-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DCltGki5Ra7dM0FKhDw8zhRjJ7ZdCbf0M8ztUKblpx61F7gGDHgcYoREXekSL5c+ CMReGHBRnbpjgGErUVI2wg== 0001047469-04-016427.txt : 20040507 0001047469-04-016427.hdr.sgml : 20040507 20040507160043 ACCESSION NUMBER: 0001047469-04-016427 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040229 FILED AS OF DATE: 20040507 EFFECTIVENESS DATE: 20040507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ING SENIOR INCOME FUND CENTRAL INDEX KEY: 0001124959 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-10223 FILM NUMBER: 04789256 BUSINESS ADDRESS: STREET 1: ING SENIOR INCOME FUND STREET 2: 7337 E. DOUBLETREE RANCH ROAD CITY: SCOTTSDALE STATE: AZ ZIP: 85258 BUSINESS PHONE: 4804773000 MAIL ADDRESS: STREET 1: ING SENIOR INCOME FUND STREET 2: 7337 E. DOUBLETREE RANCH ROAD CITY: SCOTTSDALE STATE: AZ ZIP: 85258 FORMER COMPANY: FORMER CONFORMED NAME: PILGRIM SENIOR INCOME FUND DATE OF NAME CHANGE: 20010316 N-CSR 1 a2134249zn-csr.txt N-CSR OMB APPROVAL OMB Number: 3235-0570 Expires: October 31, 2006 Estimated average burden hours per response: 19.3 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 29 ----------- Date of reporting period: February 29, 2004 ----------------- ITEM 1. REPORTS TO STOCKHOLDERS. The following is a copy of the report transmitted to stockholders pursuant to Rule 30e-1 under the Act (17 CFR 270.30e-1): ANNUAL REPORT ANNUAL REPORT FEBRUARY 29, 2004 ING SENIOR INCOME FUND [GRAPHIC] [ING FUNDS LOGO] ING Senior Income Fund ANNUAL REPORT February 29, 2004 Table of Contents Portfolio Managers' Report 2 Independent Auditors' Report 7 Statement of Assets and Liabilities 8 Statement of Operations 10 Statements of Changes in Net Assets 11 Statement of Cash Flows 12 Financial Highlights 13 Notes to Financial Statements 15 Portfolio of Investments 22 Shareholder Meeting information 37 Tax Information 38 Trustee and Officer Information 39
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. PORTFOLIO CHARACTERISTICS AS OF FEBRUARY 29, 2004 Net Assets $ 668,726,889 Total Assets $ 671,566,455 Assets Invested in Senior Loans $ 638,242,547 Senior Loans Represented 308 Average Amount Outstanding per Loan $ 2,072,216 Industries Represented 37 Average Loan Amount per Industry $ 17,249,799 Portfolio Turnover Rate 72% Weighted Average Days to Interest Rate Reset 43 days Average Loan Final Maturity 57 months
PERFORMANCE SUMMARY During the fiscal year ended February 29, 2004, the Fund's Class A and Q shares each distributed total dividends from income of $0.64, resulting in an average annualized distribution rate of 4.24%(1) and 4.25%(1), respectively. During the same period, the Fund's Class B and C shares each distributed total dividends from income of $0.57, representing an average annualized distribution rate of 3.74%(1). This represents a spread of 3.06%, 3.07%, 2.56% and 2.56%, for Class A, B, C and Q, respectively, over the average 30-day LIBOR for the period under review. The Fund's total return for the fiscal year, for each of the share classes, excluding sales charges, ranged from 8.93% on Class A to 8.33% on Class B. The Fund ran slightly behind the S&P/LSTA Leveraged Loan Index, which posted a total return of 9.40%(2), as the Fund did not meaningfully participate in the final stages of a rally in the more speculative sub-sector of the non-investment grade loan market. As is consistent with our investment philosophy since inception, we remain committed to minimizing share price volatility and thus are reluctant to sacrifice credit discipline in search of extraordinary returns. MARKET OVERVIEW The non-investment grade loan market closed out the twelve-month period ended February 29, 2004 in robust fashion, driven by bullish investor sentiment and the continuation of several positive trends, both macroeconomic and specific to credit markets. Although sustained job creation still appears elusive at this point, revitalization of the U.S. economy has clearly taken hold, as evidenced by above-consensus gross domestic product numbers during recent quarters, and stronger than expected corporate earnings across many key industry sectors. Importantly, an improved economic outlook played a significant role in the effective re-opening of debt capital markets to a broader spectrum of non-investment grade borrowers. At the corporate level, although top-line revenue growth remains difficult to come by during this period of muted pricing power and intense global competition, in general, corporate executives continue to do the right things, i.e., lower production costs, improve productivity, and address liquidity concerns via renewed access to capital. These factors, taken as a whole, propelled the leveraged loan market to record returns during 2003 with continued momentum into the first quarter of 2004. - ---------- 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. 2 PORTFOLIO SPECIFICS In general, our management approach continues to emphasize three consistent themes: 1) top-down research designed to distinguish industry sectors that provide the best investment opportunity; 2) identification of those individual credits that offer strong performance relative to expected return given the underlying risk; and 3) sufficient diversification at both the issuer and industry level. On the latter point, the Fund remains well diversified. During the fiscal year, one in which net assets increased in excess of 140% (to $669 million at fiscal year end), the Fund's average amount outstanding per loan declined to approximately 0.32% of assets invested in senior loans, from 0.48% at the end of the prior fiscal year. During the same period, the average amount invested in any one industry decreased to 2.70% of assets invested in senior loans from 3.03%. TOP TEN INDUSTRY SECTORS AS OF FEBRUARY 29, 2004 AS A PERCENTAGE OF:
TOTAL NET ASSETS ASSETS ------ ------ Cable Television 12.7% 12.7% Cellular Communications 8.3% 8.4% Printing and Publishing 7.3% 7.4% Healthcare, Education and Childcare 7.0% 7.1% Automobile 4.8% 4.8% Beverage, Food and Tobacco 4.4% 4.4% Chemicals, Plastics and Rubber 4.3% 4.3% Containers, Packaging and Glass 3.7% 3.8% Radio and TV Broadcasting 3.5% 3.5% Telecommunications 3.1% 3.1%
TOP TEN SENIOR LOAN ISSUERS AS OF FEBRUARY 29, 2004 AS A PERCENTAGE OF:
TOTAL NET ASSETS ASSETS ------ ------ Charter Communications Operating LLC 3.2% 3.2% Nextel Finance Company 3.0% 3.0% General Growth Properties 1.5% 1.5% Hilton Head Communications, L.P. 1.4% 1.4% MCC Iowa LLC 1.4% 1.4% Qwest Communications International, Inc. 1.4% 1.4% Paxson Communications Corporation 1.0% 1.0% Federal-Mogul Corporation 1.0% 1.0% Insight Midwest Holdings LLC 1.0% 1.0% Olympus Cable Holdings, LLC 1.0% 1.0%
Clearly, industry and credit selection continued to be an important determinant of performance during fiscal 2004. Against the backdrop of an increasingly strong loan market, we again focused on industries and individual loan positions that offered value. Cable television and cellular communications finished out the fiscal year as the Fund's top two industry sectors, largely on the basis of offering attractive returns for the underlying risk. During the fiscal year, several of the Fund's larger individual holdings from these two sectors benefited from fundamental credit improvement. Specifically, Charter Communications Operating, LLC reported several quarters in which it met or exceeded analyst expectations, and in doing so, the third largest cable television provider in the U.S. has effectively regained access to much needed capital in order to address specific balance sheet issues. Charter's resurgence also directly impacted, in a favorable manner, the loans of Adelphia Communications and its subsidiaries, the country's fifth largest cable operator. Although Adelphia continues to work through a very complex Chapter 11 bankruptcy proceeding, the market value of the company's debt obligations continue to point to a full recovery to lenders upon exit from bankruptcy. We continue to monitor this situation closely. Similarly, Nextel Communications, the bellwether issuer in the non-investment grade wireless sector, turned in a succession of very strong quarters during the period 3 under review and, during the Fund's fourth fiscal quarter, refinanced it's sizeable credit facility at attractive borrowing rates. As in the recent past, Nextel's operational strength and capital markets activity has provided a catalyst to improved sentiment across the overall wireless sector, historically one of the Fund's largest. Importantly, the level of non-performing loans in the Fund (classified as those not currently paying interest and/or principal as contractually stipulated) remained negligible. As of February 29, 2004, non-performing assets consisted of two separate loan tranches (purchased well below par, packaged with a performing tranche from the same issuer) accounting for only 0.13% of the Fund's net assets. USE OF LEVERAGE The Fund seeks to prudently utilize financial leverage in order to increase the yield to the holders of common shares. As of February 29, 2004, the Fund did not have any borrowings outstanding under a $100.0 million revolving credit facility. The use of leverage for investment purposes increases both investment opportunity and investment risk. OUTLOOK As we move more deeply into 2004, loan investors, when analyzing their options, will likely continue to balance the prospects of an improving domestic economy with a supply/demand picture still heavily in favor of loan issuers. On one hand, the current environment has distinctly impacted existing loan prices in a favorable manner. On the other, it has also ushered in a period of unprecedented spread tightening, and made uncovering value a difficult proposition. While there is likely little upside left in loan prices at this point, fortunately, absent any significant external economic or geopolitical shocks, the downside also appears limited, at least for the foreseeable future. Default levels continue to drift lower, and a generational low in corporate borrowing rates, combined with historically strong investor demand for higher-yielding investments, has enabled many corporations to shore up balance sheets and thereby improve cash flow. Over the next few months, all eyes will be on the Federal Reserve as they determine when it is appropriate to increase short-term interest rates. Given the ultra-short duration of floating rate loans, an upward move in short-term rates should prove positive for the Fund's distributable yield. We thank you for your continued confidence and encourage your questions and comments. /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 April 15, 2004 4 [CHART]
ING SENIOR INCOME FUND CLASS B ING SENIOR INCOME FUND CLASS B S&P/LSTA LEVERAGED WITH EARLY WITHDRAWAL CHARGE(1) WITHOUT EARLY WITHDRAWAL CHARGE(2) LOAN INDEX(3) 4/2/2001 $ 10,000 $ 10,000 $ 10,000 2/28/2002 $ 10,146 $ 10,445 $ 10,228 2/28/2003 $ 10,571 $ 10,818 $ 10,571 2/29/2004 $ 11,519(1) $ 11,719(2) $ 11,566(3)
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS ENDED FEBRUARY 29, 2004 ------------------------------------------------------ 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 3.76% 4.42% -- Class B 5.33% 4.98% -- Class C 7.40% 5.63% -- Class Q 8.82% -- 6.05% Excluding Sales Charge: Class A 8.93% 6.18% -- Class B 8.33% 5.60% -- Class C 8.40% 5.63% -- Class Q 8.82% -- 6.05% S&P/LSTA Leveraged Loan Index(2) 9.40% 5.11% 5.41%
Based on a $10,000 initial investment, the graph and table above illustrate 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. THE FUND'S CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA SHOWN. PLEASE LOG ON TO www.ingfunds.com OR CALL (800) 992-0180 TO GET PERFORMANCE TO THE MOST RECENT MONTH END. 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 Early Withdrawal Charge ("EWC") is 3% in the first year, declining to 1% in the fifth year and eliminated thereafter. Class C maximum EWC is 1% for the first year. Class Q has no front-end sales charge or EWC 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. 5 YIELDS AND DISTRIBUTIONS RATES
30-DAY SEC YIELDS(1) AVERAGE ANNUALIZED DISTRIBUTION RATES(2) -------------------------------------- ---------------------------------------- CLASS A CLASS B CLASS C CLASS Q CLASS A CLASS B CLASS C CLASS Q -------------------------------------- ---------------------------------------- February 29, 2004(3) 3.08% 2.73% 2.73% 3.21% 4.24% 3.74% 3.74% 4.25% August 31, 2003(4) 4.12% 3.63% 3.61% 4.18% 4.63% 4.13% 4.13% 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. (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. (3) If the Investment Manager had not waived certain Fund expenses, the 30-Day SEC yield would have been 3.00% for Class A shares, 2.66% for Class B and Class C shares and 3.13% for Class Q shares. (4) 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 shares, 3.57% for Class C shares and 4.13% for Class Q shares. PRINCIPAL RISK FACTOR(S): This closed-end Fund may invest in below investment grade senior loans. Investment in the Fund involves the risk that borrowers may default on obligations, or that lenders may have difficulty liquidating the collateral securing the loans or enforcing their rights under the terms of the senior loans. Senior loans are subject to credit risks and the potential for non-payment of scheduled principal or interest payments, which may result in a reduction of the Fund's NAV. The use of leverage for investment purposes increases both investment opportunity and investment risk. In the event of a default on one or more loans or other interest-bearing instruments held by the Fund, the use of leverage, would exaggerate the loss to the Fund and may exaggerate the effect on the Fund's NAV. INTEREST RATE RISK: Changes in market interest rates will effect the yield on the Fund's Common Shares. If market interest rates fall, the yield on the Fund's Common Shares will also fall. In addition, changes in market interest rates may cause the Fund's NAV to experience moderate volatility because of the lag between changes in market rates and the resetting of the floating rates on assets in the Fund's portfolio. Finally, to the extent that market interest rate changes are reflected as a change in the market spreads for loans of the type and quality in which the Fund invests, the value of the Fund's portfolio may decrease in response to an increase in such spreads. INDEX DESCRIPTION The S&P/LSTA LEVERAGED LOAN INDEX ("LLI") is an unmanaged total return index that captures accrued interest, repayments, and market value changes. It represents a broad cross section of leveraged loans syndicated in the United States, including dollar-denominated loans to overseas issuers. Standard & Poor's and the Loan Syndications & Trading Association ("LSTA") conceived the LLI to establish a performance benchmark for the syndicated leveraged loan industry. An investor cannot invest directly in an index. 6 ING Senior Income Fund INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Trustees ING Senior Income Fund: We have audited the accompanying statement of assets and liabilities of the ING Senior Income Fund (the "Fund"), including the portfolio of investments, as of February 29, 2004, and the related statements of operations and cash flows for the year then ended, and the statement of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the three-year period then ended and the period from December 15, 2000 (inception) to February 28, 2001. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of February 29, 2004, by correspondence with the custodian and other appropriate audit procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of ING Senior Income Fund as of February 29, 2004, the results of its operations and cash flows for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the three-year period then ended and the period from December 15, 2000 to February 28, 2001, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP April 19, 2004 Los Angeles, California 7 ING Senior Income Fund STATEMENT OF ASSETS AND LIABILITIES as of February 29, 2004 ASSETS: Investments in securities at value (Cost $630,549,133) $ 641,584,738 Short-term investments at amortized cost 11,000,000 Cash 3,782,848 Receivables: Fund shares sold 11,924,047 Interest 2,732,171 Reimbursement due from Manager 96,078 Prepaid expenses 201,911 Prepaid arrangement fees on notes payable 244,662 --------------- Total assets 671,566,455 --------------- LIABILITIES: Accrued interest payable 8,303 Deferred arrangement fees 1,145,183 Payable to affiliates 718,757 Income distribution payable 658,765 Accrued trustee fees 2,873 Other accrued expenses and liabilities 305,685 --------------- Total liabilities 2,839,566 --------------- NET ASSETS $ 668,726,889 =============== NET ASSETS CONSIST OF: Paid-in capital $ 655,938,082 Undistributed net investment income 109,395 Undistributed net realized gain on investments 1,643,807 Net unrealized appreciation of investments 11,035,605 --------------- NET ASSETS $ 668,726,889 ===============
See Accompanying Notes to Financial Statements 8 CLASS A: Net assets $ 172,974,605 Shares authorized unlimited Par value $ 0.01 Shares outstanding 11,179,657 Net asset value and redemption price per share $ 15.47 Maximum offering price per share (4.75%)(1) $ 16.24 CLASS B: Net assets $ 62,851,915 Shares authorized unlimited Par value $ 0.01 Shares outstanding 4,067,839 Net asset value and redemption price per share(2) $ 15.45 Maximum offering price per share $ 15.45 CLASS C: Net assets $ 275,849,040 Shares authorized unlimited Par value $ 0.01 Shares outstanding 17,841,252 Net asset value and redemption price per share(2) $ 15.46 Maximum offering price per share $ 15.46 CLASS Q: Net assets $ 157,051,329 Shares authorized unlimited Par value $ 0.01 Shares outstanding 10,188,399 Net asset value and redemption price per share $ 15.41 Maximum offering price per share $ 15.41
(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 Early Withdrawal Charge. See Accompanying Notes to Financial Statements 9 STATEMENT OF OPERATIONS for the Year Ended February 29, 2004 INVESTMENT INCOME: Interest $ 21,820,176 Arrangement fees earned 640,210 Dividends 36,938 Other 921,993 -------------- Total investment income 23,419,317 -------------- EXPENSES: Investment management fees 3,534,357 Administration fees 441,795 Distribution and service fees: Class A 179,130 Class B 357,927 Class C 943,130 Class Q 482,448 Transfer agent fees: Class A 58,976 Class B 32,243 Class C 106,268 Class Q 197,999 Shareholder reporting expense 70,272 Interest expense 353,687 Custodian fees 210,400 Credit facility fees 93,342 Recordkeeping and pricing expense 11,695 Professional fees 316,622 Trustees' fees 15,980 Registration fees 107,548 Postage expense 74,080 Insurance expense 3,598 Miscellaneous expense 22,191 -------------- Total expenses 7,613,688 -------------- Less: Net waived and reimbursed fees 486,243 -------------- Net expenses 7,127,445 -------------- Net investment income 16,291,872 -------------- REALIZED AND UNREALIZED GAIN FROM INVESTMENTS: Net realized gain on investments 5,249,490 Net change in unrealized depreciation of investments 12,520,783 -------------- Net realized and unrealized gain on investments 17,770,273 -------------- Increase in net assets resulting from operations $ 34,062,145 ==============
See Accompanying Notes to Financial Statements 10 STATEMENTS OF CHANGES IN NET ASSETS
YEAR YEAR ENDED ENDED FEBRUARY 29, FEBRUARY 28, 2004 2003 ---- ---- INCREASE IN NET ASSETS FROM OPERATIONS: Net investment income $ 16,291,872 $ 12,420,155 Net realized gain (loss) on investments 5,249,490 (1,013,477) Net change in unrealized appreciation (depreciation) of investments 12,520,783 (920,901) -------------- --------------- Net increase in net assets resulting from operations 34,062,145 10,485,777 -------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS: Net investment income: Class A (2,804,728) (343,871) Class B (1,277,656) (655,286) Class C (4,349,387) (1,183,573) Class Q (8,270,536) (10,232,636) Net realized gain on investments: Class A (107,928) -- Class B (46,487) -- Class C (181,082) -- Class Q (159,555) -- -------------- --------------- Total distributions (17,197,359) (12,415,366) -------------- --------------- CAPITAL SHARE TRANSACTIONS: Net proceeds from sale of shares 585,241,477 46,900,491 Dividends reinvested 9,503,996 11,601,350 -------------- --------------- 594,745,473 58,501,841 Cost of shares repurchased (219,625,660) (29,437,098) -------------- --------------- Net increase in net assets resulting from capital share transactions 375,119,813 29,064,743 -------------- --------------- Net increase in net assets 391,984,599 27,135,154 -------------- --------------- NET ASSETS: Beginning of year 276,742,290 249,607,136 -------------- --------------- End of year $ 668,726,889 $ 276,742,290 ============== =============== Undistributed net investment income at end of year $ 109,395 $ 519,830 ============== ===============
See Accompanying Notes to Financial Statements 11 STATEMENT OF CASH FLOWS for Year Ended February 29, 2004 INCREASE (DECREASE) IN CASH CASH FLOWS FROM OPERATING ACTIVITIES: Interest received $ 17,976,628 Facility fees paid (477) Arrangement fee received 1,107,550 Other income received 921,993 Interest paid (417,336) Other operating expenses paid (5,653,703) Purchases of portfolio securities (3,466,129,041) Proceeds from disposition of portfolio securities 3,153,633,265 ------------------ Net cash used for operating activities (298,561,121) ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Distributions paid to common shareholders (7,693,363) Proceeds from capital shares sold 574,217,404 Disbursements for capital shares repurchased (219,625,660) Net repayment of notes payable (47,000,000) ------------------ Net cash flows provided by financing activities 299,898,381 ------------------ Net increase in cash 1,337,260 Cash at beginning of year 2,445,588 ------------------ Cash at end of year $ 3,782,848 ================== 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 $ 34,062,145 ------------------ Adjustments to reconcile net increase in net assets resulting from operations to net cash used for operating activities: Change in unrealized depreciation on investments (12,520,783) Net accretion/amortization of discounts on investments (2,682,541) Realized gain on sale of investments (5,249,490) Purchases of investments (3,466,129,041) Proceeds on sale of investments 3,153,633,265 Increase in interest receivable (1,197,945) Decrease in prepaid arrangement fees on notes payable 92,865 Increase in prepaid expenses (181,092) Increase in deferred arrangement fees 467,340 Decrease in accrued interest payable (63,649) Increase in reimbursement due from Manager (48,729) Increase in payable to affiliate 426,051 Increase in accrued trustees' fees 2,561 Increase in income distribution payable 658,765 Increase in accrued expenses 169,157 ------------------ Total adjustments (332,623,266) ------------------ Net cash used for operating activities $ (298,561,121) ================== NON CASH FINANCING ACTIVITIES Receivable for shares sold $ 11,924,047 Reinvestment of dividends $ 9,503,996
See Accompanying Notes to Financial Statements 12 ING SENIOR INCOME FUND FINANCIAL HIGHLIGHTS Selected data for a share of beneficial interest outstanding throughout each period.
