 409,393 Term Loan, maturing February 08, 2008 410,160 COLLINS & AIKMAN PRODUCTS B1 B+ 1,472,494 Term Loan, maturing December 31, 2005 1,461,450 (1) FEDERAL-MOGUL CORPORATION Ca D 1,500,000 Term Loan, maturing February 24, 2004 1,143,750 2,000,000 Term Loan, maturing February 24, 2005 1,514,000 GOODYEAR TIRE & RUBBER COMPANY Ba2 BB+ 1,500,000 Term Loan, maturing March 31, 2006 1,496,250 HLI OPERATING COMPANY, INC. Ba3 BB- 1,500,000 Term Loan, maturing June 03, 2009 1,509,375 POLYPORE, INC. Ba3 BB- 1,481,250 Term Loan, maturing December 31, 2007 1,492,358 SAFELITE GLASS CORPORATION B3 B+ 1,700,073 Term Loan, maturing September 30, 2007 1,674,571 2,734,289 Term Loan, maturing September 30, 2007 2,693,275 STONERIDGE, INC. Ba3 BB 287,500 Term Loan, maturing April 30, 2008 287,440 TRW AUTOMOTIVE ACQUISITIONS CORPORATION Ba2 BB 3,000,000 Term Loan, maturing February 28, 2011 3,012,500 UNITED COMPONENTS, INC. B1 BB- 1,500,000 Term Loan, maturing June 30, 2010 1,512,500 ------------- 18,766,946 ------------- BEVERAGE, FOOD AND TOBACCO: 4.7% AURORA FOODS, INC. B3 CC 1,937,526 Term Loan, maturing September 30, 2006 1,782,522 BIRDS EYE FOODS, INC. Ba3 B+ 1,987,494 Term Loan, maturing June 30, 2008 1,995,775 COMMONWEALTH BRANDS, INC. Ba3 BB- 1,111,000 Term Loan, maturing August 28, 2007 1,114,470 CONSTELLATION BRANDS, INC. Ba1 BB 1,741,750 Term Loan, maturing November 30, 2008 1,759,820 COTT BEVERAGES, INC. Ba3 BB+ 170,000 Term Loan, maturing December 31, 2006 170,530 CP KELCO APS B3 B 1,067,482 Term Loan, maturing March 31, 2008 1,067,481 354,937 Term Loan, maturing September 30, 2008 354,936
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) DEAN FOODS COMPANY Ba1 BB+ $ 2,969,990 Term Loan, maturing July 15, 2008 $ 2,979,413 DEL MONTE CORPORATION Ba3 BB- 1,852,850 Term Loan, maturing December 20, 2010 1,870,915 (1) FLEMING COMPANIES, INC. B3 D 1,710,500 Revolver, maturing June 18, 2007 1,631,471 950,124 Term Loan, maturing June 18, 2008 904,992 INTERSTATE BRANDS CORPORATION Ba2 BBB- 961,272 Term Loan, maturing July 19, 2007 963,795 NATIONAL DAIRY HOLDINGS, L.P. Ba2 BB+ 987,500 Term Loan, maturing April 30, 2009 987,911 SOUTHERN WINE & SPIRITS OF AMERICA, INC. Ba3 BBB- 1,237,500 Term Loan, maturing July 02, 2008 1,243,687 ------------- 18,827,718 ------------- BUILDINGS AND REAL ESTATE: 0.9% (1) AMERCO, INC. NR NR 56,492 Debtor in Possession Term Loan, maturing August 13, 2004 56,208 BUILDING MATERIALS HOLDING CORPORATION Ba2 BB- 1,000,000 Term Loan, maturing August 21, 2010 1,003,750 MACERICH PARTNERSHIP, L.P. Ba2 NR 1,574,400 Term Loan, maturing July 26, 2005 1,580,303 WERNER HOLDINGS CO., INC. Ba3 B+ 1,000,000 Term Loan, maturing June 11, 2009 1,013,332 ------------- 3,653,593 ------------- CABLE TELEVISION: 7.0% (1) ADELPHIA COMMUNICATIONS CORPORATION NR BBB 1,963,795 Debtor in Possession Term Loan, maturing June 25, 2004 1,976,683 BRESNAN COMMUNICATIONS, LLC B1 BB- 2,000,000 Term Loan, maturing December 31, 2007 2,008,125 CC VI OPERATING COMPANY, LLC B2 CCC+ 1,000,000 Term Loan, maturing November 12, 2008 901,000 CC VIII OPERATING, LLC B2 B- 2,955,000 Term Loan, maturing February 02, 2008 2,773,476 (1) CENTURY CABLE HOLDINGS, LLC Caa1 D 820,000 Revolver, maturing March 31, 2009 680,600 1,000,000 Term Loan, maturing December 31, 2009 823,000 CHARTER COMMUNICATIONS OPERATING, LLC B2 B 2,940,113 Term Loan, maturing March 18, 2008 2,763,523 COMCAST CABLE COMMUNICATIONS Ba1 BBB 2,000,000 Term Loan, maturing November 05, 2006 1,991,000 FALCON CABLE COMMUNICATIONS, LLC B2 BB 997,389 Term Loan, maturing December 31, 2007 910,116 (1) FRONTIERVISION OPERATING PARTNERS, L.P. B2 D 1,000,000 Revolver, maturing October 31, 2005 951,666 1,000,000 Term Loan, maturing March 31, 2006 951,666 1,136,364 Term Loan, maturing September 30, 2005 1,081,440
See Accompanying Notes to Financial Statements 22
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE ------------------------------------------------------------------------------------------------------------- CABLE TELEVISION (CONTINUED) (1) HILTON HEAD COMMUNICATIONS, L.P. Caa1 NR $ 1,000,000 Revolver, maturing September 30, 2007 $ 813,000 INSIGHT MIDWEST HOLDINGS, LLC Ba3 BB+ 3,000,000 Term Loan, maturing December 31, 2009 3,005,625 MCC IOWA MEDIACOM BROADBAND Ba3 BB+ 3,000,000 Term Loan, maturing September 30, 2010 3,004,790 (1) OLYMPUS CABLE HOLDINGS, LLC B2 D 4,250,000 Term Loan, maturing September 30, 2010 3,713,438 ------------- 28,349,148 ------------- CARGO TRANSPORT: 1.2% (1) AMERICAN COMMERCIAL LINES, LLC Ba3 NR 1,000,000 Debtor in Possession Term Loan, maturing July 31, 2004 997,500 NEOPLAN USA CORPORATION NR NR 510,500 Term Loan, maturing June 30, 2006 510,500 PACER INTERNATIONAL, INC. B1 BB- 1,394,118 Term Loan, maturing June 10, 2010 1,407,187 RAILAMERICA, INC. Ba3 BB 316,800 Term Loan, maturing May 22, 2009 317,790 264,000 Term Loan, maturing May 22, 2009 264,825 1,399,200 Term Loan, maturing May 22, 2009 1,403,573 ------------- 4,901,375 ------------- CELLULAR COMMUNICATIONS: 5.8% AIRGATE PCS, INC. B2 CCC- 234,680 Term Loan, maturing June 06, 2007 218,251 2,742,213 Term Loan, maturing September 30, 2008 2,550,258 CENTENNIAL CELLULAR OPERATING COMPANY B3 B 632,731 Term Loan, maturing November 30, 2006 607,949 CENTENNIAL PUERTO RICO OPERATIONS CORPORATION B3 B 632,731 Term Loan, maturing November 30, 