CLASS A CLASS B --------------------------------- -------------------------------- YEAR YEAR PERIOD YEAR YEAR PERIOD ENDED ENDED ENDED ENDED ENDED ENDED FEB. 29, FEB. 28, FEB. 28, FEB. 29, FEB. 28, FEB. 28, 2004 2003 2002(1) 2004 2003 2002(1) - ----------------------------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of period $ 14.83 14.92 15.00 14.82 14.92 15.00 Income from investment operations: Net investment income $ 0.61 0.69 0.81 0.53 0.62 0.75 Net realized and unrealized gain (loss) on investments $ 0.69 (0.09) (0.09) 0.69 (0.10) (0.10) Total income from investment operations $ 1.30 0.60 0.72 1.22 0.52 0.65 Less distributions from: Net investment income $ 0.64 0.69 0.80 0.57 0.62 0.73 Net realized gain on investments $ 0.02 -- -- 0.02 -- -- Total distributions $ 0.66 0.69 0.80 0.59 0.62 0.73 Net asset value, end of period $ 15.47 14.83 14.92 15.45 14.82 14.92 TOTAL INVESTMENT RETURN(2) % 8.93 4.15 4.92 8.33 3.57 4.45 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 172,975 11,106 2,411 62,852 17,648 12,776 Average borrowings (000's)(5) $ 20,771 17,655 19,797 20,771 17,655 19,797 Asset coverage ratio % --* 689 3,220 --* 689 3,220 RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) % 1.36 1.42 1.47 1.87 1.91 1.96 Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 1.43 1.63 1.73 1.97 2.09 2.23 Net investment income(3)(4) % 3.84 4.88 5.58 3.47 4.12 5.19 RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) % 1.46 1.57 1.82 2.22 2.31 2.29 Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 1.53 1.78 2.07 2.31 2.49 2.54 Net investment income(3)(4) % 3.74 4.73 5.26 3.13 3.72 4.89 Portfolio turnover rate % 72 60 65 72 60 65 Shares outstanding at end of period (000's) 11,180 749 162 4,068 1,191 856 CLASS C ---------------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED FEB. 29, 2004 FEB. 28, 2003 FEB. 28, 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 $ 0.53 0.62 0.75 Net realized and unrealized gain (loss) on investments $ 0.70 (0.10) (0.10) Total income from investment operations $ 1.23 0.52 0.65 Less distributions from: Net investment income $ 0.57 0.62 0.73 Net realized gain on investments $ 0.02 -- -- Total distributions $ 0.59 0.62 0.73 Net asset value, end of period $ 15.46 14.82 14.92 TOTAL INVESTMENT RETURN(2) % 8.40 3.57 4.45 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 275,849 32,647 19,391 Average borrowings (000's)(5) $ 20,771 17,655 19,797 Asset coverage ratio % --* 689 3,220 RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) % 1.86 1.91 1.96 Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 1.94 2.09 2.23 Net investment income(3)(4) % 3.38 4.19 5.20 RATIOS TO AVERAGE NET ASSETS BEFORE REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) % 1.96 2.06 2.29 Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 2.04 2.24 2.54 Net investment income(3)(4) % 3.28 4.04 4.89 Portfolio turnover rate % 72 60 65 Shares outstanding at end of period (000's) 17,841 2,202 1,300
(1) Classes A, B and C commenced offering of shares on April 2, 2001. (2) Total investment returns are not annualized for periods of less than one year and do not include sales load. (3) Annualized for periods less than one year. (4) The Investment Manager has agreed to limit expenses excluding interest, taxes, brokerage commissions, leverage expenses, other investment related costs and extraordinary expenses, subject to possible recoupment by the Investment Manager within three years. (5) Based on the active days of borrowing. * There were no loans outstanding at year end. See Accompanying Notes to Financial Statements 13 Selected data for a share of beneficial interest outstanding throughout each period.
CLASS Q(5) -------------------------------------------------- YEAR YEAR YEAR PERIOD ENDED ENDED ENDED ENDED FEB. 29, FEB. 28, FEB. 28, FEB. 28, 2004 2003 2002 2001(1) - ------------------------------------------------------------------------------------------------------------------- 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 $ 0.63 0.69 0.81 0.14 Net realized and unrealized gain (loss) on investments $ 0.65 (0.10) (0.32) 0.14 Total income from investment operations $ 1.28 0.59 0.49 0.28 Less distributions from: Net investment income $ 0.64 0.69 0.90 -- Net realized gain on investments $ 0.02 -- -- -- Total distributions $ 0.66 0.69 0.90 -- Net asset value, end of period $ 15.41 14.79 14.89 15.30 TOTAL INVESTMENT RETURN(2) % 8.82 4.09 3.73 1.80 RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (000's) $ 157,051 215,341 215,029 94,096 Average borrowings (000's)(6) $ 20,771 17,655 19,797 -- Asset coverage ratio % --* 689 3,220 --* RATIOS TO AVERAGE NET ASSETS AFTER REIMBURSEMENT: Expenses (before interest and other fees related to revolving credit facility)(3)(4) % 1.40 1.41 1.43 -- Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 1.54 1.59 1.63 1.85 Net investment income(3)(4) % 4.17 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) % 1.48 1.56 1.70 -- Expenses (with interest and other fees related to revolving credit facility)(3)(4) % 1.62 1.74 1.90 1.85 Net investment income(3)(4) % 4.09 4.54 5.67 7.00 Portfolio turnover rate % 72 60 65 11 Shares outstanding at end of period (000's) 10,188 14,559 14,439 6,152
(1) Class Q commenced operations on December 15, 2000. (2) Total investment returns are not annualized for periods of less than one year and do not include sales load. (3) Annualized for periods less than one year. (4) The Investment Manager has agreed to limit expenses excluding interest, taxes, brokerage commissions, leverage expenses, other investment related costs and extraordinary expenses, subject to possible recoupment by the Investment Manager within three years. (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. * There were no loans outstanding at period end. See Accompanying Notes to Financial Statements 14 ING Senior Income Fund NOTES TO FINANCIAL STATEMENTS as of February 29, 2004 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. 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. During the period December 15, 2000 through March 30, 2001, the Fund issued 19,933,953 Class Q shares to an affiliate 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. The Fund currently offers four classes of shares; A, B, C and Q. 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. To maintain a measure of liquidity, the Fund offers to repurchase between 5% and 25% of its outstanding common shares on a monthly basis. This is a fundamental policy that can not be changed without shareholder approval. The Fund currently anticipates offerings to repurchase 5% of its outstanding common shares each month. The Fund may not repurchase more than 25% in any calendar quarter. Other than these monthly repurchases, no market for the Fund's common shares is expected to exist. 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. 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 February 29, 2004, 98.9% of total long-term investments were valued based on these procedures. 15 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 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, and 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. B. DISTRIBUTIONS TO SHAREHOLDERS. The Fund declares and goes ex-dividend daily and pays dividends monthly for net investment income. Distributions from capital gains, if any, are declared and paid annually. The Fund may make additional distributions to comply with the distribution requirements of the Internal Revenue Code. The character and amounts of income and gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America for investment companies. Dividends paid by the 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 Fund records distributions to its shareholders on the ex-dividend date. 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 sold. 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 loans are generally applied as a reduction to the recorded investment of the loan. 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 16 yield method over the shorter of four years or the actual term of the loan. Arrangement fees received on revolving credit facilities, which represent non-refundable fees or purchase discounts 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. Dividend income is recorded on the ex-dividend date. D. FEDERAL INCOME TAXES. It is the Fund's policy to comply with subchapter M of the Internal Revenue Code and related excise tax provisions applicable to regulated investment companies and to distribute substantially all of its net investment income and net realized capital gains to its shareholders. Therefore, no federal income tax provision is required. No capital gain distributions shall be made until any capital loss carryforwards have been fully utilized or expire. 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 year ended February 29, 2004, the cost of purchases and the proceeds from principal repayment and sales of investments, excluding short-term investments, totaled $607,222,305 and $303,669,266 respectively. At February 29, 2004, the Fund held senior loans valued at $638,242,547 representing 99.5% of its total investments (excluding short-term investments). The market value of these assets is established as set forth in Note 2. 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 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. 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 08/11/03 133,153 Neoplan -- Common Shares 08/29/03 -- Neoplan -- Preferred B Shares 08/29/03 -- Neoplan -- Preferred C Shares 08/29/03 40,208 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 $1,822,338 was 0.3% of net assets at February 29, 2004) $ 503,981 =========
17 NOTE 4 -- MANAGEMENT AND ADMINISTRATION AGREEMENTS 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 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. The members of the portfolio management team became employees of ING Aeltus. The same persons will therefore manage the Fund, but as employees of ING Aeltus, not as employees of 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 year ended February 29, 2004, 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 Febuary 29, 2004, the three-year cumulative amount of reimbursed fees that are subject to possible recoupment by the Investment Manager is $1,401,116. 18 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 February 29, 2004. Average borrowings for the year ended February 29, 2004 was $20,770,909 and the average annualized interest rate was 2.15% excluding other fees related to the unused portion of the facilities, and other fees. NOTE 8 -- SENIOR LOAN COMMITMENTS At February 29, 2004, the Fund had unfunded loan commitments pursuant to the terms of the following loan agreements: Amerco, Inc. $ 2,445,000 Atlantic Broadband Finance, LLC 2,000,000 Cincinnati Bell, Inc. 1,911,102 Federal-Mogul Corporation 171,662 Fleming Companies, Inc. 423,322 Georgia-Pacific Corporation 5,200,000 Hercules, Inc. 612,661 IESI Corporation 993,125 Insight Health Services Corporation 750,000 Lyondell Chemical Company $ 1,000,000 Nextel Finance Company 1,891,892 Nutrasweet Acquisition Corporation 670,608 Pinnacle Entertainment 866,667 Rural Cellular Corporation 401,413 SBA Senior Finance, Inc. 461,538 Six Flags Theme Parks, Inc. 583,333 United Defense Industries, Inc. 2,000,000 United Rentals (North America), Inc. 1,111,111 ------------ $ 23,493,434 ============
NOTE 9 -- TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES At February 29, 2004, the Fund had the following amounts recorded in payable to affiliates on the accompanying Statement of Assets and Liabilities (see Notes 4 and 5):
ACCRUED INVESTMENT ACCRUED ACCRUED DISTRIBUTION MANAGEMENT FEES ADMINISTRATIVE FEES AND SERVICE FEES TOTAL ------------------ ------------------- -------------------- ----- $ 411,574 $ 51,447 $ 255,736 $ 718,757
At February 29, 2004, Equitable Life Insurance Company of Iowa ("ELI"), a wholly-owned indirect subsidiary of ING Groep N.V., owned 8.5% of the Fund. Investment activities of this shareholder in the Fund could have a material impact on the Fund. It is the intention of ELI to tender for repurchase all of their shares through the normal monthly offers to repurchase made by 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 year ended February 29, 2004. 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 February 29, 2004, the Fund held 0.5% of its total assets in subordinated loans and unsecured loans. 19 NOTE 12 -- CAPITAL SHARES Transactions in capital shares and dollars were as follows:
CLASS A SHARES CLASS B ------------------------------- ------------------------------- YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, 2004 2003 2004 2003 ---- ---- ---- ---- NUMBER OF SHARES Shares sold 11,471,958 697,541 3,176,454 529,384(1) Dividends reinvested 128,609 18,011 50,168 22,777 Shares redeemed (1,169,710) (128,377) (349,656) (217,666)(1) ------------- ------------- ------------- ------------ Net increase in shares outstanding 10,430,857 587,175 2,876,966 334,495 ============= ============= ============= ============ DOLLAR AMOUNT ($) Shares sold $ 175,247,213 $ 10,303,765 $ 48,393,642 $ 7,862,602(2) Dividends reinvested 1,970,610 265,212 765,311 336,436 Shares redeemed (17,948,478) (1,890,380) (5,333,591) (3,212,215)(2) ------------- ------------- ------------- ------------ Net increase $ 159,269,345 $ 8,678,597 $ 43,825,362 $ 4,986,823 ============= ============= ============= ============ CLASS C CLASS Q ------------------------------- ------------------------------- YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, 2004 2003 2004 2003 ---- ---- ---- ---- NUMBER OF SHARES Shares sold 16,799,564 1,548,667 6,897,835 374,311 Dividends reinvested 219,973 63,192 226,785 682,409 Shares redeemed (1,380,540) (709,214) (11,495,246) (936,355) ------------- ------------- ------------- ------------ Net increase (decrease) in shares outstanding 15,638,997 902,645 (4,370,626) 120,365 ============= ============= ============= ============ DOLLAR AMOUNT ($) Shares sold $ 256,292,793 $ 22,961,598 $ 105,307,829 $ 5,582,887 Dividends reinvested 3,363,842 932,572 3,404,233 10,067,130 Shares redeemed (21,108,863) (10,428,994) (175,234,728) (13,715,870) ------------- ------------- -------------- ------------ Net increase (decrease) $ 238,547,772 $ 13,465,176 $ (66,522,666) $ 1,934,147 ============= ============= ============== ============
(1) Excludes 12,712 shares rescinded. (2) Excludes $189,639 for shares rescinded. NOTE 13 -- FEDERAL INCOME TAXES The amount of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America for investment companies. These book/tax differences may be either temporary or permanent. Permanent differences are reclassified within the capital accounts based on their federal tax-basis treatment; temporary differences are not reclassified. Key differences include the treatment of short-term capital gains, organizational and offering expenses, and wash sale deferrals. Distributions in excess of net investment income and/or net realized capital gains for tax purposes are reported as distributions of paid-in capital. The tax composition of dividends and distributions to shareholders was as follows:
YEAR ENDED FEBRUARY 29, 2004 YEAR ENDED FEBRUARY 28, 2003 ------------------------------------ ---------------------------- LONG-TERM ORDINARY INCOME CAPITAL GAIN ORDINARY INCOME --------------- ------------ --------------- $ 16,702,307 $ 495,052 $ 12,415,366
20 The tax-basis components of distributable earnings and the expiration dates of the capital loss carryforwards which may be used to offset future realized capital gains for federal income tax purposes as of February 29, 2004 were:
UNDISTRIBUTED UNREALIZED POST-OCTOBER CAPITAL UNDISTRIBUTED LONG-TERM APPRECIATION/ CAPITAL LOSSES LOSS EXPIRATION ORDINARY INCOME CAPITAL GAINS (DEPRECIATION) DEFERRED CARRYFORWARDS DATES --------------- ------------- -------------- -------------- ------------- ---------- $ 2,239,630 $ 194,558 $ 11,020,385 $ -- $ -- --
NOTE 14 -- 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 net loss including interest of $1,029 to the Fund resulting from the Rescission Offer. NOTE 15 -- SUBSEQUENT EVENTS DIVIDENDS DECLARED Subsequent to February 29, 2004, the Fund declared the following dividends:
PER SHARE AMOUNT TYPE DECLARATION DATE RECORD DATE PAYABLE DATE - ---------------- ---- ---------------- ----------- ------------ $ 0.04842(A) NII Daily Daily April 1, 2004 $ 0.04187(B) NII Daily Daily April 1, 2004
NII -- Net Investment Income (A) For Class A and Q shares. (B) For Class B and C shares. 21 ING Senior Income Fund PORTFOLIO OF INVESTMENTS as of February 29, 2004 SENIOR LOANS*: 95.5%