2006 607,949 MICROCELL TELECOMMUNICATIONS, INC. NR CCC+ 913,402 Term Loan, maturing March 01, 2006 819,017 NEXTEL FINANCE COMPANY Ba2 BB 167,207 Revolver, maturing December 31, 2007 160,561 9,575,742 Term Loan, maturing December 31, 2007 9,263,334 2,985,000 Term Loan, maturing March 31, 2009 2,971,941 NEXTEL OPERATIONS, INC. Ba2 BB 2,006,617 Term Loan, maturing February 10, 2007 2,023,880 RURAL CELLULAR CORPORATION B2 B- 2,000,000 Term Loan, maturing April 03, 2008 1,908,750 WESTERN WIRELESS CORPORATION B3 B- 2,291,667 Term Loan, maturing March 31, 2008 2,188,542 ------------- 23,320,432 ------------- CHEMICALS, PLASTICS AND RUBBER: 4.9% EQUISTAR CHEMICALS, L.P. Ba2 BB 1,239,116 Term Loan, maturing August 24, 2007 1,244,889 FMC CORPORATION Ba1 BBB- 995,000 Term Loan, maturing October 21, 2007 1,008,432
See Accompanying Notes to Financial Statements 23
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE ------------------------------------------------------------------------------------------------------------- CHEMICALS, PLASTICS AND RUBBER (CONTINUED) GEO SPECIALTY CHEMICALS, INC. B3 CCC+ $ 830,101 Term Loan, maturing December 31, 2007 $ 751,241 HERCULES, INC. Ba1 BB 2,487,500 Term Loan, maturing May 15, 2007 2,499,938 HUNTSMAN, LLC B2 B+ 1,142,063 Term Loan, maturing March 31, 2007 1,015,484 2,368,106 Term Loan, maturing March 31, 2007 2,105,641 HUNTSMAN INTERNATIONAL, LLC B1 B+ 1,233,420 Term Loan, maturing June 30, 2007 1,238,046 1,233,314 Term Loan, maturing June 30, 2008 1,237,683 INEOS GROUP HOLDINGS, PLC Ba2 BB 2,355,012 Term Loan, maturing April 26, 2009 2,365,805 JOHNSONDIVERSEY, INC. Ba3 BB- 1,907,005 Term Loan, maturing November 03, 2009 1,917,732 NOVEON, INC. B1 BB- 3,000,000 Term Loan, maturing September 30, 2008 3,030,000 ROCKWOOD SPECIALTIES GROUP, INC. B1 B+ 1,500,000 Term Loan, maturing July 23, 2010 1,515,626 ------------- 19,930,517 ------------- CONTAINERS, PACKAGING AND GLASS: 5.1% BERRY PLASTICS CORPORATION B1 B+ 1,980,000 Term Loan, maturing July 22, 2010 1,993,364 CONSTAR INTERNATIONAL, INC. B1 BB- 1,985,000 Term Loan, maturing November 20, 2009 1,951,090 CROWN CORK & SEAL CO., INC. Ba3 BB 1,500,000 Term Loan, maturing September 15, 2008 1,510,688 GRAPHIC PACKAGING INTERNATIONAL, INC. B1 B+ 4,000,000 Term Loan, maturing August 08, 2009 4,021,252 GREIF BROS. CORPORATION Ba3 BB 990,000 Term Loan, maturing August 23, 2009 995,445 JEFFERSON SMURFIT CORPORATION Ba3 B+ 1,098,182 Term Loan, maturing March 31, 2007 1,102,758 KERR GROUP, INC. B1 BB- 1,500,000 Term Loan, maturing August 13, 2010 1,514,063 OWENS-ILLINOIS GROUP, INC. B1 BB 3,000,000 Term Loan, maturing April 01, 2008 3,010,626 SILGAN HOLDINGS, INC. Ba2 BB 1,995,000 Term Loan, maturing November 30, 2008 2,004,560 SMURFIT-STONE CONTAINER CANADA, INC. Ba3 B+ 366,698 Term Loan, maturing June 30, 2009 368,394 STONE CONTAINER CORPORATION Ba3 B+ 2,164,264 Term Loan, maturing June 30, 2009 2,174,274 ------------- 20,646,514 ------------- DIVERSIFIED/CONGOMERATE MANUFACTURING: 2.2% BRAND SERVICES, INC. B1 B+ 995,000 Term Loan, maturing October 16, 2009 999,353 FLOWSERVE CORPORATION Ba3 BB- 2,806,835 Term Loan, maturing June 30, 2009 2,823,875
See Accompanying Notes to Financial Statements 24
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE ------------------------------------------------------------------------------------------------------------- DIVERSIFIED/CONGOMERATE MANUFACTURING (CONTINUED) MUELLER GROUP, INC. B1 B+ $ 990,000 Term Loan, maturing May 31, 2008 $ 990,884 NEPTUNE TECHNOLOGY GROUP, INC. B1 B+ 1,217,105 Term Loan, maturing March 31, 2010 1,230,798 SPX CORPORATION Ba2 BBB- 2,727,500 Term Loan, maturing September 30, 2009 2,742,842 ------------- 8,787,752 ------------- DIVERSIFIED/CONGOMERATE SERVICE: 0.7% IRON MOUNTAIN, INC. Ba3 BB 996,000 Term Loan, maturing February 15, 2008 1,002,403 US INVESTIGATIONS SERVICES, LLC B1 BB- 1,757,883 Term Loan, maturing January 10, 2009 1,760,081 ------------- 2,762,484 ------------- ECOLOGICAL: 0.4% ALLIED WASTE NORTH AMERICA, INC. Ba3 BB 1,500,000 Term Loan, maturing January 15, 2010 1,510,714 ------------- 1,510,714 ------------- ELECTRONICS: 1.5% DECISION ONE CORPORATION B3 CCC 2,842,000 Term Loan, maturing April 18, 2005 2,415,701 SEAGATE TECHNOLOGY HDD HOLDINGS, INC. Ba1 BB+ 1,414,314 Term Loan, maturing May 13, 2007 1,421,132 SEAGATE TECHNOLOGY (US) HOLDINGS, INC. Ba1 BB+ 565,686 Term Loan, maturing May 13, 2007 568,413 TRANSACTION NETWORK SERVICES, INC. Ba3 BB- 1,761,256 Term Loan, maturing April 03, 2007 1,753,551 ------------- 6,158,797 ------------- FARMING AND AGRICULTURE: 0.7% SCOTTS COMPANY Ba3 BB 2,777,638 Term Loan, maturing December 31, 2007 2,798,470 ------------- 2,798,470 ------------- FINANCE: 0.5% RENT-A-CENTER, INC. Ba2 BB 2,000,000 Term Loan, maturing May 28, 2009 2,015,834 ------------- 2,015,834 ------------- GAMING: 3.0% ALLIANCE GAMING CORPORATION B1 BB- 1,975,000 Term Loan, maturing December 31, 2006 1,989,402 AMERISTAR CASINOS, INC. Ba3 BB- 1,984,685 Term Loan, maturing December 20, 2006 1,993,864 ARGOSY GAMING COMPANY Ba2 BB 1,933,817 Term Loan, maturing July 31, 2008 1,944,695 ISLE OF CAPRI CASINOS, INC. Ba2 BB- 987,500 Term Loan, maturing April 26, 2008 991,280 MANDALAY RESORT GROUP Ba2 BB+ 2,000,000 Term Loan, maturing August 21, 2006 1,994,166
See Accompanying Notes to Financial Statements 25
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE ------------------------------------------------------------------------------------------------------------- GAMING (CONTINUED) PARK PLACE ENTERTAINMENT CORPORATION Ba1 BBB- $ 1,009,606 Revolver, maturing December 31, 2003 $ 996,776 PENN NATIONAL GAMING Ba3 B+ 1,496,250 Term Loan, maturing September 01, 2007 1,503,918 UNITED AUBURN INDIAN COMMUNITY Ba3 BB- 783,784 Term Loan, maturing January 24, 2009 789,662 ------------- 12,203,763 ------------- GROCERY: 0.5% GIANT EAGLE, INC. Ba2 BB+ 1,980,000 Term Loan, maturing August 02, 2009 1,987,425 ------------- 1,987,425 ------------- HEALTHCARE, EDUCATION AND CHILDCARE: 7.7% ALARIS MEDICAL SYSTEMS, INC. B1 BB 918,367 Term Loan, maturing June 30, 2009 927,780 ALLIANCE IMAGING, INC. B1 B+ 778,626 Term Loan, maturing November 02, 2006 765,973 895,105 Term Loan, maturing June 10, 2008 872,055 AMERIPATH, INC. B1 B+ 897,750 Term Loan, maturing March 27, 2010 899,994 APRIA HEALTHCARE GROUP, INC. Ba1 BBB- 1,965,000 Term Loan, maturing July 20, 2008 1,966,228 CAREMARK RX, INC. Ba2 BBB- 1,478,775 Term Loan, maturing March 31, 2006 1,482,935 COMMUNITY HEALTH SYSTEMS, INC. Ba3 BB- 2,977,500 Term Loan, maturing July 16, 2010 2,988,666 1,000,000 Term Loan, maturing January 16, 2011 1,003,750 DAVITA, INC. Ba3 BB- 3,000,000 Term Loan, maturing March 31, 2009 3,013,125 EXPRESS SCRIPTS, INC. Ba1 BBB- 769,231 Term Loan, maturing March 31, 2008 772,528 FISHER SCIENTIFIC INTERNATIONAL, INC. Ba3 BB+ 1,496,250 Term Loan, maturing March 31, 2010 1,505,976 HCA, INC. Ba1 BBB- 1,275,000 Term Loan, maturing April 30, 2006 1,255,875 IASIS HEALTHCARE CORPORATION B1 B+ 925,000 Term Loan, maturing February 09, 2009 931,475 KINETIC CONCEPTS, INC. B1 BB- 2,500,000 Term Loan, maturing August 05, 2010 2,518,750 MEDCO HEALTH Ba1 BBB 1,500,000 Term Loan, maturing June 30, 2010 1,500,938 OXFORD HEALTH PLANS, INC. Ba2 BB+ 1,496,250 Term Loan, maturing April 25, 2009 1,502,485 PACIFICARE HEALTH SYSTEMS, INC. B1 BB- 1,000,000 Term Loan, maturing June 03, 2008 1,006,563 TRIAD HOSPITALS, INC. Ba3 BB 1,961,818 Term Loan, maturing September 30, 2008 1,976,198 VANGUARD HEALTH SYSTEMS, INC. Ba3 B+ 1,492,500 Term Loan, maturing January 03, 2010 1,499,963
See Accompanying Notes to Financial Statements 26
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE ------------------------------------------------------------------------------------------------------------- HEALTHCARE, EDUCATION AND CHILDCARE (CONTINUED) VICAR OPERATING, INC. B1 B+ $ 2,500,000 Term Loan, maturing June 30, 2009 $ 2,512,500 ------------- 30,903,757 ------------- HOME AND OFFICE FURNISHING, HOUSEWARES: 0.8% GLOBAL IMAGING SYSTEMS, INC. Ba3 BB- 500,000 Term Loan, maturing June 25, 2009 505,000 SEALY MATTRESS COMPANY B1 B+ 445,517 Term Loan, maturing December 15, 2004 444,069 596,027 Term Loan, maturing December 15, 2005 594,090 762,051 Term Loan, maturing December 15, 2006 759,574 TEMPUR PEDIC B1 B+ 1,000,000 Term Loan, maturing August 18, 2009 1,001,250 ------------- 3,303,983 ------------- INSURANCE: 0.3% INFINITY PROPERTY & CASUALTY Baa3 BBB 1,000,000 Term Loan, maturing June 30, 2010 1,007,500 ------------- 1,007,500 ------------- LEISURE, AMUSEMENT AND ENTERTAINMENT: 3.1% AMF BOWLING WORLDWIDE, INC. B1 B 822,481 Term Loan, maturing February 28, 2008 824,194 LOEWS CINEPLEX ENTERTAINMENT CORPORATION NR NR 1,870,432 Term Loan, maturing February 29, 2008 1,864,879 METRO-GOLDWYN-MAYER STUDIOS, INC. Ba3 BB- 3,000,000 Term Loan, maturing June 30, 2008 3,010,314 NEW JERSEY BASKETBALL, LLC B2 B- 1,000,000 Term Loan, maturing December 08, 2003 995,000 PURE FISHING NR NR 1,000,000 Term Loan, maturing December 31, 2009 1,001,875 SIX FLAGS THEME PARKS, INC. Ba2 BB- 3,000,000 Term Loan, maturing June 30, 2009 2,999,064 VIVENDI UNIVERSAL ENTERTAINMENT, LLP Ba2 BB+ 2,000,000 Term Loan, maturing June 30, 2008 2,011,876 ------------- 12,707,202 ------------- LODGING: 1.3% EXTENDED STAY AMERICA, INC. Ba3 BB- 1,439,887 Term Loan, maturing January 15, 2008 1,449,015 GAYLORD ENTERTAINMENT COMPANY NR NR 2,000,000 Term Loan, maturing March 22, 2006 1,990,000 WYNDHAM INTERNATIONAL, INC. NR CCC+ 916,312 Term Loan, maturing June 30, 2004 782,588 1,244,625 Term Loan, maturing June 30, 2006 1,039,884 ------------- 5,261,487 ------------- MACHINERY: 1.3% ALLIANCE LAUNDRY HOLDINGS, LLC B1 B 1,792,746 Term Loan, maturing August 02, 2007 1,786,396 NATIONAL WATERWORKS, INC. B1 BB- 1,500,000 Term Loan, maturing November 22, 2009 1,512,563
See Accompanying Notes to Financial Statements 27