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- AEROSPACE AND DEFENSE: 1.0% ALLIANT TECHSYSTEMS, INC. Ba2 BB- $ 2,270,970 Term Loan, maturing April 20, 2009 $ 2,296,341 TITAN CORPORATION Ba3 BB- 1,970,000 Term Loan, maturing June 30, 2009 1,970,000 UNITED DEFENSE INDUSTRIES, INC. Ba2 BB 2,502,128 Term Loan, maturing August 13, 2009 2,518,660 ------------- 6,785,001 ------------- AUTOMOBILE: 4.8% AFTERMARKET TECHNOLOGY CORPORATION Ba3 BB- 314,905 Term Loan, maturing February 08, 2008 315,918 431,310 Term Loan, maturing February 08, 2008 430,231 COLLINS & AIKMAN PRODUCTS B1 B+ 1,298,246 Term Loan, maturing December 31, 2005 1,295,000 701,754 Term Loan, maturing December 31, 2005 710,526 (1) FEDERAL-MOGUL CORPORATION Ca NR 3,328,338 Revolver, maturing February 24, 2004 3,014,226 1,500,000 Term Loan, maturing February 24, 2004 1,359,375 2,620,000 Term Loan, maturing February 24, 2005 2,376,557 GOODYEAR TIRE & RUBBER COMPANY 2,500,000 Term Loan, maturing March 31, 2006 B2 B+ 2,488,282 1,500,000 Term Loan, maturing March 31, 2006 B1 BB+ 1,513,125 HLI OPERATING COMPANY, INC. Ba3 BB- 1,439,167 Term Loan, maturing June 03, 2009 1,468,849 KEYSTONE AUTOMOTIVE INDUSTRIES, INC. B1 B+ 1,000,000 Term Loan, maturing October 30, 2009 1,015,000 METALDYNE COMPANY, LLC B2 BB- 1,764,210 Term Loan, maturing December 31, 2009 1,782,293 PLASTECH, INC. Ba3 BB- 1,500,000 Term Loan, maturing February 12, 2010 1,525,782 POLYPORE, INC. Ba3 BB- 1,473,750 Term Loan, maturing December 31, 2007 1,487,873 SAFELITE GLASS CORPORATION B3 B+ 2,734,289 Term Loan, maturing September 30, 2007 2,693,275 1,700,073 Term Loan, maturing September 30, 2007 1,683,072 TENNECO AUTOMOTIVE, INC. B1 B 1,380,000 Term Loan, maturing December 12, 2010 1,405,300 620,000 Term Loan, maturing December 12, 2010 631,625 TRW AUTOMOTIVE ACQUISITIONS CORPORATION Ba2 BB+ 1,600,000 Term Loan, maturing February 28, 2009 1,616,125 2,000,000 Term Loan, maturing February 28, 2011 2,037,322 UNITED COMPONENTS, INC. B1 BB- 1,485,000 Term Loan, maturing June 30, 2010 1,505,419 ------------- 32,355,175 -------------
See Accompanying Notes to Financial Statements 22
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- BEVERAGE, FOOD AND TOBACCO: 4.4% B & G FOODS, INC. B1 B+ $ 997,500 Term Loan, maturing August 31, 2009 $ 1,007,891 BIRDS EYE FOODS, INC. Ba3 B+ 1,880,389 Term Loan, maturing June 30, 2008 1,900,957 COMMONWEALTH BRANDS, INC. Ba3 BB- 979,392 Term Loan, maturing August 28, 2007 990,410 CONSTELLATION BRANDS, INC. Ba1 BB 1,250,000 Term Loan, maturing November 30, 2008 1,267,858 CP KELCO APS B3 B 970,260 Term Loan, maturing March 31, 2008 977,739 317,899 Term Loan, maturing September 30, 2008 320,350 DEAN FOODS COMPANY Ba1 BB+ 1,850,000 Term Loan, maturing July 15, 2007 1,863,366 2,238,738 Term Loan, maturing July 15, 2008 2,275,118 DEL MONTE CORPORATION Ba3 BB- 1,739,122 Term Loan, maturing December 20, 2010 1,767,927 DR. PEPPER BOTTLING COMPANY OF TEXAS B1 BB- 2,958,904 Term Loan, maturing December 19, 2010 3,005,137 DS WATERS ENTERPRISES, L.P. B1 B+ 2,500,000 Term Loan, maturing November 07, 2009 2,539,452 (1) FLEMING COMPANIES, INC. B3 D 438,008 Revolver, maturing June 18, 2007 435,453 779,904 Term Loan, maturing June 18, 2008 776,980 INTERSTATE BRANDS CORPORATION Ba2 B+ 1,500,000 Term Loan, maturing July 19, 2007 1,500,703 956,368 Term Loan, maturing July 19, 2007 960,193 MICHAEL FOODS, INC. B1 B+ 2,992,500 Term Loan, maturing November 21, 2010 3,043,465 NATIONAL DAIRY HOLDINGS, L.P. B1 BB+ 982,500 Term Loan, maturing April 30, 2009 985,161 NUTRASWEET ACQUISITION CORPORATION Ba3 NR 405,679 Term Loan, maturing May 24, 2005 387,423 1,165,385 Term Loan, maturing May 25, 2009 1,154,459 SOUTHERN WINE & SPIRITS OF AMERICA, INC. Ba3 BB+ 2,228,789 Term Loan, maturing July 02, 2008 2,254,792 ------------- 29,414,834 ------------- BUILDINGS AND REAL ESTATE: 3.0% (1) AMERCO, INC. NR NR 555,000 Debtor In Possession Term Loan, maturing August 13, 2004 552,225 ASSOCIATED MATERIALS, INC. Ba3 B+ 736,842 Term Loan, maturing August 02, 2010 746,053 ATRIUM COMPANIES, INC. B1 B+ 2,000,000 Term Loan, maturing December 10, 2008 2,027,550 BUILDING MATERIALS HOLDING CORPORATION Ba2 BB- 995,000 Term Loan, maturing August 21, 2010 998,731 GENERAL GROWTH PROPERTIES Ba1 BBB- 3,000,000 Term Loan, maturing April 16, 2006 3,000,000 7,000,000 Term Loan, maturing April 16, 2006 7,000,000
See Accompanying Notes to Financial Statements 23
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- BUILDINGS AND REAL ESTATE: (CONTINUED) MACERICH PARTNERSHIP, L.P. Ba2 NR $ 1,574,400 Term Loan, maturing July 26, 2005 $ 1,582,272 ST. MARYS CEMENT, INC. B1 BB- 3,000,000 Term Loan, maturing December 04, 2009 3,033,750 WERNER HOLDINGS COMPANY, INC. B1 B 958,333 Term Loan, maturing June 11, 2009 926,588 ------------- 19,867,169 ------------- CABLE TELEVISION: 12.7% (1) ADELPHIA COMMUNICATIONS CORPORATION NR BBB 1,955,580 Debtor In Possession Term Loan, maturing June 25, 2004 1,973,914 BRESNAN COMMUNICATIONS, LLC B1 BB- 2,000,000 Term Loan, maturing December 31, 2007 2,019,750 CC VI OPERATING COMPANY, LLC B2 CCC+ 4,505,058 Term Loan, maturing November 12, 2008 4,376,100 CC VIII OPERATING, LLC B2 B- 5,066,450 Term Loan, maturing February 02, 2008 4,996,787 CEBRIDGE CONNECTIONS, INC. NR NR 3,500,000 Term Loan, maturing February 04, 2009 3,500,000 1,500,000 Term Loan, maturing February 23, 2009 1,500,000 (1) CENTURY CABLE HOLDINGS, LLC Caa1 NR 820,000 Revolver, maturing March 31, 2009 764,650 500,000 Term Loan, maturing June 30, 2009 479,479 3,500,000 Term Loan, maturing December 31, 2009 3,323,908 CHARTER COMMUNICATIONS OPERATING, LLC B2 B 8,000,000 Term Loan, maturing September 18, 2007 7,749,168 13,892,257 Term Loan, maturing March 18, 2008 13,546,882 FALCON CABLE COMMUNICATIONS, LLC B2 BB 3,460,183 Term Loan, maturing December 31, 2007 3,370,796 2,200,377 Term Loan, maturing November 01, 2008 2,137,116 (1) FRONTIERVISION OPERATING PARTNERS, L.P. B2 NR 1,000,000 Revolver, maturing October 31, 2005 998,750 1,136,364 Term Loan, maturing September 30, 2005 1,130,208 1,000,000 Term Loan, maturing March 31, 2006 994,583 (1) HILTON HEAD COMMUNICATIONS, L.P. Caa1 NR 3,000,000 Revolver, maturing September 30, 2007 2,883,750 7,000,000 Term Loan, maturing March 31, 2008 6,755,000 INSIGHT MIDWEST HOLDINGS, LLC Ba3 BB+ 1,500,000 Term Loan, maturing June 30, 2009 1,493,437 3,000,000 Term Loan, maturing December 31, 2009 3,020,418 2,000,000 Term Loan, maturing December 31, 2009 2,016,250 MCC IOWA MEDIACOM BROADBAND, LLC Ba3 BB+ 4,000,000 Term Loan, maturing March 31, 2010 3,978,752 5,500,000 Term Loan, maturing September 30, 2010 5,547,746 (1) OLYMPUS CABLE HOLDINGS, LLC B2 NR 2,000,000 Term Loan, maturing June 30, 2010 1,893,750
See Accompanying Notes to Financial Statements 24
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- CABLE TELEVISION: (CONTINUED) $ 4,750,000 Term Loan, maturing September 30, 2010 $ 4,525,862 ------------- 84,977,056 ------------- CELLULAR COMMUNICATIONS: 8.4% AIRGATE PCS, INC. B3 CC 200,616 Term Loan, maturing June 06, 2007 199,780 3,494,333 Term Loan, maturing September 30, 2008 3,479,772 CENTENNIAL CELLULAR OPERATING COMPANY B2 B- 4,000,000 Term Loan, maturing February 09, 2011 4,022,084 DOBSON CELLULAR SYSTEMS, INC. Ba3 B- 2,992,500 Term Loan, maturing March 31, 2010 3,021,357 HORIZON PERSONAL COMMUNICATIONS, INC. NR D 4,500,000 Term Loan, maturing September 26, 2008 4,258,125 1,500,000 Term Loan, maturing March 31, 2009 1,408,125 MICROCELL TELECOMMUNICATIONS, INC. NR CCC+ 4,827,115 Term Loan, maturing December 31, 2008 4,812,030 NEXTEL FINANCE COMPANY Ba2 BB 167,207 Revolver, maturing December 31, 2007 166,079 15,259,336 Term Loan, maturing December 31, 2007 15,171,915 5,000,000 Term Loan, maturing December 15, 2010 5,050,940 RURAL CELLULAR CORPORATION B2 B- 5,175,537 Term Loan, maturing April 03, 2008 5,169,068 US UNWIRED, INC. B2 CCC- 2,342,452 Term Loan, maturing September 30, 2007 2,266,322 1,627,318 Term Loan, maturing March 31, 2008 1,574,430 WESTERN WIRELESS CORPORATION B2 B- 1,000,000 Revolver, maturing March 31, 2008 996,042 2,291,667 Term Loan, maturing March 31, 2008 2,287,608 2,000,000 Term Loan, maturing September 30, 2008 2,011,250 ------------- 55,894,927 ------------- CHEMICALS, PLASTICS AND RUBBER: 4.3% FMC CORPORATION Ba1 BBB- 990,000 Term Loan, maturing October 21, 2007 1,002,622 GEO SPECIALTY CHEMICALS, INC. Caa1 CC 830,101 Term Loan, maturing December 31, 2007 738,790 HERCULES, INC. Ba1 BB 2,475,000 Term Loan, maturing May 15, 2007 2,495,109 HUNTSMAN INTERNATIONAL, LLC B1 B 2,532,970 Term Loan, maturing June 30, 2007 2,557,772 2,533,024 Term Loan, maturing June 30, 2008 2,559,937 HUNTSMAN, LLC B2 B 2,398,353 Term Loan, maturing March 31, 2007 2,336,895 1,799,153 Term Loan, maturing March 31, 2007 1,751,551 INEOS GROUP HOLDINGS, PLC Ba2 BB 2,335,982 Term Loan, maturing April 26, 2009 2,361,288 JOHNSONDIVERSEY, INC. Ba3 BB- 1,615,150 Term Loan, maturing November 03, 2009 1,634,779
See Accompanying Notes to Financial Statements 25
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- CHEMICALS, PLASTICS AND RUBBER: (CONTINUED) KRATON POLYMERS B1 BB- $ 2,000,000 Term Loan, maturing December 23, 2010 $ 2,035,834 NALCO COMPANY B1 BB- 5,000,000 Term Loan, maturing November 04, 2010 5,056,250 NOVEON, INC. B1 BB- 3,000,000 Term Loan, maturing December 31, 2009 3,033,750 ROCKWOOD SPECIALTIES GROUP, INC. B1 B+ 1,492,500 Term Loan, maturing July 23, 2010 1,504,627 ------------- 29,069,204 ------------- CONTAINERS, PACKAGING AND GLASS: 3.8% BERRY PLASTICS CORPORATION B1 B+ 1,000,000 Term Loan, maturing July 22, 2010 1,002,500 1,970,063 Term Loan, maturing August 31, 2010 1,990,380 CONSTAR INTERNATIONAL, INC. B2 BB- 1,642,508 Term Loan, maturing November 20, 2009 1,660,730 CROWN CORK & SEAL COMPANY, INC. Ba3 BB- 1,425,000 Term Loan, maturing September 15, 2008 1,447,414 GRAPHIC PACKAGING INTERNATIONAL, INC. B1 B+ 3,980,000 Term Loan, maturing August 09, 2010 4,043,847 GREIF BROS. CORPORATION Ba3 BB 751,667 Term Loan, maturing August 23, 2009 757,398 JEFFERSON SMURFIT CORPORATION Ba3 B+ 1,098,182 Term Loan, maturing March 31, 2007 1,108,340 KERR GROUP, INC. B1 BB- 1,469,477 Term Loan, maturing August 13, 2010 1,481,722 OWENS-ILLINOIS GROUP, INC. B1 BB- 4,000,000 Term Loan, maturing April 01, 2008 4,034,584 SILGAN HOLDINGS, INC. Ba3 BB 4,944,925 Term Loan, maturing November 30, 2008 5,027,599 SMURFIT-STONE CONTAINER CANADA, INC. Ba3 B+ 363,256 Term Loan, maturing June 30, 2009 366,662 STONE CONTAINER CORPORATION Ba3 B+ 2,143,951 Term Loan, maturing June 30, 2009 2,172,536 ------------- 25,093,712 ------------- DIVERSIFIED/CONGLOMERATE MANUFACTURING: 1.6% BRAND SERVICES, INC. B1 B+ 1,000,000 Term Loan, maturing October 16, 2008 1,008,750 951,635 Term Loan, maturing October 16, 2009 957,583 FLOWSERVE CORPORATION Ba3 BB- 2,510,228 Term Loan, maturing June 30, 2009 2,537,123 MUELLER GROUP, INC. B1 B+ 985,000 Term Loan, maturing May 31, 2008 992,002 ROPER INDUSTRIES, INC. Ba2 BB+ 2,000,000 Term Loan, maturing December 29, 2008 2,026,250 SENSUS METERING SYSTEMS, INC. B2 B+ 869,565 Term Loan, maturing December 17, 2010 877,174 130,435 Term Loan, maturing December 17, 2010 131,576
See Accompanying Notes to Financial Statements 26
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- DIVERSIFIED/CONGLOMERATE MANUFACTURING: (CONTINUED) SPX CORPORATION Ba2 BBB- $ 2,227,500 Term Loan, maturing September 30, 2009 $ 2,245,251 ------------- 10,775,709 ------------- DIVERSIFIED/CONGLOMERATE SERVICE: 0.5% IRON MOUNTAIN, INC. B1 BB 800,000 Term Loan, maturing February 15, 2008 808,000 US INVESTIGATIONS SERVICES, LLC B1 BB- 2,424,530 Term Loan, maturing December 31, 2008 2,423,015 ------------- 3,231,015 ------------- DIVERSIFIED/NATURAL RESOURCES: 0.3% GEORGIA-PACIFIC CORPORATION Ba2 BB+ 800,000 Revolver, maturing November 03, 2005 795,562 1,250,000 Term Loan, maturing November 03, 2005 1,252,735 ------------- 2,048,297 ------------- ECOLOGICAL: 0.9% ALLIED WASTE NORTH AMERICA, INC. Ba3 BB 1,000,000 Term Loan, maturing January 15, 2010 1,017,708 1,481,250 Term Loan, maturing January 15, 2010 1,506,554 GREAT LAKES DREDGE & DOCK CORPORATION B1 B+ 1,000,000 Term Loan, maturing December 22, 2010 1,010,000 IESI CORPORATION B1 B+ 256,875 Revolver, maturing September 30, 2008 253,985 997,500 Term Loan, maturing September 30, 2010 1,011,216 WASTE CONNECTIONS, INC. Ba2 BB+ 1,000,000 Term Loan, maturing October 22, 2010 1,005,313 ------------- 5,804,776 ------------- ELECTRONICS: 1.1% ANTEON CORPORATION Ba3 BB 1,000,000 Term Loan, maturing December 31, 2010 1,011,458 DECISION ONE CORPORATION B3 CCC 2,807,000 Term Loan, maturing April 18, 2005 2,049,110 SEAGATE TECHNOLOGY (US) HOLDINGS, INC. Ba1 BB+ 1,970,000 Term Loan, maturing May 13, 2007 1,996,103 TRANSACTION NETWORK SERVICES, INC. Ba3 BB- 2,605,253 Term Loan, maturing April 03, 2007 2,605,253 ------------- 7,661,924 ------------- FARMING AND AGRICULTURE: 0.9% AGCO CORPORATION Ba1 BB+ 4,000,000 Term Loan, maturing March 31, 2006 4,050,000 SCOTTS COMPANY Ba1 BB 2,000,000 Term Loan, maturing September 30, 2010 2,028,572 ------------- 6,078,572 ------------- FINANCE: 0.3% RENT-A-CENTER, INC. Ba2 BB 1,990,000 Term Loan, maturing May 28, 2009 2,015,870 ------------- 2,015,870 -------------
See Accompanying Notes to Financial Statements 27
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- GAMING: 2.1% ALLIANCE GAMING CORPORATION B1 BB- $ 4,000,000 Term Loan, maturing September 04, 2009 $ 4,046,252 AMERISTAR CASINOS, INC. Ba3 BB- 1,974,475 Term Loan, maturing December 20, 2006 1,986,507 ARGOSY GAMING COMPANY Ba2 BB 1,923,950 Term Loan, maturing July 31, 2008 1,938,380 GREEN VALLEY RANCH GAMING, LLC B1 B+ 1,000,000 Term Loan, maturing December 22, 2010 1,015,000 ISLE OF CAPRI CASINOS, INC. Ba2 BB- 982,500 Term Loan, maturing April 26, 2008 994,255 PENN NATIONAL GAMING B1 BB- 1,000,532 Term Loan, maturing September 01, 2007 1,011,288 PINNACLE ENTERTAINMENT B1 B+ 1,633,333 Term Loan, maturing December 17, 2009 1,653,410 UNITED AUBURN INDIAN COMMUNITY Ba3 BB- 1,060,489 Term Loan, maturing January 24, 2009 1,065,791 ------------- 13,710,883 ------------- GROCERY: 0.4% GIANT EAGLE, INC. Ba2 BB+ 1,914,667 Term Loan, maturing August 02, 2009 1,934,413 1,000,000 Term Loan, maturing August 06, 2009 1,009,375 ------------- 2,943,788 ------------- HEALTHCARE, EDUCATION AND CHILDCARE: 7.1% ALARIS MEDICAL SYSTEMS, INC. Ba3 BB 709,286 Term Loan, maturing June 30, 2009 717,886 ALLIANCE IMAGING, INC. B1 B+ 585,401 Term Loan, maturing November 02, 2006 575,888 APRIA HEALTHCARE GROUP, INC. Ba1 BBB- 1,955,000 Term Loan, maturing July 20, 2008 1,970,843 CAREMARK RX, INC. Baa3 BBB- 1,471,288 Term Loan, maturing March 31, 2006 1,481,035 COLGATE MEDICAL, LTD. Ba3 BB- 3,000,000 Term Loan, maturing December 30, 2008 3,024,375 COMMUNITY HEALTH SYSTEMS, INC. Ba3 BB- 2,962,500 Term Loan, maturing July 16, 2010 3,015,825 997,500 Term Loan, maturing January 16, 2011 1,007,787 DAVITA, INC. Ba3 BB 4,978,437 Term Loan, maturing March 31, 2009 5,044,222 DJ ORTHOPEDICS, LLC B1 B+ 1,000,000 Term Loan, maturing May 15, 2009 1,011,875 EMPI CORPORATION B1 B+ 1,500,000 Term Loan, maturing November 24, 2009 1,518,750 EXPRESS SCRIPTS, INC. Ba1 BBB 1,000,000 Term Loan, maturing February 13, 2010 1,007,500 FISHER SCIENTIFIC INTERNATIONAL, INC. Ba3 BB+ 2,370,342 Term Loan, maturing March 31, 2010 2,386,638 FRESENIUS MEDICAL CARE HOLDINGS, INC. Ba1 BB+ 2,985,000 Term Loan, maturing February 21, 2010 3,025,112
See Accompanying Notes to Financial Statements 28
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- HEALTHCARE, EDUCATION AND CHILDCARE: (CONTINUED) HCA, INC. Ba1 BBB- $ 1,125,000 Term Loan, maturing April 30, 2006 $ 1,125,117 IASIS HEALTHCARE CORPORATION B1 B+ 920,000 Term Loan, maturing February 09, 2009 929,631 INSIGHT HEALTH SERVICES CORPORATION B1 B+ 1,933,333 Term Loan, maturing October 07, 2008 1,935,750 150,000 Term Loan, maturing October 07, 2008 150,188 664,965 Term Loan, maturing October 17, 2008 669,121 KINETIC CONCEPTS, INC. B1 BB- 2,487,500 Term Loan, maturing August 11, 2010 2,524,813 MAGELLAN HEALTH SERVICES, INC. B1 B+ 833,333 Term Loan, maturing August 15, 2008 848,958 666,667 Term Loan, maturing August 15, 2008 679,167 MEDCO HEALTH Ba1 BBB 1,496,250 Term Loan, maturing June 30, 2010 1,499,055 OXFORD HEALTH PLANS, INC. Ba2 BB+ 2,451,325 Term Loan, maturing April 25, 2009 2,465,881 PACIFICARE HEALTH SYSTEMS, INC. Ba3 BB+ 995,000 Term Loan, maturing June 03, 2008 1,006,609 SOLA INTERNATIONAL, INC. Ba3 BB- 2,000,000 Term Loan, maturing December 11, 2009 2,030,000 TRIAD HOSPITALS, INC. Ba3 BB 1,496,414 Term Loan, maturing September 30, 2008 1,518,396 VANGUARD HEALTH SYSTEMS, INC. Ba3 B+ 1,485,000 Term Loan, maturing January 03, 2010 1,499,850 VICAR OPERATING, INC. B1 B+ 2,487,374 Term Loan, maturing June 30, 2009 2,520,020 ------------- 47,190,292 ------------- HOME AND OFFICE FURNISHING, HOUSEWARES: 1.2% GLOBAL IMAGING SYSTEMS, INC. Ba3 BB- 497,500 Term Loan, maturing June 25, 2009 504,963 SEALY MATTRESS COMPANY B1 B+ 445,517 Term Loan, maturing December 15, 2004 447,606 596,027 Term Loan, maturing December 15, 2005 598,821 762,051 Term Loan, maturing December 15, 2006 765,623 SIMMONS COMPANY B2 B+ 5,500,000 Term Loan, maturing December 19, 2011 5,571,615 ------------- 7,888,628 ------------- INSURANCE: 0.9% CONSECO, INC. Caa1 B- 4,615,385 Term Loan, maturing September 10, 2009 4,644,231 1,384,615 Term Loan, maturing September 10, 2010 1,393,269 ------------- 6,037,500 ------------- LEISURE, AMUSEMENT AND ENTERTAINMENT: 2.7% FITNESS HOLDINGS WORLDWIDE, INC. B1 B 3,000,000 Term Loan, maturing July 01, 2009 3,039,375 LOEWS CINEPLEX ENTERTAINMENT CORPORATION NR NR 1,397,327 Term Loan, maturing February 29, 2008 1,401,693
See Accompanying Notes to Financial Statements 29