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE ------------------------------------------------------------------------------------------------------------- MACHINERY (CONTINUED) REXNORD CORPORATION B1 B+ $ 1,916,667 Term Loan, maturing November 25, 2009 $ 1,932,638 ------------- 5,231,597 ------------- MINING, STEEL, IRON AND NON-PRECIOUS METALS: 0.7% PEABODY ENERGY CORPORATION Ba1 BB+ 2,992,500 Term Loan, maturing March 21, 2010 3,021,177 ------------- 3,021,177 ------------- OIL AND GAS: 2.2% CITGO PETROLEUM CORPORATION Ba2 BB+ 1,500,000 Term Loan, maturing February 27, 2006 1,550,625 PACIFIC ENERGY GROUP, LLC Ba2 BBB- 1,000,000 Term Loan, maturing July 26, 2009 1,006,563 PLAINS MARKETING, L.P. Ba1 BBB- 990,000 Term Loan, maturing September 21, 2007 995,775 PMC COMPANY Ba1 BBB- 1,840,000 Term Loan, maturing May 05, 2006 1,841,150 TESORO PETROLEUM CORPORATION Ba3 BB 831,250 Term Loan, maturing April 17, 2007 838,523 W-H ENERGY SERVICES, INC. B2 B+ 1,466,263 Term Loan, maturing April 16, 2007 1,462,598 WILLIAMS PRODUCTION RMT COMPANY B1 BB 1,000,000 Term Loan, maturing May 30, 2007 1,008,750 ------------- 8,703,984 ------------- OTHER BROADCASTING AND ENTERTAINMENT: 2.1% AMERICAN MOVIE CLASSICS Ba1 BBB- 600,000 Term Loan, maturing March 14, 2009 601,937 DIRECTV HOLDINGS, LLC Ba2 BB- 2,000,000 Term Loan, maturing March 06, 2010 2,013,376 PEGASUS MEDIA & COMMUNICATIONS, INC. B3 B- 3,867,021 Term Loan, maturing April 30, 2005 3,635,000 RAINBOW MEDIA GROUP Ba2 BB+ 2,400,000 Term Loan, maturing March 14, 2009 2,407,750 ------------- 8,658,063 ------------- OTHER TELECOMMUNICATIONS: 0.8% CINCINNATI BELL, INC. B1 B+ 1,022,608 Revolver, maturing November 09, 2004 1,000,239 802,416 Term Loan, maturing November 09, 2004 807,766 GCI HOLDINGS, INC. Ba3 BB+ 1,500,000 Term Loan, maturing October 15, 2004 1,511,250 ------------- 3,319,255 ------------- PERSONAL AND NON DURABLE CONSUMER PRODUCTS: 3.2% ARMKEL, LLC Ba3 B+ 849,447 Term Loan, maturing March 28, 2009 855,618 CHURCH & DWIGHT COMPANY, INC. Ba2 BB 1,098,576 Term Loan, maturing September 30, 2007 1,106,326 JOSTENS, INC. Ba3 BB- 2,000,000 Term Loan, maturing July 29, 2010 2,011,250
See Accompanying Notes to Financial Statements 28
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE ------------------------------------------------------------------------------------------------------------- PERSONAL AND NON DURABLE CONSUMER PRODUCTS (CONTINUED) NORWOOD PROMOTIONAL PRODUCTS, INC. NR NR $ 2,138,807 Term Loan, maturing February 01, 2005 $ 2,138,807 1,772,402 (2) Term Loan, maturing February 01, 2005 788,719 452,744 (2) Term Loan, maturing February 01, 2005 -- PLAYTEX PRODUCTS, INC. B1 B+ 4,104,167 Term Loan, maturing May 31, 2009 4,108,016 RAYOVAC CORPORATION Ba3 BB- 1,780,000 Term Loan, maturing September 30, 2009 1,783,708 ------------- 12,792,444 ------------- PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 1.8% AFC ENTERPRISES, INC. B1 B 1,405,155 Term Loan, maturing May 23, 2009 1,402,345 COINMACH CORPORATION B1 BB- 980,000 Term Loan, maturing July 25, 2009 984,594 DOMINO'S, INC. B1 BB- 2,754,098 Term Loan, maturing June 25, 2010 2,779,918 OTIS SPUNKMEYER, INC. B1 B+ 1,930,165 Term Loan, maturing February 20, 2009 1,932,979 ------------- 7,099,836 ------------- PRINTING AND PUBLISHING: 5.5% ADAMS OUTDOOR ADVERTISING, L.P. B1 B+ 1,770,506 Term Loan, maturing February 08, 2008 1,778,252 AMERICAN MEDIA OPERATIONS, INC. Ba3 B+ 30,244 Term Loan, maturing April 01, 2006 30,187 3,120,508 Term Loan, maturing April 01, 2007 3,143,911 DEX MEDIA EAST, LLC Ba3 BB- 2,195,122 Term Loan, maturing May 08, 2009 2,232,558 HOLLINGER INTERNATIONAL PUBLISHING, INC. Ba2 BB- 992,500 Term Loan, maturing September 30, 2009 1,008,628 LAMAR MEDIA CORPORATION Ba2 BB- 4,000,000 Term Loan, maturing June 30, 2010 4,019,584 MOORE CORPORATION Ba2 BB+ 2,000,000 Term Loan, maturing March 15, 2010 2,012,812 R.H. DONNELLEY, INC. Ba3 BB 1,932,697 Term Loan, maturing June 30, 2010 1,971,888 READER'S DIGEST ASSOCIATIONS, INC. Ba1 BB+ 2,799,647 Term Loan, maturing May 20, 2008 2,779,899 TRANSWESTERN PUBLISHING COMPANY Ba3 BB- 1,255,413 Term Loan, maturing June 27, 2008 1,261,495 ZIFF DAVIS MEDIA, INC. B3 CCC 2,000,000 Term Loan, maturing March 31, 2007 1,832,500 ------------- 22,071,714 ------------- RADIO AND TV BROADCASTING: 3.5% CITADEL BROADCASTING COMPANY Ba2 B+ 138,222 Term Loan, maturing June 26, 2008 138,222 CUMULUS MEDIA, INC. Ba3 B+ 1,995,000 Term Loan, maturing March 28, 2010 2,013,081
See Accompanying Notes to Financial Statements 29
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE ------------------------------------------------------------------------------------------------------------- RADIO AND TV BROADCASTING (CONTINUED) EMMIS OPERATING COMPANY Ba2 B+ $ 853,275 Term Loan, maturing February 28, 2009 $ 855,027 1,692,932 Term Loan, maturing August 31, 2009 1,703,865 FISHER BROADCASTING, INC. Ba3 B+ 995,000 Term Loan, maturing February 28, 2010 993,134 GRAY TELEVISION, INC. Ba3 B+ 2,000,000 Term Loan, maturing December 31, 2010 2,017,084 LIN TELEVISION CORPORATION Ba2 BB 525,714 Term Loan, maturing December 31, 2007 528,562 SINCLAIR BROADCAST GROUP, INC. Ba2 BB 971,800 Term Loan, maturing December 31, 2009 977,830 1,943,600 Term Loan, maturing December 31, 2009 1,957,571 SUSQUEHANNA MEDIA COMPANY Ba1 BB- 2,468,750 Term Loan, maturing June 30, 2008 2,481,094 TELEVICENTRO OF PUERTO RICO, LLC Ba2 BB 474,286 Term Loan, maturing December 31, 2007 476,756 ------------- 14,142,226 ------------- RETAIL: 2.0% ADVANCE STORES COMPANY, INC. Ba3 BB- 2,141,081 Term Loan, maturing November 30, 2007 2,154,462 CH OPERATING, LLC B2 B+ 725,045 Term Loan, maturing June 21, 2007 725,952 CSK AUTO, INC. Ba3 BB- 500,000 Term Loan, maturing February 15, 2006 505,000 PANTRY, INC. B1 B+ 990,119 Term Loan, maturing March 31, 2007 997,544 PETCO ANIMAL SUPPLIES, INC. Ba3 BB- 731,266 Term Loan, maturing October 26, 2008 735,837 RITE AID CORPORATION B1 BB 2,000,000 Term Loan, maturing April 30, 2008 2,021,250 SHOPPERS DRUG MART CORPORATION Baa3 BBB+ 811,765 Term Loan, maturing February 04, 2009 813,879 ------------- 7,953,924 ------------- TELECOMMUNICATIONS EQUIPMENT: 2.5% AMERICAN TOWER, L.P. B2 B 2,939,325 Term Loan, maturing June 30, 2007 2,918,200 CROWN CASTLE OPERATING COMPANY Ba3 B- 3,391,500 Term Loan, maturing March 15, 2008 3,400,281 PINNACLE TOWERS, INC. B1 D 2,000,000 Term Loan, maturing October 31, 2005 1,990,834 SPECTRASITE COMMUNICATIONS, INC. B1 B+ 1,903,317 Term Loan, maturing December 31, 2007 1,915,808 ------------- 10,225,123 ------------- TEXTILES AND LEATHER: 1.2% LEVI STRAUSS & COMPANY B1 BB 974,196 Term Loan, maturing July 31, 2006 967,195 TARGUS GROUP, INC. NR NR 2,355,845 Term Loan, maturing August 31, 2006 2,084,922
See Accompanying Notes to Financial Statements 30
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE ------------------------------------------------------------------------------------------------------------- TEXTILES AND LEATHER (CONTINUED) WILLIAM CARTER COMPANY Ba3 BB $ 1,944,040 Term Loan, maturing September 08, 2008 $ 1,954,571 ------------- 5,006,688 ------------- UTILITIES: 2.4% CALPINE CONSTRUCTION FINANCE COMPANY, L.P. NR B+ 2,000,000 Term Loan, maturing February 26, 2009 2,035,000 CALPINE CORPORATION Ba3 B 3,000,000 Term Loan, maturing July 16, 2007 3,005,625 MICHIGAN ELECTRIC TRANSMISSION COMPANY Baa2 BB+ 990,000 Term Loan, maturing May 01, 2007 993,300 PIKE ELECTRIC, INC. Ba3 BB- 1,647,059 Term Loan, maturing April 18, 2010 1,658,898 SOUTHERN CALIFORNIA EDISON COMPANY Ba2 BB 2,000,000 Term Loan, maturing March 01, 2005 2,007,188 ------------- 9,700,011 ------------- TOTAL SENIOR LOANS (COST $354,710,654) 355,513,212 ------------- OTHER CORPORATE DEBT: 0.5% FINANCE: 0.5% VALUE ASSET MANAGEMENT, INC. B3 B $ 2,000,000 Senior Subordinated Bridge Note, maturing August 31, 2005 $ 1,920,000 ------------- TOTAL OTHER CORPORATE DEBT (COST $1,990,000) 1,920,000 ------------- EQUITIES AND OTHER ASSETS: 0.6% SECURITY DESCRIPTION VALUE ------------------------------------------------------------------------------------------------------------- (@), (R) Decision One Corporation (92,638 Common Shares) -- (@) Microcell Telecommunications, Inc. (908 1st Preferred Voting Shares) 10,058 (@) Microcell Telecommunications, Inc. (92,980 1st Preferred Non-Voting Shares) 669,276 (@) Microcell Telecommunications, Inc. (19,547 2nd Preferred Non-Voting Shares) 204,554 (@), (R) Murray's Discount Auto Stores, Inc. (Escrow) 155,087 (@), (R) Neoplan U.S.A. Corporation (1,627 Common Shares) -- (@), (R) Neoplan U.S.A. Corporation (170,180 Preferred B Shares) -- (@), (R) Neoplan U.S.A. Corporation (101,690 Preferred C Shares) 40,207 (@), (R) Neoplan U.S.A. Corporation (330,600 Preferred D Shares) 330,600 (@), (R) New World Restaurant Group, Inc. (Warrants for 2,244 Common Shares, Expires June 15, 2006) 34,636
See Accompanying Notes to Financial Statements 31
SECURITY DESCRIPTION VALUE ------------------------------------------------------------------------------------------------------------- (@), (R) Safelite Glass Corporation (99,495 Common Shares) $ 988,980 (@), (R) Safelite Realty (6,716 Common Shares) -- (@), (R) Targus Group, Inc. (Warrants for 47,931 Common Shares, Expires June 12, 2006) -- ------------- TOTAL FOR EQUITIES AND OTHER ASSETS (COST $1,333,836) 2,433,398 ------------- TOTAL LONG-TERM INVESTMENTS (COST $358,034,490) $ 359,866,610 ------------- SHORT-TERM INVESTMENTS: 4.9% PRINCIPAL AMOUNT SECURITY DESCRIPTION VALUE ------------------------------------------------------------------------------------------------------------- $ 19,900,000 State Street Repurchase Agreement dated 08/29/03, 0.850% due 09/02/03, $19,901,879 due upon repurchase (Collateralized by $19,565,000 FNMA, 4.500%, Market Value $20,298,688 due 08/15/04) 19,900,000 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $19,900,000) 19,900,000 ------------- TOTAL INVESTMENTS (COST $377,934,490)** 94.0% $ 379,766,610 OTHER ASSETS AND LIABILITIES - NET 6.0 24,429,433 ------ ------------- NET ASSETS 100.0% $ 404,196,043 ====== =============
---------- * Senior loans, while exempt from registration under the Securities 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. + Bank Loans rated below Baa 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 11 of the U.S. Federal Bankruptcy code. (2) Loan is on non-accrual basis. NR Not Rated (@) Non-income producing security. (R) Restricted security. ** For federal income tax purposes, cost of investments (excluding short-term investments) is $358,034,490 and net unrealized appreciation consists of the following: Gross Unrealized Appreciation $ 6,022,672 Gross Unrealized Depreciation (4,190,552) ------------ Net Unrealized Appreciation $ 1,832,120 ============
See Accompanying Notes to Financial Statements 32 SHAREHOLDER MEETING INFORMATION (Unaudited) A special meeting of shareholders of the ING Senior Income Fund held July 22, 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: 1. To approve a Sub-Advisory Agreement between ING Investments, LLC and Aeltus Investment Management, Inc., with no change in the Adviser, the portfolio manager(s), or the overall management fee paid by the Fund. 3. To transact such other business, not currently contemplated, that may properly come before the Special Meeting or any adjournment(s) thereof in the discretion of the proxies or their substitutes.