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- LEISURE, AMUSEMENT AND ENTERTAINMENT: (CONTINUED) NEW JERSEY BASKETBALL, LLC NR NR $ 3,500,000 Term Loan, maturing July 16, 2004 $ 3,513,125 PURE FISHING NR NR 975,000 Term Loan, maturing December 31, 2009 979,266 REGAL CINEMAS, INC. Ba2 BB- 2,922,581 Term Loan, maturing June 30, 2009 2,963,070 SIX FLAGS THEME PARKS, INC. Ba2 B+ 300,000 Revolver, maturing June 30, 2008 291,000 4,000,000 Term Loan, maturing June 30, 2009 4,052,500 VIVENDI UNIVERSAL ENTERTAINMENT, LLP Ba2 BB+ 2,000,000 Term Loan, maturing June 30, 2008 2,015,938 ------------- 18,255,967 ------------- LODGING: 0.5% EXTENDED STAY AMERICA, INC. Ba3 BB- 1,439,887 Term Loan, maturing January 15, 2008 1,459,685 WYNDHAM INTERNATIONAL, INC. NR NR 844,953 Term Loan, maturing April 01, 2006 833,109 1,186,915 Term Loan, maturing June 30, 2006 1,158,513 ------------- 3,451,307 ------------- MACHINERY: 1.3% ALLIANCE LAUNDRY HOLDINGS, LLC B1 B 1,626,943 Term Loan, maturing August 02, 2007 1,634,400 NATIONAL WATERWORKS, INC. B1 BB- 1,469,388 Term Loan, maturing November 22, 2009 1,488,979 REXNORD CORPORATION B1 B+ 1,838,889 Term Loan, maturing November 25, 2009 1,853,256 UNITED RENTALS (NORTH AMERICA), INC. Ba3 BB 3,055,556 Term Loan, maturing February 17, 2011 3,055,556 833,333 Term Loan, maturing August 31, 2011 833,333 ------------- 8,865,524 ------------- MINING, STEEL, IRON AND NON-PRECIOUS METALS: 0.4% PEABODY ENERGY CORPORATION Ba1 BB+ 2,977,500 Term Loan, maturing March 21, 2010 3,006,965 ------------- 3,006,965 ------------- OIL AND GAS: 1.1% CITGO PETROLEUM CORPORATION Ba2 BB+ 1,500,000 Term Loan, maturing February 27, 2006 1,560,000 PACIFIC ENERGY GROUP, LLC Ba2 BBB- 1,000,000 Term Loan, maturing July 26, 2009 1,006,563 W-H ENERGY SERVICES, INC. B2 B+ 2,487,500 Term Loan, maturing April 16, 2007 2,512,375 1,458,777 Term Loan, maturing April 16, 2007 1,473,365 WILLIAMS PRODUCTION RMT COMPANY B2 BB 995,000 Term Loan, maturing May 30, 2007 1,003,706 ------------- 7,556,009 -------------
See Accompanying Notes to Financial Statements 30
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- OTHER BROADCASTING AND ENTERTAINMENT: 2.4% DIRECTV HOLDINGS, LLC Ba2 BB $ 3,500,000 Term Loan, maturing March 06, 2010 $ 3,541,125 LIBERTY MEDIA CORPORATION Baa3 BBB- 6,000,000 Floating Rate Note, maturing September 17, 2006 6,079,026 PEGASUS MEDIA & COMMUNICATIONS, INC. B3 B- 1,098,695 Term Loan, maturing April 30, 2005 1,080,383 RAINBOW MEDIA GROUP Ba2 BB+ 4,987,491 Term Loan, maturing March 31, 2009 5,050,728 ------------- 15,751,262 ------------- PERSONAL AND NON DURABLE CONSUMER PRODUCTS: 2.4% ARMKEL, LLC Ba3 BB- 716,106 Term Loan, maturing March 28, 2009 724,290 BUHRMANN U.S., INC. Ba3 BB- 2,000,000 Term Loan, maturing December 31, 2010 2,029,062 CHURCH & DWIGHT CO., INC. Ba2 BB 1,147,125 Term Loan, maturing September 30, 2007 1,162,181 JARDEN CORPORATION Ba3 B+ 997,500 Term Loan, maturing April 24, 2008 1,007,267 JOSTENS, INC. Ba3 B+ 1,895,551 Term Loan, maturing July 29, 2010 1,916,166 NORWOOD PROMOTIONAL PRODUCTS, INC. NR NR 3,588,404 Term Loan, maturing February 01, 2005 3,588,404 1,916,163(2) Term Loan, maturing February 01, 2005 852,693 452,744(2) Term Loan, maturing February 01, 2005 -- PAINT SUNDRY BRANDS CORPORATION B1 B 3,000,000 Term Loan, maturing July 28, 2010 3,037,500 RAYOVAC CORPORATION B1 B+ 1,443,091 Term Loan, maturing September 30, 2009 1,454,215 ------------- 15,771,778 ------------- PERSONAL, FOOD AND MISCELLANEOUS SERVICES: 1.8% AFC ENTERPRISES, INC. B1 B 1,070,892 Term Loan, maturing May 23, 2009 1,073,971 ALDERWOODS GROUP, INC. B1 BB- 1,322,245 Term Loan, maturing September 29, 2008 1,341,666 COINMACH CORPORATION B1 BB- 980,000 Term Loan, maturing July 25, 2009 990,657 DOMINO'S, INC. B1 B+ 2,611,538 Term Loan, maturing June 25, 2010 2,653,323 JACK IN THE BOX, INC. Ba2 BB 4,000,000 Term Loan, maturing January 09, 2010 4,062,500 OTIS SPUNKMEYER, INC. B1 B+ 1,884,749 Term Loan, maturing February 20, 2009 1,898,885 WEIGHT WATCHERS INTERNATIONAL, INC. Ba1 BB 300,721 Term Loan, maturing March 31, 2010 303,540 ------------- 12,324,542 -------------
See Accompanying Notes to Financial Statements 31
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- PRINTING AND PUBLISHING: 7.4% ADAMS OUTDOOR ADVERTISING, L.P. B1 B+ $ 1,760,500 Term Loan, maturing February 08, 2008 $ 1,771,503 AMERICAN MEDIA OPERATIONS, INC. Ba3 B+ 25,923 Term Loan, maturing April 01, 2006 25,891 3,104,546 Term Loan, maturing April 01, 2007 3,148,786 AMERICAN REPROGRAPHICS COMPANY 2,500,000 Term Loan, maturing June 18, 2009 B1 BB 2,537,500 1,000,000 Term Loan, maturing December 18, 2009 B3 B 1,015,000 CANWEST MEDIA, INC. Ba3 B+ 5,969,231 Term Loan, maturing May 15, 2009 6,033,895 DEX MEDIA EAST, LLC B1 BB- 1,807,363 Term Loan, maturing November 08, 2008 1,828,072 1,983,691 Term Loan, maturing May 08, 2009 2,008,900 DEX MEDIA WEST, LLC B1 BB- 5,661,111 Term Loan, maturing March 09, 2010 5,746,617 HOLLINGER INTERNATIONAL PUBLISHING, INC. Ba2 B+ 1,960,038 Term Loan, maturing September 30, 2009 1,989,438 LAMAR MEDIA CORPORATION Ba2 BB- 2,000,000 Term Loan, maturing June 30, 2009 2,001,666 3,200,000 Term Loan, maturing June 30, 2010 3,242,000 MEDIANEWS GROUP, INC. Ba3 BB 2,000,000 Term Loan, maturing December 30, 2010 2,025,000 PRIMEDIA, INC. B3 B 5,329,235 Term Loan, maturing June 30, 2009 5,276,608 R.H. DONNELLEY, INC. Ba3 BB 1,980,173 Term Loan, maturing June 30, 2010 2,008,761 READER'S DIGEST ASSOCIATIONS, INC. Ba1 BB 2,647,757 Term Loan, maturing May 20, 2008 2,669,064 TRANSWESTERN PUBLISHING COMPANY B2 B 3,000,000 Term Loan, maturing February 25, 2012 3,000,000 ZIFF DAVIS MEDIA, INC. B3 CCC 2,911,712 Term Loan, maturing March 31, 2007 2,881,381 ------------- 49,210,082 ------------- RADIO AND TV BROADCASTING: 3.5% CUMULUS MEDIA, INC. Ba3 B+ 1,985,000 Term Loan, maturing March 28, 2010 2,014,775 EMMIS OPERATING COMPANY Ba2 B+ 817,010 Term Loan, maturing February 28, 2009 820,657 1,688,700 Term Loan, maturing August 31, 2009 1,711,450 FISHER BROADCASTING, INC. Ba3 B+ 652,845 Term Loan, maturing February 28, 2010 654,477 GRAY TELEVISION, INC. Ba2 B+ 2,000,000 Term Loan, maturing December 31, 2010 2,022,750 LIN TELEVISION CORPORATION Ba2 BB 515,714 Term Loan, maturing December 31, 2007 521,470 MISSION BROADCASTING, INC. Ba3 B+ 897,436 Term Loan, maturing December 31, 2010 906,410
See Accompanying Notes to Financial Statements 32
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- RADIO AND TV BROADCASTING: (CONTINUED) NEXSTAR BROADCASTING Ba3 B+ $ 352,564 Term Loan, maturing December 31, 2010 $ 356,090 PAXSON COMMUNICATIONS CORPORATION B1 B+ 7,000,000 Floating Rate Note, maturing January 15, 2010 6,965,000 SINCLAIR BROADCAST GROUP, INC. Ba2 BB 921,800 Term Loan, maturing December 31, 2009 932,664 1,843,600 Term Loan, maturing December 31, 2009 1,865,329 SPANISH BROADCASTING SYSTEMS B1 B+ 1,750,000 Term Loan, maturing October 30, 2009 1,772,969 SUSQUEHANNA MEDIA COMPANY Ba1 BB- 2,456,250 Term Loan, maturing June 30, 2008 2,480,812 TELEVICENTRO OF PUERTO RICO, LLC Ba2 BB 464,286 Term Loan, maturing December 31, 2007 469,468 ------------- 23,494,321 ------------- RETAIL: 2.0% ADVANCE STORES COMPANY, INC. Ba3 BB 500,000 Term Loan, maturing November 30, 2006 505,469 2,008,940 Term Loan, maturing November 30, 2007 2,033,425 ALIMENTATION COUCHE-TARD, INC. Ba2 BB 1,000,000 Term Loan, maturing December 17, 2010 1,008,125 CH OPERATING, LLC B2 B+ 554,446 Term Loan, maturing June 21, 2007 554,446 CSK AUTO, INC. Ba3 B+ 1,500,000 Term Loan, maturing June 19, 2009 1,508,907 ORIENTAL TRADING COMPANY, INC. 1,974,684 Term Loan, maturing August 06, 2010 B1 B+ 1,987,025 1,000,000 Term Loan, maturing January 08, 2011 B2 B- 1,024,583 THE PANTRY, INC. B1 B+ 843,222 Term Loan, maturing March 31, 2007 853,762 860,527 Term Loan, maturing March 31, 2007 871,284 PETCO ANIMAL SUPPLIES, INC. Ba3 BB- 727,597 Term Loan, maturing October 26, 2008 736,692 RITE AID CORPORATION Ba3 BB 2,000,000 Term Loan, maturing April 30, 2008 2,043,750 ------------- 13,127,468 ------------- SATELLITE: 0.9% ECHOSTAR DBS CORPORATION Ba3 BB- 5,000,000 Floating Rate Note, maturing October 01, 2008 5,200,000 PANAMSAT CORPORATION Ba2 BB 538,462 Term Loan, maturing September 30, 2010 547,211 ------------- 5,747,211 ------------- TELECOMMUNICATIONS: 3.0% CINCINNATI BELL, INC. B1 B+ 90,812 Revolver, maturing November 09, 2004 90,097 4,987,500 Term Loan, maturing June 30, 2008 5,058,572
See Accompanying Notes to Financial Statements 33
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- TELECOMMUNICATIONS: (CONTINUED) GCI HOLDINGS, INC. Ba3 BB+ $ 1,394,858 Term Loan, maturing October 31, 2007 $ 1,410,550 QWEST COMMUNICATIONS INTERNATIONAL, INC. B3 CCC+ 10,000,000 Floating Rate Note, maturing February 15, 2009 9,450,000 TIME WARNER TELECOM HOLDINGS B1 B 4,000,000 Floating Rate Note, maturing February 15, 2011 3,970,000 ------------- 19,979,219 ------------- TELECOMMUNICATIONS EQUIPMENT: 2.6% AMERICAN TOWER, L.P. B1 B 3,546,843 Term Loan, maturing June 30, 2007 3,567,681 CROWN CASTLE OPERATING COMPANY B1 B- 1,299,578 Term Loan, maturing September 15, 2007 1,309,975 4,870,792 Term Loan, maturing September 30, 2010 4,966,854 SBA SENIOR FINANCE, INC. B2 CCC+ 2,538,462 Term Loan, maturing October 31, 2008 2,562,788 SPECTRASITE COMMUNICATIONS, INC. B1 B+ 1,792,366 Term Loan, maturing December 31, 2007 1,803,382 2,997,272 Term Loan, maturing December 31, 2007 3,036,075 ------------- 17,246,755 ------------- TEXTILES AND LEATHER: 0.8% (1) GALEY & LORD, INC. Caa2 NR 877,508 Term Loan, maturing April 02, 2005 377,328 622,492 Term Loan, maturing April 01, 2006 267,672 TARGUS GROUP, INC. NR NR 3,178,880 Term Loan, maturing August 31, 2006 3,147,092 WILLIAM CARTER COMPANY Ba3 BB 1,641,036 Term Loan, maturing September 08, 2008 1,658,131 ------------- 5,450,223 ------------- TRANSPORTATION: 1.6% (1) AMERICAN COMMERCIAL LINES, LLC Ba3 NR 880,000 Debtor In Possession Term Loan, maturing July 31, 2004 877,800 BAKER TANKS, INC. B1 B+ 1,000,000 Term Loan, maturing January 30, 2011 1,007,813 NEOPLAN USA CORPORATION NR NR 507,948 Term Loan, maturing June 30, 2006 507,947 PACER INTERNATIONAL, INC. B1 BB- 1,241,176 Term Loan, maturing June 10, 2010 1,254,752 RAILAMERICA, INC. Ba3 BB 226,265 Term Loan, maturing May 22, 2009 228,726 316,239 Term Loan, maturing May 22, 2009 319,678 1,396,721 Term Loan, maturing May 22, 2009 1,411,910 TEREX CORPORATION B1 BB- 2,853,156 Term Loan, maturing July 03, 2009 2,859,696
See Accompanying Notes to Financial Statements 34
BANK LOAN RATINGS+ (UNAUDITED) PRINCIPAL AMOUNT BORROWER/TRANCHE DESCRIPTION MOODY'S S&P VALUE - -------------------------------------------------------------------------------------------------------------- TRANSPORTATION: (CONTINUED) YELLOW ROADWAY CORPORATION Baa3 BBB $ 1,090,909 Term Loan, maturing June 11, 2008 $ 1,099,773 909,091 Term Loan, maturing June 11, 2008 916,477 ------------- 10,484,572 ------------- UTILITIES: 1.4% CALPINE CONSTRUCTION FINANCE COMPANY, L.P. NR B+ 995,000 Term Loan, maturing February 26, 2009 1,066,516 CALPINE CORPORATION B2 B 3,980,000 Term Loan, maturing July 16, 2007 4,039,700 CENTERPOINT ENERGY, INC. Ba1 BBB- 1,994,595 Term Loan, maturing October 07, 2006 2,045,291 NRG ENERGY, INC. B1 BB- 312,500 Term Loan, maturing June 23, 2010 321,924 558,125 Term Loan, maturing June 23, 2010 574,956 PIKE ELECTRIC, INC. Ba3 BB- 1,611,765 Term Loan, maturing April 18, 2010 1,626,623 ------------- 9,675,010 ------------- TOTAL SENIOR LOANS (COST $628,488,454) $ 638,242,547 ------------- OTHER CORPORATE DEBT: 0.2% FINANCE: 0.2% VALUE ASSET MANAGEMENT, INC. B3 B 1,558,824 Senior Subordinated Bridge Note, maturing August 31, 2005 1,519,853 ------------- TOTAL OTHER CORPORATE DEBT (COST $1,556,698) 1,519,853 ------------- EQUITIES AND OTHER ASSETS: 0.3% SECURITY DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------- (@), (R) Decision One Corporation (92,638 Common Shares) -- (@), (R) Murray's Discount Auto Stores, Inc. (Escrow) 133,153 (@), (R) Neoplan USA Corporation (1,627 Common Shares) -- (@), (R) Neoplan USA Corporation (170 Preferred B Shares) -- (@), (R) Neoplan USA Corporation (102 Preferred C Shares) 40,207 (@), (R) Neoplan USA Corporation (331 Preferred D Shares) 330,600 (@), (R) New World Restaurant Group, Inc. (Warrants for 2,244 Common Shares, Expires June 15, 2006) 30,788 (@), (R) Safelite Glass Corporation (99,495 Common Shares) 1,250,652
See Accompanying Notes to Financial Statements 35
SECURITY DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------- (@), (R) Safelite Realty (6,716 Common Shares) $ 36,938 (@), (R) Targus Group, Inc. (Warrants for 47,931 Common Shares) -- ------------- TOTAL FOR EQUITIES AND OTHER ASSETS (COST $503,981) 1,822,338 ------------- TOTAL LONG-TERM INVESTMENTS (COST $630,549,133) 641,584,738 ------------- SHORT-TERM INVESTMENTS: 1.6% PRINCIPAL AMOUNT SECURITY DESCRIPTION VALUE - -------------------------------------------------------------------------------------------------------------- $ 11,000,000 State Street Repurchase Agreement dated 02/27/04, 0.7500% due 03/01/04, $11,000,688 due upon repurchase (Collateralized by $11,145,000 FNMA, 1.500%, Market Value $11,223,472 due 10/01/04) 11,000,000 ------------- TOTAL SHORT-TERM INVESTMENTS (COST $11,000,000) 11,000,000 ------------- TOTAL INVESTMENTS (COST $641,549,133)** 97.6% $ 652,584,738 OTHER ASSETS AND LIABILITIES -- NET 2.4 16,142,151 ----- ------------- NET ASSETS 100.0% $ 668,726,889 ===== =============
- ---------- * Senior loans, while exempt from registration under the Securites 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 $641,564,353 and net unrealized appreciation consists of the following: Gross Unrealized Appreciation $ 12,826,788 Gross Unrealized Depreciation (1,806,403) ------------- Net Unrealized Appreciation $ 11,020,385 =============
See Accompanying Notes to Financial Statements 36 ING Senior Income Fund 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: MATTERS: 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. 2. Proposal 2 pertains to a Fund not included in this annual report. 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. RESULTS:
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
37 ING Senior Income Fund TAX INFORMATION (Unaudited) Dividends paid during the year ended February 29, 2004 were as follows:
PER SHARE FUND NAME TYPE AMOUNT - --------- ---- ------ Class A NII $ 0.6441 Class B NII $ 0.5683 Class C NII $ 0.5683 Class Q NII $ 0.6441 Class A LTCG $ 0.0152 Class B LTCG $ 0.0152 Class C LTCG $ 0.0152 Class Q LTCG $ 0.0152
- ---------- NII - Net investment income LTCG - Long term capital gain Of the ordinary distributions made during the fiscal year ended February 29, 2004, 0.20% qualifies for the dividends received deduction to corporate shareholders. For the fiscal year ended February 29, 2004, 0.20% of ordinary dividends paid by the Fund are designated as qualifying dividend income subject to reduced income tax rates for individuals. The above figures may differ from those cited elsewhere in this report due to differences in the calculation of income and gains under accounting principles generally accepted in the United States of America (book) and Internal Revenue Service (tax) purposes. Shareholders are strongly advised to consult their own tax advisers with respect to the tax consequences of their investments in the Fund. In January 2004, shareholders, excluding corporate shareholders, received an IRS 1099-DIV regarding the federal tax status of the dividends and distributions received by them in calendar year 2003. 38 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 ("Non-Interested 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) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE ------- ----------------- -------------- --------------- ------- ------- NON-INTERESTED TRUSTEES: Paul S. Doherty(2) Trustee January President and Partner, 122 None 7337 E. Doubletree Ranch Rd. 2001 - present Doherty, Wallace, Pillsbury Scottsdale, Arizona 85258 and Murphy, P.C., Attorneys Born: 1934 (1996 - Present); and Trustee of each of the funds managed by Northstar Investment Management Corporation (1993 - 1999). J. Michael Earley(3) Trustee February President and Chief 122 None 7337 E. Doubletree Ranch Rd. 2002 - present Executive Officer, Bankers Scottsdale, Arizona 85258 Trust Company, N.A. (1992 - Born: 1945 Present). R. Barbara Gitenstein(2) Trustee February President, College of New 122 None 7337 E. Doubletree Ranch Rd. 2002 - present Jersey (1999 - Present). Scottsdale, Arizona 85258 Born: 1948 Walter H. May(2) Trustee January Retired. Formerly, Managing 122 Best Prep Charity 7337 E. Doubletree Ranch Rd. 2001 - 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 Private Investor (June 1997 - 122 Director, Hypercom, 7337 E. Doubletree Ranch Rd. 2001 - present Present). Formerly Director Inc. (January 1999 Scottsdale, Arizona 85258 and Chief Executive Officer, - Present); JDA Born: 1945 Rainbow Multimedia Group, Software Group, Inc. (January 1999 - Inc. (January December 2001). 1999 - Present).
39
NUMBER OF PRINCIPAL PORTFOLIOS IN OTHER POSITION(S) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE ------- ----------------- -------------- --------------- ------- ------- David W.C. Putnam(3) Trustee January President and Director, F.L. 122 Anchor 7337 E. Doubletree Ranch Rd. 2001 - present Putnam Securities Company, International Bond Scottsdale, Arizona 85258 Inc. and its affiliates; (December 2000 - Born: 1939 President, Secretary and Present); Trustee, The Principled Progressive Capital Equity Market Fund. Formerly, Accumulation Trust Trustee, Trust Realty Corp.; (August 1998 - Anchor Investment Trust; Bow Present); Ridge Mining Company and each Principled Equity of the F.L. Putnam funds Market Fund managed by Northstar (November 1996 - Investment Foundation Present), Mercy Management Corporation (1994 Endowment - 1999). Foundation (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 Trustee February General Partner, Huntington 122 Morgan Chase Trust 7337 E. Doubletree Ranch Rd. 2001 - 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 Trustee February President, Springwell 122 Director, AmeriGas 7337 E. Doubletree Ranch Rd. 2002 - present Corporation (1989 - present). Propane, Inc. Scottsdale, Arizona 85258 Formerly, Director, Tatham (1998 - present). Born: 1945 Offshore, Inc. (1996 - 2000). Richard A. Wedemeyer(2)(3) Trustee February Retired. Formerly Vice 122 Touchstone 7337 E. Doubletree Ranch Rd. 2001 - present President - Finance and Consulting Group Scottsdale, Arizona 85258 Administration, Channel (1997 - present). Born: 1936 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).