SHARES SHARES VOTED SHARES BROKER TOTAL PROPOSAL VOTED FOR AGAINST OR WITHHELD ABSTAINED NON-VOTE SHARES VOTED ---------------------------------------------------------------------------------- 1 18,971,635 21,316 39,876 -- 19,032,827 3 18,793,853 33,065 205,909 -- 19,032,827
33 TRUSTEE AND OFFICER INFORMATION (Unaudited) The business and affairs of the Fund are managed under the direction of the Fund's Board of Trustees. A trustee who is not an interested person of the Fund, as defined in the 1940 Act, is an independent trustee ("Independent Trustee"). The Trustees of the Fund are listed below. The Statement of Additional Information includes additional information about trustees of the Registrant and is available, without charge, upon request at 1-800-992-0180.
NUMBER OF PRINCIPAL PORTFOLIOS IN OTHER POSITION(S) HELD TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS WITH THE AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE ---------------------------- ---------------- --------------- ---------------------------- ------------- --------------------- NON-INTERESTED TRUSTEES: Paul S. Doherty(2) Trustee January 2001 - Mr. Doherty is President and 116 None 7337 E. Doubletree Ranch Rd. present Partner, Doherty, Wallace, Scottsdale, Arizona 85258 Pillsbury and Murphy, P.C., Born: 1934 Attorneys (1996 - present); Director, Tambrands, Inc. (1993 - 1998); and Trustee of each of the funds managed by Northstar Investment Management Corporation (1993 - 1999). J. Michael Earley(3) Trustee February 2002 - President and Chief 116 None 7337 E. Doubletree Ranch Rd. present Executive Officer, Bankers Scottsdale, Arizona 85258 Trust Company, N.A. (1992 - Born: 1945 present). R. Barbara Gitenstein(2) Trustee February 2002 - President, College of New 116 None 7337 E. Doubletree Ranch Rd. present Jersey (1999 - present). Scottsdale, Arizona 85258 Formerly, Executive Vice Born: 1948 President and Provost, Drake University (1992 - 1998). Walter H. May(2) Trustee January 2001 - Retired. Formerly, Managing 116 Best Prep Charity 7337 E. Doubletree Ranch Rd. present Director and Director of (1991 - present). Scottsdale, Arizona 85258 Marketing, Piper Jaffray, Born: 1936 Inc.; Trustee of each of the funds managed by Northstar Investment Management Corporation (1996 - 1999). Jock Patton(2) Trustee January 2001 - Private Investor (June 1997 116 Director, Hypercom, 7337 E. Doubletree Ranch Rd. present - present). Formerly Inc. (January 1999 - Scottsdale, Arizona 85258 Director and Chief Executive present); JDA Born: 1945 Officer, Rainbow Multimedia Software Group, Inc. Group, Inc. (January 1999 - (January 1999 - December 2001); Director of present); Buick of Stuart Entertainment, Inc.; Scottsdale, Inc.; Director of Artisoft, Inc. National Airlines, (1994 - 1998). Inc.
34
NUMBER OF PRINCIPAL PORTFOLIOS IN OTHER POSITION(S) HELD TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS WITH THE AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE ---------------------------- ---------------- --------------- ---------------------------- ------------- --------------------- David W.C. Putnam(3) Trustee January 2001 - President and Director, F.L. 116 Trustee, ING 7337 E. Doubletree Ranch Rd. present Putnam Securities Company, Investors Trust, Scottsdale, Arizona 85258 Inc. and its affiliates; Anchor International Born: 1939 President, Secretary and Bond (December 2000 - Trustee, The Principled present); F.L. Putnam Equity Market Fund. Foundation; Formerly, Trustee, Trust Progressive Capital Realty Corp.; Anchor Accumulation Trust Investment Trust; Bow Ridge (August 1998 - Mining Company and each of present); Principled the F.L. Putnam funds Equity Market Fund managed by Northstar (November 1996 - Investment Foundation present), Mercy Management Corporation Endowment Foundation (1994 - 1999). (1995 - present); Director, F.L. Putnam Investment Management Company (December 2001 - present); Asian American Bank and Trust Company (June 1992 - present); and Notre Dame Health Care Center (1991 - present) F.L. Putnam Securities Company, Inc. (June 1978 - present); and an Honorary Trustee, Mercy Hospital (1973 - present). Blaine E. Rieke(3) Trustee February 2001 - General Partner, Huntington 116 Morgan Chase Trust 7337 E. Doubletree Ranch Rd. present Partners (January 1997 - Co. (January 1998 - Scottsdale, Arizona 85258 present). Chairman of the present). Born: 1933 Board and Trustee of each of the funds managed by ING Investment Management Co. LLC (November 1998 - February 2001). Roger B. Vincent(3) Trustee February 2002 - President, Springwell 116 Director, AmeriGas 7337 E. Doubletree Ranch Rd. present Corporation (1989 - Propane, Inc. (1998 - Scottsdale, Arizona 85258 present). Formerly, present). Born: 1945 Director, Tatham Offshore, Inc. (1996 - 2000). Richard A. Wedemeyer(3) Trustee February 2001 - Retired. Mr. Wedemeyer was 116 Touchstone Consulting 7337 E. Doubletree Ranch Rd. present formerly Vice President - Group (1997 - Scottsdale, Arizona 85258 Finance and Administration, present). Born: 1936 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).
35
NUMBER OF PRINCIPAL PORTFOLIOS IN OTHER POSITION(S) HELD TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS WITH THE AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE ---------------------------- ---------------- --------------- ---------------------------- ------------- --------------------- INTERESTED TRUSTEES: Thomas J. McInerney(4) Trustee February 2001 - Chief Executive Officer, ING 170 Director, Hemisphere, 7337 E. Doubletree Ranch Rd. present U.S. Financial Services Inc. (May 2003 - Scottsdale, Arizona 85258 (September 2001 - present); present). Director, Born: 1956 General Manager and Chief Equitable Life Executive Officer, ING U.S. Insurance Co., Golden Worksite Financial Services American Life (December 2000 - present); Insurance Co., Life Member, ING Americas Insurance Company of Executive Committee (2001 - Georgia, Midwestern present); President, Chief United Life Insurance Executive Officer and Co., ReliaStar Life Director of Northern Life Insurance Co., Insurance Company (2001 - Security Life of present), ING Aeltus Holding Denver, Security Company, Inc. (2000 - Connecticut Life present), ING Retail Holding Insurance Co., Company (1998 - present). Southland Life Formerly, ING Life Insurance Insurance Co., USG and Annuity Company (1997 - Annuity and Life November 2002), ING Company, and United Retirement Holdings, Inc. Life and Annuity (1997 - March 2003); General Insurance Co. Inc Manager and Chief Executive (March 2001 - Officer, ING Worksite present); Trustee, Division (December 2000 - Ameribest Life October 2001), President, Insurance Co., (2001 ING-SCI, Inc. (August 1997 - - 2003); Trustee, December 2000); President, First Columbine Life Aetna Financial Services Insurance Co., (2001 (August 1997 - December - 2002); Member of 2000); and has held a the Board, National variety of line and Commission on corporate staff positions Retirement Policy, since 1978. Competitiveness and Technology of Connecticut, Connecticut Business and Industry Association, Bushnell; Connecticut Forum; Metro Hartford Chamber of Commerce; and Chairman, Concerned Citizens for Effective Government. John G. Turner(5) Trustee January 2001 - Chairman, Hillcrest Capital 116 Director, Hormel 7337 E. Doubletree Ranch Rd. present Partners (May 2002 - Foods Corporation Scottsdale, Arizona 85258 present); President, Turner (March 2000 - Born: 1939 Investment Company (January present); Shopko 2002 - present). Mr. Turner Stores, Inc. (August was formerly Vice Chairman 1999 - present); and of ING Americas (2000 - M.A. Mortenson 2002); Chairman and Chief Company (March 2002 - Executive Officer of present). ReliaStar Financial Corp.
---------- (1) Trustees serve until their successors are duly elected and qualified, subject to the Board's retirement policy. (2) Valuation Committee member. (3) Audit Committee member. (4) Mr. McInerney is an "interested person," as defined by the 1940 Act, because of his affiliation with ING U.S. Worksite Financial Services, an affiliate of ING Investments, LLC. (5) Mr. Turner is an "interested person," as defined by the 1940 Act, because of his affiliation with ING Americas , an affiliate of ING Investments, LLC. 36
PRINCIPAL TERM OF OFFICE OCCUPATION(S) NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE AND AGE HELD WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS ---------------------------- ---------------------------- ---------------------------- ---------------------------------------- OFFICERS: James M. Hennessy Chief Executive Officer, December 2000 - present President and Chief Executive Officer of 7337 E. Doubletree Ranch Rd. President and Chief ING Capital Corporation, LLC, ING Funds Scottsdale, Arizona 85258 Operating Officer Services, LLC, ING Advisors, Inc., ING Born: 1949 Investments, LLC, Lexington Funds Secretary January 2001 - February 2001 Distributor, Inc., Express America T.C. Inc. and EAMC Liquidation Corp. (since December 2001); Executive Vice President and Chief Operating Officer of ING Funds Distributor, LLC (since June 2000). Michael J. Roland Executive Vice President and February 2002 - present Executive Vice President, Chief 7337 E. Doubletree Ranch Rd. Assistant Secretary Financial Officer and Treasurer of ING Scottsdale, Arizona 85258 Funds Services, LLC, ING Funds Born: 1958 Chief Financial Officer January 2001 - present Distributor, LLC, ING Advisors, Inc., ING Investments, LLC (December 2001 - present), Lexington Funds Distributor, Inc., Express America T.C. Inc. and EAMC Liquidation Corp. (since December 2001). Formerly, Executive Vice President, Chief Financial Officer and Treasurer of ING Quantitative Management, Inc. (December 2001 - October 2002); and Senior Vice President, ING Funds Services, LLC, ING Investments, LLC, and ING Funds Distributor, LLC (June 1998 - December 2001). Stanley D. Vyner Executive Vice President December 2000 - present Executive Vice President of ING 7337 E. Doubletree Ranch Rd. Advisors, Inc. and ING Investments, LLC Scottsdale, Arizona 85258 (July 2000 - present) and Chief Born: 1950 Investment Officer of the International Portfolios, ING Investments, LLC (July 1996 - present). Formerly, President and Chief Executive Officer of ING Investments, LLC (August 1996 - August 2002). Daniel Norman Senior Vice President and December 2000 - present Senior Vice President, ING Investments, 7337 E. Doubletree Ranch Rd. Treasurer LLC (since December 1994); ING Funds Scottsdale, Arizona 85258 Distributor, LLC (since December 1995); Born: 1957 has served as an officer of other affiliates of ING since February 1992. Jeffrey A. Bakalar Senior Vice President January 2001 - present Senior Vice President, ING Investments, 7337 E. Doubletree Ranch Rd. LLC (since November 1999). Formerly Vice Scottsdale, Arizona 85258 President and Assistant Portfolio Born: 1959 Manager, ING Investments, LLC (February 1998 - November 1999). Elliot Rosen Senior Vice President May 2002 - present Senior Vice President, ING Investments, 7337 E. Doubletree Ranch Rd. LLC (since February 1999). Formerly, Scottsdale, Arizona 85258 Senior Vice President IPS-Sendero (May Born: 1953 1997 - February 1999). Robert S. Naka Senior Vice President and January 2001 - present Senior Vice President and Assistant 7337 E. Doubletree Ranch Rd. Assistant Secretary Secretary of ING Funds Services, LLC, Scottsdale, Arizona 85258 ING Funds Distributor, LLC, ING Born: 1963 Advisors, Inc., ING Investments, LLC (October 2001 - present) and Lexington Funds Distributor, Inc. (since December 2001). Formerly, Senior Vice President and Assistant Secretary for ING Quantitative Management, Inc. (October 2001 - October 2002); Vice President, ING Investments, LLC (April 1997 - October 1999) and ING Funds Services, LLC (February 1997 - August 1999).