40
NUMBER OF PRINCIPAL PORTFOLIOS IN OTHER POSITION(S) TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS NAME, ADDRESS HELD WITH AND LENGTH OF DURING THE OVERSEEN BY HELD BY AND AGE THE REGISTRANT(S) TIME SERVED(1) PAST FIVE YEARS TRUSTEE TRUSTEE ------- ----------------- -------------- --------------- ------- ------- INTERESTED TRUSTEES: Thomas J. McInerney(4) Trustee February Chief Executive Officer, ING 175 Director, 7337 E. Doubletree Ranch Rd. 2001 - present U.S. Financial Services Hemisphere, Inc. Scottsdale, Arizona 85258 (September 2001 to present); (May 2003 - Born: 1956 General Manager and Chief present). Director, Executive Officer, ING U.S. Equitable Life Worksite Financial Services Insurance Co., (December 2000 to present); Golden American Life Member, ING Americas Insurance Co., Life Executive Committee (2001 to Insurance Company of present); President, Chief Georgia, Midwestern Executive Officer and United Life Director of Northern Life Insurance Co., Insurance Company (2001 to ReliaStar Life present), ING Aeltus Holding Insurance Co., Company, Inc. (2000 to Security Life of present), ING Retail Holding Denver, Security Company (1998 to present). Connecticut Life Formerly, ING Life Insurance Insurance Co., and Annuity Company (1997 to Southland Life November 2002), ING Insurance Co., USG Retirement Holdings, Inc. Annuity and Life (1997 to March 2003); General Company, and United Manager and Chief Executive Life and Annuity Officer, ING Worksite Insurance Co. Inc Division (December 2000 to (March 2001 - October 2001), President, present); Member of ING-SCI, Inc. (August 1997 to the Board, National December 2000); President, Commission on Aetna Financial Services Retirement Policy, (August 1997 to December Competitiveness and 2000); and has held a variety Technology of of line and corporate staff Connecticut, positions since 1978. 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 Chairman, Hillcrest Capital 122 Director, Hormel 7337 E. Doubletree Ranch Rd. 2001 - present Partners (May 2002 - Foods Corporation Scottsdale, Arizona 85258 Present); President, Turner (March 2000 - Born: 1939 Investment Company present); Shopko (January 2002 - Present). Stores, Inc. (August Mr. Turner was formerly Vice 1999 - present); and Chairman of ING Americas M.A. Mortenson (2000 - 2002); Chairman and Company (March 2002 Chief 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 and Proxy Voting Committee (formerly the Valuation Committee) member. (3) Audit Committee member. (4) Mr. McInerney is an "interested person," as defined by the 1940 Act, because of an affiliation with ING Groep N.V., the parent corporation of the Investment Manager, ING Investments, LLC and the Distributor, ING Funds Distributor, LLC. (5) Mr. Turner is an "interested person," as defined by the 1940 Act, because of his affiliation with ING Groep N.V., the parent corporation of the Investment Manager, ING Investments, LLC and the Distributor, ING Funds Distributor, LLC. 41
PRINCIPAL TERM OF OFFICE OCCUPATION(S) NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS ------- -------------- -------------- --------------- OFFICERS: James M. Hennessy Chief Executive Officer and February 2001 - Present President and Chief Executive Officer, 7337 E. Doubletree Ranch Rd. Chief Operating Officer ING Investments, LLC(2) and certain of Scottsdale, Arizona 85258 its affiliates (December 2001 - Born: 1949 President January 2001 - Present Present). Formerly, Senior Executive Vice President and Chief Operating Officer, ING Investments, LLC(2) and certain of its affiliates (June 2000 - December 2000); Executive Vice President, ING Investments, LLC(2) and certain of its affiliates (April 1998 - June 2000); and Senior Vice President, ING Investments, LLC(2) and certain of its affiliates (April 1995 - April 1998). Michael J. Roland Executive Vice President February 2002 - Present Executive Vice President, Chief 7337 E. Doubletree Ranch Rd. and Assistant Secretary Financial Officer and Treasurer, ING Scottsdale, Arizona 85258 Investments, LLC(2) and certain of its Born: 1958 Chief Financial Officer January 2001 - Present affiliates (December 2001 - Present). Formerly, Senior Vice President, ING Investments, LLC(2) and certain of its affiliates (June 1998 - December 2001). Stanley D. Vyner Executive Vice President August 2003 - Present Executive Vice President, ING 7337 E. Doubletree Ranch Rd. Investments, LLC(2) and certain of its Scottsdale, Arizona 85258 affiliates (July 2000 - Present); and Born: 1950 Chief Investment Officer of the International Portfolios, ING Investments, LLC(2) (July 1996 - Present). Formerly, President and Chief Executive Officer, ING Investments, LLC(2) (August 1996 - August 2000). Robert S. Naka Senior Vice President and January 2001 - Present Senior Vice President and Assistant 7337 E. Doubletree Ranch Rd. Assistant Secretary Secretary, ING Investments, LLC(2) and Scottsdale, Arizona 85258 certain of its affiliates (October 2001 Born: 1963 - Present). Formerly, Vice President and Assistant Secretary, ING Funds Services, LLC(3) (February 1997 - August 1999). Daniel A. Norman Senior Vice President and January 2001 - Present Senior Vice President and Co-Senior 7337 E. Doubletree Ranch Rd. Treasurer Portfolio Manager, ING Investments, Scottsdale, Arizona 85258 LLC(2) and certain of its affiliates Born: 1957 (November 1999 - Present). Formerly, Senior Vice President and Portfolio Manager, ING Investments, LLC(2) and certain of its affiliates (April 1995 - November 1999). Jeffrey A. Bakalar Senior Vice President January 2001 - Present Senior Vice President and Co-Senior 7337 E. Doubletree Ranch Rd. Portfolio Manager, ING Investments, Scottsdale, Arizona 85258 LLC(2) (November 1999 - Present). Born: 1959 Formerly, Vice President and Portfolio Manager, ING Investments, LLC(2) (February 1998 - November 1999). Elliot Rosen Senior Vice President May 2002 - Present Senior Vice President, ING 7337 E. Doubletree Ranch Rd. Investments, LLC(2) (February 1999 - Scottsdale, Arizona 85258 Present). Born: 1953 William H. Rivoir III Senior Vice President and January 2001 - Present Vice President of ING Investment 7337 E. Doubletree Ranch Rd. Assistant Secretary Management Co. (January 2004 - Scottsdale, Arizona 85258 Present). Formerly, Counsel, ING USFS Born: 1951 Law Department (January 2003 - December 2003); and Senior Vice President, ING Investments, LLC(2) and certain of its affiliates (June 1998 - December 2002). Curtis F. Lee Senior Vice President and February 2001 - Present Senior Vice President and Chief Credit 7337 E. Doubletree Ranch Rd. Chief Credit Officer Officer of Senior Loans, ING Scottsdale, Arizona 85258 Investments, LLC(2) (August 1999 - Born: 1955 Present).
42
PRINCIPAL TERM OF OFFICE OCCUPATION(S) NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS ------- -------------- -------------- --------------- Kimberly A. Anderson Senior Vice President November 2003 - Present Senior Vice President, ING 7337 E. Doubletree Ranch Rd. Investments, LLC(2) and certain of its Scottsdale, Arizona 85258 affiliates (October 2003 - Present). Born: 1964 Formerly, Vice President, ING Investments, LLC(2) and certain of its affiliates (October 2001 - October 2003); Secretary, ING Investments, LLC(2) and certain of its affiliates (October 2001 - August 2003); Assistant Vice President, ING Funds Services, LLC(3) (November 1999 - January 2001); and has held various other positions with ING Funds Services, LLC(3) for more than the last five years. Robyn L. Ichilov Vice President January 2001 - Present Vice President, ING Funds Services, 7337 E. Doubletree Ranch Rd. LLC(3) (October 2001 - Present) and Scottsdale, Arizona 85258 ING Investments, LLC(2) (August 1997 - Born: 1967 Present). J. David Greenwald Vice President August 2003 - Present Vice President of Mutual Fund 7337 E. Doubletree Ranch Rd. Compliance, ING Funds Services, LLC(3) Scottsdale, Arizona 85258 (May 2003 - Present). Formerly, Born: 1957 Assistant Treasurer and Director of Mutual Fund Compliance and Operations, American Skandia, a Prudential Financial Company (October 1996 - May 2003). Lauren D. Bensinger Vice President August 2003 - Present Vice President and Chief Compliance 7337 E. Doubletree Ranch Rd. Officer, ING Funds Distributor, LLC(4) Scottsdale, Arizona 85258 (July 1995 - Present); Vice President Born: 1954 (February 1996 - Present) and Chief Compliance Officer (October 2001 - Present), ING Investments, LLC(2). Huey P. Falgout Secretary August 2003 - Present Chief Counsel, ING U.S. Financial 7337 E. Doubletree Ranch Rd. Services (November 2003 - Present). Scottsdale, Arizona 85258 Formerly, Counsel, ING U.S. Financial Born: 1963 Services (November 2002 - November 2003); Associate General Counsel, AIG American General (January 1999 - November 2002). Todd Modic Vice President August 2003 - Present Vice President of Financial Reporting - 7337 E. Doubletree Ranch Rd. Fund Accounting of ING Fund Services, Scottsdale, Arizona 85258 LLC(3) (September 2002 - Present). Born: 1967 Formerly, Director of Financial Reporting, ING Investments, LLC(2) (March 2001 - September 2002); Director of Financial Reporting, Axient Communications, Inc. (May 2000 - January 2001); and Director of Finance, Rural/Metro Corporation (March 1995 - May 2000). Theresa Kelety Assistant Secretary August 2003 - Present Counsel, ING U.S. Financial Services 7337 E. Doubletree Ranch Rd. (April 2003 - Present). Formerly, Senior Scottsdale, Arizona 85258 Associate with Shearman & Sterling Born: 1963 (February 2000 - April 2003); and Associate with Sutherland Asbill & Brennan (1996 - February 2000). Susan P. Kinens Assistant Vice President February 2003 - Present Assistant Vice President and Assistant 7337 E. Doubletree Ranch Rd. and Assistant Secretary Secretary, ING Funds Services, LLC(3) Scottsdale, Arizona 85258 (December 2002 - Present); and has Born: 1976 held various other positions with ING Funds Services, LLC(3) for over the last five years.
43
PRINCIPAL TERM OF OFFICE OCCUPATION(S) NAME, ADDRESS POSITION(S) HELD AND LENGTH OF DURING THE AND AGE WITH THE TRUST TIME SERVED(1) PAST FIVE YEARS ------- -------------- -------------- --------------- Maria M. Anderson Assistant Vice President August 2001 - Present Assistant Vice President, ING Funds 7337 E. Doubletree Ranch Rd. Services, LLC(3) (October 2001 - Scottsdale, Arizona 85258 Present). Formerly, Manager of Fund Born: 1958 Accounting and Fund Compliance, ING Investments, LLC(2) (September 1999 - November 2001).
- ---------- (1) The officers hold office until the next annual meeting of the Trustees and until their successors have been elected and qualified. (2) ING Investments, LLC was previously named ING Pilgrim Investments, LLC. ING Pilgrim Investments, LLC is the sucessor in interest to ING Pilgrim Investments, Inc., which was previously known as Pilgrim Investments, Inc. and before that was known as Pilgrim America Investments, Inc. (3) ING Funds Services, LLC was previously named ING Pilgrim Group, LLC. ING Pilgrim Group, LLC is the sucessor in interest to ING Pilgrim Group, Inc., which was previously known as Pilgrim Group, Inc. and before that was known as Pilgrim America Group, Inc. (4) ING Funds Distributor, LLC is the sucessor in interest to ING Funds Distributor, Inc., which was previously known as ING Pilgrim Securities, Inc., and before that was known as Pilgrim Securities, Inc., and before that was known as Pilgrim America Securities, Inc. 44 INVESTMENT MANAGER ING Investments, LLC 7337 E. Doubletree Ranch Road Scottsdale, Arizona 85258-2034 SUB-ADVISER Aeltus Investment Management, Inc. 10 State House Square Hartford, Connecticut 06103-3602 ADMINISTRATOR ING Funds 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 I Street, N.W. Washington, D.C. 20006 INDEPENDENT AUDITORS KPMG LLP 355 South Grand Avenue Los Angeles, California 90071-1568 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 callling ING Funds Distributor Customer Service Desk at 1-800-992-0180. Please read the prospectus carefully before you invest or send money. The Fund's proxy voting record will be available without charge on or about August 31, 2004 on the Fund's website at www.ingfunds.com and on the SEC's website at www.sec.gov. [ING FUNDS LOGO] PRAR-SIF (0204-042904) ITEM 2. CODE OF ETHICS. As of the end of the period covered by this report, Registrant had adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to the Registrant's principal executive officer and principal financial officer. There were no amendments to the Code during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code during the period covered by this report. The code of ethics is filed herewith pursuant to Item 10(a)(1), Exhibit 99.CODE ETH. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Board of Trustees has determined that David Putnam is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Putnam is "independent" for purposes of Item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) AUDIT FEES: The aggregate fees billed for each of the last two fiscal years for professional services rendered by KPMG LLP ("KPMG"), the principal accountant for the audit of the registrant's annual financial statements, for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $47,793 for year ended February 29, 2004 and $28,400 for year ended February 28, 2003. (b) AUDIT-RELATED FEES: The aggregate fees billed in each of the last two fiscal years for assurance and related services by KPMG that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item. None (c) TAX FEES: The aggregate fees billed in each of the last two fiscal years for professional services rendered by KPMG for tax compliance, tax advice, and tax planning were $4,000 in the year ended February 29, 2004 and $6,725 in the year ended February 28, 2003. Such services included review of excise distribution calculations (if applicable), preparation of the Funds' federal, state and excise tax returns, tax services related to mergers and routine consulting. (d) ALL OTHER FEES: The aggregate fees billed in each of the last two fiscal years for products and services provided by KPMG, other than the services reported in paragraphs (a) through (c) of this Item. None (e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES MODEL AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY I. STATEMENT OF PRINCIPLES Under the Sarbanes-Oxley Act of 2002 (the "Act"), the Audit Committee of the Board of Directors or Trustees (the "Committee") of the ING Funds (each a "Fund," collectively, the "Funds") set out under Paragraph I on EXHIBIT A to this Audit and Non-Audit Services Pre-Approval Policy ("Policy") is responsible for the oversight of the work of the Funds' independent auditors. As part of its responsibilities, the Committee must pre-approve the audit and non-audit services performed by the auditors in order to assure that the provision of these services does not impair the auditors' independence from the Funds. The Committee has adopted, and the Board has ratified, this Policy, which sets out the procedures and conditions under which the services of the independent auditors may be pre-approved. Under Securities and Exchange Commission ("SEC") rules promulgated in accordance with the Act, the Funds' may establish two different approaches to pre-approving audit and non-audit services. The Committee may approve services without consideration of specific case-by-case services ("general pre-approval") or it may pre-approve specific services ("specific pre-approval"). The Committee believes that the combination of these approaches contemplated in this Policy results in an effective and efficient method for pre-approving audit and non-audit services to be performed by the Funds' independent auditors. Under this Policy, services that are not of a type that may receive general pre-approval require specific pre-approval by the Committee. Any proposed services that exceed pre-approved cost levels or budgeted amounts will also require the Committee's specific pre-approval. For both types of approval, the Committee considers whether the subject services are consistent with the SEC's rules on auditor independence and that such services are compatible with maintaining the auditors independence. The Committee also considers whether a particular audit firm is in the best position to provide effective and efficient services to the Funds. Reasons that the auditors are in the best position include the auditors' familiarity with the Funds' business, personnel, culture, accounting systems, risk profile, and other factors, and whether the services will enhance the Funds' ability to manage and control risk or improve audit quality. Such factors will be considered as a whole, with no one factor being determinative. The appendices attached to this Policy describe the audit, audit-related, tax-related, and other services that have the Committee's general pre-approval. For any service that has been approved through general pre-approval, the general pre-approval will remain in place for a period 12 months from the date of pre-approval, unless the Committee determines that a different period is appropriate. The Committee will annually review and pre-approve the services that may be provided by the independent auditors without specific pre-approval. The Committee will revise the list of services subject to general pre-approval as appropriate. This Policy does not serve as a delegation to Fund management of the Committee's duty to pre-approve services performed by the Funds' independent auditors. II. AUDIT SERVICES The annual audit services engagement terms and fees are subject to the Committee's specific pre-approval. Audit services are those services that are normally provided by auditors in connection with statutory and regulatory filings or engagements or those that generally only independent auditors can reasonably provide. They include the Funds' annual financial statement audit and procedures that the independent auditors must perform in order to form an opinion on the Funds' financial statements (E.G., information systems and procedural reviews and testing). The Committee will monitor the audit services engagement and approve any changes in terms, conditions or fees deemed by the Committee to be necessary or appropriate. The Committee may grant general pre-approval to other audit services, such as statutory audits and services associated with SEC registration statements, periodic reports and other documents filed with the SEC or issued in connection with securities offerings. The Committee has pre-approved the audit services listed on Appendix A. The Committee must specifically approve all audit services not listed on Appendix A. III. AUDIT-RELATED SERVICES Audit-related services are assurance and related services that are reasonably related to the performance of the audit or the review of the Funds' financial statements or are traditionally performed by the independent auditors. The Committee believes that the provision of audit-related services will not impair the independent auditors' independence, and therefore may grant pre-approval to audit-related services. Audit-related services include accounting consultations related to accounting, financial reporting or disclosure matters not classified as "audit services;" assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed-upon or expanded audit procedures relating to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements under Form N-SAR or Form N-CSR. The Committee has pre-approved the audit-related services listed on Appendix B. The Committee must specifically approve all audit-related services not listed on Appendix B. IV. TAX SERVICES The Committee believes the independent auditors can provide tax services to the Funds, including tax compliance, tax planning, and tax advice, without compromising the auditors' independence. Therefore, the Committee may grant general pre-approval with respect to tax services historically provided by the Funds' independent auditors that do not, in the Committee's view, impair auditor independence and that are consistent with the SEC's rules on auditor independence. The Committee will not grant pre-approval if the independent auditors initially recommends a transaction the sole business purpose of which is tax avoidance and the tax treatment of which may not be supported in the Internal Revenue Code and related regulations. The Committee may consult outside counsel to determine that tax planning and reporting positions are consistent with this Policy. The Committee has pre-approved the tax-related services listed on Appendix C. The Committee must specifically approve all tax-related services not listed on Appendix C. V. OTHER SERVICES The Committee believes it may grant approval of non-audit services that are permissible services for independent auditors to a Fund. The Committee has determined to grant general pre-approval to other services that it believes are routine and recurring, do not impair auditor independence, and are consistent with SEC rules on auditor independence. The Committee has pre-approved the non-audit services listed on Appendix D. The Committee must specifically approve all non-audit services not listed on Appendix D. A list of the SEC's prohibited non-audit services is attached to this Policy as Appendix E. The SEC's rules and relevant guidance should be consulted to determine the precise definitions of these impermissible services and the applicability of exceptions to certain of the SEC's prohibitions. VI. PRE-APPROVAL OF FEE LEVELS AND BUDGETED AMOUNTS The Committee will annually establish pre-approval fee levels or budgeted amounts for audit, audit-related, tax and non-audit services to be provided to the Funds by the independent auditors. Any proposed services exceeding these levels or amounts require the Committee's specific pre-approval. The Committee considers fees for audit and non-audit services when deciding whether to pre-approve services. The Committee may determine, for a pre-approval period of 12 months, the appropriate ratio between the total amount of fees for the Fund's audit, audit-related, and tax services (including fees for services provided to Fund affiliates that are subject to pre-approval), and the total amount of fees for certain permissible non-audit services for the Fund classified as other services (including any such services provided to Fund affiliates that are subject to pre-approval). VII. PROCEDURES Requests or applications for services to be provided by the independent auditors will be submitted to management. If management determines that the services do not fall within those services generally pre-approved by the Committee and set out in the appendices to these procedures, management will submit the services to the Committee or its delagee. Any such submission will include a detailed description of the services to be rendered. Notwithstanding this paragraph, the Committee will, on an annual basis, receive from the independent auditors a list of services provided by the auditors during the prior 12-month period. VIII. DELEGATION The Committee may delegate pre-approval authority to one or more of the Committee's members. Any member or members to whom such pre-approval authority is delegated must report any pre-approval decisions, including any pre-approved services, to the Committee at its next scheduled meeting. The Committee will identify any member to whom pre-approval authority is delegated in writing. The member will retain such authority for a period of 12 months from the date of pre-approval unless the Committee determines that a different period is appropriate. The period of delegated authority may be terminated by the Committee or at the option of the member. IX. ADDITIONAL REQUIREMENTS The Committee will take any measures the Committee deems necessary or appropriate to oversee the work of the independent auditors and to assure the auditors' independence from the Funds. This may include reviewing a formal written statement from the independent auditors delineating all relationships between the auditors and the Funds, consistent with Independence Standards Board No. 1, and discussing with the auditors their methods and procedures for ensuring independence. Appendix A Pre-Approved Audit Services for the Pre-Approval Period June 1, 2003 through May 31, 2004 Service
THE FUND(S) FEE RANGE ----------- ----------------- Statutory audits or financial audits /X/ As presented to (including tax services associated with Audit non-audit services) Committee Services associated with SEC /X/ Not to exceed registration statements, periodic $8,500 per reports and other documents filed with filing the SEC or other documents issued in connection with securities offerings (e.g., consents), and assistance in responding to SEC comment letters. Consultations by Fund management with /X/ Not to exceed respect to accounting or disclosure $8,000 during treatment of transactions or events the Pre- and/or the actual or potential effect Approval of final or proposed rules, standards Period or interpretations by the SEC, Financial Accounting Standards Board, or other regulatory or standard setting bodies.