37
PRINCIPAL TERM OF OFFICE OCCUPATION(S) NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE AND AGE HELD WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS ---------------------------- ---------------------------- ---------------------------- ---------------------------------------- William H. Rivoir III Senior Vice President and January 2001 - present Senior Vice President and Secretary of 7337 E. Doubletree Ranch Rd. Assistant Secretary ING Capital Corporation, LLC and ING Scottsdale, Arizona 85258 Funds Services, LLC (since February Born: 1951 2001), ING Funds Distributor, LLC, ING Advisors, Inc., ING Investments, LLC, Lexington Funds Distributor, Inc., ING Pilgrim Funding, Inc., Pilgrim America Financial, Inc., Express America TC, Inc. and EAMC Liquidation Corp. (since December 2001). Formerly, Senior Vice President and Assistant Secretary of ING Quantitative Management, Inc. (December 2001 to October 2002) and ING Funds Services, LLC (since June 1998), ING Investments, LLC, and Pilgrim America Financial, Inc. (since February 1999), Senior Vice President of ING Investments, LLC (since December 1998) and Assistant Secretary of ING Funds Distributor, LLC (since February 1999), America TC, Inc. and EAMC Liquidation Corp. (since December 2001). Formerly, Senior Vice President and Assistant Secretary of ING Investments LLC and Pilgrim America Financial, Inc. (since February 1999), Senior Vice President of ING Investments, LLC (since December 1998) and Assistant Secretary of ING Funds Distributor, LLC (since February 1999). Curtis F. Lee Senior Vice President and February 2002 - present Senior Vice President and Chief Credit 7337 E. Doubletree Ranch Rd. Chief Credit Officer Officer of Senior Loans of ING Scottsdale, Arizona 85258 Investments, LLC (since August 1999). Born: 1955 Formerly, held a series of positions with Standard Chartered Bank in the credit approval and problem loan management functions (August 1992 - June 1999). Kimberly A. Anderson Vice President January 2001 - present Vice President and Assistant Secretary 7337 E. Doubletree Ranch Rd. of ING Funds Services, LLC, ING Funds Scottsdale, Arizona 85258 Secretary February 2001 - August 2003 Distributor, LLC, ING Advisors, Inc., Born: 1964 ING Investments, LLC (since October Assistant Secretary January 2001 - February 2001 2001) and Lexington Funds Distributor, Inc. (since December 2001). Formerly, Vice President for ING Quantitative Management, Inc. (October 2001 - October 2002); Assistant Vice President of ING Funds Services, LLC (November 1999 - January 2001) and has held various other positions with ING Funds Services, LLC for more than the last five years. Robyn L. Ichilov Vice President January 2001 - present Vice President of ING Funds Services, 7337 E. Doubletree Ranch Rd. LLC (October 2001 - present) and ING Scottsdale, Arizona 85258 Investments, LLC (August 1997 - Born: 1967 present); Accounting Manager, ING Investments, LLC (November 1995 - present).
38
PRINCIPAL TERM OF OFFICE OCCUPATION(S) NAME, ADDRESS POSITION(S) AND LENGTH OF DURING THE AND AGE HELD WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS ---------------------------- ---------------------------- ---------------------------- ---------------------------------------- J. David Greenwald Vice President August 2003 - present Vice President of Mutual Fund Compliance 7337 E. Doubletree Ranch Rd. of ING Funds Services, LLC (May 2003 - Scottsdale, Arizona 85258 present). Formerly Assistant Treasurer Born: 1957 and Director of Mutual Fund Compliance and Operations of American Skandia, A Prudential Financial Company (October 1996 - May 2003). Lauren D. Bensinger Vice President March 2003 - present Vice President and Chief Compliance 7337 E. Doubletree Ranch Rd. Officer, ING Funds Distributor, LLC. Scottsdale, Arizona 85258 (July 1995 - present); Vice President Born: 1954 (February 1996 - present) and Chief Compliance Officer (October 2001 - present) ING Investments, LLC; Vice President and Chief Compliance Officer, ING Advisors, Inc. (July 2000 - present), Vice President and Chief Compliance Officer, ING Quantitative Management, Inc. (July 2000 - September 2002), and Vice President, ING Fund Services, LLC (July 1995 - present). Huey P. Falgout Secretary August 2003 - present Counsel, ING U.S. Financial Services 7337 E. Doubletree Ranch Rd. (November 2002 - present). Formerly, Scottsdale, Arizona 85258 Associate General Counsel of AIG Born: 1963 American General (January 1999 - November 2002) and Associate General Counsel of Van Kampen, Inc. (April 1992 - January 1999). Todd Modic Vice President August 2003 - present Vice President of Financial Reporting - 7337 E. Doubletree Ranch Rd. Assistant Vice President February 2002 - August 2003 Fund Accounting of ING Funds Services, Scottsdale, Arizona 85258 LLC (September 2002 - present). Director Born: 1967 of Financial Reporting of ING Investments, LLC (March 2001 - September 2002). Formerly, Director of Financial Reporting, Axient Communications, Inc. (May 2000 - January 2001) and Director of Finance, Rural/Metro Corporation (March 1995 - May 2000). Susan P. Kinens Assistant Vice President and February 2003 - present Assistant Vice President and Assistant 7337 E. Doubletree Ranch Rd. Assistant Secretary Secretary, ING Funds Services, LLC Scottsdale, Arizona 85258 (December 2002 - present); and has held Born: 1976 various other positions with ING Funds Services, LLC for more than the last five years. Maria M. Anderson Assistant Vice President February 2002 - present Assistant Vice President of ING Funds 7337 E. Doubletree Ranch Rd. Services, LLC (since October 2001). Scottsdale, Arizona 85258 Formerly, Manager of Fund Accounting and Born: 1958 Fund Compliance, ING Investments, LLC (September 1999 - November 2001); and Section Manager of Fund Accounting, Stein Roe Mutual Funds (July 1998 - August 1999).
---------- (1) The officers hold office until the next annual meeting of the Trustees and until their successors have been elected and qualified. 39 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 Senior Income Fund 1-800-336-3436 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 Eye Street, N.W. Washington, D.C. 20006 INDEPENDENT AUDITORS KPMG LLP 355 South Grand Avenue Los Angeles, California 90071 WRITTEN REQUESTS Please mail all account inquiries and other comments to: ING Senior Income Fund 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 Fund, including charges and expenses, may be obtained by calling ING Funds Distributor, LLC, Distributor, at 1-800-992-0180. Please read the prospectus carefully before you invest or send money. The Form N-PX (Proxy Voting Record) will be available without charge, upon request, by calling 800-992-0180 on or about 8/31/04; and on the fund's website at www.ingfunds.com; and on the SEC's website www.sec.gov. [ING FUNDS LOGO] SIFSAR0803-102903 ITEM 2. CODE OF ETHICS. Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEMS 4-8. [RESERVED] ITEM 9. 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 10. EXHIBITS. (a) Not applicable. (b) 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. 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 SENIOR INCOME FUND By /s/ James M. Hennessy ----------------------------------------------------------------------------- James M. Hennessy President and Chief Executive Officer Date November 6, 2003 -------------------------------------------------- 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 ----------------------------------------------------------------------------- James M. Hennessy President and Chief Executive Officer Date November 6, 2003 --------------------------------------------------------------------------- By /s/ Michael J. Roland ----------------------------------------------------------------------------- Michael J. Roland Executive Vice President and Chief Financial Officer Date November 6, 2003 ---------------------------------------------------------------------------