Appendix B Pre-Approved Audit-Related Services for the Pre-Approval Period June 1, 2003 through May 31, 2004 Service
THE FUND(S) FUND AFFILIATES FEE RANGE --------------- ----------------- ------------------------ Services related to Fund mergers /X/ /X/ Not to exceed $10,000 per merger Consultations by Fund management with /X/ Not to exceed respect to accounting or disclosure $5,000 per treatment of transactions or events and/or occurrence during the actual or potential effect of final or the Pre-Approval proposed rules, standards or interpretations Period by the SEC, Financial Accounting Standards Board, or other regulatory or standard setting bodies. [NOTE: Under SEC rules some consultations may be "audit" services and others may be "audit-related" services.] Review of the Funds' semi-annual financial /X/ Not to exceed statements $5,000 for each set of financial statements Reports to regulatory or government agencies /X/ Up to $5,000 per related to the annual engagement occurrence during the Pre-Approval Period Regulatory compliance assistance /X/ /X/ Not to exceed $5,000 per quarter Training courses /X/ Not to exceed $2,000 per course For Prime Rate Trust, agreed upon procedures /X/ Not to exceed for quarterly reports to rating agencies $9,000 per quarter
Appendix C Pre-Approved Tax Services for the Pre-Approval Period June 1, 2003 through May 31, 2004
FUND SERVICE THE FUND(S) AFFILIATES FEE RANGE - ------- --------------- ----------------- ------------------------ Preparation of federal and state income tax /X/ Not to exceed returns and federal excise tax returns for $6,000 per Fund the Funds including assistance and review during the Pre- with excise tax distributions. Approval Period Review of IRC Sections 851(b) and 817(h) /X/ Not to exceed diversification testing on a real-time basis $2,000 per Fund during the Pre- Approval Period Review of year-end reporting for 1099's /X/ Not to exceed $800 per Fund during the Pre- Approval Period Tax assistance and advice regarding /X/ /X/ Not to exceed statutory, regulatory or administrative $5,000 for the developments Funds or for the Funds' investment adviser during the Pre- Approval Period International tax services (e.g., Taiwan and /X/ Not to exceed India) $5,000 per Fund during the Pre- Approval Period Tax training courses /X/ Not to exceed $2,000 per course during the Pre- Approval Period
FUND SERVICE THE FUND(S) AFFILIATES FEE RANGE - ------- --------------- ----------------- ------------------------ Tax services associated with Fund mergers /X/ Not to exceed $8,000 per merger during the Pre- Approval Period Tax services related to the preparation of /X/ Not to exceed annual PFIC statements and annual Form 5471 $18,000 during (Controlled Foreign Corporation) for the Pre- structured finance vehicles Approval Period Tax services related to CLOs and CBOs /X/ Not to exceed $15,000 per quarter
Appendix D Pre-Approved Other Services for the Pre-Approval Period June 1, 2003 through May 31, 2004
FUND SERVICE THE FUND(S) AFFILIATES FEE RANGE - ------- --------------- ----------------- ------------------------ Agreed-upon procedures for Class B share /X/ Not to exceed 12b-1 programs $25,000 during the Pre- Approval Period AIMR assistance, and/or verification of /X/ Not to exceed composites $25,000 during the Pre- Approval Period Security counts performed pursuant to Rule /X/ Not to exceed 17f-2 of the 1940 Act (I.E., counts for $5,000 per Funds holding securities with affiliated Fund during sub-custodians) the Pre- Approval Period
Appendix E Prohibited Non-Audit Services Dated: 200X - Bookkeeping or other services related to the accounting records or financial statements of the Funds - Financial information systems design and implementation - Appraisal or valuation services, fairness opinions, or contribution-in-kind reports - Actuarial services - Internal audit outsourcing services - Management functions - Human resources - Broker-dealer, investment adviser, or investment banking services - Legal services - Expert services unrelated to the audit - Any other service that the Public Company Accounting Oversight Board determines, by regulation, is impermissible (e) (2) PERCENTAGE OF SERVICES REFERRED TO IN 4(b) - (4)(d) THAT WERE APPROVED BY THE AUDIT COMMITTEE 100% of the services were approved by the audit committee. (f) PERCENTAGE OF HOURS EXPENDED ATTRIBUTABLE TO WORK PERFORMED BY OTHER THAN FULL TIME EMPLOYEES OF KPMG IF GREATER THAN 50%. Not applicable. (g) NON-AUDIT FEES: The non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were $340,873 for year ended February 29, 2004 and $370,768 for fiscal year ended February 28, 2003. (h) PRINCIPAL ACCOUNTANTS INDEPENDENCE: The Registrant's Audit committee has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X is compatible with maintaining KPMG's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Included in Item 1 ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. ING FUNDS PROXY VOTING PROCEDURES AND GUIDELINES Effective as of July 10, 2003 As amended August 21, 2003 and November 11, 2003 I. INTRODUCTION The following are the Proxy Voting Procedures and Guidelines (the "Procedures and Guidelines") of the ING Funds set forth on Exhibit 1 attached hereto and each portfolio or series thereof (each a "Fund" and collectively, the "Funds"). The purpose of these Procedures and Guidelines is to set forth the process by which each Fund will vote proxies related to the assets in its investment portfolio (the "portfolio securities"). The Procedures and Guidelines have been approved by each of the Funds' Board of Trustees/Directors(1) (each a "Board" and collectively, the "Boards"), including a majority of the independent Trustees/Directors(2) of the Board. These Procedures and Guidelines may be amended only by the Board. The Board shall review these Procedures and Guidelines at its discretion, and make any revisions thereto as deemed appropriate by the Board. II. VALUATION AND PROXY VOTING COMMITTEE The Boards hereby delegate to the Valuation and Proxy Voting Committee of each Board (each a "Committee" and collectively, the "Committees") the authority and responsibility to oversee the implementation of these Procedures and Guidelines, and where applicable, to make determinations - ---------- (1) Reference in these Procedures to one or more Funds shall, as applicable, mean those Funds that are under the jurisdiction of the particular Board or Valuation and Proxy Voting Committee at issue. No provision in these Procedures is intended to impose any duty upon the particular Board or Valuation and Proxy Voting Committee with respect to any other Fund. (2) The independent Trustees/Directors are those Board members who are not "interested persons" within the meaning of Section 2(a)(19) the Investment Company Act of 1940. on behalf of the Board with respect to the voting of proxies on behalf of each Fund. Furthermore, the Boards hereby delegate to each Committee the authority to review and approve material changes to proxy voting procedures of any Fund's investment adviser (the "Adviser"). The Proxy Voting Procedures of the Adviser are attached hereto as Exhibit 2. Any determination regarding the voting of proxies of each Fund that is made by a Committee, or any member thereof, as permitted herein, shall be deemed to be a good faith determination regarding the voting of proxies by the full Board. Each Committee may rely on the Adviser through the Agent, Proxy Coordinator and/or Proxy Group (as such terms are defined below and in the Adviser's proxy voting procedures) to deal in the first instance with the application of these Procedures and Guidelines. Each Committee shall conduct itself in accordance with its charter. III. DELEGATION OF VOTING RESPONSIBILITY The Board hereby delegates to the Adviser to each Fund the authority and responsibility to vote all proxies with respect to all portfolio securities of each Fund in accordance with then current proxy voting procedures and guidelines that have been approved by the Board. The Board may revoke such delegation with respect to any proxy or proposal, and assume the responsibility of voting any Fund proxy or proxies as it deems appropriate. Non-material amendments to the Procedures and Guidelines may be approved for immediate implementation by the President or Chief Financial Officer of a Fund, subject to ratification at the next regularly scheduled meeting of the Valuation and Proxy Voting Committee. When a Fund participates in the lending of its securities and the securities are on loan at record date, proxies related to such securities will not be forwarded to the Adviser by the Fund's custodian and therefore will not be voted. When a Fund is a feeder in a master/feeder structure, proxies for the portfolio securities of the master fund will be voted pursuant to the master fund's proxy voting policies and procedures. IV. APPROVAL AND REVIEW OF PROCEDURES Each Fund's Adviser has adopted proxy voting procedures in connection with the voting of portfolio securities for the Funds as attached hereto in Exhibit 2. The Board hereby approves such procedures. All material changes to such procedures must be approved by the Board or the Valuation and Proxy Voting Committee prior to implementation; however, the President or Chief Financial Officer of a Fund may make such non-material changes as they deem appropriate, subject to ratification by the Board or the Valuation and Proxy Voting Committee at its next regularly scheduled meeting. V. VOTING PROCEDURES AND GUIDELINES The Guidelines which are set forth in Exhibit 3 hereto specify the manner in which the Funds generally will vote with respect to the proposals discussed therein. ROUTINE MATTERS The Agent shall be instructed to submit a vote in accordance with the Guidelines where such Guidelines provide a clear "For", "Against" or "Abstain" on a proposal. However, the Agent shall be directed to refer proxy proposals to the Proxy Coordinator for instructions as if it were a matter requiring case-by-case consideration under circumstances where the application of the Guidelines is unclear, they appear to involve unusual or controversial issues, or an Investment Professional recommends a vote contrary to the Guidelines. B. Matters Requiring Case-by-Case Consideration The Agent shall be directed to refer proxy proposals accompanied by its written analysis and voting recommendation to the Proxy Coordinator where the Guidelines have noted a "case-by-case" consideration. Upon receipt of a referral from the Agent, the Proxy Coordinator may solicit additional research from the Agent, Investment Professional(s), as well as from any other source or service. The Proxy Coordinator will forward the Agent's analysis and recommendation and/or any research obtained from the Investment Professional(s), the Agent or any other source to the Proxy Group. The Proxy Group may consult with the Agent and/or Investment Professional(s), as it deems necessary. 1. Votes in Accordance with Agent Recommendation In the event the Proxy Group recommends a vote in accordance with the Agent's recommendation, the Proxy Group will instruct the Agent, through the Proxy Coordinator, to vote in accordance with the Agent's recommendation. 2. Non-Votes The Proxy Group may recommend that a Fund refrain from voting under the following circumstances: (1) if the economic effect on shareholders' interests or the value of the portfolio holding is indeterminable or insignificant or (2) if the cost of voting a proxy outweighs the benefits, E.G., certain international proxies. In such instances, the Proxy Group may instruct the Agent, through the Proxy Coordinator, not to vote such proxy. 3. Votes Contrary to Procedures and Guidelines, or Agent Recommendation, where applicable, or Where No Recommendation is Provided by Agent. If the Proxy Group recommends that a Fund vote contrary to the Procedures and Guidelines, or the recommendation of the Agent, where applicable, or if the Agent has made no recommendation and the Procedures and Guidelines are silent, the Proxy Coordinator will then request that each member of the Proxy Group and each Investment Professional participating in the voting process provide a Conflicts Report (as such term is defined for purposes of the Adviser's proxy voting procedures). If Counsel determines that a conflict of interest appears to exist with respect to any member of the Proxy Group or the relevant Investment Professional(s), the Proxy Coordinator will then call a meeting of the Valuation and Proxy Voting Committee and forward to such committee all information relevant to their review, including the following materials or a summary thereof: the applicable Procedures and Guidelines, the recommendation of the Agent where applicable, the recommendation of the Investment Professional(s), where applicable, any resources used by the Proxy Group in arriving at its recommendation, the Conflicts Report and any other written materials establishing whether a conflict of interest exists, and findings of Counsel (as such term is defined for purposes of the Adviser's proxy voting procedures). If Counsel determines that there does not appear to be a conflict of interest with respect to any member of the Proxy Group or the relevant Investment Professional(s), the Proxy Coordinator will instruct the Agent to vote the proxy as recommended by the Proxy Group. 4. Referrals to a Fund's Valuation and Proxy Voting Committee A Fund's Valuation and Proxy Voting Committee may consider all recommendations, analysis, research and Conflicts Reports provided to it by the Agent, Proxy Group and/or Investment Professional(s), and any other written materials used to establish whether a conflict of interest exists, in determining how to vote the proxies referred to the Committee. The Committee will instruct the Agent through the Proxy Coordinator how to vote such referred proposals. The Proxy Coordinator will maintain a record of all proxy questions that have been referred to a Fund's Valuation and Proxy Voting Committee, all applicable recommendations, analysis, research and Conflicts Reports. VI. CONFLICTS OF INTEREST In all cases in which a vote has not been clearly determined in advance by the Procedures and Guidelines or for which the Proxy Group recommends a vote contrary to the Procedures and Guidelines, or contrary to the recommendation of the Agent, or where the Procedures and Guidelines are silent and the Agent has made no recommendation, and Counsel has determined that a conflict of interest appears to exist with respect to any member of the Proxy Group or any Investment Professional participating in the voting process, the proposal shall be referred to the Fund's Valuation and Proxy Voting Committee for determination so that the Adviser shall have no opportunity to vote a Fund's proxy in a situation in which it may be deemed to have a conflict of interest. VII. REPORTING AND RECORD RETENTION Beginning in August 2004, on an annual basis, each Fund will post its proxy voting record or a link thereto for the prior one-year period ending on June 30th on the ING Funds website. The proxy voting record posted for any Fund that is a feeder in a master/feeder structure will be that of the master fund. The proxy voting record for each Fund will also be available in the EDGAR database on the SEC's website. EXHIBIT 1 TO THE ING FUNDS PROXY VOTING PROCEDURES ING EQUITY TRUST ING FUNDS TRUST ING INVESTMENT FUNDS, INC. ING INVESTORS TRUST ING MAYFLOWER TRUST ING MUTUAL FUNDS ING PRIME RATE TRUST ING SENIOR INCOME FUND ING VARIABLE INSURANCE TRUST ING VARIABLE PRODUCTS TRUST ING VP EMERGING MARKETS FUND, INC. ING VP NATURAL RESOURCES TRUST USLICO SERIES FUND Effective as of July 10, 2003 EXHIBIT 2 TO THE ING FUNDS PROXY VOTING PROCEDURES ING INVESTMENTS, LLC, DIRECTED SERVICES, INC. AND ING LIFE INSURANCE AND ANNUITY COMPANY PROXY VOTING PROCEDURES Effective as of July 10, 2003, as amended I. INTRODUCTION ING Investments, LLC, Directed Services, Inc. and ING Life Insurance and Annuity Company (each an "Adviser" and collectively, the "Advisers") are the investment advisers for the registered investment companies and each series or portfolio thereof (each a "Fund" and collectively, the "Funds") comprising the ING family of funds. As such, the Advisers have been delegated the authority to vote proxies with respect to securities for the Funds over which they have day-to-day portfolio management responsibility. The Advisers will abide by the proxy voting guidelines adopted by a Fund's respective Board of Directors or Trustees (each a "Board" and collectively, the "Boards") with regard to the voting of proxies unless otherwise provided in the proxy voting procedures adopted by a Fund's Board. In voting proxies, the Advisers are guided by general fiduciary principles. Each must act prudently, solely in the interest of the beneficial owners of the Funds it manages. The Advisers will not subordinate the interest of beneficial owners to unrelated objectives. Each Adviser will vote proxies in the manner that it believes will do the most to maximize shareholder value. The following are the Proxy Voting Procedures of ING Investments, LLC, Directed Services, Inc. and ING Life Insurance and Annuity Company with respect to the voting of proxies on behalf of their client Funds as approved by the respective Board of each Fund. Unless otherwise noted, proxies will be voted in all instances. II. ROLES AND RESPONSIBILITIES A. Proxy Coordinator The Proxy Coordinator identified in Appendix 1 will assist in the coordination of the voting of each Fund's proxies in accordance with the ING Funds Proxy Voting Procedures and Guidelines ("Procedures and Guidelines"). The Proxy Coordinator is authorized to direct the Agent to vote a Fund's proxy in accordance with the Procedures and Guidelines unless the Proxy Coordinator receives a recommendation from an Investment Professional (as described below) to vote contrary to the Procedures and Guidelines. In such event, the Proxy Coordinator will call a meeting of the Proxy Group. B. Agent An independent proxy voting service (the "Agent"), as approved by the Board of each Fund, shall be engaged to assist in the voting of Fund proxies through the provision of vote analysis, implementation, recordkeeping and disclosure services. The Agent is responsible for coordinating with the Funds' custodians to ensure that all proxy materials received by the custodians relating to the portfolio securities are processed in a timely fashion. To the extent applicable, the Agent is required to vote and/or refer all proxies in accordance with these Procedures. The Agent will retain a record of all proxy votes handled by the Agent. Such record must reflect all the information required to be disclosed in a Fund's Form N-PX pursuant to Rule 30b1-4 under the Investment Company Act. In addition, the Agent is responsible for maintaining copies of all proxy statements received by issuers and to promptly provide such materials to the Adviser upon request. The Agent shall be instructed to vote all proxies in accordance with the ING Funds' Guidelines, except as otherwise instructed through the Proxy Coordinator by the Adviser's Proxy Group, or a Fund's Valuation and Proxy Voting Committee. The Agent shall be instructed to obtain all proxies from the Funds' custodians and to review each proxy proposal against the Guidelines. The Agent also shall be requested to call the Proxy Coordinator's attention to specific proxy proposals that although governed by the Guidelines appear to involve unusual or controversial issues. C. Proxy Group The Adviser shall establish a Proxy Group (the "Proxy Group") which shall assist in the review of the Agent's recommendations when a proxy voting issue is referred to the Group through the Proxy Coordinator. The members of the Proxy Group, which may include employees of the Advisers' affiliates, are identified in Appendix 1, as may be amended from time at the Advisers' discretion. A minimum of four (4) members of the Proxy Group (or three (3) if one member of the quorum is either the Fund's Chief Investment Risk Officer or Chief Financial Officer) shall constitute a quorum for purposes of taking action at any meeting of the Group. The vote of a simple majority of the members present and voting shall determine any matter submitted to a vote. The Proxy Group may meet in person or by telephone. The Proxy Group also may take action via electronic mail in lieu of a meeting, provided that each Group member has received a copy of any relevant electronic mail transmissions circulated by each other participating Group member prior to voting and provided that the Proxy Coordinator follows the directions of a majority of a quorum (as defined above) responding via electronic mail. For all votes taken in person or by telephone or teleconference, the vote shall be taken outside the presence of any person other than the members of the Proxy Group. A meeting of the Proxy Group will be held whenever the Proxy Coordinator receives a recommendation from an Investment Professional to vote a Fund's proxy contrary to the Procedures and Guidelines, or the recommendation of the Agent, where applicable, or if the Agent has made no recommendation with respect to a vote on a proposal. For each proposal referred to the Proxy Group, it will review (1) the Procedures and Guidelines, (2) the recommendation of the Agent, if any, (3) the recommendation of the Investment Professional(s) and (4) any other resources that the Proxy Group deems appropriate to aid in a determination of a recommendation. If the Proxy Group recommends that a Fund vote in accordance with the Procedures and Guidelines, or the recommendation of the Agent, where applicable, it shall instruct the Proxy Coordinator to so advise the Agent. If the Proxy Group recommends that a Fund vote contrary to the Procedures and Guidelines, or the recommendation of the Agent, where applicable, it shall follow the procedures for such voting as established by a Fund's Board. D. Investment Professionals The Funds' Advisers, sub-advisers and/or portfolio managers (referred to herein as "Investment Professionals") may be asked to submit a recommendation to the Proxy Group regarding the voting of proxies related to the portfolio securities over which they have day-to-day portfolio management responsibility. The Investment Professionals may accompany their recommendation with any other research materials that they deem appropriate. III. VOTING PROCEDURES A. In all cases, the Adviser shall follow the voting procedures as set forth in the Procedures and Guidelines of the Fund on whose behalf the Adviser is exercising delegated authority to vote. ROUTINE MATTERS The Agent shall be instructed to submit a vote in accordance with the Guidelines where such Guidelines provide a clear "For", "Against" or "Abstain" on a proposal. However, the Agent shall be directed to refer proxy proposals to the Proxy Coordinator for instructions as if it were a matter requiring case-by-case consideration under circumstances where the application of the Guidelines is unclear. C. Matters Requiring Case-by-Case Consideration The Agent shall be directed to refer proxy proposals accompanied by its written analysis and voting recommendation to the Proxy Coordinator where the Guidelines have noted a "case-by-case" consideration. Upon receipt of a referral from the Agent, the Proxy Coordinator may solicit additional research from the Agent, Investment Professional(s), as well as from any other source or service. The Proxy Coordinator will forward the Agent's analysis and recommendation and/or any research obtained from the Investment Professional(s), the Agent or any other source to the Proxy Group. The Proxy Group may consult with the Agent and/or Investment Professional(s), as it deems necessary. 1. Votes in Accordance with Agent Recommendation In the event the Proxy Group recommends a vote in accordance with the Agent's recommendation, the Proxy Group will instruct the Agent, through the Proxy Coordinator, to vote in accordance with the Agent's recommendation. 2. Non-Votes The Proxy Group may recommend that a Fund refrain from voting under the following circumstances: (1) if the economic effect on shareholders' interests or the value of the portfolio holding is indeterminable or insignificant or (2) if the cost of voting a proxy outweighs the benefits, E.G., certain international proxies. In such instances, the Proxy Group may instruct the Agent, through the Proxy Coordinator, not to vote such proxy. 3. Votes Contrary to Procedures and Guidelines, or Agent Recommendation, where applicable, or Where No Recommendation is Provided by Agent. If the Proxy Group recommends that a Fund vote contrary to the Procedures and Guidelines, or the recommendation of the Agent, where applicable, or if the Agent has made no recommendation and the Procedures and Guidelines are silent, the Proxy Coordinator will then implement the procedures for handling such votes as adopted by the Fund's Board. 4. The Proxy Coordinator will maintain a record of all proxy questions that have been referred to a Fund's Valuation and Proxy Voting Committee, all applicable recommendations, analysis, research and Conflicts Reports. IV. CONFLICTS OF INTEREST In connection with their participation in the voting process for portfolio securities, each member of the Proxy Group and each Investment Professional participating in the voting process must act solely in the best interests of the beneficial owners of the applicable Fund. The members of the Proxy Group may not subordinate the interests of the Fund's beneficial owners to unrelated objectives. For all matters for which the Proxy Group recommends a vote contrary to Procedures and Guidelines, or the recommendation of the Agent, where applicable, or where the Agent has made no recommendation and the Procedures and Guidelines are silent, the Proxy Coordinator will implement the procedures for handling such votes as adopted by the Fund's Board, including completion of such Conflicts Reports as may be required under the Fund's procedures. Completed Conflicts Reports shall be provided to the Proxy Coordinator within two (2) business days. Such Conflicts Report should describe any known conflicts of either a business or personal nature, and set forth any contacts with respect to the referral item with non-investment personnel in its organization or with outside parties (except for routine communications from proxy solicitors). The Conflicts Report should also include written confirmation that any recommendation from an Investment Professional provided under circumstances where a conflict of interest exists was made solely on the investment merits and without regard to any other consideration. The Proxy Coordinator shall forward all Conflicts Reports to a member of the mutual funds practice group of ING US Legal Services ("Counsel") for review. Counsel shall review each report and provide the Proxy Coordinator with a brief statement regarding whether or not a material conflict of interest is present. Matters as to which a conflict of interest is deemed to be present shall be handled as provided in the Fund's Procedures and Guidelines. V. REPORTING AND RECORD RETENTION The Adviser shall maintain the records required by Rule 204-2(c)(2), as may be amended from time to time, including the following: (1) A copy of each proxy statement received regarding a Fund's portfolio securities. Such proxy statements received from issuers are available either in the SEC's EDGAR database or are kept by the Agent and are available upon request. (2) A record of each vote cast on behalf of a Fund. (3) A copy of any document created by the Adviser that was material to making a decision how to vote a proxy, or that memorializes the basis for that decision. (4) A copy of written requests for Fund proxy voting information and any written response thereto or to any oral request for information on how the Adviser voted proxies on behalf of a Fund. All proxy voting materials and supporting documentation will be retained for a minimum of six (6) years. APPENDIX 1 TO THE ADVISERS' PROXY VOTING PROCEDURES PROXY GROUP FOR REGISTERED INVESTMENT COMPANY CLIENTS OF ING INVESTMENTS, LLC, DIRECTED SERVICES, INC. AND ING LIFE INSURANCE AND ANNUITY COMPANY:
NAME TITLE OR AFFILIATION Stanley D. Vyner Chief Investment Risk Officer and Executive Vice President of ING Investments, LLC Karla J. Bos Acting Proxy Coordinator Maria Anderson Assistant Vice President - Manager Fund Compliance of ING Funds Services, LLC Michael J. Roland Executive Vice President and Chief Financial Officer of ING Investments, LLC Todd Modic Vice President of Financial Reporting - Fund Accounting of ING Funds Services, LLC Theresa K. Kelety, Esq. Counsel, ING Americas US Legal Services Effective as of April 21, 2004
EXHIBIT 3 TO THE ING FUNDS PROXY VOTING PROCEDURES PROXY VOTING GUIDELINES OF THE ING FUNDS Effective as of July 10, 2003 As amended August 21, 2003 and November 11, 2003 I. INTRODUCTION The following is a statement of the proxy voting Guidelines that have been adopted by the respective Boards of Directors or Trustees of each Fund. Proxies must be voted in the best interest of the Fund. The Guidelines summarize the Funds' positions on various issues of concern to investors, and give a general indication of how Fund portfolio securities will be voted on proposals dealing with particular issues. The Guidelines are not exhaustive and do not include all potential voting issues. The Advisers, in exercising their delegated authority, will abide by the Guidelines as outlined below with regard to the voting of proxies except as otherwise provided in the Procedures. In voting proxies, the Advisers are guided by general fiduciary principles. Each must act prudently, solely in the interest of the beneficial owners of the Funds it manages. The Advisers will not subordinate the interest of beneficial owners to unrelated objectives. Each Adviser will vote proxies in the manner that it believes will do the most to maximize shareholder value. II. GUIDELINES The following Guidelines are grouped according to the types of proposals generally presented to shareholders of U.S. issuers: Board of Directors, Proxy Contests, Auditors, Proxy Contest Defenses, Tender Offer Defenses, Miscellaneous Governance Provisions, Capital Structure, Executive and Director Compensation, State of Incorporation, Mergers and Corporate Restructurings, Mutual Fund Proxies and Social and Environmental Issues. An additional section addresses proposals most frequently found in Global Proxies. In all cases where "case-by-case" consideration is noted, it shall be the policy of the Funds to vote in accordance with the recommendation provided by the Funds' Agent, Institutional Shareholder Services, Inc. Such policy may be overridden in any case pursuant to the procedures outlined herein. 1. THE BOARD OF DIRECTORS VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS Votes on director nominees should be made on a CASE-BY-CASE basis. SEPARATING CHAIRMAN AND CEO Vote on a CASE-BY-CASE basis shareholder proposals requiring that the positions of chairman and CEO be held separately. PROPOSALS SEEKING A MAJORITY OF INDEPENDENT DIRECTORS Evaluate on a CASE-BY-CASE basis shareholder proposals asking that a majority of directors be independent. Vote FOR shareholder proposals asking that board audit, compensation, and/or nominating committees be composed exclusively of independent directors. STOCK OWNERSHIP REQUIREMENTS Generally, vote AGAINST shareholder proposals requiring directors to own a minimum amount of company stock in order to qualify as a director or to remain on the board. TERM OF OFFICE Generally, vote AGAINST shareholder proposals to limit the tenure of outside directors. AGE LIMITS Generally, vote AGAINST shareholder proposals to impose a mandatory retirement age for outside directors. DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION Proposals on director and officer indemnification and liability protection should be evaluated on a CASE-BY-CASE basis, using Delaware law as the standard. Vote AGAINST proposals to limit or eliminate entirely directors' and officers' liability for monetary damages for violating the duty of care. Vote AGAINST indemnification proposals that would expand coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. Vote FOR only those proposals providing such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (1) The director was found to have acted in good faith and in a manner that he reasonably believed was in the best interests of the company, and (2) Only if the director's legal expenses would be covered. 2. PROXY CONTESTS VOTING FOR DIRECTOR NOMINEES IN CONTESTED ELECTIONS Votes in a contested election of directors must be evaluated on a CASE-BY-CASE basis. REIMBURSE PROXY SOLICITATION EXPENSES Voting to reimburse proxy solicitation expenses should be analyzed on a CASE-BY-CASE basis. 3. AUDITORS RATIFYING AUDITORS Generally, vote FOR proposals to ratify auditors. NON-AUDIT SERVICES Consider on a CASE-BY-CASE basis proposals to approve auditors when total non-audit fees exceed the total of audit fees, audit-related fees and permissible tax fees. AUDITOR INDEPENDENCE Generally, vote AGAINST shareholder proposals asking companies to prohibit their auditors from engaging in non-audit services (or capping the level of non-audit services). AUDIT FIRM ROTATION (SHAREHOLDER PROPOSALS): Generally, vote AGAINST shareholder proposals asking for mandatory audit firm rotation. 4. PROXY CONTEST DEFENSES BOARD STRUCTURE: STAGGERED VS. ANNUAL ELECTIONS Generally, vote AGAINST proposals to classify the board. Generally, vote FOR proposals to repeal classified boards and to elect all directors annually. SHAREHOLDER ABILITY TO REMOVE DIRECTORS Generally, vote AGAINST proposals that provide that directors may be removed only for cause. Generally, vote FOR proposals to restore shareholder ability to remove directors with or without cause. Generally, vote AGAINST proposals that provide that only continuing directors may elect replacements to fill board vacancies. Generally, vote FOR proposals that permit shareholders to elect directors to fill board vacancies. CUMULATIVE VOTING Generally, vote AGAINST proposals to eliminate cumulative voting. Vote proposals to restore or permit cumulative voting on a CASE-BY-CASE basis relative to the company's other governance provisions. SHAREHOLDER ABILITY TO CALL SPECIAL MEETINGS Generally, vote AGAINST proposals to restrict or prohibit shareholder ability to call special meetings. Generally, vote FOR proposals that remove restrictions on the right of shareholders to act independently of management. SHAREHOLDER ABILITY TO ACT BY WRITTEN CONSENT Generally, vote AGAINST proposals to restrict or prohibit shareholder ability to take action by written consent. Generally, vote FOR proposals to allow or make easier shareholder action by written consent. SHAREHOLDER ABILITY TO ALTER THE SIZE OF THE BOARD Review on a CASE-BY-CASE basis proposals that seek to fix the size of the board. Review on a CASE-BY-CASE basis proposals that give management the ability to alter the size of the board without shareholder approval. 5. TENDER OFFER DEFENSES POISON PILLS Generally, vote FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification. Review on a CASE-BY-CASE basis shareholder proposals to redeem a company's poison pill. Review on a CASE-BY-CASE basis management proposals to ratify a poison pill. FAIR PRICE PROVISIONS Vote proposals to adopt fair price provisions on a CASE-BY-CASE basis. Generally, vote AGAINST fair price provisions with shareholder vote requirements greater than a majority of disinterested shares. GREENMAIL Generally, vote FOR proposals to adopt antigreenmail charter of bylaw amendments or otherwise restrict a company's ability to make greenmail payments. Review on a CASE-BY-CASE basis antigreenmail proposals when they are bundled with other charter or bylaw amendments. PALE GREENMAIL Review on a CASE-BY-CASE basis restructuring plans that involve the payment of pale greenmail. UNEQUAL VOTING RIGHTS Generally, vote AGAINST dual-class exchange offers. Generally, vote AGAINST dual-class recapitalizations. SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO AMEND THE CHARTER OR BYLAWS Generally, vote AGAINST management proposals to require a supermajority shareholder vote to approve charter and bylaw amendments. Generally, vote FOR shareholder proposals to lower supermajority shareholder vote requirements for charter and bylaw amendments. SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO APPROVE MERGERS Generally, vote AGAINST management proposals to require a supermajority shareholder vote to approve mergers and other significant business combinations. Generally, vote FOR shareholder proposals to lower supermajority shareholder vote requirements for mergers and other significant business combinations. WHITE SQUIRE PLACEMENTS Generally, vote FOR shareholder proposals to require approval of blank check preferred stock issues for other than general corporate purposes. 6. MISCELLANEOUS GOVERNANCE PROVISIONS CONFIDENTIAL VOTING Generally, vote FOR shareholder proposals that request companies to adopt confidential voting, use independent tabulators, and use independent inspectors of election as long as the proposals include clauses for proxy contests as follows: - In the case of a contested election, management should be permitted to request that the dissident group honor its confidential voting policy. - If the dissidents agree, the policy remains in place. - If the dissidents do not agree, the confidential voting policy is waived. Generally, vote FOR management proposals to adopt confidential voting. EQUAL ACCESS Generally, vote FOR shareholder proposals that would allow significant company shareholders (defined as those holding more than $5 million in securities of the company in question) equal access to management's proxy material in order to evaluate and propose voting recommendations on proxy proposals and director nominees, and in order to nominate their own candidates to the board. BUNDLED PROPOSALS Review on a CASE-BY-CASE basis bundled or "conditioned" proxy proposals. SHAREHOLDER ADVISORY COMMITTEES Review on a CASE-BY-CASE basis proposals to establish a shareholder advisory committee. 7. CAPITAL STRUCTURE COMMON STOCK AUTHORIZATION Review proposals to increase the number of shares of common stock authorized for issue on a CASE-BY-CASE basis. Generally, vote AGAINST proposals to increase the number of authorized shares of the class of stock that has superior voting rights in companies that have dual-class capitalization structures. STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS Generally, vote FOR management proposals to increase common share authorization for a stock split, provided that the increase in authorized shares would not result in an excessive number of shares available for issuance given a company's industry and performance in terms of shareholder returns. REVERSE STOCK SPLITS Consider on a CASE-BY-CASE basis management proposals to implement a reverse stock split. PREFERRED STOCK Generally, vote AGAINST proposals authorizing the creation of new classes of preferred stock with unspecified voting, conversion, dividend distribution, and other rights ("blank check" preferred stock). Generally, vote FOR proposals to create blank check preferred stock in cases when the company expressly states that the stock will not be used as a takeover defense. Generally, vote FOR proposals to authorize preferred stock in cases where the company specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable. Vote CASE-BY-CASE on proposals to increase the number of blank check preferred shares after analyzing the number of preferred shares available for issue given a company's industry and performance in terms of shareholder returns. SHAREHOLDER PROPOSALS REGARDING BLANK CHECK PREFERRED STOCK Generally, vote FOR shareholder proposals to have blank check preferred stock placements, other than those shares issued for the purpose of raising capital or making acquisitions in the normal course of business, submitted for shareholder ratification. ADJUSTMENTS TO PAR VALUE OF COMMON STOCK Generally, vote FOR management proposals to reduce the par value of common stock. PREEMPTIVE RIGHTS Review on a CASE-BY-CASE basis shareholder proposals that seek preemptive rights. In evaluating proposals on preemptive rights, consider the size of a company and the characteristics of its shareholder base. DEBT RESTRUCTURINGS Review on a CASE-BY-CASE basis proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan. SHARE REPURCHASE PROGRAMS Generally, vote FOR management proposals to institute open-market share repurchase plans in which all shareholders may participate on equal terms. TRACKING STOCK Votes on the creation of tracking stock are determined on a CASE-BY-CASE basis. 8. EXECUTIVE AND DIRECTOR COMPENSATION Votes with respect to compensation plans should be determined on a CASE-BY-CASE basis. MANAGEMENT PROPOSALS SEEKING APPROVAL TO REPRICE OPTIONS Generally, vote AGAINST management proposals seeking approval to reprice options. DIRECTOR COMPENSATION Votes on stock-based plans for directors are made on a CASE-BY-CASE basis. EMPLOYEE STOCK PURCHASE PLANS Votes on employee stock purchase plans should be made on a CASE-BY-CASE basis. OBRA-RELATED COMPENSATION PROPOSALS: AMENDMENTS THAT PLACE A CAP ON ANNUAL GRANTS OR AMEND ADMINISTRATIVE FEATURES Generally, vote FOR plans that simply amend shareholder-approved plans to include administrative features or place a cap on the annual grants any one participant may receive to comply with the provisions of Section 162(m) of OBRA. AMENDMENTS TO ADD PERFORMANCE-BASED GOALS Generally, vote FOR amendments to add performance goals to existing compensation plans to comply with the provisions of Section 162(m) of OBRA. AMENDMENTS TO INCREASE SHARES AND RETAIN TAX DEDUCTIONS UNDER OBRA Votes on amendments to existing plans to increase shares reserved and to qualify the plan for favorable tax treatment under the provisions of Section 162(m) should be evaluated on a CASE-BY-CASE basis. APPROVAL OF CASH OR CASH-AND-STOCK BONUS PLANS Generally, vote FOR cash or cash-and-stock bonus plans to exempt the compensation from taxes under the provisions of Section 162(m) of OBRA. SHAREHOLDER PROPOSALS TO LIMIT EXECUTIVE AND DIRECTOR PAY Generally, vote FOR shareholder proposals that seek additional disclosure of executive and director pay information. Review on a CASE-BY-CASE basis all other shareholder proposals that seek to limit executive and director pay. GOLDEN AND TIN PARACHUTES Generally, vote FOR shareholder proposals to have golden and tin parachutes submitted for shareholder ratification. Review on a CASE-BY-CASE basis all proposals to ratify or cancel golden or tin parachutes. EMPLOYEE STOCK OWNERSHIP PLANS (ESOPS) Generally, vote FOR proposals that request shareholder approval in order to implement an ESOP or to increase authorized shares for existing ESOPs, except in cases when the number of shares allocated to the ESOP is "excessive" (i.e., generally greater than five percent of outstanding shares). 401(k) EMPLOYEE BENEFIT PLANS Generally, vote FOR proposals to implement a 401(k) savings plan for employees. EXPENSING OF STOCK OPTIONS Consider shareholder proposals to expense stock options on a CASE-BY-CASE basis. 9. STATE OF INCORPORATION VOTING ON STATE TAKEOVER STATUTES Review on a CASE-BY-CASE basis proposals to opt in or out of state takeover statutes (including control share acquisition statutes, control share cash-out statutes, freezeout provisions, fair price provisions, stakeholder laws, poison pill endorsements, severance pay and labor contract provisions, antigreenmail provisions, and disgorgement provisions). VOTING ON REINCORPORATION PROPOSALS Proposals to change a company's state of incorporation should be examined on a CASE-BY-CASE basis. 10. MERGERS AND CORPORATE RESTRUCTURINGS MERGERS AND ACQUISITIONS Votes on mergers and acquisitions should be considered on a CASE-BY-CASE basis. CORPORATE RESTRUCTURING Votes on corporate restructuring proposals, including minority squeezeouts, leveraged buyouts, spinoffs, liquidations, and asset sales should be considered on a CASE-BY-CASE basis. SPINOFFS Votes on spinoffs should be considered on a CASE-BY-CASE basis. ASSET SALES Votes on asset sales should be made on a CASE-BY-CASE basis. LIQUIDATIONS Votes on liquidations should be made on a CASE-BY-CASE basis. ADJOURNMENT Generally, vote FOR proposals to adjourn a meeting to provide additional time for vote solicitation when the primary proposal is also voted FOR. APPRAISAL RIGHTS Generally, vote FOR proposals to restore, or provide shareholders with, rights of appraisal. CHANGING CORPORATE NAME Generally, vote FOR changing the corporate name. 11. MUTUAL FUND PROXIES ELECTION OF DIRECTORS Vote the election of directors on a CASE-BY-CASE basis. CONVERTING CLOSED-END FUND TO OPEN-END FUND Vote conversion proposals on a CASE-BY-CASE basis. PROXY CONTESTS Vote proxy contests on a CASE-BY-CASE basis. INVESTMENT ADVISORY AGREEMENTS Vote the investment advisory agreements on a CASE-BY-CASE basis. APPROVING NEW CLASSES OR SERIES OF SHARES Generally, vote FOR the establishment of new classes or series of shares. PREFERRED STOCK PROPOSALS Vote the authorization for or increase in preferred shares on a CASE-BY-CASE basis. 1940 ACT POLICIES Vote these proposals on a CASE-BY-CASE basis. CHANGING A FUNDAMENTAL RESTRICTION TO A NONFUNDAMENTAL RESTRICTION Vote these proposals on a CASE-BY-CASE basis. CHANGE FUNDAMENTAL INVESTMENT OBJECTIVE TO NONFUNDAMENTAL Generally, vote AGAINST proposals to change a fund's fundamental investment objective to nonfundamental. NAME RULE PROPOSALS Vote these proposals on a CASE-BY-CASE basis. DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION Vote these proposals on a CASE-BY-CASE basis. CHANGES TO THE CHARTER DOCUMENT Vote changes to the charter document on a CASE-BY-CASE basis. CHANGING THE DOMICILE OF A FUND Vote reincorporations on a CASE-BY-CASE basis. CHANGE IN FUND'S SUBCLASSIFICATION Vote these proposals on a CASE-BY-CASE basis. AUTHORIZING THE BOARD TO HIRE AND TERMINATE SUBADVISORS WITHOUT SHAREHOLDER APPROVAL Generally, vote FOR these proposals. DISTRIBUTION AGREEMENTS Vote these proposals on a CASE-BY-CASE basis. MASTER-FEEDER STRUCTURE Generally, vote FOR the establishment of a master-feeder structure. CHANGES TO THE CHARTER DOCUMENT Vote changes to the charter document on a CASE-BY-CASE basis. MERGERS Vote merger proposals on a CASE-BY-CASE basis. ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT Generally, vote AGAINST shareholder proposals for the establishment of a director ownership requirement. REIMBURSE SHAREHOLDER FOR EXPENSES INCURRED Voting to reimburse proxy solicitation expenses should be analyzed on a CASE-BY-CASE basis. TERMINATE THE INVESTMENT ADVISOR Vote to terminate the investment advisor on a CASE-BY-CASE basis. 12. SOCIAL AND ENVIRONMENTAL ISSUES These issues cover a wide range of topics, including consumer and public safety, environment and energy, general corporate issues, labor standards and human rights, military business, and workplace diversity. In general, vote CASE-BY-CASE. While a wide variety of factors goes into each analysis, the overall principal guiding all vote recommendations focuses on how the proposal will enhance the economic value of the company. 13. GLOBAL PROXIES While a number of the foregoing Guidelines may be applied to both U.S. and global proxies, the following provide for the differing regulatory and legal requirements, market practices and political and economic systems existing in various global markets. ROUTINE MANAGEMENT PROPOSALS Generally, vote FOR the following and other similar routine management proposals: - the opening of the shareholder meeting - that the meeting has been convened under local regulatory requirements - the presence of quorum - the agenda for the shareholder meeting - the election of the chair of the meeting - the appointment of shareholders to co-sign the minutes of the meeting - regulatory filings (E.G., to effect approved share issuances) - the designation of inspector or shareholder representative(s) of minutes of meeting - the designation of two shareholders to approve and sign minutes of meeting - the allowance of questions - the publication of minutes - the closing of the shareholder meeting DISCHARGE OF MANAGEMENT/SUPERVISORY BOARD MEMBERS Generally, vote FOR management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors or directors or legal action is being taken against the board by other shareholders. DIRECTOR REMUNERATION CONSIDER DIRECTOR COMPENSATION PLANS ON A CASE-BY-CASE BASIS. GENERALLY, VOTE FOR PROPOSALS TO APPROVE THE REMUNERATION OF DIRECTORS AS LONG AS THE AMOUNT IS NOT EXCESSIVE AND THERE IS NO EVIDENCE OF ABUSE. APPROVAL OF FINANCIAL STATEMENTS AND DIRECTOR AND AUDITOR REPORTS Generally, vote FOR management proposals seeking approval of financial accounts and reports, unless there is concern about the company's financial accounts and reporting. REMUNERATION OF AUDITORS Generally, vote FOR proposals to authorize the board to determine the remuneration of auditors, unless there is evidence of excessive compensation relative to the size and nature of the company. INDEMNIFICATION OF AUDITORS Generally, vote AGAINST proposals to indemnify auditors. ALLOCATION OF INCOME AND DIVIDENDS Generally, vote FOR management proposals concerning allocation of income and the distribution of dividends, unless the amount of the distribution is consistently and unusually small or large. STOCK (SCRIP) DIVIDEND ALTERNATIVES Generally, vote FOR most stock (scrip) dividend proposals, but vote AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value. DEBT ISSUANCE REQUESTS When evaluating a debt issuance request, the issuing company's present financial situation is examined. The main factor for analysis is the company's current debt-to-equity ratio, or gearing level. A high gearing level may incline markets and financial analysts to downgrade the company's bond rating, increasing its investment risk factor in the process. A gearing level up to 100 percent is considered acceptable. Generally, vote FOR debt issuances for companies when the gearing level is between zero and 100 percent. Review on a CASE-BY-CASE basis proposals where the issuance of debt will result in the gearing level being greater than 100 percent, comparing any such proposed debt issuance to industry and market standards. FINANCING PLANS Generally, vote FOR the adoption of financing plans if they are in the best economic interests of shareholders. RELATED PARTY TRANSACTIONS Consider related party transactions on a CASE-BY-CASE basis. Generally, vote FOR approval of such transactions unless the agreement requests a strategic move outside the company's charter or contains unfavorable terms. CAPITALIZATION OF RESERVES Generally, vote FOR proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares. ARTICLE AMENDMENTS Review on a CASE-BY-CASE basis all proposals seeking amendments to the articles of association. Generally, vote FOR an article amendment if: - it is editorial in nature; - shareholder rights are protected; - there is negligible or positive impact on shareholder value; - management provides adequate reasons for the amendments; and - the company is required to do so by law (if applicable). ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. None ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable ITEM 10. CONTROLS AND PROCEDURES. (a) Based on our evaluation conducted within 90 days of the filing date, hereof, the design and operation of the registrant's disclosure controls and procedures are effective to ensure that material information relating to the registrant is made known to the certifying officers by others within the appropriate entities, particularly during the period in which Forms N-CSR are being prepared, and the registrant's disclosure controls and procedures allow timely preparation and review of the information for the registrant's Form N-CSR and the officer certifications of such Form N-CSR. (b) There were no significant changes in the registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. ITEM 11. EXHIBITS. (a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2) is attached hereto as EX-99.CERT. (b) The officer certifications required by Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as EX-99.906CERT SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant): ING Senior Income Fund By /s/ James M. Hennessy ----------------------------------------- James M. Hennessy President and Chief Executive Officer Date May 5, 2004 ---------------------------------- 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 May 5, 2004 ---------------------------------- By /s/ Michael J. Roland ---------------------------------------------------- Michael J. Roland Executive Vice President and Chief Financial Officer Date May 5, 2004 ---------------------------------- EX-99.CODEETH 2 a2134249zex-99_codeeth.txt EXHIBIT 99.CODEOFETHICS Exhibit 99.Code Eth ING FUNDS SARBANES-OXLEY ACT CODE OF ETHICS A. ADOPTION The Boards of Directors/Trustees (collectively, the "Board") of the ING Funds (each a "Fund," and collectively, the "Funds") set forth on EXHIBIT A hereto, as such exhibit may be amended from time to time, have adopted this code of ethics (the "Code") in connection with the requirements of Section 406 of the Sarbanes-Oxley Act of 2002 (the "Act") concerning disclosure of a code of ethics for the principal executive officer, the principal financial officer, the principal accounting officer or controller, and persons performing similar functions (regardless of whether they are employed by a Fund or a third party) of the Funds (the "Covered Officers"). For the purposes of this Code, the chief executive officer and the chief financial officer of the Funds are the Covered Officers for the Funds. B. POLICY AND PURPOSE; CONFLICTS WITH LAW AND POLICY 1. POLICY AND PURPOSE It is the policy of the Funds to conduct their affairs in an honest and ethical manner, and to comply with all applicable laws, rules and regulations. The purpose of this Code is to assist in the accomplishment of the foregoing policy, to deter wrongdoing and to promote: a. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. b. Full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission (the "SEC") and in other public communications made by a Fund. c. Compliance with applicable laws and governmental rules and regulations. d. The prompt internal reporting of violations of this Code to an appropriate person or persons identified in this Code. e. Accountability for adherence to this Code. 2. CONFLICTS WITH LAW AND POLICY If any part of this Code, or if compliance with any part of this Code, violates or is in conflict with any applicable law, the provisions of such applicable law shall control. If any part of this Code, or if compliance with any part of this Code, violates or is in conflict with any policy or practice of the Funds or of any service provider to the Funds, the provisions of this Code shall control. C. COVERED OFFICER DUTIES Each Covered Officer shall adhere to a high standard of business ethics in his or her dealings with and on behalf of a Fund. Specifically, each Covered Officer shall: 1. Conduct himself or herself in an honest and ethical manner when dealing with or on behalf of a Fund. 2. Refrain from engaging in any activity that would compromise his or her professional ethics or otherwise prejudice his or her ability faithfully to carry out his or her duties to the Funds. 3. Refrain from using or appearing to use material non-public information acquired in the course of his or her work for the Funds for unethical or illegal advantage, either directly or indirectly through others. 4. Place the interests of the Funds and their shareholders before his or her personal interests, and handle actual or apparent conflicts of interest between his or her personal interests and the interests of a Fund in an ethical manner. 5. Be familiar with the disclosure requirements generally applicable to the Funds and take all reasonable actions, consistent with his or her position(s) with a Fund and/or a Fund's service provider(s) to ensure full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the SEC or other governmental authorities, and in other public communications made by a Fund. 6. Comply with applicable laws and governmental rules and regulations in his or her dealings with or on behalf of a Fund, and take all reasonable actions, consistent with his or her position(s) with a Fund and/or a Fund's service provider(s), to ensure compliance by the Fund with applicable laws and governmental rules and regulations. 7. Take all reasonable actions, consistent with his or her position(s) with a Fund and/or a Fund's service provider(s), to ensure prompt internal reporting of violations of this Code to an appropriate person or persons identified in this Code. 8. Not knowingly misrepresent, or knowingly cause or permit others to misrepresent, facts about a Fund to a Fund's shareholders, directors, counsel or auditors, to governmental regulators or self-regulatory organizations, or to the public. 9. Consult with other officers and employees of a Fund, and its adviser(s), administrator and principal underwriter, with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Fund files with, or submits to, the SEC and in other public communications made by the Funds. 10. Promote compliance by the Funds with the standards and restrictions imposed by applicable laws, rules and regulations. 11. Not influence investment decisions or financial or other reporting by the Fund whereby the Covered Officer would benefit personally. 12. Not cause a Fund to take an action, or fail to take an action, whereby the Covered Officer would benefit personally. 13. Not retaliate or take any adverse action against, or cause or permit any retaliation or adverse action to be taken against, any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations of this Code or of applicable laws and governmental rules and regulations that are made in good faith. D. DEFINITIONS 1. CONFLICTS OF INTEREST For the purposes of this Code (i) an "actual conflict of interest" is a situation in which a Covered Officer, a member of a Covered Officer's immediate family, or an entity other than a Fund on whose behalf a Covered Officer is acting or from which a Covered Officer may receive compensation or other personal benefit, has an interest in a transaction or the results of a transaction in which a Fund is involved that is different from the interests of the Fund with regard to that same transaction, and (ii) an "apparent conflict of interest" is a situation in which a Covered Officer, a member of a Covered Officer's immediate family, or an entity other than a Fund on whose behalf a Covered Officer is acting or from which a Covered Officer may receive compensation or other personal benefit, appears to have an actual conflict of interest, without regard to whether an actual conflict of interest in fact exists.(3) Notwithstanding the foregoing, an actual conflict of interest shall not include situations that are covered by law or by the Funds' and an investment adviser's code of ethics required under Rule 17j-1 of the Investment Company Act of 1940.(4) 2. WAIVER AND IMPLICIT WAIVER The term "waiver" means the approval by a Fund of a material departure from a provision of this Code. The term "implicit waiver" means a failure by a Fund to take action within a reasonable period of time regarding a material departure from a provision of this Code that has been made known to an executive officer(5) of the Fund. 3. BENEFIT PERSONALLY; IMMEDIATE FAMILY With regard to a Covered Officer, the term "benefit personally" means the direct or indirect receipt by the Covered Officer, by a member of the Covered Officer's immediate family, or by any entity (other than a Fund's - ---------- (3) Certain actual conflicts of interest are inherent in the relationship between a Fund and a Covered Officer who is employed by the Fund's investment adviser, administrator or principal underwriter. As a result, this Code recognizes that Covered Officers will, in the normal course of their duties (whether acting on behalf of a Fund or on behalf of the adviser, administrator or principal underwriter, or for a combination thereof), be involved in recommending actions that may have different effects on the respective parties or may redound to the benefit of the adviser, the administrator or the principal underwriter at the expense of the Fund. For example, the negotiation of the underlying advisory, administrative and underwriting agreements necessarily places such Covered Officers in an actual conflict of interest position as to a Fund. These inherent conflicts of interest are known to and understood by the Funds and the Board, and the Board has determined that the existence of these conflicts of interest is consistent with the performance by the Covered Officers of their duties as officers of the Fund. Therefore, the fact that a Covered Officer acts primarily or exclusively on behalf of a party other than a Fund with regard to a transaction that is covered by such inherent conflicts of interest shall not IPSO FACTO cause such conduct to be in violation of the requirements of this Code. Absent specific dishonest or unethical conduct in such a transaction, the actions by a Covered Officer in such regard shall be deemed to be honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships. (4) These inherent conflicts of interest are already subject to prohibitions in the Investment Company Act of 1940 (the "Investment Company Act") and the Investment Advisers Act of 1940 (the "Investment Advisers Act"). For example, a Covered Officer may not individually engage in certain transactions (such as the purchase of sale or securities or other property) with a Fund because of his or her status as an "affiliated person" of the Fund. The Funds' and the investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat and replace those programs and procedures, and such actual and apparent conflicts of interest fall outside of the coverage of this Code. All other actual and apparent conflicts of interest, even if such actual and apparent conflicts of interest are not subject to provisions in the Investment Company Act or the Investment Advisers Act, are covered by this Code. (5) The term "executive officer," when used with reference to a registrant, means its president, any vice president of the registrant in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy making function or any other person who performs similar policy making functions for the registrant. investment adviser or any affiliate thereof) of which the Covered Officer or any member of the Covered Officer's immediate family owns 5% or more of the beneficial ownership interest or by which the Covered Officer or any member of the Covered Officer's immediate family is employed, or from which the Covered Officer or any member of the Covered Officer's immediate family receives any compensation or other benefit, of any compensation or other personal benefit. For the purposes of this Code, the term "member of the immediate family" means a Covered Officer's parent, spouse of a parent, child, spouse of a child, spouse, brother, or sister, and includes step and adoptive relationships. E. ACTIVITIES REQUIRING PRIOR APPROVAL A Covered Officer and his or her immediate family shall not engage in any of the following activities without the prior written approval of the Funds' Chief Legal Officer (the "Chief Legal Officer") and the Funds' Chief Executive Officer, except that in the case of the Chief Executive Officer or a member of the Chief Executive Officer's immediate family, such approval shall be from the Chief Legal Officer and the Coordination and Compliance Committee of the Board. To obtain such approval, the Covered Officer shall submit a written statement to the Chief Legal Officer describing in detail the proposed activity and the reasons for it. 1. Service as a director, partner, officer, manager or managing member on the board of any public or private company(6) other than a Fund's investment adviser, administrator, principal underwriter, or an affiliate of any of the foregoing, if such company has current or prospective business dealings with a Fund or if any Fund may invest in securities issued by such company. 2. Receipt of any entertainment(7) or meals from any company with which the Fund has current or prospective business dealings unless such entertainment or meals are business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. For the purposes of this Code, entertainment and meals that are incidental to a business conference, seminar or meeting shall be deemed business-related, reasonable in cost, and appropriate as to time and place. 3. Having any ownership interest in, or any consulting, employment or compensation relationship with, any of a Fund's service providers, other than its investment adviser(s), administrator, principal underwriter, or any affiliated person thereof. 4. Exploit for his or her own personal gain any opportunity which a Fund may exploit. This prohibition shall not apply to securities trading undertaken in conformance with the Funds' and an investment adviser's code of ethics adopted pursuant to Rule 17j-1 of the Investment Company Act. F. PROHIBITED ACTIVITIES A Covered Officer and his or her immediate family shall not engage in any of the following activities: 1. Have a direct or indirect financial interest, such as compensation or equity ownership, in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment with the Fund's investment adviser, administrator, principal underwriter, or any affiliated person thereof. - ---------- (6) For the purposes of this Code, "company" includes any legal or business entity such as a corporation, limited liability company, partnership, limited partnership, trust, association, sole proprietorship, ETC. (7) For the purposes of this Code, "entertainment" means activities or events, such as golfing, theater, sporting events, ETC., at which a representative of the entertaining company is present along with the Covered Officer or his or her immediate family member. If a representative of the entertaining company is not present, such activities or events shall be treated as gifts hereunder. 2. Receive any gifts in excess of $500 in any calendar year from any entity or person that directly or indirectly currently or prospectively does or will do business with or receives compensation or other benefits from a Fund. For the purposes of this restriction, gifts from different persons employed by the same entity shall be aggregated, along with any gifts from the entity itself, in order to determine whether the $500 limit has been exceeded. 3. Accept employment from any company, other than a Fund's investment adviser(s), administrator or principal underwriter (or any affiliate thereof), with which the Fund has current or prospective business dealings within one year after the latest to occur of such Covered Officer's termination of employment at the Fund or at the Fund's investment adviser(s), administrator or principal underwriter (or any affiliate thereof). 4. Borrow money from any Fund, or borrow money from or have any other financial transactions with any company, other than a Fund's investment adviser(s), administrator or principal underwriter (or any affiliate thereof), with which the Fund has current or prospective business dealings, other than routine retail transactions that are effected on the same terms and conditions as are available to the general public. 5. Engage in a transaction directly as a principal with a Fund, except that this prohibition shall not apply to the purchase or redemption of the shares of any Fund on the same terms and conditions as all other shareholders. 6. Any other activity that would cause them to benefit personally at the expense of a Fund. G. REPORTING AND ACCOUNTABILITY 1. REPORTING Each Covered Officer must: a. Upon adoption of this Code (or thereafter, as applicable, upon becoming a Covered Officer), affirm in writing to the Chief Legal Officer and the Board that he or she has received, read and understands this Code. Such affirmation shall be substantially in the form attached hereto as EXHIBIT B. b. Annually thereafter affirm to the Chief Legal Officer and the Board that he or she has complied with the requirements of this Code. Such affirmation shall be substantially in the form attached hereto as EXHIBIT C. c. Report at least annually all employment, ownership, affiliations or other relationships related to conflicts of interest that the Fund's Directors and Officers Questionnaire covers. d. Notify the Chief Legal Officer promptly if he or she knows of any violation of this Code or of any applicable laws and governmental rules and regulations. Failure to do so is itself a violation of this Code. 2. INTERPRETATIONS The Chief Legal Officer has the authority and shall be responsible for applying this Code to specific situations and for making interpretations of this Code in any particular situation. In making interpretations of this Code, the Chief Legal Officer may consult with the Funds' outside counsel. 3. INVESTIGATIONS The Funds will follow these procedures in investigating and enforcing this Code: a. The Chief Legal Officer will take all appropriate action to investigate any potential violations reported to him or her. b. If, after such investigation, the Chief Legal Officer believes that no violation has occurred, the Chief Legal Officer is not required to take any further action. c. If, after such investigation, the Chief Legal Officer believes that a violation has occurred, the Chief Legal Officer shall report such potential violation to the Coordination and Compliance Committee. d. If the Coordination and Compliance Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; and a recommendation to discipline or dismiss the Covered Officer or to require reimbursement or disgorgement by the Covered Officer of any personal benefits received. 4. WAIVERS The Coordination and Compliance Committee and the Chief Legal Officer, as applicable, may grant a waiver to compliance with this Code by a Covered Officer or his or her immediate family if the Coordination and Compliance Committee or the Chief Legal Officer determines that the proposed activity will not have an adverse impact on any Fund or on the ability of a Covered Officer faithfully to perform his or her duties to the Funds. To obtain a waiver, a Covered Officer shall submit a written statement to the Chief Legal Officer describing in detail the proposed activity, and the reasons for it, and the provision(s) of this Code as to which a waiver is requested. Any waivers of the provisions of this Code shall be disclosed to the extent required by law and SEC rules. H. RELATIONSHIP TO OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Funds' adviser(s), administrator, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment advisers' and principal underwriter's codes of ethics under Rule 17j-1 under the Investment Company Act are separate requirements applying to the Covered Officers and others, and are not part of this Code. I. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Board or committee thereof or the Funds' outside counsel. J. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund or any Covered Officer or his or her immediate family, as to any fact, circumstance, or legal conclusion. K. AMENDMENTS Any amendments to this Code must be approved or ratified by a majority vote of the Board, including a majority of the independent directors. Any amendments to this Code shall be disclosed to the extent required by law and SEC rules. Date: ------------------------------------- EXHIBIT A ING INVESTORS TRUST ING EQUITY TRUST ING FUNDS TRUST ING INVESTMENT FUNDS, INC. ING MAYFLOWER TRUST ING MUTUAL FUNDS ING PRIME RATE TRUST ING SENIOR INCOME FUND ING VARIABLE INSURANCE TRUST ING VARIABLE PRODUCTS TRUST ING VP EMERGING MARKETS FUND, INC. ING VP NATURAL RESOURCES TRUST USLICO SERIES FUND EXHIBIT B INITIAL ACKNOWLEDGEMENT Covered Officer Name and Title: ------------------------------------------------ (PLEASE PRINT) I acknowledge that I have received and read a copy of the ING Funds Sarbanes-Oxley Act Code of Ethics (the "Code") and that I understand it. I further acknowledge that I am responsible for understanding and complying with the policies set forth in the Code during my tenure as a Covered Officer, as defined in the Code. I also acknowledge my responsibility to report any violation of the Code to the Chief Legal Officer of the Funds. I further acknowledge that the policies contained in the Code are not intended to create any contractual rights or obligations, express or implied. I also understand that, consistent with applicable law, the Funds have the right to amend, interpret, modify or withdraw any of the provisions of the Code at any time in their sole discretion, with or without notice. - --------------------------------------------------- ------------------ Signature Date EXHIBIT C ANNUAL ACKNOWLEDGEMENT Covered Officer Name and Title: ------------------------------------------------ (PLEASE PRINT) I acknowledge that I have received and read a copy of the ING Funds Sarbanes-Oxley Act Code of Ethics (the "Code") and that I understand it. I further acknowledge that I am responsible for understanding and complying with the policies set forth in the Code during my tenure as a Covered Officer, as defined in the Code. I also acknowledge that I have fully complied with the terms and provisions of the Code during the period of time since the most recent Initial or Annual Acknowledgement provided by me. I further acknowledge that the policies contained in the Code are not intended to create any contractual rights or obligations, express or implied. I also understand that, consistent with applicable law, the Funds have the right to amend, interpret, modify or withdraw any of the provisions of the Code at any time in their sole discretion, with or without notice. - --------------------------------------------------- ------------------ Signature Date EX-99.CERT 3 a2134249zex-99_cert.txt EXHIBIT 99.CERT Exhibit 99.Cert CERTIFICATION I, James M. Hennessy, certify that: 1. I have reviewed this report on Form N-CSR of ING SENIOR INCOME FUND; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ James M. Hennessy Date: May 5, 2004 - -------------------------------------------- ------------------ James M. Hennessy President and Chief Executive Officer CERTIFICATION I, Michael J. Roland, certify that: 1. I have reviewed this report on Form N-CSR of ING SENIOR INCOME FUND; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Michael J. Roland Date: May 5, 2004 - ------------------------------------ ------------------- Michael J. Roland Executive Vice President and Chief Financial Officer EX-99.906CERT 4 a2134249zex-99_906cert.txt EXHIBIT 99.906CERT Exhibit 99.906Cert CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Registrant: ING Senior Income Fund Date of Form N-CSR: May 7, 2004 The undersigned, the principal executive officer of the above named registrant (the "Fund"), hereby certifies that, with respect to the Form N-CSR referred to above, to the best of his knowledge and belief, after reasonable inquiry: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Fund. A signed original of this written statement required by Section 906 has been provided to ING SENIOR INCOME FUND and will be retained by ING SENIOR INCOME FUND and furnished to the Securities and Exchange Commission or its staff upon request. IN WITNESS WHEREOF, the undersigned has executed this Certification below, as of this 5th day of May, 2004. /s/ James M. Hennessy --------------------------------- James M. Hennessy CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Name of Registrant: ING Senior Income Fund Date of Form N-CSR: May 7, 2004 The undersigned, the principal financial officer of the above named registrant (the "Fund"), hereby certifies that, with respect to the Form N-CSR referred to above, to the best of his knowledge and belief, after reasonable inquiry: 1. such Form N-CSR fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. the information contained in such Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Fund. A signed original of this written statement required by Section 906 has been provided to ING SENIOR INCOME FUND and will be retained by ING SENIOR INCOME FUND and furnished to the Securities and Exchange Commission or its staff upon request. IN WITNESS WHEREOF, the undersigned has executed this Certification below, as of this 5th day of May, 2004. /s/ Michael J. Roland ----------------------------------- Michael J. Roland -----END PRIVACY-ENHANCED MESSAGE-----